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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.
Operator: Hello, and thank you for standing by. Welcome to BrightSpring Health Services, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to David Deuchler. Please go ahead. David Deuchler: Good morning. Thank you for participating in today's conference call. My name is David Deuchler with Investor Relations at BrightSpring. I'm joined on today's call by Jon Rousseau, Chief Executive Officer; and Jen Phipps, Chief Financial Officer. Earlier today, BrightSpring released financial results for the quarter ended March 31, 2026. A copy of the press release and presentation is available on the company's Investor Relations website. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Such forward-looking statements are not guarantees of future performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release and presentation as well as our quarterly report on Form 10-Q that will be filed with the SEC, including specific risk factors and uncertainties discussed in our Form 10-K and Form 10-Q. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any duty to update any forward-looking statements, except as required by law. During the call, we will use non-GAAP financial measures when talking about the company's financial performance and financial condition. You can find additional information on these non-GAAP measures and reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures to the extent available without unreasonable effort in today's earnings press release and presentation, which again are available on our Investor Relations website. This webcast is being recorded and will be available for replay on our Investor Relations website. With that, I will now turn the call over to Jon Rousseau, Chief Executive Officer. Jon Rousseau: Good morning, everyone, and thank you for joining BrightSpring's First Quarter 2026 Earnings Call. I'd like to start by thanking everyone at BrightSpring who drives our mission forward and makes a lasting impact every day. We're grateful for their hard work and commitment, enabling us to deliver high-quality and timely care to patients. Before we speak to first quarter performance, a few key messages and takeaways from our Investor Day in March and why we are optimistic about the company's prospects in the years ahead. BrightSpring is a national leader in home and community health services, serving complex patients in the health care system. We deliver high-quality services at significant scale with a disciplined operating model that focuses on patient and provider outcomes. Throughout our service lines, that focus on quality care underpins commercial efforts supporting sustainable growth. Our organizational culture of continuous improvement and best practice sharing will continue to enable operations that expand the impact we're making in providing comparatively lower cost services for complex patients across the country. In Pharmacy Solutions, the growth outlook is healthy with the specialty and infusion businesses continuing to deliver impressive script growth and patient satisfaction scores. We continue to see strong volume performance from both brand LDDs and generics, and we added 4 exclusive ultra-narrow LDDs to our portfolio in the first quarter, bringing our total number of LDDs to 153. Infusion represents one of our larger geographic expansion opportunities looking forward, covering today about 1/3 of the country on the acute side and half the country in chronic specialty. Home and Community Pharmacy is looking to drive organic profitable growth in assisted living, behavioral, hospice, PACE, skilled nursing and other markets, supported by investments in automation across our national pharmacy footprint. On the provider side, in our home health care businesses, we continue to expect organic growth to be underpinned by market share gains from high-quality services and scaled market development and clinical support teams that we continue to invest in. In 2026, we are integrating the acquired Amedisys and LHC branches and expect approximately $30 million of EBITDA contribution in year 1. We are continuously looking to innovate services and associated operational processes to drive outcomes and growth with numerous payer agreements and partnerships that reflect this. In palliative and hospice, the strength of our quality results and our patient-centric approach positions us well in a market that remains significantly underutilized with only half of eligible patients receiving such valuable care today. Rehab continues to deliver consistent growth in home and community settings with excellent clinical outcomes as we continue to expand in the senior setting through rehab in motion and assisted living facilities. Home-based primary care and value-based care initiatives, while still in earlier stages, produce meaningful reductions in hospitalization, help coordinate other needed services and represent significant potential for future growth as we scale. BrightSpring is firmly positioned on the right side of the most important trends in health care to address system and patient needs. With a differentiated enterprise and a unique set of assets that deliver real solutions to patients, providers and payers alike. With that context, let me turn to the first quarter. As a reminder, the company's financial results and 2026 guidance pertain to continuing operations and do not include results from the divested Community Living business nor the impact of any future closed acquisitions. We completed the sale of Community Living to Sevita on March 30, 2026, which resulted in net cash proceeds before tax of approximately $811 million. The proceeds from this transaction will be used to further strengthen the balance sheet, including both debt paydown and cash availability. Overall, we are pleased with our first quarter financial results with total company revenue of $3.6 billion that grew 26% year-over-year. Pharmacy Solutions revenue of $3.2 billion and Provider Services revenue of $442 million represented 25% and 28% growth, respectively. First quarter 2026 adjusted EBITDA of $190 million grew 45% year-over-year with an adjusted EBITDA margin of 5.3%, a 70 basis point improvement year-over-year. Margin expansion was primarily driven by mix and operational efficiencies across the organization. On cash flow, the company realized $123 million of cash flow from operations in the quarter, excluding fees from the Community Living divestiture. Leverage was 2.27x as of March 31, 2026, which declined from 2.99x as of December 31, 2025. Pro forma leverage on March 31 was 2.40x when factoring in cash taxes associated with the Community Living proceeds that will be paid in Q2. Performance in the quarter was driven by a high quality of care and patient satisfaction. In Home Health, over 91% of our branches are 4 stars or greater. We have an industry-leading timely initiation of care of greater than 99%. And in Q1, 65 Home Health locations were named a Best Home Health provider by U.S. News & World Report. In hospice, quality measures remain well above national average with significantly more visits provided, a top 5% ranked hospice program in the U.S. and a CAPS overall hospice rating of 87%. In rehab, patient satisfaction scores are at 98% with outpatient and 97% with Home and Community Rehab. In personal care, we have a client satisfaction score of 4.6 out of 5, consistent with the fourth quarter. On the pharmacy side, in Home and Community, dispensing accuracy was 99.99%. Order completeness was 99% and on-time delivery was 96%. And in infusion, our patient satisfaction score was 94%, 97% of discharges were due to completion of therapy. And importantly, we saw recent improvements in both acute and specialty turnaround times near internal goals aimed at best-in-class. And Specialty Pharmacy demonstrated a consistently high medication possession ratio of 92.1% in the quarter, along with time to first fill of 4.6 days, both much better than national average. I'd like to close by emphasizing that BrightSpring's continued focus on serving large and growing markets, providing high-quality care for patients, building and leveraging scale and institutionalizing a disciplined operating model are what collectively differentiate the company. We serve expanding populations of high-acuity individuals with solutions delivered in the home or community settings that consistently improve clinical outcomes while reducing total cost of care. We are deliberate in our corporate strategy, and we use our platform scale to generate operational efficiencies while deploying best practices across our pharmacy and provider service lines, equipping them with the resources and capabilities they need to execute and grow. We believe this approach and model is what creates durable value and the most positive impact for all of our stakeholders. BrightSpring's first quarter saw broad-based momentum across both the pharmacy and provider segments that reflected execution on our operating and growth priorities, which we laid out at our Investor Day in March. We feel good about the performance of the business through the first 3 months and are on track to deliver the updated full year guidance provided today. With that, I'll turn the call over to Jen. Jennifer Phipps: Thank you, Jon. Before I discuss our financial results for the first quarter of 2026, I'd like to remind you that in the first quarter of 2025, we began to record the Community Living business in discontinued operations, as indicated in the press release and 10-Q to adhere to accounting standards required on an interim basis. As such, all BrightSpring financial results and forecasts that I will discuss are related to continuing operations and exclude Community Living and any acquisitions that have not yet closed. Management believes the presentation of the non-GAAP financials from continuing operations is a useful reflection of our current business performance. In the first quarter of 2026, the total company revenue was $3.6 billion, representing 26% growth from the prior year period. Pharmacy Solutions segment revenue in the quarter was $3.2 billion, achieving 25% year-over-year growth. Within the Pharmacy Segment, Specialty and Infusion revenue was $2.6 billion, representing growth of 36% from prior year, which was driven by strength in specialty and market adoption of existing LDDs, new LDD wins, brand to generic conversions and generic utilization. Growth in fee-for-service programs, including hubs and service agreements and strong commercial execution. Infusion showed solid volume growth and operational metrics driven by process improvements. Home and Community Pharmacy revenue was $527 million, representing a decline of 9% year-over-year due to an approximately $50 million impact from the IRA, which was expected, along with our decision to exit any uneconomic customers, both of which we have previously discussed and came in line with our expectations. We expect to see a revenue impact from the IRA of approximately $45 million for each of the remaining quarters of 2026, totaling a Home and Community Pharmacy revenue impact of approximately $175 million for the full year of 2026. In the Provider Services segment, we reported revenue of $442 million in the first quarter, which represented 28% growth compared to the prior year. Within the Provider Services segment, Home Healthcare reported $266 million in revenue, growing 49% versus last year with strong census growth, de novo expansion, preferred MA contracts and ongoing successful integration of our acquired branches. The acquired assets contributed $79 million of revenue and approximately $9 million in adjusted EBITDA in the first quarter. We are encouraged with how well the integration process is going and are optimistic about the performance for the year. Rehab revenue was $75 million, growing 7% versus last year, with momentum in person served and hours billed in Core Neuro Rehab, de novo additions and continued expansion in our Rehab in Motion program. Personal Care revenue was $102 million, representing growth of 4% year-over-year, driven by modest growth in persons served and stable operations. Moving down the P&L. First quarter company gross profit was $482 million, representing growth of 43% compared with the first quarter of last year. Adjusted EBITDA for the total company was $190 million in the first quarter, an increase of 45% compared to the first quarter of 2025. Adjusted EPS for the total company was $0.39 in the first quarter. The company's profitability growth and margins in the first quarter benefited from the performance dynamics Jon discussed and the impact of investment initiatives to drive operational improvement across the organization. Throughout 2026, we expect targeted commercial strategies and our operational and procurement initiatives to support both investment and growth from best practices deployment in operations, streamlining and ongoing efficiencies realized. Turning to Segment Performance in the first quarter. Pharmacy Solutions gross profit was $301 million, growing 48% compared with the first quarter of last year. Adjusted EBITDA for Pharmacy Solutions was $169 million for the first quarter, an increase of 46% compared to last year, representing an adjusted EBITDA margin of 5.3%, which was up approximately 70 basis points versus last year. Strong performance across the therapy portfolio, favorable mix and fee-for-service contributed to profitability performance. Provider Services gross profit was $181 million, growing 35% versus the first quarter of last year. Adjusted EBITDA for Provider Services was $66 million for the first quarter, growing 29% versus last year, representing an adjusted EBITDA margin of 14.9%, up approximately 10 basis points versus last year. On a total company basis, cash flow from operations was $123 million in the first quarter. Recall that the discontinued operations cash flow are included in total company reports. As we look forward to the balance of the year, excluding Community Living related cash flow impact, we expect to deliver approximately $500 million of annual operating cash flow. Our adjusted EBITDA growth, combined with our cash flow generation during the quarter led to a leverage ratio of 2.27x as of March 31, 2026. This cash flow and leverage profile provides the company with some additional flexibility in capital allocation and capital structure as we move throughout the year. As of March 31, net debt outstanding was approximately $1.7 billion. As Jon mentioned, we received approximately $811 million of net cash proceeds before tax from the $835 million gross cash consideration for Community Living. Approximately $100 million in taxes is expected to be paid out in the second quarter of 2026. We will remain active in evaluating options for the existing term loan and the appropriate capital structure for the company over the coming months in light of continued strong operating performance. We expect quarterly interest expense to be approximately $35 million. Turning to guidance for 2026, which excludes the Community Living business as well as any acquisitions that have not yet closed. Total revenue is expected to be in the range of $14.725 billion to $15.225 billion, including Pharmacy Solutions revenue of $12.85 billion to $13.3 billion and provider services revenue of $1.875 billion to $1.925 billion. This revenue range reflects 14.1% to 17.9% growth over full year 2025, excluding Community Living in both years. Total adjusted EBITDA is now expected to be in the range of $795 million to $825 million for full year 2026. This would reflect 28.7% to 33.6% growth over full year 2025, excluding Community Living in both years. Included in total adjusted EBITDA is expected contribution from the Amedisys and LHC assets acquisition of approximately $30 million. I will now turn it back to Jon. Jon Rousseau: Thanks, Jen, and thank you for your time today to go through BrightSpring's first quarter 2026 results. We'll now open up the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Ann Hynes with Mizuho. Ann Hynes: I just want to talk about some of the growth initiatives hitting the P&L this year, especially with Infusion. I know that's been a big focus for the company, expanding the chronic portfolio. Can you just let us know how that's going, what the growth rate is, maybe what drug classes you're focused on? Jon Rousseau: Yes. I think pretty characteristically, we saw broad-based growth across the organization on both the provider and the pharmacy side, Provider obviously had a bit of a tailwind there from closing of the Home Health branches. But notwithstanding that, we saw really good growth. One of the reasons we had a little outperformance on the Home Health branches that were acquired was the step-up in admissions we were able to drive with them being under our roof for 3 to 4 months. So it was a nice quarter across the company in terms of volume growth. On the pharmacy side, the ramp-up of existing LDDs, the launching of new LDDs and focused growth around driving generic utilization led to good growth within our Onco360 and CareMed business. I'd point out within that business, quite a few of our LDDs under CareMed now are outside of oncology, and that's been intentional. And so not only did we see script growth rates over 30%, but we saw a continued growth rate in the number of new account -- new prescriber accounts that we're into as we not only continue to invest in more reps, particularly on the West Coast, but then also get into some therapeutic states in addition beyond oncology as we've continued to focus not only on oncology, but any other therapeutic area of interest. Specifically within infusion then, we did see double-digit growth on both the acute side and the chronic specialty side. So I think as we've mentioned before, we've been underweight on chronic specialty. So we think that's an opportunity. We did go live in early Q2 with a concierge program around IVIG and our thoughts are to build out and we are building out concierge programs around targeted therapy. So it was a productive quarter with solid double-digit growth across both of those areas within Infusion. Ann Hynes: Great. And just for a follow-up, obviously, your leverage is at a nice point after the repayment of debt. If you -- I guess, one, would you be interested in larger M&A? And if you would be, what would be a leverage you would be comfortable going back up to for the right asset? Jon Rousseau: Yes. It's -- I know, Jen in particular, very pleased with the balance sheet, but we all are. And I think we've sort of said under 3x, mid-2s is our longer-term target where we'd always like to be. I think you'll continue to see us act the way we have historically with a disciplined approach. I think if you look at least at the last 7 years, there's been 2 transactions that have really worked out well for us that have been a little bit more sizable, the original Home Health and hospice acquisition of Abode, which gave us critical mass there and then this most recent one here with the LHC and Amedisys assets. But I think we do have a little bit more flexibility, obviously, but we will continue to try to make sure we look at anything that makes the most sense in the long term across the organization. I think our bread and butter will continue to be geographical expansion with tuck-ins in our current businesses that allow us maybe to get into some new markets more quickly and where it makes sense or where you need licensure or a CON, et cetera. I think deals in that sort of midrange of 5 to 10 are probably easier to do. But as we look at our pipeline right now, nothing too different than historically. And whatever we do, we'll continue to be very measured. And yes, we would like to stay within that target leverage range with anything that could come up. But I would say, at least for now, certainly a historically very consistent view and strategy as we look out at least probably through the next couple of quarters. Operator: Our next question comes from the line of David Larsen with BTIG. David Larsen: Congratulations on another excellent beat-and-raise quarter. Can you maybe talk a little bit about the overall Medicare environment and how this is impacting your business? Like some of the health plans, obviously, are talking about high trend pressure on margins. And I think you had talked a bit about the potential for getting into some value-based care arrangements in Medicare that could be a benefit to you. Just sort of general thoughts on the overall Medicare landscape and how this is affecting you would be very helpful. Jon Rousseau: Yes, sure. David, we've just seen consistency on the Medicare side this year. No major changes. On the pharmacy side, from a Part D perspective, we've continued to, I think, be a partner in driving cost down there in terms of generic utilization over time. On Infusion, we continue to press in D.C. with the industry and the associations around some of the fixes for the Cures Act to provide much greater access for Medicare patients beneficiaries being able to receive very valuable home infusion in their own home instead of the hospital that has a massive potential benefit for the program, and we continue to be optimistic that at some point, that change and that update can be addressed and can be implemented. On the provider side, on Home Health and Hospice, we've been pleased with where those rates have shaken out over the last 6 months. So nothing too different that we've seen organizationally in the last even 6 months. I would say as it relates to value-based care, we continue to make some progress there. We're going to be applying to this new lead ACO program. That's in the works. Applications are due in May, and we'll see how that goes. Hopefully, we make it. But that business, we continue to invest in with some really good people even here recently that we've added to the business. And I would say, operationally, being able to serve these patients across skilled nursing assisted living and in the home with a house calls model is not the easiest thing to do in the world. And we've been focused on doing that extremely well with really good quality outcomes. And I think we've really achieved that over the last couple of years, and our focus now is on really trying to scale it. And so we're looking to next-gen ACO programs in addition to the one we're in. We had a successful year there last year. And we've never been as positive about the ability to reduce cost in very desirable care settings as we are today. So that will continue to be a passion for us internally in terms of how we can take care of more folks in their own home in a value-based care model with the most proximal and intimate services possible. We're leaning in and building out that hub as much as we can to provide oversight in between time and trying to apply AI to all of our data and analytics to be as proactive as we can and as smart as we can with our care approaches. So nothing too different as we sit here today on the Medicare front at large in terms of traditional payment programs. But I think there are real opportunities for the program in terms of what we can provide for it in terms of cost reduction in the future across quite a few of our businesses, and we will continue to be passionate about leaning into that. David Larsen: Great. And then just one quick follow-up. Jen, I thought that we had been talking about $600 million of revenue headwind in 2026 coming from a combination of IRA community, IRA, specialty infusion and then also brand to generic conversions. Is that correct? And you obviously beat my revenue estimate by a lot in the quarter. So you're certainly overcoming that really well. Just sort of an update there would be helpful on how that's tracking relative to expectations. Jennifer Phipps: Yes, that's correct. Thank you so much for the question. We did obviously talk about the IRA impact in Home and Community because it was really obvious from a revenue standpoint. But that is consistent, and we're tracking towards our expected numbers in all of those areas. So just as a reminder, that is about $175 million in -- which we talked about a little bit earlier in the call in Home and Community related to IRA for the full year, full year IRA of about $181 million in Specialty and Infusion and branded generic conversions of about $250 million. Operator: Our next question comes from the line of Charles Rhyee with TD Cowen. Charles Rhyee: Congrats on the results. Maybe, Jen, just to quickly follow-up there. Besides the revenue headwind, are we still looking at $15 million of mitigated sort of headwind on the EBITDA line that hasn't changed? Jennifer Phipps: That is correct. Charles Rhyee: Okay. Perfect. And then I don't think you gave sort of what the specialty script growth in the quarter was. And I was just curious what that number was and what maybe Health Care -- Home and Community rev growth ex Genesis was as well? Jennifer Phipps: Yes. So our Specialty and Infusion scripts growth in the quarter year-over-year was approximately 30% year-over-year growth. Specialty was a little bit higher with Infusion in the mid-teens. So higher -- Specialty was higher than that total Infusion in the mid-teens in terms of their script growth. So really strong growth across both of those business lines. Home and Community ex the uneconomic customers did see modest script growth in the mid-single digits. Charles Rhyee: Got it. That's helpful. And then maybe just one last question. We're seeing a lot of commentary from PBMs and they're really trying to push sort of their own label biosimilars and so there's kind of discussion of how much more competitive they're getting or at least trying to steer patients into their own sort of captive pharmacies. I would like to understand sort of how much exposure you have to some of those dynamics and if that's something that you're seeing? And if so, what can you -- what do you do to help kind of get around that? Jon Rousseau: Yes. I think, Charles, just given our history and product portfolio today, I don't think we have a lot of exposure there. You tend to see more of that on injectables. And if you look at our Infusion business, still today, the majority is acute, but we look to be growing on the chronic side, and we are, but more from an infusable standpoint versus a subcu or an injectable standpoint. So we just -- we don't have a lot of concentration internally that would have biosimilar risk. And on the Onco360 and CareMed side, the predominant form factor is oral solid. So I think we feel good about that. Last little thing on LTC. We are proud of the performance in the quarter on Home Community Pharmacy. We've really put just a top-notch team in there over the past year. They're doing a great job, particularly from an operational perspective and then with our focus on some of these attractive end markets. And excluding IRA, that business was up in profitability in the quarter year-over-year. And our hope and goal is in Q2, even with IRA, we're going to have a really strong up quarter versus last year. So some nice momentum there, too. I just wanted to add that. Operator: Our next question comes from the line of Joanna Gajuk with Bank of America. Joanna Gajuk: So maybe on the Infusion, if I may. So thanks for the color in terms of you guys growing double digits in both segments. And as it relates to that business, can you give us an update? And is it -- the growth, I guess, is coming from these 20 or so LDDs. So last time we spoke you said you had these LDDs, but you were not really participating. So it sounds like you're executing on this already or that's still kind of in front of you? Jon Rousseau: Yes. I think what we said last time is we had won 3 LDDs and we had access to 20-plus more historically. At this point, we've won 5 LDDs in the last 6 months. So we've won a couple more. None of those are of the exclusive or ultra-narrow 1 or 2 categories is in Onco360 and CareMed. So that's our goal. But nonetheless, nice wins. And I would say, as we kind of put specialty programs in place, you have to win access to the drug and then obviously, you have to execute on a number of operational initiatives and programs to pull those drugs through in the market. We do such a good job of that on the Onco360 and the CareMed side with all of our wraparound programs, data services agreements, especially hubs that we provide for patients as well. So we're building that out on the Infusion side. We launched IG Connect in the quarter, which is a concierge program now for all IG referrals. And we'll look to do that for each one of these LDDs in the future and really have a focus on it to be able to customize that experience for both the manufacturer and the patient. So we are seeing some growth there. But Joanna, I think we're probably in the early stages of a several year growth focus in LDDs and infusion. Like we've had over at Onco and CareMed for the past decade. But nice continued progress with manufacturers on the Infusion side, and we will continue to focus on the pull-through in the programs in the future. Joanna Gajuk: And if I might, a follow-up. My question was actually about the gross profit per script, which was impressive. It was up 50% in this quarter year-over-year and sequentially, obviously. So how much is from this new LDD launches, new product launches versus the generic conversions? And I'm asking just thinking going forward, how much more room, I guess, is there left on that metric? Jon Rousseau: Yes. I don't know that we would expect to see too much more continued gains in GP per script. I mean, I think just stability there would be very good. But overall, there were 4 principal drivers for the tick up there. Number one was the disproportionate growth on the specialty Infusion side in that business with its gross profit per script. Second was we did have really healthy growth in both brands and generics, but the brand to generic mix shift there. In the quarter relative from a volume perspective was additive to GP per script. Third is from a purchasing perspective, we're -- we leverage our scale as much as we can, and we're committed to all of our partners in the supply chain and have, I think, very constructive and long-standing relationships there that are really healthy on the supply side. and what we did from a purchasing standpoint has been helpful in the quarter again. And then really last, but maybe even not least, fee-for-service. That's a high gross profit margin business that we have with our hubs and our service agreements. And every time you launch a brand, you typically get some good fee-for-service commercial business out of that, too. And so those were the 4 factors that were all contributing to the gross profit per script change. Operator: Our next question comes from the line of Jared Haase with William Blair & Company. Jared Haase: Maybe I'll pack 2 here into one, just as it relates to the margin in the quarter. One thing I wanted to clarify was just a mix comment in regards to margin expansion that you showed in the first quarter. I think all else being equal, we typically assume sort of rapid growth in specialty, particularly on the branded side, could be a bit dilutive to the overall margin profile. So I just wanted to make sure I kind of understood what was going on there and if the mix dynamic had more to do with generics. And then I guess rolling that forward, how should we think about sort of the cadence of margins for the rest of the year? I think we typically would model margins building sequentially, but your guidance sort of implies full year margins that are consistent with what you showed in the first quarter. So just wanted to kind of make sure we're understanding the expectation there as well. Jon Rousseau: Jen, maybe you can take the outlook for the year, but I think we would expect some consistency for sure. On the GP side, you've got the percent margin versus the dollar margin. And I think it was the mix shift that we saw that helped probably proportionately on the dollar margin side versus the percent margin if you're tracking with me there. Jen? Jennifer Phipps: Yes. No. So for the rest of the year, I do think we have the potential for slight build. Those things are going to be -- based on our guidance range, we have a range of 5.2% to 5.6% margins that we would expect for the year. And the things that we are working on is continued leverage of scale. We have a number of operational initiatives that we are building in place. And then from a mix standpoint, as we think about the mix within each portfolio, so as Jon mentioned, we're working to drive, for example, chronic therapies within Infusion. And so as we execute on those, I think we have the potential for slight margin expansion, but largely consistent with what we saw in Q1. Operator: Our next question comes from the line of A.J. Rice. Albert Rice: Just maybe picking up on the comment that Jen just made. I know operational efficiencies have been an ongoing part of your strategy and you're attributing part of the 70 basis points of margin improvement you saw year-to-year to operational efficiencies. Can you just maybe update us on some of the specific areas of focus and any AI-related applications you're looking at there? Jon Rousseau: Yes, look, I mean, I think as we've said before, we did a nice job offsetting some of this IRA impact in Q1 in Home and Community pharmacy. Some really nice efforts there from procurement over the past year, but then also in operations with some automation tools and order intake and revenue cycle, in particular, currently working on something in Infusion around order intake as well. Just to give everybody a tangible example because it can be a little ethereal sometimes. But you get a 5-inch thick patient packet and intake and Infusion, it takes somebody 2 hours to enter the relevant information in the system, working on an agent that can do that in 2 seconds. That would be an example of streamlining workflow of which we have 9 or 10 different projects going on internally in the organization. As you look at the Home Health and Hospice side, we've invested a lot in portals. There can literally be 85 different portals that hospitals will send their -- put their patients into upon discharge and you've got to connect to all of them. And so we've done a ton of work there over the last 2 years, connecting into all the portals. You still have to go earn the referral with your clinical liaison, but you've got to be in the game by accepting the referral in the portal. We've done a ton of work there. I think we have evidence of improvement and success in our admissions from doing that. And then I think a last example would be in order intake in Home Health. We've done a really nice job centralizing that. As some of these assets come over from Amedisys and Optum, they were not centralized, and we're seeing some real benefit there already out of the gate. And so continue to invest in that team. I mean, Jen, we're up to over 20 people in our internal AI team now. And it seems like the more we get into it, the more opportunities you find. But that's going to continue to be a real focus for us. There are -- there's another -- I hesitate to say, but we've got a pretty strong bogey for cost to fill reduction in Home Community Pharmacy in Q2 and then more in Q3 and Q4 that we have to hit, and a lot of them are tied to these OpEx initiatives, which are underpinned by some technology systems and automation. So working hard at it, but we are seeing things proceed along the intended path as of now. Albert Rice: Okay. That's great. And maybe just conceptually also ask you about biosimilars. Obviously, you benefited from tremendous new pacing of new LDD launches and so forth. But I'm also curious about the pace of biosimilars, how the biosimilars coming to market has emerged. Do you see that as still the opportunity you thought it was a couple of years ago? Or are there aspects about it that either make you more optimistic or a little more cautious about what that pipeline looks like and what it might mean for you? Jon Rousseau: Yes. I think as we sit here today, we do not see much biosimilar risk just based on our current portfolio and the revenue and GP that we have from it. So I think conceptually, over time, there's an opportunity for us to participate in that more from a baseline of it's all upside. And I think that's how we're thinking about it. So -- but I think a lot of that is to be determined. If you think about our portfolio today, we have our oncology products. We have our other rare and orphan and LDDs that are oral injectable. We have our infusible products that we're leaning into from an LDD standpoint. Those are kind of our 3 swim lanes of our primary products today from a specialty standpoint, we are looking just more broadly at the specialty world, any other LDDs or any other just attractive products and thinking if it makes sense to us to participate in any other areas. So I think we will continue to try to refine our strategic assessment of your exact question this year. But I do think that there could be opportunities there, and we don't have any near and present risk in that area today. So hopefully, as we lean into this more, it could be a fourth or fifth swim lane in time. Operator: Our next question comes from the line of Sean Dodge with BMO Capital Markets. Sean Dodge: Maybe just going back to the operational initiatives again. Jon, you gave some specific examples of what you're working on there. But if we think about -- I know those were a driver of some of the margin improvement we saw last year. You're continuing to work on those this year. How should we think about the expected contribution from those in '26, maybe relative to what you saw in '25? The savings or benefits from those you expect to be greater this year than last? And then of all of the margin levers you talked about, where do these efficiency initiatives rank in terms of kind of the amount of EBITDA they're driving? Is this kind of pretty close to the generics? Or is this kind of a distant second? Jon Rousseau: Yes, Jen, maybe you can sort of tack on to this question. But what we have internally, I would say, is a program that's been consistent over time. I think we mentioned at Investor Day, we've even more formalized, call it, continuous improvement, if you will, into a real Lean Sigma training program throughout the organization, White, Green, Black Belt, you can get, and we've really formalized that. So I think it is very much in our culture, just constantly looking for the next thing. I think our data says that we've got over 700 projects that we've completed in the process improvement arena in the last 5-plus years that has generated 9 figures of savings, of which a ton of it we've reinvested back into our people and into IT and technology systems. So over the past several years, we've just had, I would say, meaningful savings that have been either investment and/or EBITDA contributors each year into the organization. I mean, look, first and foremost, we are always going to try to drive growth through a focus on the top line. I mean the 3 things that have driven the company over the past 9 years now that we talk about a lot are volume growth, operational efficiency and accretive M&A. And we will continue to try to drive each one of those in the future. So volume growth, whether it's on the pharmacy side with LDD wins, trying to maximize generic conversions or whether it's on the provider side with patient volume growth will always be first and foremost. And I would say, the biggest contributor, but we certainly try to complement that. Jen, anything else? Jennifer Phipps: No, I would agree. I think the volume underpinned by our high-quality services has always been our very highest focus. And then as Jon mentioned, the strength of our portfolio of our company really is at the core of our DNA is leveraging our scale through smart procurement activities continuing to build. We think there's a continuous opportunity for that in terms of focus on execution in those areas. As Jon mentioned, we have a lot of people. We've been training just out in the field, hundreds of people that have gone through our White Belt and Green Belt trainings, but also making sure that as we scale that we're going back and leveraging that in our procurement initiatives. And I think that will continue to be an important contributor as well as the volume. Sean Dodge: Okay. Great. And then you mentioned before one of the other kind of growth areas within pharmacy being the fee-for-service business. Just anything you can share around kind of the scale of that business now? How much is that contributing? And what do you kind of see the longer run opportunity being with fee-for-service specifically? Jon Rousseau: Yes. I mean it's -- I think we've got 31 hub programs today, probably more service agreements than that. It's growing in the 40% to 50% range year-over-year. It's certainly not the majority of our GP contribution within our specialty business, but it's no longer $5 million or $10 million either. So it's -- I hesitate to get into too many details. But it's a meaningful part of the business that's really important to us. And I think philosophically is an example of how we try to deepen our relationships as much as we can with manufacturers wherever we can be helpful. Sean Dodge: Congratulations. Operator: Our next question comes from the line of Whit Mayo with Leerink Partners. Benjamin Mayo: Jon, I was just wondering if you have market share data with your specialty business. Just wondering if you know what your oncology share is today versus maybe 1 to 2, 3 years ago. Jon Rousseau: Yes. It's tricky, Whit. I mean it's a great question. And we do have some of this, obviously, drug by drug. As we talk about a lot, a proxy would be generally half of the revenue of specialty drugs goes through the SP channel. And then what is your share from there. We do feel that our share continues to increase. Almost by definition, if you're an exclusive with a manufacturer or in an ultra-narrow network, say, of 2 pharmacies, by definition, you're going to get 100 or 50%, 60%, 70% market share of that specific drug. So as more drugs have gone exclusive in ultra-narrow, just given the service that we've been able to provide, that will pick up your market share. You do have to go drug by drug ultimately. But if the trend is towards more LDDs in particular, EDs and ultra-narrows, we would be seeing a greater share there over time. And then on the generic side, we do try to get in front of it. We try to be in the offices well in front of a generic launch, communicating and educating and building out that brand volume. So I think we'd like to believe our performance on the conversion side is really strong. And -- but we can do a little bit more work on those market shares. You don't have perfect visibility on it, obviously, but we do feel like it is continuing to ebb up. Benjamin Mayo: That's helpful. And corporate cost was up maybe a little bit more than you thought. I mean I know you guys are making a lot of investments this year. You've been quite vocal about that. Jen, what do you have in your plan for the full year for corporate? Jennifer Phipps: Yes. Great question, Whit. So if you look at versus Q4, our corporate costs are not up quite as much as they would appear to be year-over-year as we have been making additional investments in different activities throughout 2025 as well. I would say I do expect a small tick up through the remainder of the year as we think about some additional projects that we have in the pipeline from an IT perspective and other things. But I would say not a significant tick up at this time is our best view. Operator: [Operator Instructions] Our next question comes from the line of Matthew Gillmor with KeyBanc. Matthew Gillmor: Maybe picking up on some of the generic conversion comments. You had mentioned that utilization was strong. I wanted to see if you could provide a broader comment on the landscape for generic conversions and how you're performing relative to that opportunity. Jon Rousseau: Yes. I would just say just very consistent there in terms of the last really 5 years. We've got a broad portfolio across drugs and brands and generics across the organization. And so -- so it's really fluid in terms of what's coming in and what's coming out with new brand launches and conversions. The market is real dynamic. But from a generic standpoint, the playbook remains the same. We've continued to invest in the Salesforce, and we've continued to try to invest in our manufacturing partners as well, not only branded but generic to be able to have access to the supply where needed as well. So I would just say it's a strategy that we continue to try to refine over time. It's multifaceted in terms of being able to execute against it. And as we look out to the next 2 years in particular and then another 5 years, there's still a healthy stream of drugs that will be coming up on their patent expiration date and converting generics. But we're always looking to grow our product portfolio in the most broad and holistic way possible across all therapy types. Operator: Our next question comes from the line of Brian Tanquilut with Jefferies. Brian Tanquilut: Congrats Jon, maybe just a question on the business, right, as it relates to the defensiveness of it? Or how do you think it could be resilient, I guess, any PBM moves in light of the challenges that the PBM industry is facing and also some of the stuff we found out yesterday from your peer where the PBMs and the payers are trying to move drugs away from non-PBM or specialty pharmacy. So just curious how you're thinking about the strategy around defending the moat of your business? Jon Rousseau: Yes. I mean we do as best we can to try to partner with everybody. I mean we have really long-standing relationships. And I think healthy partnerships with everybody across the value chain. I mean I think it starts with our quality. We really invest in quality like crazy. I think, hopefully, our scale is extremely helpful, too. And look, on the Medicare side, there's rules and any willing provider, for example, but we're big believers that in patient choice and member choice, and they should be able to receive the provider that they want. So we try to be a high-quality provider, and we try to provide the best service possible to everybody's members out there. And I think we try to be really thoughtful about where we participate in terms of what therapeutic area specifically. Operator: Our next question comes from the line of Larry Solow with CJS Securities. Lawrence Solow: Congrats also on the good quarter. Just quickly on the Pharmacy Solutions, I think grew about 25% in the quarter. The kind of midpoint of guidance sort of mid-teens. Is the difference going forward? Is that an increase in IRA and more branded conversions? Or is it a little sense of conservatism? Or what kind of drives a little bit of a slowdown there? Jon Rousseau: Jen, do you want to hit that? Jennifer Phipps: Yes. So I would say it really is related more to the year-over-year growth and the quarterly sequential growth we saw in 2025. So really, as we think about the remainder of the quarters, while we do expect sequential growth, both in terms of revenue and EBITDA, we see that as being much more balanced in terms of quarter-over-quarter growth. Operator: Our next question comes from the line of Stephen Baxter with Wells Fargo. Stephen Baxter: I just want to follow-up on some of the kind of the efficiency conversations we've been having today. I guess, specifically looking at the pharmacy business, you've held SG&A in a really tight range for the past couple of years. And I think you've gotten leverage on SG&A, I think, in all 20 quarters that we have in our model. But as we look at this quarter specifically, it looks like SG&A stepped up like $40 million sequentially or something like 40% quarter-over-quarter. So I would love to just understand a little bit better like what is driving that sequential increase? Is there anything that's onetime or kind of unusual to flag? And then as we think about what this money is actually being spent on, how to think about like kind of the growth profile or the returns that you'd expect to get on this kind of what seems like pretty meaningful platform spend over time? Jennifer Phipps: Yes. So maybe I'll start and Jon, if there's anything else you want to add. So from a Q1 perspective, there were a number of investments we've talked about in terms of IT and other areas. Those were certainly contributors from a cost perspective in the quarter. But we also continue to invest for growth in terms of Salesforce across our different businesses, a number of other areas. So we've talked about as we are investing, we're always thinking about how can those investments drive growth next year and 2 years and 3 years from now. So we did have a number of investments there. There certainly were commissions and other things that related to the strong sales growth and other areas that did drive that. But I would say the largest impact were those investments, including into our Salesforce and other areas throughout in the quarter. Operator: Our next question comes from the line of Erin Wright with Morgan Stanley. Erin Wilson Wright: So I hate to belabor the topic, but just since we're getting a lot of inbound questions on it, I just wanted to dig into the PBM dynamic just a little bit more on private label, it just seems more dedicated to subcu. But are you seeing any changes in reimbursement now on the Infusion side versus subcu? And when the subcu does launch? And how do you kind of think about the scope of the private label right now? Does it broaden at all over time, just given some of the traction that they've seen so far? And I guess, how do you think about the relationship with payers and PBMs and any potential conflicts of interest that could arise? And I don't think you give a generic penetration rate, but like what percentage of that could be exposed to some of this competition over time? I'm just trying to reconcile with that. Jon Rousseau: Yes. I think as it relates to any of the private label stuff, we just don't have a lot of volume or exposure to those sort of relevant products or situations today. And anything we're seeing or experiencing from a payer or PBM standpoint, I would just say it is very consistent. We're not seeing any big changes or big moves as it relates to our agreements or our products. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Terex First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Derek Everitt, Vice President, Investor Relations. Derek, please go ahead. Derek Everitt: Good morning, and welcome to the Terex First Quarter 2026 Earnings Conference Call. A copy of the press release and presentation slides are posted on our Investor Relations website at investors.terex.com. In addition, the replay and slide presentation will be available on our website. We are joined today by Simon Meester, President and Chief Executive Officer; and Jennifer Kong, Senior Vice President and Chief Financial Officer. Their prepared remarks will be followed by a Q&A. Please turn to Slide 2 of the presentation, which reflects our safe harbor statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. These risks are described in greater detail in the earnings material and in our reports filed with the SEC. On this call, we will be discussing non-GAAP financial information, including adjusted figures that we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. Please turn to Slide 3, and I'll hand it over to Simon Meester. Simon Meester: Thanks, Derek, and good morning. I would like to welcome everyone to our earnings call and appreciate your interest in Terex. We're off to a good start for the year, including our new Specialty Vehicle segment, which was in the portfolio for 2 months of the period and already making a meaningful contribution to the group. We grew sales by 11% on a pro forma basis, including growth in all 4 segments, led by Specialty Vehicles, which grew 20% compared to the same period last year. Terex Utilities was our fastest-growing business this quarter. The Utilities team is doing an excellent job ramping up production in a very bullish market. And EPS increased 18% year-over-year to $0.98 or 6% improvement with a normalized tax rate. Quarter ending backlog increased to $7.1 billion, which includes strong bookings trends, particularly in Materials Processing, Aerials and Terex Utilities, providing good forward visibility and consistent with our expectations for the year. As a result, we are reiterating our full year outlook and with the recent additions to our portfolio, remain laser-focused on execution and integration, which brings me to Slide 4. The REV integration is progressing as planned. We are executing the same playbook we used for the ESG integration, which we completed ahead of schedule and within budget with synergies above target. For the synergies with REV, we are on track to realize approximately $28 million in 2026 by eliminating duplicate overhead and have line of sight to achieving a $75 million run rate within our 24-month target. With regards to the integration effort, all work streams are at or ahead of schedule. In addition, I'm particularly encouraged by the way the legacy Terex and legacy REV teams are working together, and the 2 cultures are meshing really well. Last week, the Specialty Vehicles team showcased our 3rd Eye digital solution at the Fire & Emergency Trade show in Indianapolis, and we're very pleased with the level of interest it created. 3rd Eye is an AI-based solution that our Environmental Solutions segment developed for their customers to provide situational awareness around the vehicle and add tangible commercial and operational benefits. It's an integral part of what is now referred to as smart truck technology in the waste collection sector. Our digital team has already developed applications that leverage this technology for utility vehicles, cement mixers and have now added fire and emergency vehicles to their scope. So good progress on the REV integration and the synergies front. We're also pleased with the progress we are making with the strategic review of our Aerials business. We continue to engage with multiple interested parties and are working towards an outcome that maximizes value for our shareholders. We do not have any specific details to share at this time, but we will continue to update you as the process unfolds. Moving to Page 5. Over the past 2 years, we deliberately shifted our portfolio's end market exposure to more U.S.-based, resilient and predictable sectors with attractive growth profiles. As a result, Terex is far less exposed to global macro dynamics and trade policy than in the past. Based on pro forma 2025 results, about 80% of our revenue was generated in North America, of which roughly 85% was manufactured in the United States. Our end markets are more stable and our supply chain is more durable. Touching briefly on our primary verticals. Demand for fire and emergency vehicles continues to be strong. We are making strategic investments to improve production efficiency and increase capacity in key areas such as ladder trucks, where we are increasing capacity by 35% at our Ocala, Florida plant. And in South Dakota, we're increasing capacity for the pre-engineered S-180 pumpers. Both investments will help to reduce lead times and with the S-180 pumper, provide our customers with a lower cost alternative that we can deliver in about 9 months. In waste and recycling, our customers are indicating that 2026 demand will be more skewed towards the second half, including anticipated prebuys ahead of the 2027 EPA changes. HAL is well positioned to outperform the market again this year due to its product portfolio, production quality and its lead times. We continue to anticipate growth in aftermarket, retrofits and digital sales this year. And of course, the long-term fundamental growth drivers for the segment remain intact. Utilities is poised for strong growth for 2026 and beyond as demand on the U.S. grid continues to increase, particularly from data center expansion and AI use cases. Industry forecasts call for 8% to 15% annual CapEx growth through 2030, and we're making good progress with our phased investment to bring 30% more capacity online by the end of next year. And finally, in construction, we see robust infrastructure activity supported by government funding. The pipeline of mega projects provides a tailwind through 2030. MP continues to grow its business in India, and we are starting to see improvements in Europe and Australia, although oil prices can potentially hamper some of that growth given the more vulnerable state both of those markets are currently in. In summary, in the past 2 years, we have built a highly resilient portfolio of businesses that enable us to navigate short-term macro and market-specific dynamics and deliver on our financial objectives predictably and consistently going forward. And with that, I'll turn it over to Jen. Jennifer Kong-Picarello: Thank you, Simon, and good morning, everyone. Let's look at our Q1 results on Slide 6. Our operational performance was in line with our expectations. We grew sales to $1.7 billion, an increase of $505 million or 41% compared with the prior year on a reported basis. The growth was due to the merger with REV that closed on February 2 and growth in each of our legacy segments. On a pro forma basis, we grew 10.8%, led by strong growth in Specialty Vehicles, Material Processing and Terex Utilities. Excluding the impact of the merger and the sale of our Crane and [indiscernible] businesses, organic revenue increased 8.1% with increased sales across all legacy segments. Q1 EBITA margin was 9.9%, down 50 basis points versus the prior year, primarily driven by tariffs, which were not in effect in the prior year period, partially offset by improved performance in MP and SV. Interest and other expenses of $44 million was $1 million lower than Q1 last year. And the first quarter effective tax rate was 11%, driven by favorable onetime tax attributes. EPS for the quarter was $0.98, which included approximately $0.10 of onetime tax benefit when the Q1 tax rate is compared to our 2026 full year expected tax rate of 21%. Our operational EPS improvement was $0.05 compared to last year despite the tariff headwinds. Notably, our current Q1 EPS is based on 96.1 million shares outstanding, up from $66.9 million in the first quarter of 2025. Free cash outflow in the quarter was $57 million, consistent with Q1 last year. Terex's historical cash generation is seasonally weighted towards the back half of the year with first quarter cash outflows reversing as volume increases and working capital unwinds through the remaining of the year. Importantly, our newer businesses, particularly Specialty Vehicles, have a more favorable working capital profile with significantly less seasonality. As a result, our Q1 net working capital as a percentage of sales improved to 16.7% compared to 26% in the same period last year. We also reduced our net leverage ratio to 2.4x and remain disciplined with our capital structure, focused on maximizing value for our shareholders. Please turn to Slide 7 to review our segment results, starting with Environmental Solutions. As expected, sales growth of 3.3% in ES was driven by Terex Utilities as they begin to ramp up to meet strong demand for bucket trucks, digger derricks and products and services. Q1 EBITDA margin of 18% was lower than the prior year due to a higher mix of utilities volume, where margins continue to improve, coupled with lower ESG volume, partially offset by higher synergy realization. Turning to Slide 8. MP had a very good first quarter, growing bookings and sales and expanding operating margin. Sales of $419 million were 18.3% higher than prior year on a pro forma basis or 12% higher, excluding the impact of foreign exchange rates. Growth in aggregates was the primary driver as sales grew in every region. The handling and environmental verticals also grew in the quarter. MP EBITDA margin continued to improve, reaching 15% in the quarter as higher volume, efficiency improvements and pricing actions drove the 310 basis point increase over the prior year. The margin actions and increasing bookings and backlog sets MP up well for the balance of 2026. Moving to Slide 9. Our new Specialty Vehicle segment got off to a great start, generating $436 million of revenue in February and March, representing growth of 20% compared with the same period last year. The growth was a combination of price realization and higher unit deliveries across all product lines, partially due to weather-related delivery timing. EBITDA margin increased by 160 basis points to 14.2%, driven by higher throughput, price realization and improved operational efficiency. Turning to Page 10. ARRIS had another strong bookings quarter with 132% book-to-bill, generating a $1 billion backlog, giving us forward visibility as we head into the annual selling season. Sales in the quarter were $469 million, up 4.2% year-over-year, largely due to positive foreign exchange rates. As expected, Aerials EBITDA was breakeven because Q1 is typically a seasonally low volume quarter and due to tariffs, which the business did not incur this time last year. In addition, the business faced some temporary unfavorable mix but expects favorable price/cost dynamics for the remaining of the year. Turning to bookings on Slide 11. Before going into each segment, for Terex overall, Q1 pro forma bookings of $2.1 billion represented 109% book-to-bill ratio and led to modestly higher backlog on a sequential and year-over-year basis. In Environmental Solutions, Q1 bookings were $347 million, slightly lower than prior quarters due to the timing of several large utilities bookings that were recorded in Q4. We expect bookings level in utilities to remain strong, and our focus remains on ramping up throughput to meet demand. On the ESG side, we expect orders to be more heavily weighted to the second half of the year, including additional orders for delivery in advance of the new 2027 EPA regulations. MP bookings of $623 million reflects 38% year-over-year growth on a pro forma basis. While aggregates was the main driver, bookings also increased in concrete, material handling and environmental. MP ended the quarter with $594 million in backlog, up $205 million or 53% versus the prior year, setting it up for strong performance through 2026. SP bookings came in at $501 million. As you can see on the chart, orders can be lumpy in the segment, but overall, the backlog remains elevated, and the team is focusing on bringing lead times down with calculated investments. Finally, Aerials bookings of $620 million in Q1, combined with $971 million in Q4 is 21% higher than the same 6 months period a year ago. While growth was strongest in North America, we also saw modest growth in EMEA, providing good visibility for the balance of 2026. Now turn to Slide 12 for our 2026 outlook. We are operating in a complex environment with many macroeconomic variables and geopolitical uncertainties, and results could change negatively or positively. The outlook we are providing today reflects our current portfolio and does not account for any cost to achieve the synergies, purchase accounting adjustments nor other nonrecurring items. Our first quarter performance, booking trends and backlog of $7.1 billion supports reconfirming the full year 2026 outlook that we provided in February. Overall, we continue to expect 2026 sales to grow approximately 5% on a pro forma basis to $7.5 billion to $8.1 billion. We further expect pro forma EBITDA to grow by approximately $100 million or 12% year-over-year to between $930 million and $1 billion or 12.4% EBITDA margin at the midpoint. Included in our EBITDA outlook is approximately $28 million of synergies that we are well on our way to realizing. This is in line with our goal to achieve $75 million of run rate synergies within 2 years of closing the merger. We continue to anticipate interest and other expenses to be approximately $190 million, consistent with pro forma 2025 based on average debt outstanding of about $2.7 billion. The effective tax rate for the full year is still expected to be 21%. We expect 2026 EPS between $4.50 and $5. Please note, the share count for quarters 2 through 4 will be approximately 115 million. For modeling purposes, approximately 25% of our full year EPS is anticipated in the second quarter as we expect profitability in Aerials and Environmental Solutions to improve in the second half. We expect 2026 free cash conversion of between 80% and 90% of our net income. Our net leverage is expected to improve over the course of the year. Looking at our segments, we expect Environmental Solutions to grow mid-single digits in 2026, led by utilities, where we continue to ramp up production to meet strong demand. We expect margin to improve in the second half due to higher volume, including digital and aftermarket, productivity improvements and improved customer mix. We do not foresee a material impact from the recent tariff changes on ES performance. Turning to MP. The strong start to the year and growth in bookings and backlog gives us confidence in our high single-digit pro forma growth outlook for the segment, largely driven by aggregates. We also expect margins to improve through 2026 due to higher volume, productivity and favorable price cost. It's important to understand that mobile crushing and screening equipment, the primary products in the aggregate vertical that we import from the U.K. are not subject to 232 tariffs. Our new Specialty Vehicles segment got off to a great start and with roughly 2 years of backlog provides very good visibility for the balance of the year. We continue to expect sales growth of high single digits from an 11th-month pro forma prior year total of $2.2 billion. We also continue to expect meaningful margin improvement compared to the prior year EBITDA margin of approximately 12.5% due to higher throughput, price realization and ongoing operational improvements. From a modeling perspective, we expect run rate revenue and margins in Q2 and Q3 to be similar to Q1 with a modest seasonal step down in Q4 due to fewer working days. We do not foresee a material impact from recent tariff changes on ASV performance. Finally, in Aerials, we continue to anticipate 2026 sales and margin to be similar to 2025. We have good visibility with over $1 billion in backlog following back-to-back quarters with strong bookings. Margins are expected to improve sequentially in the second and third quarters with higher volume, price realization, favorable customer mix and disciplined cost management. Even with a higher impact of tariffs versus last year, we expect Aerials to be largely price/cost neutral for the full year. With Q1 behind us, healthy backlog and fleet utilization, we expect the business to have bottomed and start its path to cyclical recovery. In summary, given that we are only 1 quarter into the year and there are macro variables that we do not control, we believe it is prudent to hold our 2026 outlook at this point in time. We will obviously refine our outlook as the year unfolds. Please turn to Slide 14, and I'll turn it back to Simon. Simon Meester: Thanks, Jen. We delivered a solid start to 2026 with strength in Materials Processing and Utilities and a strong initial contribution from our new Specialty Vehicles segment. Integration execution is progressing as planned, and we are on track to deliver our synergy commitments. Our portfolio is more resilient and predictable with greater North America exposure and less sensitive to macro volatility and tariff changes than in prior years. Our teams are focused on disciplined execution against our strategy and our annual plan as we build on the progress that we've made to date. And with that, I would like to open it up for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Just wanted to start, I guess, you delivered a very solid Q1 here in EPS. You had very strong bookings and improving margins in all the segments. And yet, I guess, you chose to hold the full year guidance constant. So Jennifer, I know that you kind of qualified it as prudent, but curious, I guess, is this primarily a function of macro tariff uncertainty or just more about conservatism? And then curious if you could add to the extent that there is conservatism in the guide, I guess, where are you seeing most areas of kind of uncertainty within the business? Or where do you see the most kind of room for upside risk in terms of the segments or the products? Simon Meester: Angel, thanks for the question. Yes, the short answer is, as Jen said in her prepared remarks, that it's much more about discipline and timing than any change in how we feel about the fundamentals of the business. We're very pleased with how the year started. Q1 execution is strong, bookings and backlog improved, and we are seeing good momentum across the board. That said, we're only 1 quarter into the year. We're operating in an environment that still has a fair amount of uncertainty around macro conditions and tariffs. And so we believe that at this point, it's most prudent to confirm the outlook that we set in February, which already contemplated solid growth and margin expansion and synergy realization. And we feel like it reflects our confidence in delivering those commitments while also basically allowing us to see a bit more conversion and volume flow through the system. Importantly, I think, is nothing that we've seen year-to-date has changed our confidence in the underlying trajectory of the business. And as the year progresses, we'll gain additional visibility, and we'll continue to evaluate the outlook based on how we execute and how things evolve at the macro level. But for now, we think reaffirming is the right and responsible approach. Angel Castillo Malpica: That's totally fair. And I guess as a follow-up to that, Simon, I was hoping you could unpack the backlog and bookings trends a little bit more. I guess, first, just curious how orders have progressed through your segments in March and April. I think you just noted that there's maybe -- we haven't seen anything change so far, but just a little bit more color on that. And also if you could expand on the MP bookings and backlog, I think that's the strongest we've seen in a couple of years here. So just can you talk about what you're seeing in terms of demand there and whether that was maybe more of a onetime step-up or if it's just kind of a continuation that you anticipate in terms of demand? Simon Meester: No. I mean we're very encouraged by the bookings in MP. We think there's strong momentum. MPs, as you know, is mostly a dealer model. We see fleets at a healthy level. We see utilization at a healthy level. We see RPOs coming back in, which were being a little delayed in the last couple of quarters, but we are seeing the RPOs picking back up. So we're very pleased with the momentum that we see building in MP, and we expect that to carry forward in the remainder of the year. Pleased with the bookings in aerials. We've got now 6 of the 9 months covered. And with some of that price cost coming our way for the remainder of the quarters, we feel good about where that's going. And then on ES, very strong Environmental Solutions, very strong bookings, continued bookings in utilities, although when the slide that we shows a little bit of a dip in Q1, that's mostly because we had bookings that we thought would drop in Q1 dropped in Q4 with Terex Utilities, so they were a bit lumpy. And secondly, we see the center of gravity for ESG bookings more in the second half tied to new product introductions, fleet replacements and potential prebuys. So that explains a little bit the booking pattern in ES. And then last, SV continues to be moving strong on bookings, although as lead times gradually and slowly start to improve, we expect bookings to start to come down at some point because as you can see from our appendix in the earnings deck, our backlog basically in that business has been going up consistently for the last 3 years. And as an industry, we've been very focused on bringing that down, hence, the investments that I spoke about in my prepared remarks. So we should be seeing bookings come down at some point in SV and see us working that backlog down. So I think bookings, strong story this quarter and particularly encouraged with some of our -- like MP and aerials that we see some early cycle signs here. We see some independents picking up in Aerials, which is typically a sign for us that there might be some early cycle momentum building here that we're encouraged by for the year. Operator: Your next question comes from the line of Kyle Menges with Citigroup. Kyle Menges: Great. I was hoping if you could just talk about any changes to how you're thinking about margins across the segments for the year and tariff impacts. I think you said in the press release fairly negligible, but are tariffs at least somewhat of an incremental headwinds weighing on the guide? Jennifer Kong-Picarello: Right. This is Jen. So maybe I'll start with AP first. Given the great performance in Q1, we expect a further step-up in our margin profile in Q2 and Q3, driven by the higher volume support of our backlog and the higher bookings and also favorable mix and price cost favorability in that segment. So we expect that to go up further. Now on ES, we expect that Q2 to be very similar than Q1. Our Q2 margin profile, our volumes continue to be driven by utilities. And then we expect a meaningful step-up in our margin profile in the second half of the year for ES versus first half of the year, driven by ESG book-to-bill that Simon actually referenced in his prepared remarks. We expect higher-margin digital and aftermarket to drop through into second half of the year. And then finally, utilities continue to drive throughput at both of our Waukesha and Birmingham installed facilities continues to ramp up. So ending with maybe SV, on our SV margin, we expect, like I mentioned in the prepared remarks, the Q2 and Q3 run rate to be very similar to our Q1 and then a marginal step down in Q4 due to lower -- less working days and due to customer inspection. Now in terms of the -- as segment, we do expect that Q2, we expect a natural step-up driven by our seasonal demand at 25% incremental. We then expect Q3 a further step-up driven by favorable customer mix. favorable capitalized variances and cost actions. And then Q4, which is a natural step down driven by seasonal lower demand, partially offset by realization of additional cost actions. So again, for Aerials, Q1 was price/cost unfavorable. For the rest of the year is price/cost favorable, which leads to a full year price cost neutral. Kyle Menges: Got it. And I'm just curious your confidence level in Aerials being price/cost favorable for the rest of the year with maybe some incremental tariff impacts. Curious if there's any ability to get additional price or getting some help perhaps from a higher mix of independents? Would just love to hear that. Jennifer Kong-Picarello: And Carl, I forgot to address your question on the tariff piece. From a sequential standpoint, I don't see additional headwind on our tariff. The reason why I mentioned that in the press release, it's negligible in the tariff is because the change in the 232 calculation is largely offset by the IEEPA going away. So for us, for the Aerials business, we do have 6 months of backlog already in our backlog and we can see what is the margin profile of those backlog. We can see a favorable mix in our customer mix and also in that is in our backlog and also the pipeline as well. So we are very comfortable with the price cost favorability for the rest of the year. Simon Meester: Yes. So good forward visibility on price cost and mix, that's basically is what's giving us the confidence of the step-up in margin scenarios. Operator: Your next question comes from the line of Mig Dobre with Baird. Mircea Dobre: I guess great to hear that tariffs are not having much of an impact. But I'm curious as to how you're managing inflation more broadly, right? I mean we're seeing it in material costs. We're seeing it in energy, freight components. So where are you today versus maybe where you were back when you initially issued this guidance from an overall cost standpoint? And what are you doing to be able to maintain positive price cost like you talked about earlier? Is this a function of additional pricing adjustments on your end? Or is there something else in there how you're operating this year that we should be aware of? Jennifer Kong-Picarello: This is Jen. So in terms of our cost inflation, any of our CPI index changes, it usually has a 3 to 6 months lag due to the hedging program that we do have, the vendor contracts that we are locked in for 3 to 12 months ahead of time. The commodity inflation is really baked into our current outlook. What we see in terms of the only risk from a cost inflation standpoint, it's higher inbound freight costs that we might have to incur for some of our international routes. From a mitigation standpoint, as you know, our SV segment already baked in 6% to 8% of value-added price in our backlog, which covers the CPI inflation based on delivery lead times. The SV segment also has commercial chassis that's on a pass-through pricing mechanism so that it doesn't really impact us at all. And MP and ESG is more of a book-to-bill business right now given the normalization, which means that if we cannot mitigate the cost ourselves, we have the ability to flow down them as a surcharge. Our 2026 guidance already conservatively accounts for the known energy and commodity headwinds. And with North America now representing more than 80% of our revenue, where energy inflation is more moderate and end market fundamentals remain robust, I feel that we're well positioned to manage the energy price validity in 2026 without any material downside risk to our current outlook. Mircea Dobre: All right. Understood. My follow-up in Materials Processing, very good order performance there. I'm wondering if this is a function of dealers finally starting to restock. If that's the case, I'm wondering relative to history, where do you think this process is? How many more innings do we have in terms of dealer restock? And how do you separate that from actual end-user demand at this point and how that's developed? Simon Meester: Yes. Great question. It's a little bit of both. It's definitely end user demand is picking up as well, particularly in the United States. We've had the tailwind of mega projects for quite some time. But now data centers, we actually see more spend actually landing in terms of infrastructure and road and bridge building, if you will. And all those are mobile crusher applications. Now obviously, that drives some of the sentiment and that also drives some of the willingness of our dealers to replenish. But we also see RPO conversions picking up, as I think I mentioned earlier on this call. So it's a little bit of both. Fleets are where they need to be. They're not high, they're not low. But basically, most of the bookings in crushing and screening is triggered by RPO conversion. So if a customer converts a rental into a procured unit, it turns it into a booking from our dealer onto us. So it's a little bit of mix of both of more end-user demand, a little bit better sentiment and then fleets being in the right place. Operator: Your next question comes from the line of Tim Thein with Raymond James. Timothy Thein: Excellent. Yes. Just first question on the Specialty Vehicle segment with just some -- a bit more time accrued under your belt owning REV. I'm just wondering if there have been any notable takeaways or findings that inform you about just the outlook for the business and kind of the prospect for synergies as you look out. So maybe just kind of an update on REV to start. Simon Meester: Yes. No, I appreciate the question. Obviously, very excited. A lot of good things happening. They had a good start of the year. It's only 2 months. We actually had a slightly better start to the year than we had originally anticipated because of some of the weather in January, we weren't able to fly customers in -- for the final inspection of their trucks. S o some of that kind of revenue that we were anticipating in January actually dropped into February. That's why they were up a bit more in February, March than I think they will be for the remainder of the year. That's why we're holding their guide to a high single digit, even though they were well into the double digits for the first 2 months. But yes, I mean, it's obviously a lot of backlog to work through. So the focus needs to stay on production output, quality production output, and that's what the team has been focusing on for the last 6, 7 quarters, and we want to make sure that we help them maintain that momentum. And that's really where the focus is. But at the same time, we are very inspired and encouraged by the synergies that we're seeing, not just from an overhead standpoint, but also operational synergies, looking at each other's supply chains, and there is a lot there. So we're very encouraged by the synergy pipeline as that is ramping up and that's building out. And then as I said in my prepared remarks, we have 8 or 9 work streams to basically integrate the business, and we're doing really well on all of those work streams. So so far, it's been a great first couple of months, and we're very excited with what that business can bring to our group overall. Timothy Thein: Got it. Okay. Probably a bit of a stretch to call this a related follow-up, but so be it. And maybe just to -- I wanted to spend a minute for an update on your stake in Apptronik. There's obviously lots of buzz these days around humanoid robotics, and there's been some speculation of additional funding rounds likely on the horizon, potentially at like a $15 billion or $20 billion implied valuation for that company. So I was hoping you can just remind us of your ownership stake? And I guess, secondarily, how, if at all, you're leveraging that technology within your operations? Simon Meester: Yes. Thanks for the question. Maybe for context, Apptronik is a humanoid manufacturer, and we made an investment in Apptronik several years ago because we believed that humanoids would have application in our business, and we're thinking about warehousing, manufacturing, maybe even job sites. And our stake has certainly nicely appreciated over the last couple of years. But yes, we have an active technology pipeline with Apptronik. And we actually launched our first prototype of a zero gravity arm that was developed by -- codeveloped by Apptronik and Genie at the CONEXPO show a little over a month ago and proudly voted as one of the 5 best innovations shown at the show by -- I believe it was Construction Weekly. And it's a great -- that's an industry game changer, we think, because it significantly increased safety, and it allows basically one person in the platform to install ceiling panels or dry wall because the zero gravity arm holds it all in place. effortlessly and you can manipulate and operate that arm really with just one finger. So that's a great example of what Apptronik is bringing to our industry. And the feedback that we received from customers at that show was really encouraging. So those are the kind of things that we're working on with Apptronik, and we're very pleased with that partnership. Jennifer Kong-Picarello: And Tim, this is Jen. If I could just add on, we account for that at the cost perspective. So the valuation that we talk about is not recorded. Operator: Your next question comes from the line of David Raso with Evercore ISI. David Raso: Specialty Vehicles, I appreciate the January month when you did not own it, there was less shipments and you sort of got the benefit that they shipped later in the quarter when you did own it. But let's just talk about the first quarter pro forma. It seems like specialty vehicle revenues pro forma, if you'd own it the whole quarter, were about $615 million, $620 million, something like that. When you say revenue run rate to be similar to the first quarter, is that sort of the revenue number you're referencing? I just want to follow up on that, just so I get clarification first. Simon Meester: Yes. It's probably -- you're not far off on that number. It's probably going to step up a little bit in Q2, Q3, but then it's going to come down in Q4 because we have less working days in Q4. But you're not far off, David. David Raso: I guess the spirit of the question is your ability to bring better throughput to REV Group's factories was a key aspect of maybe the opportunity to really leverage the backlog this year. And just curious why we would not see a step-up. And you can -- I understand if it's first quarter, we don't want to look out too far and change the guidance. But I'm just curious why we would think there's no throughput increase from that first quarter run rate because it would imply the rest of the year has very little growth right from a year ago. Simon Meester: Yes. We are guiding high single digits for the segment. And typically, about 2/3 of that is probably price and 1/3 of that is unit growth. Now we do have -- I mentioned investments coming online, but those mostly will come online in the fourth quarter of the year. So they don't yet have a meaningful impact for 2026. But that -- yes, going from mid-single to high single-digit kind of unit growth, that's really the focus that we have for that business for 2027. Now obviously, there's 2 years backlog. We think that, that eventually will settle at a 1-year kind of backlog level. That's where -- that's what we think is the sustainable level. So that's the trajectory that we're working on, David. David Raso: Again, though, sequentially, I was just thinking the backlog seemed to get repriced well, there would be a little more sequential from that first quarter run rate. I'm just trying to level set everybody just that seems like an area where, especially trying to get that backlog down. I mean, as you said, it's a huge backlog. It's 2 years of backlog. I appreciate that will be coming down. But just trying to understand the factory opportunity, the backlog repriced opportunity just to make sure we understand the revenue. I guess it is what it is. You're saying you think the revenue will be flat sequentially from a pro forma basis. kind of 1Q to 2Q, 3Q? I'm just making sure I understand fully. Simon Meester: Yes. No, I said step up from Q2 to Q1. So -- sorry, Q1 to Q2 will be a step up and then Q3 and then Q4 will be a step down because of working days. So the units built per day is going to continue to step up over the course of the year. Jennifer Kong-Picarello: Yes. So David, this is Jen. If I could just add on... David Raso: From the earlier comments, Jen, that's why. Okay. The earlier comment was revenue and margins 2Q and 3Q similar to 1Q. And I just wanted to get clarification on that. Operator: Your next question comes from the line of Jamie Cook with Truist Securities. Jamie Cook: Congrats on a good start. Sorry, another question on Specialty. Again, I just want to make sure I understand the margins. You're going to do better than the 12.5% adjusted EBITDA margins for Specialty, Jen. And I think last quarter, you talked about sort of a 30% incremental. I guess, is that still the right way to think about it? And how are you thinking about specialty in terms of like where those margins can go longer term? It seems like we should be able to do better than what REV Group talked about in terms of their margin expansion. So where can that actual EBITDA margin number go? And then my second question is on Aerials. I guess, Simon, with aerial markets potentially getting better, I'm just trying to understand how that's impacting like the bidding process in the sense that things are getting better. Does that mean more people are interested in it? Or like to what degree would you want to hold off on the sale because markets are getting better, perhaps maybe next year, you can do better than the flat margin you're going to do this year. Just trying to understand how the market is inflecting are impacting the decision on the sale. Jennifer Kong-Picarello: Yes. Jamie, so in terms of margin profile for EV, maybe if I could just mention, R, they did an Investor Day probably 2 years ago on committing to a 2027 Investor Day margin profile. In fact, they're right now in 2026, they will be achieving that 1 year in advance. So I'm very pleased with the performance. With regards to the margin step-up over -- in Q2 and Q3, as you could see in our pro forma for just 3 months, January to March, the EBITDA margin is 13.1%, 100 basis point improvement versus last year. I expect this margin profile to continue to have a step up sequentially more than 100 basis points year-over-year. So every single time that you look at year-over-year, it will be more than this 100% basis point margin improvement throughout the year, even with the step down in the delivery in Q4. Very comfortable with the price in the backlog very comfortable with the throughput that we're seeing. And most importantly, what makes this business margin sustainable and keep on improving is on the sourcing that they do have a clawback mechanism with the vendor. There's a lot of centralized sourcing initiatives that have actually already started. And we do expect that, that will improve through until the end of the year as well. At this point in time, the -- what I shared in the margin profile does not include any other synergies outside of corporate. So I'm very comfortable with the margin expansion year-over-year throughout the year, more than Q1 pro forma basis. Simon Meester: Yes. And I'll take your follow-up, Jamie, on the process, yes, it doesn't really change the process. We've always been very clear that this is a through-cycle discussion, and that's exactly how the discussions with multiple parties have been. It's a long term -- it has a long-term nature. And the fact that I think it's well documented that Aerials is a cyclical business that historically, 5, 7 years up, 2 years down, we're now at the end of the second year. The fact that it cycles up a little faster than maybe some anticipate. For us, the first quarter came in as we expected. The bookings came in as we expected. So it doesn't really change our view on the process and our view on the outlook. But it's obviously a good problem to have to see the early signs of a cycle. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan Chase. Tami Zakaria: So I heard you say you're expecting some prebuys in high ESG in the back half. I was wondering how does that impact your view about orders and revenue growth potential for that segment in 2027 after you're done with the prebuy-related pickup? Simon Meester: Yes. We don't -- so this business doesn't really cycle, Tami, very strongly. So we're talking -- it's all within the margin, if you will. We don't see a major uptick in terms of prebuys either. In the second half, we think there's some. We actually think that 2027 looks pretty good from a just from a fleet expansion standpoint. And there's -- what I did not mention, I believe, in my prepared remarks is that there's a lot of new technology coming out as well in the second half that we think will drive a lot of momentum for us going into 2027. We're obviously not guiding today for 2027, but we're not concerned that whatever happens in the second half will have a material impact on 2027. There's a lot of momentum there. Tami Zakaria: Understood. That's very helpful. And so related to that, given you're expecting a lot of technology to be introduced in the back half, should we expect stronger price realization as you price for these enhancements? Simon Meester: Well, I mean, our mantra has always been to be price cost neutral and whatever value or cost we find or add is for the benefit of the shareholder. That's our mantra. And not -- I don't think we should forget that this business is already operating in the high teens, performing really strongly. And part of the reason is because it's -- we're running a very efficient factory in Fort Payne, Alabama, and we're running a very accretive product portfolio that is well accepted by its customer base. because of the benefits that it creates for our customers. So we'll take that same approach. We want to be market-based in terms of our pricing, and we want to continue to create value for our customers. That's what's going to drive that. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo Securities. Jerry Revich: Simon, I'm wondering if we could just get your latest thoughts on capital deployment. If you do complete the Ariel divestiture, what are you seeing in terms of the M&A landscape? How likely is it that we'll be looking at stock buyback versus additional opportunities to expand the portfolio? Can you just give us your updated views? Simon Meester: Yes. I appreciate the question, Jerry. I really don't want to get ahead of myself here on this. Our most -- our immediate focus is on integration and execution, deliver on what we've committed to for the year. Really, if you think about it, we've gone through quite some change in the last 2 years. So making sure that all the work streams get done in terms of the integration and building up our synergy is our primary focus. And whatever the balance sheet will look like as we move forward, as always, we will look at what is best for our shareholders. And we have -- we like the optionality. The optionality is only growing. It's only getting better for Terex and which means that our opportunity to add value for our shareholders is only going to increase going forward. So we'll deal with it when it comes, but it will be -- the tiebreaker will be whatever is best for our shareholder. Jerry Revich: Super. And then separately on Specialty, really good operating performance in the quarter, as you shared in the pro forma financials. I wanted to ask from a booking standpoint, can you just talk about what kind of book-to-bill we should be expecting for in 2Q and 3Q? What's the cadence based on the awards pipeline that the team is working towards in that line of business? Simon Meester: And you said Specialty, didn't you, Jerry? Jerry Revich: Yes, Simon. Simon Meester: Yes. So the bookings are typically lumpy in Specialty Vehicles. So it's kind of touch and go. But if you look -- I can probably give you maybe more of a trend answer. We expect that at some point, the bookings will start to soften just because to David's question earlier, as we continue to ramp up throughput and lead times will start to slowly improve, naturally, bookings become a function of lead time and availability and will have to come down because trucks being put to use is a very -- is a consistent number that just grows at a mid-single-digit CAGR every single year. So the bookings will evolve as a function of how lead times improve. So we expect bookings to slowly come down. And eventually, where supply/demand will meet is we're planning for is around that 1-year lead time. So that's how I see -- I don't know if it will quite pick up this year yet, but certainly next year. Operator: There are no further questions at this time. I would now like to turn the call back to Simon Meester for closing remarks. Simon Meester: Thank you, operator, and thank you all for the questions. Yes, Terex is off to a good start of the year and the integration of the legacy REV business is progressing as planned. In less than 2 years, we have effectively merged 3 businesses into a single much stronger company. And given that we're still early in the year and in light of ongoing geopolitical uncertainty, we believe it's prudent to maintain our full year guidance at this time, and we remain firmly focused on delivering against it. And I'm particularly proud of the 17,000 Terex team members who make it all possible day in, day out. Thank you for joining us today, and we look forward to speaking with you again next quarter. And with that, operator, please disconnect the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to Magna International First Quarter 2026 Results Webcast and Conference Call. [Operator Instructions] I would now like to turn the conference over to Louis Tonelli, Vice President of Investor Relations. Louis, please go ahead. Louis Tonelli: Thanks, operator. Hello, everyone, and welcome to our conference call covering our Q1 2026 results. Joining me today are Swamy Kotagiri and Phil Fracassa. Yesterday, our Board of Directors met and approved our financial results for the first quarter of '26 and our updated outlook. We issued a press release this morning outlining both of these. You'll find today's press release, the conference call webcast, the slide presentation to go along with the call and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slide included in our presentation that relates to our commentary today. With that, I'll pass it over to Swamy. Seetarama Kotagiri: Thank you, Louis. Good morning, everyone, and thank you for joining us today. We appreciate your time and interest. Let's get started. Overall, I was very pleased with our strong Q1 2026 results, where we drove margin expansion with disciplined execution. In the quarter, sales were up 3% with weighted growth over market of 3%. Adjusted EBIT was up 58% with adjusted EBIT margin expanding 190 basis points to 5.4%, and adjusted EPS rose 77% to $1.38. We continue to demonstrate traction from our operational excellence initiatives across the company. Our robust cash flow reflects improved operating performance. We generated $677 million in operating cash flow and $372 million in free cash flow. In addition to strong earnings growth, our team did a great job securing additional commercial recoveries related to previous EV investments. Moody's recently reaffirmed its A3 credit rating for Magna and improved the outlook to Stable. We ended the quarter with a 1.5x rating agency leverage ratio, ahead of our expectations with $1.6 billion in cash on hand. Our 2026 outlook reinforces our confidence in our margin, EPS and cash flow trajectory. We continue to expect weighted sales growth over market of about 1.5% at the midpoint. We are reaffirming our prior outlook ranges for adjusted EBIT margin, adjusted EPS and free cash flow. While the situation in the Middle East introduces some uncertainty, we have a track record of navigating external disruptions, and we are confident in our ability to execute on what's within our control. Importantly, we expect to mitigate most cost headwinds over time. We remain focused on executing our proven capital allocation framework. We continue to invest in our business to support further profitable organic growth while returning $575 million in capital, including $440 million in stock repurchases to shareholders in the quarter. At the end of March, we had about 17 million shares remaining and available for repurchase under our NCIB. We plan to repurchase the remaining shares during 2026. We recently announced the margin accretive dispositions of our lighting and rooftop systems businesses. The transactions are consistent with our long-standing principles around portfolio management. We have highlighted in the past that we manage our portfolio using an objective set of criteria and regularly assess our product lines based on their addressable markets, market positions and returns. Specifically, we want to participate in meaningful or growing markets with stable or growing profit pools, strong or a clear path to strong market positions, profitable growth and sustainable competitive advantage. This has long been a key principle that ensures that we manage Magna for long-term success. The dispositions allow us to streamline the portfolio and focus on businesses that advance our long-term growth, margin and return objectives. The transactions are expected to close in the second half of the year. In our outlook, we have removed about $350 million of sales with minimal earnings and free cash flow impact. One example of our team's execution and innovation is the recent expansion of our hybrid driveline portfolio with the introduction of a dedicated hybrid drive for range-extended electric vehicles. The new system offers several advantages, including reduced size, weight and system cost, multiple operating modes and applicability across a broad range of vehicle segments. It underscores our commitment to providing OEMs with adaptable driveline solutions that support a wide range of vehicle performance and market expectations. Our team continues to partner closely with our OEM customers to deliver solutions that support Magna's growth. With that in mind, I would like to highlight a couple of recent complete vehicle EV program launches in Austria for China-based OEMs. This past quarter, we launched a second complete vehicle program for GAC. We also recently launched a third model, the P7+ for XPENG. Since September of 2025, we have now launched 5 vehicle models for these 2 China-based OEMs. More recently, we were awarded a fourth program with XPENG, which will launch later this year. This reinforces Magna's strong position in vehicle manufacturing and highlights the value of our flexible state-of-the-art production process, enabling fast-to-market, high-quality vehicles for any customer in the European market. Recently, Magna was once again recognized by Ethisphere as one of the world's most ethical companies marking our fifth consecutive year of recognition. This reflects our ongoing commitment to integrity, ethical decision-making and doing what's right, something we are very proud of. With that, I'll turn the call over to Phil. Philip Fracassa: Thank you, Swamy, and good morning, everyone. I will begin on Slide 19 with a summary of our strong first quarter results. Sales were $10.4 billion in the first quarter, up 3% from last year. Adjusted EBIT margin improved 190 basis points to 5.4%. Adjusted earnings were $1.38 per share, up 77%. And free cash flow was very strong at $372 million, up $685 million from last year. Each of these metrics came in ahead of our expectations. Now I'll take you through some of the details. Let's start with sales on Slide 20. First quarter sales were up 3% overall compared to last year. Excluding foreign currency translation, sales were down about 2%. Global light vehicle production declined 7% in the quarter. On a Magna-weighted basis, we estimate light vehicle production was down about 5%. This translates to 3% growth over market for Magna consolidated and 5% growth over market, excluding Complete Vehicles. Looking at the sales walk, foreign currency translation was positive $520 million or about 5%, driven by a weaker U.S. dollar compared to last year. Volumes, launches and other was relatively flat as lower light vehicle production, the end of production on certain programs, including the Ford Escape and normal course customer price concessions were largely offset by the launch of new programs, including the Ford Expedition Navigator, Mercedes-Benz CLA and Jeep Cherokee Recon and net favorable program sales mix. Sales in Complete Vehicles, excluding foreign currency, declined $172 million despite higher unit volumes. The higher unit volumes reflected new assembly programs and grants, including with XPENG and GAC, where sales are recognized on a value-added basis. Volumes with other customers where sales are generally recognized on a full cost basis, declined year-over-year collectively. This resulted in net lower assembly sales dollars. Engineering revenue was also lower, in line with our expectations. Now let's move to EBIT on Slide 21. First quarter adjusted EBIT was $558 million, an increase of $204 million or 58% from last year. Adjusted EBIT margin was 5.4%, up 190 basis points. Looking at the pluses and minuses, our largest benefit came from operational performance, volume and other items, about 80 basis points. This reflects continued momentum from operational excellence and other cost reduction initiatives. We also benefited from prior restructuring actions and favorable net foreign exchange gains. These positives more than offset the impact of lower organic sales and unfavorable mix. Equity income contributed around 70 basis points in the quarter, reflecting a favorable commercial settlement at one of our Power & Vision joint ventures that was originally planned for the second quarter. Margins were also supported by higher sales, favorable mix as well as productivity and efficiency improvements. Discrete items added around 55 basis points, driven mainly by lower warranty costs as we had a large expense accrual last year in seating. We also benefited from net favorable commercial items year-over-year in the quarter. And finally, tariff costs net of recoveries, reduced margins by about 15 basis points. While recovery mechanisms are in place with some customers, discussions with most OEMs for 2026 are ongoing, and we are following the frameworks we established last year. We remain confident that our net tariff impact for 2026 will be similar to 2025. In other words, a roughly neutral impact to EBIT margin for the full year. Looking below the EBIT line on Slide 22. Interest expense was $13 million lower than last year due mainly to our strong first quarter free cash flow. This led to lower short-term borrowings and higher cash balances, resulting in lower net interest expense for the quarter. Our first quarter adjusted tax rate was 23.8%, an improvement of 190 basis points versus last year. For the full year, we continue to forecast an adjusted tax rate of approximately 23%. Adjusted net income was $386 million, up $167 million or 76% from last year, driven mostly by the higher EBIT. And first quarter adjusted EPS was $1.38, up 77% from last year, mainly reflecting the higher net income as well as a slightly lower share count. Next, let's take a brief look at our business segment performance, which is summarized on Slide 23. Three of our four segments posted higher sales year-over-year and growth above market in the quarter with a notable 6% year-over-year increase in Power & Vision. The exception on the sales line was complete vehicles, where sales declined 4% as net lower volumes on full cost programs and lower engineering revenue were only partially offset by favorable foreign currency translation and the benefit of recent value-added program launches with China-based OEMs. Turning to EBIT. Body Exteriors & Structures, Power & Vision and Seating all posted notable year-over-year improvements in adjusted EBIT dollars and margins, reflecting strong operational execution. Power & Vision also benefited from a favorable commercial settlement in equity income, while Seating benefited from lower warranty costs. Complete Vehicles margin was lower than last year, but in line with our expectations, reflecting the impact of lower engineering revenue, offset partially by productivity and efficiency improvements. Now let's look at cash flow on Slide 24. In the first quarter, we generated $677 million in cash from operations, an increase of $600 million from last year. Operating cash flow in the current period includes over $450 million in balance sheet-related customer recoveries for certain EV programs in North America. We had originally expected to receive most of these recoveries later in 2026. Investment activities in the quarter included $219 million in CapEx, representing 2.1% of sales and $168 million for investments, other assets and intangibles, offset partially by proceeds from normal course asset dispositions. Netting everything out, we generated free cash flow of $372 million in the quarter, above our expectations and the most cash we have ever generated in the first 3 months of the year. We continue to return capital to shareholders in the first quarter with $135 million in dividends, along with $440 million in share buybacks. We repurchased 7.6 million shares during the quarter under our NCIB authorization, which left us with close to 17 million shares remaining at the end of March. We're planning to repurchase those shares before the NCIB expires in early November. Turning to Slide 25. Our balance sheet and capital structure remain strong. At the end of March, we had almost $5 billion in total liquidity including $1.6 billion of cash on hand. Our rating agency leverage ratio was 1.5x on March 31, better than we anticipated 3 months ago. This puts Magna in great position to continue our share repurchase strategy in 2026 and beyond. And we're pleased to note that Moody's recently affirmed Magna’s A3 investment-grade credit rating with an improved outlook of Stable. Next, let me cover our current outlook on Slide 26. Compared to our February outlook, we've reduced our North American production forecast by around 100,000 units to $14.9 million, and we reduced Europe by 200,000 units to $16.6 million, both reflecting current market conditions. Our China production assumptions remain unchanged. We've also updated our currency assumptions to reflect recent exchange rates. We're now expecting a slightly stronger euro, Canadian dollar and Chinese yuan in 2026 as compared to our February outlook. We continue to actively manage input costs and other volatility through commercial recoveries and cost actions. Our outlook reflects our current visibility into the balance of the year, and does not assume a prolonged geopolitical conflict in the Middle East. Moving to Slide 27. We are reaffirming our prior outlook ranges across key metrics including adjusted EBIT margin, adjusted EPS and free cash flow. We have slightly lowered our sales outlook range for the updated light vehicle production estimate provisions we covered earlier along with the expected second half closings of the lighting and rooftop systems divestitures within Power & Vision, offset partially by the benefit of foreign currency translation from a weaker U.S. dollar. We're also forecasting lower interest expense, reflecting the favorable timing of commercial recoveries, which should result in less borrowings throughout the year. All other outlook metrics from February are unchanged. Note that we continue to expect strong margin expansion with adjusted EBIT margin between 6% and 6.6%, despite slightly lower sales. Adjusted EPS between $6.25 and $7.25 per share and free cash flow between $1.6 billion and $1.8 billion. And while we don't provide a quarterly outlook, I would like to offer a framework for how we're thinking about EBIT and margin cadence for the rest of 2026. We expect 2026 adjusted EBIT to be back half weighted with first half EBIT just under 45% of full year EBIT. We're taking a measured approach to the second quarter, given the ongoing geopolitical dynamics and the potential for near-term volatility with adjusted EBIT margins expected to be relatively flat with the second quarter of last year. That's it for the financial review. Now I'll turn it back to Swamy to wrap things up. Swamy? Seetarama Kotagiri: Thank you, Phil. Before we take your questions, let me recap a couple of key points. We had a strong start to 2026 with adjusted EBIT margin expansion, cash generation and solid weighted sales growth over market. We are positioned for continued margin expansion and shareholder returns, supported by a solid 2026 outlook that is largely unchanged from February, reflecting our confidence in our operating performance. We are executing a disciplined capital allocation strategy, including significant return of capital and portfolio actions aligned with long-term value creation. Most importantly, we remain highly confident in Magna's future. We hope to see many of you in November at our investor event in New York City, where we will go into detail on our strategy, key initiatives and long-term financial outlook. Thank you for your attention. Now operator, let's open it up for questions. Operator: [Operator Instructions] And your first question comes from Alex Perry with Bank of America. Alexander Perry: Congrats on all the progress. I guess just first, I wanted to ask, can you give us an update on your raw material exposure. I guess, particularly on the resin side, what is the impact expected to have on the margins. Were there any other offsets that allowed you to keep your EBIT margin guide? And how should we think about sort of the flow-through there? Philip Fracassa: Sure, Alex. This is Phil. I'll start and then Swamy can chime in. Relative to raws, if we take a step back, if we look at exposures like steel and aluminum, as an example, we're largely protected through OEM resale programs and other pass-through mechanisms. The vast majority of our exposure there is covered. On resins, it would be a little bit less. A meaningful portion would be covered by pass-throughs as well or not resale, but more pass-throughs. But think of it as sub-50%, so a little bit exposed there. But as resins move, we would do what we normally do, which is kind of work with customers to recover the higher input costs. Looking at the first quarter, I'd say we saw minimal impact on all of that. We saw a little bit of higher freight costs in the quarter, but minimal impact across other input costs. And as we've talked about kind of many times, as we see input costs move, we typically recover on a lag basis to the extent if oil stays high, resins stay high, we would work with our customers to recover that over time and frankly, would expect to recover the bulk of any swings over the course of the rest of the year. Last comment I would make on, we get a lot of questions on energy, particularly in Europe, but we're in a much better position now than we were, say, in 2022. We're hedged about 2/3 of our both electricity and natural gas spend in Europe for this year and about 50% hedged for next year. So swings in costs, near term, we're pretty well protected there as well. Swamy, anything else? Seetarama Kotagiri: No, I think you covered it well, Phil. The one thing that you might look at is the logistics and the freight costs. But that's the reason why we talk in terms of ranges. We feel pretty confident based on everything that you said, we would be able to contain it. Alexander Perry: Really helpful. And then I guess just my follow-up question. So the production outlook came down a bit, but you kept sort of all the segments the same other than Power & Vision, which came down a bit. Maybe walk us through why that is and sort of how you're thinking about production in the various segments? Philip Fracassa: Sure, Alex. So what happened there was we had 3 things that happened in the outlook. First, we took the production estimates down, as you referenced, which was a slight downward revision in the revenue, if you will. We took foreign currency up as we're modeling a slightly weaker U.S. dollar than before. And that sort of offset one another as compared to February across most of the segments. And the one exception was P&V, where we also layered in the anticipated closing of lighting and rooftop systems and kind of in the second half, call it, near the end of the third quarter sort of what we modeled. And that kind of had the effect of bringing P&V revenue down about $400 million or so if you look at the outlook. But it was really kind of FX and vehicle production offsetting one another in the other segments. And honestly, the fact that we held the margins despite that because oftentimes when foreign currency improves, we don't get the same incremental that we do when volume goes up or down. So we were able to kind of offset that, hold the margin range where it was, hold the EPS range where it was, just given the -- given how well the business was performing, particularly in the first quarter of the year. Alexander Perry: That's incredibly helpful. Best of luck going forward. Operator: Your next question comes from the line of James Picariello with BNP Paribas. James Picariello: Can you just speak to the favorable commercial item? Can you just provide more color on what actually took place? Was it unexpected for the full year? Or was it more of a timing shift within the year in terms of the ability to get that recovery, which showed up in equity income, right? Philip Fracassa: Yes, exactly, James. So 2 things there. It was a recovery in the first quarter in equity income, it hit P&V. We had initially planned for it in the second quarter. So it wasn't a variance for the full year. It was a timing shift between Q2 and Q1, and it really related to recoveries for past investments in EV programs. And just to kind of give you an order of magnitude, it was the bulk of the equity income improvement in margins year-over-year was probably 60 basis points of that improvement was that item. And again, hitting in P&V, you'll note that P&V had really strong performance in the quarter, revenue up strong incremental margin on the revenue. But even excluding that item, the incrementals in P&V would have been quite strong on the order of 30% even without that item. So P&V performed really well, good growth across several different launches, good growth in some of our camera businesses, et cetera. But to answer the question, it was a onetime item, but it was timing between Q2 and Q1. James Picariello: Okay. That's crystal clear. Appreciate that. My apologies if I missed this in the prepared remarks. But for the lighting and rooftop divestiture, should we expect any proceeds from that? Or is it more of a partnership handoff type of arrangement because it's zero -- has neutral EBIT? Seetarama Kotagiri: James, as I said in the remarks, the transactions will be closing later this year, obviously, subject to approvals. They are margin accretive because they were below the Magna average, I would say. But it is a -- going back to the guiding principles, if you look at it from a strategic perspective in terms of market position, in terms of returns, we did not feel it was the right home and not the right path with us. That was the reason why the divestiture was done. We'll continue to look at portfolio just like we've always said with an objective lens. Philip Fracassa: Yes. And maybe just to round that out, James, I would want to point out that on our GAAP results, we did have -- we did book a loss related to those divestitures in the first quarter, just given where they were in terms of negotiations at the end of the quarter. So that was over a $400 million impairment that we took in the first quarter, which would be in the GAAP results excluded from adjusted. Seetarama Kotagiri: And there are some modest proceeds that will be used in the normal course, James, right, in terms of the cash flow looking at the balance sheet and how it will be used for share repurchases. James Picariello: Is this the beginning of a like ongoing pruning of the portfolio of smaller businesses? Or is this mainly a one-off? I'm just curious if there's anything strategic and sustained behind this type of sale for you guys? Seetarama Kotagiri: Yes. I don't think it is a onetime or it's -- if you go back into the last 10 years, you would have seen few pressure controls, you would have seen in the years. Honestly, James, this is an ongoing process. We continue to look at it every year. Can't speculate or won't comment on future actions, but I can tell you this is really a very rigorous ongoing process. Operator: Your next question comes from the line of Dan Levy with Barclays. Dan Levy: So your guide assumes 35 to 40 basis points of operational excellence. And you just did in the first quarter, I think it's 80 basis points. I know there's other stuff in that category in your earnings bridge. But maybe you can just give us a sense within the quarter, why you were out punching on that 35 to 40 basis points? And what changes in subsequent quarters? Or is there potential upside on that 35 to 40 basis points? Seetarama Kotagiri: Dan.The 35 to 40 basis points that we talked about obviously encompasses a lot of things that go on. The specific larger operational excellence initiatives that I mentioned in the past are really specific, for example, enterprise-wide digital architecture, data backbone, real-time performance management through data streaming dashboards and scalable automation of material handling and so on and so forth. But beyond that, there are thousands of initiatives that every division looks at in terms of material savings, in terms of OEE improvements. You can't really put an exact cadence. Definitely, with some of the programs in place and feel comfortable, the proliferation is a little bit accelerated. And it also depends on the cadence of how many ideas or VA/VE initiatives are in place in the fourth quarter and how they can materialize in Q1, right? But all in all, I would say we feel pretty good about the 35 basis points, 40 basis points. And if the macros hold good, yes, we feel pretty good that we'll keep that and continue the path. Philip Fracassa: Yes, Dan, just 2 things I might add there. We did accelerate really well last year with the operational excellence initiative. So probably a bit of an easier comp in the first quarter than maybe the comps we'll have as we move through the year. That would be one. But I would say, stepping back, a stronger than we expected performance on the operational excellence front in Q1. So to your point about if we can keep that going, I would agree with you that, that would present some upside for us. Seetarama Kotagiri: And that's why I keep saying, as we look at the proliferation, we are still in the early innings of the factory of the future. Dan Levy: Great. Okay. And then I just wanted to follow up on James' question on the divestitures here. So I get, there's constantly a portfolio review process to make sure that the products that you're in, that you have a strong market position, that's a relevant market and these businesses didn't clear that threshold. I guess I would just ask more broadly, the broader Magna portfolio, what percent of that would you deem to be in a market position that is not where it should be and where it's a tougher path to sort of getting to an appropriate market position? And how would you characterize Seating as it relates to your market position and path to improving the market position? Seetarama Kotagiri: Yes. It's a long question, Dan, and, you know, it's a complex one. As you look at most of the products, right, we're not really saying we have to be #1, but you need to have meaningful market position, but along with it also good returns and good profitability. And it's not at any one point in time. You have to look at it, you invest, you go through cycles. And if you see a good path and if you see good progress, we continue to stay on it. Specifically to seating position, we -- again, it's not just looking at it broadly as a global market. In North America, we have a good position. We have good position in Europe. We have really good position now in China. And more importantly, we have some really good innovation in terms of not just the product, but how we assemble the seat and how we take it forward. And as part of this operational excellence or Factory of the Future initiatives, you'll start seeing that. Hopefully, we can talk to you a little bit more when we see you in November for the Investor Day. But we feel pretty good, and you'll continue to see the traction on the profitability and the returns in that segment. Operator: Your next question comes from the line of Chris McNally with Evercore ISI. Chris McNally: Swamy, a little bit of a broader question around some of the risks in the second half of the year. And I know this is high-arching question that, you know, I think everyone is getting asked. But I'm curious your perspective, if you're more worried about sort of the known, unknowns in the second half or the unknown, unknowns. So when I think about known unknowns, raw materials transport, second half volumes sort of the typical that you're curious duration of the issue of the conflict. But the unknown unknowns is the one that we are having the hardest time grappling with as investors in the self, and things like memory availability, chip availability or just other disruptions. Just maybe you could opine on those 2 buckets for what you're seeing sitting here in April? Seetarama Kotagiri: Yes, Chris, I'm going to use your terminology, known unknowns and unknown unknowns. Honestly, I think if it's a known entity or variable, right, for example, things that you just mentioned, we at least have a scenario analysis and a playbook to say how we are going to address it. And that's the reason why we talk about outlook and ranges and not specific numbers. The bigger question is the unknown unknowns, right? Because you haven't thought about it. You might have some scenario planning, but it's not as granular. So those are the bigger questions. If you look at the DRAM, we are focused on it. We are tracking it. We are monitoring it. We're working with our customers. Continuity is the most important in terms of supply. We are doing that. We're managing costs through sourcing actions and customer alignment. That we believe, if the world doesn't flip upside down, we can manage it within our outlook ranges. That's an example of something that is a scenario planning and we can address. Things that we don't know in terms of complete volatility, big macro issues, lack of certainty and volatility are the 2 things that you have to constantly worry about. Chris McNally: That's great. And if we could just double click, Swamy, on the one on memory because we obviously get this question a lot. We see obviously everything going on with AI and the hyperscalers. But -- is it fair to summarize that the industry's view because I think that many companies have been asked this, that right now on memory, there's more of an issue around price, meaning you may have had some contracts and basically memory providers are coming back and asking for closer to spot as opposed to contract, and that's some of the risk as opposed to literally pulling the volume, which would not allow for cars to be made. Is that a fair summary of where the industry kind of view is right now that there's a little bit more of this price discussion, I want to be paid for spot as opposed to pulling volumes? Seetarama Kotagiri: The short answer, Chris, I would say your summary is correct in the short term, right? It's more a pricing and how do we manage that in terms of demand and keeping capacity and so on and so forth. In the long term, you've got to look at design options and so on. In short, your summary is correct. Operator: Your next question comes from the line of Joe Spak with UBS. Joseph Spak: Phil, just -- I'm sorry to go back to this. I just want to make sure I understand some of your comments on recoveries because it sounded like maybe it was, I don't know, $60 million, $70 million in EBIT. I'm trying to just sort of figure out how that relates to -- in the report, it said the recovery for your investments in the quarter was like $475 million in cash flow. So I just want to make sure those numbers are correct, that part of that recovery in the cash flow was not in the operating income. And then on that recovery in the cash flow, I just want to make sure that is what you sort of expected? And is that mostly done? Or do you still expect more cash recovery to come down the pike? Philip Fracassa: Yes. Thanks, Joe. Great question. So I think you've got it right. So first of all, the 60 basis points or call it, $60-ish million, the equity income item was did run through the P&L, but it's the $475 million that we called out in our MD&A was really balance sheet only. So the vast majority of that recovery was a balance sheet recovery. So getting sort of reimbursed for prior investments that we made that were sort of sitting on the balance sheet. So very little P&L impact from that. And we did largely expect that in 2026, but just later in the year, maybe a little bit overall for the full year, maybe a little bit higher than we previously anticipated. But -- so is there any more to come? There's a little bit more we would expect between now and the end of the year, not of that same order of magnitude. It's reflected in the full year outlook as we continue to work with customers on other negotiations that are ongoing. But the -- beyond that $60 million that ran through equity income, we had very little running through the P&L for the other recoveries. It was really just cash only. Joseph Spak: Okay. Really appreciate that clarification because I was having trouble connecting those 2. Second question, Swamy, and I apologize in advance because I don't want to put you in the middle of a geopolitical storm, but there have been reports of Chinese OEMs looking to maybe build vehicles in Canada. And I was wondering if you were able to comment on any conversations you might have or even more broadly, how you would view that potential opportunity? Because obviously, you mentioned some of the wins with the domestic Chinese, whether it's Complete Vehicles or others. So you have that good relationship there. And I was wondering how that could sort of spill over to this region. Seetarama Kotagiri: Yes, Joe, for the exact reason that you mentioned, I would like to remain a businessman and a capital allocator and not a policy commentator. So I won't comment on speculation. I can say that Magna's model is to be neutral global partner to all OEMs. And we are not -- as you've heard me talk about it, we continue to win business in Europe with our Complete Vehicle assembly with all OEMs. Today, it happens to be the Chinese OEMs. And we continue to win business in China with Chinese OEMs. Any OEM that continues to grow in the ecosystem, we have an opportunity to supply Magna systems and components and also do vehicle assembly where possible. Operator: Your next question comes from the line of Tom Narayan with RBC Capital Markets. Thomas Ito: This is Thomas Ito on for Tom. It looks like your guidance implies some pretty substantial margin uplift in BES and Seating for the remainder of 2026. Just wondering, is this sort of just the timing of customer recoveries or are there other factors going on in these segments? Philip Fracassa: No. I mean, I would say it's really continued progress on the operational excellence initiatives and then obviously getting really strong pull-through revenue. The P&V was a -- we're expecting strong growth in P&V for the full year. We didn't have the item in the first quarter. For the full year, the margins will be on the implied guide would be pretty close to the first quarter performance, but still really solid growth year-over-year. And the BES and Seating over the course of the rest of the year would expect the operational excellence really being the biggest item that's kind of sticking out relative to the improvement from Q1 through to Q4. I don't know, Louis, anything else you'd add. Thomas Ito: Okay. Got it. And I guess as a quick follow-up, we saw another supplier announce some revenue impacts related to the IEEPA tariff adjustments. Could you just comment on whether any such adjustments are incorporated in that '26 guidance? Philip Fracassa: Yes. I mean it's a great question and I figured we would get it. So on tariffs, let's just take a step back. We came into the year based on last year's rates, if you will. We had about $160 million gross impact last year. The run rate would have put us at around $200 million this year. Again, looking to recover that from our customers. We had a lot of development. IEEPA came out, 122 came in. We had some changes in 232. Net-net, our gross exposure has come down. So from $200 million, now we're thinking it's closer to last year's number actually, right around $160 million. Our net exposure relatively unchanged and we still expect maybe a little bit better, but relatively unchanged. We still expect a margin headwind of less than 10 basis points, but year-over-year would be neutral in that scenario. And then relative to the last element would be the refunds, I would say we are working to file those refund claims sort of as we speak. We're in the midst of filing them as we speak. And it's a good sized number. We talked about it was probably over half of our tariff exposure, roughly half of our tariff exposure was IEEPA. So as those refunds are filed, as those refunds come in, we didn't book any of those refunds in the first quarter. As those refunds come in, we'll obviously work with our customers on that given that they funded -- they covered about 80% of our tariff costs last year. So we'll work with them as those refunds come in to make sure that they're allocated appropriately. Operator: Your next question comes from the line of Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to follow up on the comments you made in the prepared remarks about the expected cadence of earnings this year. And in particular, I think you said Q2 margins would be broadly stable year-over-year. Can you just give us a few of the puts and takes in there? Is there some timing of things that shifted from Q2 into Q1? Or I guess, how should we think about the stable margin year-over-year this quarter? Philip Fracassa: Yes. I think it's -- well, relative to expectations, we had that equity income item that kind of moved from Q2 to Q1. But as we sort of set up the cadence for the rest of the year, we did, I would say, deliberately take a little bit more measured view on the second quarter, a little bit more cautious view, if you will. And so as you look at year-over-year at sort of the midpoint of the guide, we'd probably see a little bit of increase in revenue year-over-year with kind of a proportionate incremental margin kind of keeping margins relatively flat. We've got foreign currency as a positive in there, which kind of come through as with a little bit lower margin and then the volumes kind of coming down a little bit with a little bit bigger impact. So really nothing more than that. The operational excellence continues, but it was really more just trying to be a little bit more measured in how we were thinking about the second quarter as kind of we're sitting here in time and space. But as we look out to the rest of the year, still very confident in the full year guide and very confident in the margins and earnings, et cetera. And if you remember in February, we talked about first half EBIT being kind of slightly above 40%. This time around, we're probably seeing a little bit more one half weighting on the EBIT, maybe sub 45%. So think 43-ish kind of percent first half, second half, and that should kind of get you in the ballpark. Emmanuel Rosner: Okay. That's helpful. And then I was hoping to ask about your growth over market, which I think you said you measured it as like 3 points for this quarter, I guess, for Q1 or 5x Complete Vehicle, still good conviction in, I think, 0% to 3% for the full year. Can you talk about some of the upcoming big launches that you have that will drive this growth of the market and potentially serve like any sort of cadence within that? Seetarama Kotagiri: Emmanuel, I think like you said, it's really a reflection of the launch activity. It's a bit of good program mix and also content growth across all our core segments. So net-net, if you look at the end of production programs and compare it to the new production launches that we have, which is many across these different geographic regions, different customers, different programs. And if you take the content, so that's positive net-net, right? So that's the reason why we are seeing that. And the Complete Vehicles, you heard me talk about the specific program launches with GAC, with XPENG and the discussions continue. Operator: Your next question comes from the line of Colin Langan with Wells Fargo. Colin Langan: I just want to follow up again on the recovery impact. You mentioned the 60 basis points from JV. If I look at the slides in discrete items, it looks like half of the discrete items are also recoveries. So is there another $25 million, $30 million outside of the JV recoveries? And then I thought last quarter, you had said that recoveries for the year were neutral, and yet we have a big help in Q1. So does that mean as we go into the second half, that there's headwinds as those recoveries are down year-over-year? Philip Fracassa: So on the first part of the question, yes, in the discrete items, we did see the favorable warranty costs, which was a big item. And we also had the net impact of -- we did have favorable commercial items as well, which sort of spans the gamut of not just EV-related recoveries, but recoveries for other commercial matters as well. And as you know, that can sort of vary quarter-to-quarter. I think we did talk about coming into the year thinking we'd be largely neutral for the full year on the P&L with respect to recoveries. But on the cash, we did get a fair amount of cash for EV-related recoveries last year. If you remember, in the fourth quarter, we had a big cash inflow in the fourth quarter. So we did expect recoveries as it related to the EVs to be a fair bit comparable. So we do expect to be that way for the full year. So we -- it was more front-loaded this year. It was a little bit more backloaded last year. But our guide of free cash flow of kind of $1.7 billion at the midpoint sort of implies about $1.3 billion for the rest of the year, and that will be, as always, is kind of back half weighted. Louis Tonelli: On the recoveries, the recovery related to equity income was kind of in the equity income in the roll between '25 and '26. So I guess it's just bucketing. We had that in equity income is part of the reason why we had higher margin this year, not in this kind of recoveries. Recoveries we're talking about here are more on a consolidated basis. Colin Langan: You still expect recoveries to be neutral for the year. The initial guide did incorporate the JV help from recoveries. Seetarama Kotagiri: It did, yes. Colin Langan: And then just broadly, if I go into the second, I mean, Q2 is supposed to be flat. Organic sales are -- I think the guide implies are fairly slightly down actually. You have $100 million sort of implied EBIT improvement. I kind of feel of like we're out of some of the puts and takes outside of warranty. JV incomes are, I think, kind of most of that good news in the initial guide is done. So is it all just operational efficiencies or other items that are kind of going to add some help to kind of offset the -- at least at the midpoint, weaker sales? Seetarama Kotagiri: Yes. I would say some of it is as you talked about operational excellence, but as new programs come in, they have different economic terms, and there is a mix of, as I said, launches, right, that are happening towards the second half of the year. So I would say it's a combination of the 2 columns. Operator: Your next question comes from the line of Andrew Percoco with Morgan Stanley. Andrew Percoco: I wanted to start out on your disposing of your lighting and rooftop systems business. But I kind of want to get a sense for is there anything -- as we think about the evolving landscape, particularly around ADAS and AVs, are there any areas where you might want to grow your portfolio or add to the offerings that you currently have around that ecosystem? Seetarama Kotagiri: Yes. Andrew, I think I've said that the last couple of quarters, and we feel pretty good where we stand with our portfolio right now. I think the focus is really on organic growth and trying to get the efficiencies up, get the traction that we have in operational excellence continue, focus on the cash flow and continue the journey right now. But if there is some really good opportunity in terms of small tuck-ins that add value here and there, obviously, we'd be open to it. But our focus really is on continuing to keep the roadmap that we have in front of us for cash flow and good value. Andrew Percoco: Okay. That makes sense. And then maybe just around these recoveries. I'm curious like if you -- if you or the industry in general, are planning to adjust how you maybe strike these contracts with your OEM partners going forward. I know there's been a big kind of rightsizing exercise in the industry around EV manufacturing capacity, but the OEMs are still very much committed to exploring new vehicle platforms. So I'm just curious, as you kind of think about that next cycle, how you might evolve that contracting structure to maybe avoid some of the overinvestment that we've seen in prior cycles? Seetarama Kotagiri: Yes. I don't know if we can change the decision of the OEMs, but we definitely can bring our opinion to the table. And there are cases where we have looked at different terms, right, there is sharing of capital deployment, let's say, looking at volumes and how we band them and how we look at the step function of cadence as you go into the program rather than putting all the capacity upfront. There are several of those discussions. We are fortunate to have those strategic discussions with the customers. And as an industry, I think the big elephant in the room is like how do you become good stewards of the capital, right? How do you extrapolate what's there, what's capacity that's existing, how do you use it more efficiently rather than just adding more. But like you said, it's a 2-way traffic, and we have many of those discussions. Operator: Your next question comes from the line of Jonathan Goldman with Scotiabank. Jonathan Goldman: Most of them have been asked already. I guess just one on the guidance. I think you talked about the rooftop and lighting business being below the Magna consolidated margin levels, but you maintained the margin guidance for the year. I would have thought the divestiture may have been margin accretive. So I just want to know what are the offsets there? Seetarama Kotagiri: So I think, Jonathan, good question. But we are looking at the broad picture of Magna, given the uncertainty in the market that we have. And what we're looking at, that's the range we are talking about. Philip Fracassa: Yes. The only -- yes, that's exactly right. The only thing I would add, Jonathan, is it was really -- we're talking about, call it, 3 to 4 months of the year, so not a big number in the current year. And the other point to keep in mind, too, is we took revenue up for currency, which comes through at an EBIT margin, if you will. We took revenue down a little bit for volume, which sort of comes out at an incremental or a decremental as the case may be. So there's a little bit of that going on there, too. But there's no question to both P&V and to Magna as a whole, that the divestitures would be modestly accretive to margins just given where they were operating. Jonathan Goldman: Okay. That's good color. And then maybe just circling back on that one, Phil, the revenue guidance, maybe switching to mix, maybe more currency in the sales this year. Is the offset the lower production volumes that you've updated the guide for? Philip Fracassa: Yes. I would say when you think about -- so we're kind of holding the EBIT -- we're holding the EPS guide, we did see a little bit of a benefit on the interest line below EBIT as, you know, the free cash flow in the first quarter was much sooner than we anticipated that cash coming in. So it will result in lower borrowings throughout the year, a little bit of interest benefit. So while revenue is down a little bit, with holding margins would bring EBIT down a little bit, a little bit of offset in interest expense, which kind of enables us to hold the range where it was before. And again, kind of holding the range despite the strong Q1 was really as much just being a little bit prudent on the rest of the year at this point. Operator: Your next question comes from the line of Mark Delaney with Goldman Sachs. Mark Delaney: One on margins. When considering the efficiency efforts that the company has underway for this year, the expectation of 35 bps to 40 bps as well as the portfolio optimization you announced relative to lighting and the rooftop part of the business. Maybe put that into the context of where Magna thinks its EBIT margins can go over the medium to longer term. And in the past, the company has spoken about the potential to get to a 7% plus type range. I'm curious where you think you are on that journey, especially in light of some of the decisions and progress you reported today. Seetarama Kotagiri: I think I can tell you we are in a good path to the roadmap that we laid out. Right now, we are focused on executing like we did in Q1 over the last 2 or 3 quarters, and we see a good path into '26. That's why we were able to reaffirm the outlook of 2026. Now regarding the midterm and long term, I would say the best time to get through that without confusing anything is the November Investor Day. We will be able to lay out the next 3 to 5 years. Mark Delaney: Looking forward to that. And my last question was around the production environment. You already described your view on overall production volumes by region, but we're hoping you can share a bit more around mix. And curious if you're seeing any changes in the kinds of vehicles your OEM customers are looking to manufacture? And perhaps is there some increase in the number of EVs and hybrids that they're planning to make in light of the recent increase in gasoline prices? Seetarama Kotagiri: Not really a significant shift in what's been talked about. Obviously, there's an increased interest in hybrids, and it's very regional. In China, we continue to see the EV proliferation. In Europe, it's a little bit more hybrids and EVs continue there at a slower pace maybe. In the North America, we see renewed interest in hybrids. But in terms of vehicle segments, no, not really, we are not seeing a material shift in anything else. Operator: Your next question comes from the line of Michael Glen with Raymond James. Michael Glen: Swamy, with the wins happening in Europe with the Chinese OEMs, are you at all supplying any parts to those vehicles yet? Or is it strictly assembly? Is there an opportunity to expand and supply parts? Seetarama Kotagiri: Yes. I think, Michael, right now, it is just assembly. Obviously, the conversations as this expands into volume, there is a localization discussion, and that's where we see the opportunity for other system and component supply. Michael Glen: Okay. And then just following on that, maybe just broadly with Europe. I know you don't break Europe out separately as a segment. But how do we sort of think about gains with new entrant OEMs into Europe and then what appears to be the lagging legacy OEMs. As a whole, is this a net negative to Magna? Or are the gains being made with the new entrants offsetting a difficult legacy business? Seetarama Kotagiri: Yes. Difficult to break down at that granularity for sure, Michael. I think I would say with the presence of Magna in China and as we continue to build that relationships, we believe that they come to different parts of the world, we will have a seat at the table. At this point of time, it's very difficult to talk at that level to say how much and how it's offsetting and so on. But overall, we still continue to grow our business in Europe. Operator: That concludes our question-and-answer session. I will now turn it back to Louis Tonelli for closing comments. Louis Tonelli: All right. Thanks, everyone, for listening in today. If you have any follow-up questions, please don't hesitate to reach out to me. Thanks, and have a great day. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you all for joining, and you may now disconnect.
Operator: Thank you for standing by. My name is Amy, and I will be the conference operator for today. At this time, I would like to welcome everyone to the FIBRA Prologis First Quarter 2026 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Alexandra Violante, Head of Investor Relations. You may begin. Alexandra Violante: Thank you, Amy, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. Before we begin our prepared remarks, please note that all information disclosed during this call is proprietary and all rights are reserved. This material is provided for informational purposes only and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements made during this call are based on information available as of today. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this call, we may refer to certain nonaccounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events or otherwise, except as required by law. As is our practice, we have prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at fibraprologis.com and download this material. On today's call, we will hear from Hector Ibarzábal, our CEO, who will discuss our strategy and market conditions; and from Jorge Girault, our CFO, who will review results and guidance. Also joining us today is Federico Cantú, our Head of Operations. With that, it is my pleasure to hand the call over to Hector. Hector Ibarzabal: Thank you, Ale, and good morning, everyone. As you know, we launched the tender offer for FIBRA Macquarie fully aligned with our long-term strategy. Our proven track record executing similar transactions gives us confidence in our ability to unlock value through our operating platform. We ended the first quarter of 2026 with solid operational results, supported by the quality and resilience of our portfolio as well as exceptional service to customers provided through the strength of Prologis platform. As the environment becomes more balanced, our outlook remains constructive. On the market side, in the context of ongoing uncertainty around trade and USMCA, selective but important customer activity continues to move forward, driven by operational needs. New leasing activity continues in line with 2025 quarterly levels with improved performance in border markets, particularly in nonautomotive manufacturing. Mexico City moderated from last year's peak due to softer e-commerce demand, although we expect a near-term recovery. Net absorption totaled 4.3 million square feet, well below 2025 average levels, primarily reflecting tenant consolidations in Mexico City and some tariff-related impacts in Tijuana. We do not expect these matters to become a trend in upcoming quarters. Market rents continue to grow modestly, led by consumption markets, while most border markets have stabilized. On the supply side, deliveries of 9 million square feet were 24% lower than the 2025 average. Vacancy in our 6 markets increased 70 basis points to 6.8%, mainly driven by move-outs in the consumption markets. However, we expect to see a stabilization in national vacancy in the following quarters, considering that the development pipeline has already declined to half of the peak levels seen in 2023. Furthermore, our portfolio continues to demonstrate outperformance, supported not only by the quality and location of our assets, but also by the execution of our teams on the ground and our close relationship with customers. Our strategy remains centered on Mexico's key industrial markets where we see the strongest long-term fundamentals. In addition, our sponsor Prologis provides meaningful advantages, including deep customer relations, market intelligence, clean energy and access to low cost of capital. On the disposition front, we will continue executing our strategy by exiting non-core markets. In the meantime, we have been creating value through operating and re-leasing them with excellence. I need to be clear, we are selling good assets in good markets. We have the balance to hold them as they are generating value, and we will wait until the most adequate buyer appears. In summary, despite external noise, our business remains resilient. Our strategy is clear, and we are well positioned for long-term growth. Before I turn it over to Jorge, allow me to close on a more personal note. This marks my final earnings call after more than a decade with FIBRA Prologis and since our IPO in June of 2014. It has been a privilege to be part of this journey from the beginning and to participate in every earnings call along the way. I also had the opportunity to help start the business in Mexico in the early 2000s, making this journey especially meaningful to me. I'm particularly proud that FIBRA Prologis is today the largest FIBRA in Mexico by market capitalization. And among the most successful in total return since our IPO, reflecting the quality of our assets and the discipline and long-term vision behind our strategy. Looking ahead, the company is in very capable hands. Jorge will assume the role of CEO. We have worked together for more than 30 years, sharing a strong alignment of values and a deep understanding of the business. I can think of no one better to lead the company going forward. Alexandra will step into the CFO role. She has done an outstanding job leading Investor Relations, building a strong market [ conditions ] and demonstrating deep financial discipline. This is a well-deserved opportunity, and I'm confident she will do great. I'm deeply grateful to our investors for the trust, our customers for their partnership and especially to our team for their permanent commitment and excellence. We have built a platform defined by quality, discipline and long-term vision, one that I'm confident will continue to perform. I step down at the end of June, closing a great cycle with great pride in what we have accomplished and full confidence in FIBRA Prologis' future. With that, I'll turn it over to Jorge. Jorge Girault: Thank you, Hector, and good morning, everyone. Despite regional and global uncertainties in the context of USMCA and Middle East tensions, we started the year with a strong note. With the integration of Terrafina into FIBRA Prologis balance sheet, we are harvesting the synergies of the strength of our platform by lowering cost of capital through our investment-grade rating and lowering expenses for 2026. All this in line with our goal of value creation for our investors and our focus on growing in a diligent and prudent manner. Before reviewing our financial results, I'd like to note that starting this year, we will report exclusively in U.S. dollars, our functional currency. We will no longer present figures in pesos in our financial information. We believe this change simplifies the valuation of our performance. Moving to financial results. FFO was $99.6 million for the quarter or $0.06 per certificate, basically flat year-over-year. AFFO totaled approximately $80 million for the quarter, in line with our expectations. Let me go to our operational fundamentals. Leasing activity was 3.6 million square feet during the quarter. Our period end and average occupancy were around 97%. Same-store cash and GAAP NOI growth was 9.9% and 10.7%, respectively. Net effective rent change for the quarter and 12 months was close to 60%. As you can see, we keep on harvesting the mark-to-market in our portfolio, which stands today above 30%. What this means is that we can grow revenues without additional investment. This is a result of our strategy, people on the ground focused on delivering value and obviously, market dynamics. Turning to the balance sheet. We continue to operate with a conservative financial profile. We're maintaining a healthy loan-to-value and we'll keep on extending our debt maturities. We will use our financial flexibility to our investors' advantage with a focus on delivering superior quality returns. Moving to guidance. We're keeping our guidance unchanged, which you can see on Page 8 of our financial supplemental information. In terms of our tender offer for 100% of FIBRA Macquarie CBFI's, launched on April 7, which will close by May 12, I would like to remind you that we have all required approvals in place. Also, following law of regulation, we will not further comment on the progress of this transaction. Like Hector said, FIBRA Prologis is the largest FIBRA in Mexico by market capitalization and ranks among the top 20 publicly traded companies in the Mexican Stock Exchange. It's also among Prologis' largest vehicles globally by AUM and GLA. Mexico as a stand-alone market is Prologis' second largest in terms of area, underscoring Mexico as a key market out of 20 contracts Prologis invest in. Since our IPO, we have delivered approximately 490% total return or 16% annually, outperforming our peers. This reflects our ability to leverage Prologis global platform and execute a disciplined strategy. I want to thank our people on the ground for their commitment and support on achieving these outstanding results. Before I finish, I want to thank Hector for your guidance, support, friendship and for putting your faith in me 32 years ago. You're a great leader and an exceptional human being. I am grateful for the trust and opportunity from Prologis leadership. I follow the path of remarkable leaders, Antonio Gutiérrez Cortina, who founded Caxion; Luis Gutiérrez, who took the company into the institutional arena and Hector Ibarzábal, who brought it all together and built the company we know today with passion and dedication that have carried across generations. Hector, you are one of my closest friends and someone I deeply admire. Thank you for everything. I will miss you. I will miss our daily interactions. I wish you the best in the years ahead, which knowing you have yet to come. I also want to thank and welcome and congratulate Alexandra Violante, who has led Investor Relations for the past 5 years with excellence and Montserrat Chávez, who after 15 years leading SG&A will now take the IR role. I am very proud that these promotions came from within our team, ensuring continuity while positioning us for what's ahead. To our stakeholders, my commitment is clear to leverage our unmatched platform, portfolio and balance sheet to continue creating value in the years to come. With that, let me turn it to [indiscernible]. Operator: [Operator Instructions] The first call comes from the line of Pablo Monsivais with Barclays. Pablo Monsivais: First of all, Hector, we're going to miss you. Thank you for everything. And Jorge, Ale and Montse, congratulations on your new appointments. If I can ask to what extent the dynamics that you're seeing on softer trends in the consumption market could support medium-term rent increases? Are we seeing the peak of the cycle for rent increments? Hector Ibarzabal: Thank you, Pablo, for your words and for having been with us all this long way. I think consumption markets are evolving. It is a fact that consumption is slowing the pace a little bit. But as I have mentioned in previous occasions, when consumption gets tighter, e-commerce has even a greater opportunity. E-commerce is the best instrument that people have to make sure that their buying power is getting the most for the money. So probably the 2-digit growth on market rents in Mexico City were peak, as you mentioned. But eventually, I'm confident that in the short term, they will recover. Jorge Girault: Pablo, again, thanks for your words. This is Jorge. Regarding the portfolio itself, as I mentioned, the mark-to-market today is about 30%. So as we roll, we keep on harvesting that mark-to-market. So market rents as we have seen, especially in the border has softened. So the space between where our markets are, our rent markets, our portfolio rents are and the market is still pretty substantial, and we are harvesting that business. Operator: The next question comes from the line of Gordon Lee with BTG. Gordon Lee: I'd just like to echo Pablo's gratitude to Hector. My best wishes for whatever comes next. I'm sure it will be exciting and also my best wishes for Jorge, Ale and Montserrat. Just very quickly, it seems -- generally, it seems from your comments and I guess from the decision to launch new projects by PLD, together with other comments from companies that are involved in the development side of things, both public companies and private companies that it seems like there's a little bit more activity or more appetite from potential new clients for new space. So I was wondering what -- if there's a common theme to that or what you would attribute it to? Is it just the passage of time and that passage of time forcing decisions? Is it the view that whatever happens with USMCA in relative terms, Mexico will, for certain products, be better off than other locations? Or what is it that you're seeing, if you're seeing that's prompting that sort of increased appetite at the margin for space? Jorge Girault: Thank you, Gordon, and thank you for your words. Again, it's a little bit of everything you said. As Hector mentioned in his opening remarks, supply has come down, which is something good from occupancy levels and from market dynamics. Some markets are requiring this new development. Mexico City and Guadalajara are requiring bigger footprints, if you may. And we see some clients that are taking decisions regardless of the indecision on USMCA. So it's a little bit of both, and some markets are getting this type of traction. I don't know, Hector, if you want to add anything. Hector Ibarzabal: Yes. I think that leading companies, they do understand that this uncertainty will be or is already the new normal. And they have operational needs. So they are commencing to move forward important projects, I would say, understanding that this condition will not necessarily be defined automatically by the execution of the USMCA whenever it happens. So I think that the leading trends from important customers are going to be itself a confident sign to the remainder companies to keep on moving. Mexico fundamentals are strong, location, supply chain, availability of labor, and that's going nowhere. So we're confident about the future, even though we need to surpass these volatility times that we're currently living. Operator: Your next question comes from the line of Alejandra Obregon with Morgan Stanley. Alejandra Obregon: Hector, thank you for all the learnings and collaboration over the years. And I guess my very best wishes to all the entire team for what's coming next. So my question is a little bit perhaps a follow-up on the prior 2 questions. If you can perhaps elaborate on these leasing spreads and incremental demand on the margin, whether it's more visible in any particular market, especially on the manufacturing ones, whether you're growing more constructive in any of these markets on a given particular driver? So that would be my first question. And if I can double-click on that same question, but for the non-core portfolio, whether you're seeing any, I'm going to say, upside or downside risks for the assets that you have inside of the non-core portfolio? Federico Cantú: Thank you, Alejandra, for your question. This is Federico Cantú. So as far as leasing spreads, we don't break them out per market, but we have very healthy spreads across all our markets and especially in our consumption markets, Mexico City being a standout. So as Jorge mentioned, we expect to continue to harvest that -- our mark-to-market at 33% over the coming quarters. And even without any rent growth, we still have that opportunity. As our teams continue to leverage our customer experience, our locations, top quality product, that is something that our teams are very good at doing. And as it relates to the non-core portfolio, as was mentioned, we have had very good activity. Our teams are close to our customers. We had good leasing activity. We had good retention as well as we -- our mark-to-market is still also positive in those markets where there is activity. And so again, we feel good about that portfolio as well to continue to add value over time. Hector Ibarzabal: Let me highlight, Ale, what is happening in the non-core portfolio. Somehow, I mentioned it in my opening remarks. We have been able to increase in renewing contracts on the Terra portfolio 45.2% rents. There is no way that, that portfolio is not creating value when you have this type of re-leasing activity. So we are confident that the differentiation that Prologis has on making the right attention to the customer, providing the service and doing the right CapEx in the facility, plus all the other initiatives like clean energy that we're providing represents a real differentiator that allow us to be always on top of competitors regarding our leasing conditions. Our portfolio is gaining value. Development cost is not decreasing. So we are very confident and we understand well how much value we have created through Terrafina. And this is the main reason for us to have approached the following M&A transaction. We are confident that we will be able to replicate what we are doing and what we have done with Terrafina. Jorge Girault: And Ale, I don't want to make the answer more longer still, but to your question on the border markets and consumption markets. I mean if you look at the Page 12 of the supplemental financial information, you will see that market like Tijuana, which is a border market and has been softer, had almost a 72% increase in rent change and other market -- and Mexico City has almost 76%. So you can see how -- yes, the border markets are maybe softer, but the rent change depends on the venue of the -- the tenure of the lease agreement when you leased it at what levels and so on. So it's a mix of things, and we feel can harvest that. Operator: Thank you. The next question comes from the line of Piero Trotta with Citibank. Piero Trotta: Hector, wish you all the best for new phase and wish you luck and congratulations to Jorge as well. My question is regarding the better occupancy on the non-core portfolio, which improved to around 97%. I would like to understand what is driving this or was driven by disposition? And a question related to that as well is if tenants are becoming more price sensitive and migrating towards assets with lower rental rates? Or does the flight to quality trend remain intact? That's it. Federico Cantú: Thank you, Piero, for your question. So yes, we've had very good occupancy in our non-core portfolio. As I mentioned, our teams continue to stay close to our customers. We've had new leasing activity mostly in the Bajío region, and we've renewed important customers. So we feel good about our prospects, as we've mentioned, to continue to maintain and increase value in this portfolio. And as it relates to price, I want to highlight here the great quality of our buildings, as Hector mentioned, our investment in the properties, our top locations. We -- there is some of that flight to quality, as you mentioned, but also I would like to highlight the great job and the outstanding job our teams do on the ground to leverage our position and get to market rents and these lease spreads, which are phenomenal. So I'd like to again highlight that. And we do that across all our markets, leveraging our brand, our position and the great quality of the buildings that we have. Jorge Girault: And Piero, let me just -- this is Jorge, level-set on the question regarding the price on rent. Since IPO back in June 2014, we have lost maybe 9 tenants because of price increases. Rent is not the highest component of cost of our clients. Some have to take the decision because of M&A or other -- or they need more space or less space, whatever and we cannot deliver that. So that's an important fact. And again, the portfolio core or not non-core, it's a good portfolio. It's a good market. We treat everyone the same. But obviously, we will keep to our strategy. And this is one of the reasons that we have been keeping a good occupancy. It's not nuclear science. Operator: [Operator Instructions] The next call comes from the line of [indiscernible] with Goldman Sachs. Unknown Analyst: Here. So first off, I want to thank Hector. Thank you for the partnership over the last few years. It's been very insightful for our franchise. And I wish you well in whatever the future brings to you. And for the rest of the team, Jorge and Ale, I wish success in your new roles. So I wanted to follow up on the non-core portfolio. I know that there's been a couple of questions, but just wanted to understand a few items about it. So today, it accounts about for 24% of your GLA, 20% of NOI. You mentioned that there's been numerous investments done, upside has been delivered. But as I recall previously, you mentioned that you intended to divest part, if not all of this portfolio. So is the intention now to retain it and continue to grow it? And if so, could we see meaningful upside considering that occupancy has already reached around 97%. Those are my questions. Jorge Girault: Thank you, Gerardo. This is Jorge. To answer your question in a summary manner is we will keep to our strategy of investing in 6 markets, [indiscernible] 3 border markets and 3 consumption markets that we have always had. We will eventually sell our non-core portfolio. That's what we have said. It will take some time, and we've been harvesting the quality of those assets in the good markets and increasing the rents. We have -- I mean, like Hector said, on the Terrafina portfolio, we grew the rents 45%. In the part that we want to sell, the number has been close to 40% on rent increase. So we have been creating value in this portfolio. It has been, at the end of the day, in hindsight, a good thing not to sell it for now. That doesn't mean that we won't. We will keep to our strategy. But we want to do it in time. And like Hector said in his commentary at the beginning, at the right time and to the right buyer. And this is why we are not guiding on disposition. That doesn't mean we won't sell. It will take us some time. There has been, as you know, a lot of noise in the market, and we will take our time to sell and bring value to our investors, but that's the plan. Operator: At this time, there are no further questions. Mr. Ibarzábal, I would like to turn the call back over to you. Hector Ibarzabal: Thank you very much. I really appreciate your attention. Your time is very valuable. For me, it has been an impressive journey. And the most outstanding thing that I have done in the past besides the results that we have commented is all the close relations and all the many friends that I have been able to gather along the way. I'm not going anywhere far. So I wish you all the best, and I'm pretty confident that the new team will do it even better than what I was able to do. Thank you very much, and see you soon, guys. Operator: Thank you. That concludes today's conference call. You may now disconnect.
Operator: Good afternoon, and welcome to Poolbeg Pharma PLC Full Year Results Investor Presentation. [Operator Instructions] I'd now like to hand you over to Jeremy Skillington, CEO. Good afternoon, sir. Jeremy Skillington: Good afternoon, and thank you for the introduction. I appreciate everybody joining us this late afternoon. Finally, a bit of a sunny Dublin. It's -- bleak winter is over. And we're delighted here to be able to present on the back of our full year results announced this morning, company update, company presentation and let you know where we are with particularly POLB 001 clinical trials. So again, appreciate you joining us this evening. And I'll be sharing presentation duties tonight with Liam Tremble, our Principal Scientist, who will talk more of the POLB 001 clinical trial attributes. So just to give a setting, just a grounding, a reminder, Poolbeg, we're a clinical-stage company developing POLB 001 that we believe has the potential to transform the lives of cancer patients by delivering these cancer immunotherapies in particular safely and locally. There's a big unmet need. There's a lot of issues around Cytokine Release Syndrome associated with cancer immunotherapies, and we believe we have a solution for that. We'll talk a little bit more about the scientific and medical rationale for that later on. We're also developing an oral medication for obesity treatment, we'll touch upon later on as an oral GLP-1. Again, very exciting space to be in. We are an AIM listed company, listed in London. And we believe we've got a strong investment case. We've got a terrific team here behind us, both on the, as I said, the clinical business development, which will be critical, and I'll talk a lot about that and, of course, on the corporate and finance side as well. The clinical -- stage programs we're developing, getting into the clinic, these are clear large unmet medical needs and large, growing markets. We've done an in-depth analysis, particularly on POLB 001, again, we'll touch upon later on. So very excited about to get these moving forward. We have financial runway into 2027. So we've got several key clinical inflection points coming up. So we're funded through these clinical inflection points and into 2027. And that gives us scope then for partnering, for collaboration and licensing discussions. So again, we have had many discussions with potential partners over the last several months. Again, I'll touch upon those later on. So there's a strong interest in what we're doing. So a strong potential to secure partnerships. Of course, what comes with that is financial revenue, and we'll touch upon that later on. So right now, we're certainly in clinical development execution mode, particularly with POLB 001. But over the last 6, 9, 12 months, we've been gearing up on the partnering aspects, talking to a lot of big pharma companies, midsized pharma companies, and again, pitching and promoting Poolbeg. We've got high-value programs with strong IP. Those of us -- those of you who have kind of followed Poolbeg have seen the RNS that's talking about IP grants, very important in this industry. The proof-of-concept clinical trials we touched upon are ready to be done, touch upon the timing on that later on. And what we've built thus far with regard to the programs, we've got very high-quality and compelling human data in the POLB 001 setting. Again, touch upon that, Liam will cover. So again, our discussion with partners have gone exceptionally well. They're very keen, obviously. They see the value inflection point, and the derisking episode will be the clinical data that will read out in the summer of this year. A summary of what we announced this morning in our annual results. So we believe 2025 was a transformative year for Poolbeg. We really got ourselves kind of focused and driven and aligned with not just the market, but the clinical community as well, the Cytokine Release Syndrome community in the cancer immunotherapy space. We finished the year with GBP 7.7 million in cash, again, a healthy cash position. That allows us, as mentioned, to execute on our clinical development programs. The first bullet here, we have the TOPICAL trial, is fully prepared. And with that, that's the POLB 001 CRS prevention trial. We've appointed ACT as the clinical trial executor, the CRO that will run the trial. We've had fantastic discussions with Johnson & Johnson, and they have agreed to supply us with their approved bispecific antibody teclistamab. And they've given that to us at no cost because, obviously, they're keen to see the reduction in Cytokine Release Syndrome or CRS with teclistamab. And we've enrolled now -- we've lined up 6 U.K. cancer centers to be part of this clinical trial, and we've finished the protocol and we've gotten MHRA approval, which is very important to allow us to start dosing patients. Importantly, during 2025, we've got Orphan Drug designation from the U.S. FDA. So again, they recognize the scientific validity of what we are doing, what we are trying and reducing CRS. It is linked to patients who will receive these T cell engagers. And these are wonder drugs that are now demonstrating cures in these blood cancer patients such as multiple myeloma. So again, they're very good to get that. There's a lot of additional bonuses that comes with that, we'll touch upon later on. But certainly, from a partnering standpoint, that actually adds a lot of value to the program when it comes to talking with a big pharma company. So intellectual property is very important for this industry. It protects the programs as we get to the market. It doesn't allow any competitors to invade our space. We did get multiple patents granted last year. Many of you know, in the hypercytokinemia or the severe influenza space, we've been progressing down those roads for many years. But importantly, we got our first patent grants earlier this year in Australia when it comes to the cancer immunotherapy and CRS aspect. So very happy with that. And again, that helps bolster the discussions with pharma companies when they know that the program is protected. We also generated last year positive in vivo data, again, demonstrating that we can impact Cytokine Release Syndrome in an in vivo model. Liam will talk later on about a very exciting program we have in collaboration with Johnson & Johnson with the University of Manchester, that's looking into broader research into the immunology around Cytokine Release Syndrome. And then lastly, making progress on our oral GLP-1 program, which is now expected to start in the second half of this year due to the revised manufacturing lead time. I will highlight that last year, we were, again, very delighted to fund-raise GBP 4.865 million from the market. Tough conditions in the market, but I think the investors saw the potential of what Poolbeg is doing and what we can bring to the market. And speaking of this market, we've done some independent analysis where we see that preventing CRS in these cancer immunotherapies is a market opportunity of over $10 billion. And we'll talk about the details around that later on. When it comes to 2026, this year, again, we are at full pace right now. It's a full-steam-ahead situation. As I said, the first 4 months or so of this year has been, again, very productive from a Poolbeg standpoint. I mentioned the patent grant, and again, that's in the cancer immunotherapy space, which again adds validity to the program that we're doing. And again, we're hopeful that there will be many other opportunities to announce patent grants in other territories as we're going forward. We are, as I said -- have a wide patent application in various territories and they're moving through the processes there. It can be kind of a long process, but I think we're encouraged by the responses we're receiving from the various PTO organizations and the EPO organizations going through. Again, exciting this year, we've -- our LPS challenge study. This is our Phase Ib study that again was a very successful study run in the Netherlands. We were able to get peer-reviewed data published in that. And again, this peer-reviewed is important because as people look at the data, they look at the paper itself and they saw worthy of publication. We've gotten some very good feedback from that. And that springboards us then onto -- into the CRS prevention study we're talking about. When we see prevention of that inflammatory response in the LPS challenge, we're hopeful that we'll see a similar prevention of the inflammatory response when it comes to Cytokine Release Syndrome that's caused by these cancer immunotherapies. We're very excited. We had several discussions last year with Dr. Adrian Kilcoyne. He's an expert in the Cytokine Release Syndrome space. He's had many, many interactions with the U.S. FDA around developing clinical trial programs around CRS. He came onboard to join our Scientific Advisory Board and is now a very active member of our development team when it comes to planning what the future holds for CRS clinical trials. I mentioned we got MHRA approval this year as well. Very exciting. Again, it's a rigorous process where they take and review all of our data, clinical and preclinical. As I say, it's a very high bar for any drug to get into human clinical trials. So the MHRA gave us that approval in the past few weeks and we've announced at the RNS. And that gives us the green light to progress and move into the clinical studies that Liam will talk about. Again, we want to make sure, when we're talking to partners, we want to make sure -- or we make sure that they're aware that this is a significant market opportunity. So to achieve that end, we've had independent analysis done where we look at the market, the Cytokine Release Syndrome, the incidence that occurs in the various bispecific antibodies and CAR T cell therapies, these T cell engagers. And the impact it has on the health care system, the impact it has on patients, what it costs for the health care systems. So again, we were able to do an in-depth analysis looking at -- it's a multibillion-dollar peak U.S. sales potential stand-alone. So we spoke to 3 different payers talking about CRS and our program, and they're very enthused that this is a drug that they would happily reimburse if and when it gets onto the market because they see CRS is a cost drain for them as an insurance company. So they'd like to get rid of that. And as you know, we're talking about prevention of CRS. So I think it's a very important goal, a very important goal that we want to achieve here. And it's very well received by these insurance payers both in Medicare as well and Medicaid. Again, momentum in partnering has accelerated. As we get closer to the clinic, it's becoming more kind of apparent. What we have here is a very exciting program, as I mentioned, some of the large pharma companies and more midsized companies that maybe are in the more cancer supportive care area specifically. So they're all very excited to wait and see what this data hold, this clinical data hold as it reads out. And as I said, we've got multiple upcoming milestones in the near future. So again, I talk about momentum, I talk about running at full speed. So as I say, the POLB 001, the trial site initiation visits have been scheduled. So these are the 6 sites that we've -- are going to run this trial in the U.K. It's going to be led by Dr. Emma Searle at The Christie in Manchester, and she's brought some of her hematology colleagues onboard to be part of this clinical trial. So very excited to get that moving. As I say, the next step then is trial -- patient recruitment and dosing, so basically getting the patients onboard, these multiple -- these relapsed/refractory multiple myeloma patients, get them onboard and get them dosed, to get the clinical trial to -- the clinical trial up and running. But we always comment that like 80%, 90% of the work is done in advance of dosing patients. So we've come down the road quite a long way. So we're very excited to be at this stage right now. So again, we're looking to have this interim data, the POLB 001 CRS prevention data, in the summer. So again, it's linked to the patient enrollment. These are very short clinical trials Liam will speak to, so we should have data relatively rapidly out here. And then the second half of the year, we're looking for to commence our oral GLP-1 clinical trial. I'll talk a little bit about that later on. So fantastic, exciting time for the company. Again, very productive 2025, very productive first 4 months of 2026. So we're excited to be progressing this forward, and again, generating that key data, which will be the value inflection point, really derisking the program. And then transactions and collaborations, license agreements will follow from there. So we're very excited to be in the space. And again, thank you for attending this evening. Liam will present on the POLB 001 program. I'll return in the end and talk about the market opportunity and the oral GLP-1 program. And then we will open up the floor for questions. So again, thanks for your time right now. Liam, over to you. Liam Tremble: Brilliant. Cheers, Jeremy. So just I'm going to do a brief introduction to POLB 001. But before we jump into the asset itself, I want to give a little bit of context of where the field has come. So obviously, over the last number of decades, a massive amount of progress has been made for cancers. It's not been symmetrical. Some cancers have had significantly more progress than others. But if we look at something like multiple myeloma, it's really been a poster child for where significant progress has been seen. So for somebody diagnosed 23 years ago, 2003, 5-year survival, 10-year survival really wasn't that great. 30%, 5 years; 10 years, about 20%. And it's because the treatment options really weren't that effective. And a lot of these you might be a little bit familiar with: pomalidomide, chemotherapy, corticosteroids. They didn't do a massive amount for all patients. Fast forward 20 years and the progress has been exponential. If you're diagnosed now, 5-year survival rate is well over 80%, or estimated; 10 years, well over 60%. And I say estimated because the progress is so quick that the pace of clinical trials is faster than the survival data we have from those clinical trials. So at the moment, in multiple myeloma, we've obviously -- we've had immunotherapies be approved in the last number of years, so CAR T cell therapies, bispecific antibodies, but also a number of other therapies like antibody drug conjugates, proteasome inhibitors. It's quite common now for multiple myeloma patients to actually get quadruplet therapies as first line or even quintuplet now because the therapies are so effective. And a lot of the projections, so this is a disease with a median, so 50% of people get it age 69 or older. And some of these frontline therapies have median progression-free survival projected to be up around 15 years. So really in myeloma, you're at a position where people are discussing functional cures where really patients will pass away from old age rather than their disease. And that's what we're ultimately trying to achieve for all cancers. What's important about this is that when we get to this stage where multiple effective options exist, patient preference has a significant impact on market uptake of the drug. Patients don't always go for the drug with the best overall survival. They also consider things like time at home, treatment time, having to travel to hospitals. Some of the tolerability issues can be quite significant for these drugs. The immunotherapies, for instance, have a lot of severe infections that can happen for years afterwards. So they all have a very meaningful impact on what drugs patients actually decide to take. So for these CAR T cell therapies and bispecific antibodies, they really are revolutionary. For the CAR T cell therapies, are potentially curative in some patients. And it's really making sure that they are accessible to all patients. So if I zoom in on the bispecific antibodies, these are breakthrough immunotherapy as well. And they're extending into early lines of therapy. As I'll show you on some of the later slides, at the moment, they have to give micro-step of doses. And it's quite common for patients to be hospitalized for 5 to 10 days just for these initial doses because of the risk of CRS. So they have a significant amount of time in hospital just to get on to these therapies. And then obviously, they have downstream infection risks as well. So a lot of these therapies as well are restricted to specialist cancer centers who have the expertise and the tools to manage these patients. It depends on what country you're coming from, but in some countries, this is a very significant obstacle to accessing these therapies. Particularly in the U.S., people talk to things called treatment deserts. It's where patients can live hundreds of kilometers and miles from their nearest hospital who can administer these therapies, and really is a significant issue for a lot of late-stage patients. So CRS, as I mentioned, is a major barrier for some of these immunotherapies to become more widely available, with over 70% of some patients being affected on the immunotherapies, and hospital stays due to the risk of CRS may negatively affect the uptake of these therapies themselves. So the next slide. So just zooming in on that for 2 seconds. So on the left-hand side of this slide as well, we've shown a simple diagram to have these therapies and how 001, POLB 001, could change the treatment paradigm. So the current standard of care, on the left here, is typically a patient will come into hospital, they will get their immunotherapy. And the immunotherapy will actually activate their immune system. And what this induces is Cytokine Release Syndrome. And the risk of Cytokine Release Syndrome or indeed CRS after the onset can result in significant hospitalization for these patients. So it can persist for days to weeks. And in severe cases, it can mean that the patients have to discontinue the immunotherapy, so they have to opt for something else. And obviously, they lose time between these different choices. So it's really important that when patients do opt to go on to a therapy, that they can continue with it. If we bring in 001, potentially, we have something where they can take orally before they have the immunotherapy. They come into the hospital, they are administered it. And rather than the immunotherapy causing activation of the immune system, we still allow activation of the immune system, but it doesn't cause Cytokine Release Syndrome. And if we're able to avoid Cytokine Release Syndrome, then we can potentially prevent this hospitalization and make this step onto the treatment a lot more manageable and feasible for the patients themselves and for the health care systems that have to deliver it. So just zooming in on POLB 001 a little bit deeper. So it's a p38 MAP kinase inhibitor. What this means is that it selectively prevents excessive inflammation without immunosuppression. So compared to some other drugs, they completely block a pathway. Actually, p38 is kind of like a master inflammation switch where if you activate p38, you can get global expression of a lot of pro-inflammatory cytokines, which are things that cause CRS. If you don't p38, actually the production of these falls 80% to 90%. So the drug itself is an oral agent, again, particularly important where we positioned this as a prophylaxis. It really needs to be easy for the patients and the hospitals to administrate. And we have a strong patent portfolio with potential coverage out to at least 2044. So we do have a strong preclinical and clinical data package to date. So favorable safety and tolerability profile, which again we think is really important as we move into this indication. And we have potential inhibition of IL-6, TNF and other key inflammatory markers. IL-6 and TNF we mentioned because we know these are the main drivers or significant drivers of the Cytokine Release Syndrome itself. So as well, Jeremy will go into later in the presentation that there is a very significant market opportunity behind this drug. So over USD 10 billion market opportunity. There isn't anything approved in the preventative setting and there's a growing number of these drugs that induce CRS and they're going into earlier lines of therapy. So this problem is only becoming much, much more significant for hospitals across the world. So at the moment, these bispecific antibodies will only be delivered in specialist cancer centers until there's a way to make them safer and easier to deliver. And POLB could make that treatment safe enough to extend bispecifics to a much wider treatment population. Just there in the bottom of this slide, so we have engaged a lot of key opinion leaders on this who also believe in the program. And that's Gareth Morgan from the U.S. Just to show you some of the data that we've presented before. So the last clinical trial that POLB 001 was in was an LPS human challenge trial. So this is essentially where you use a pro-inflammatory stimulus, LPS. It's a component of the bacterial cell wall that induces a mild inflammatory response in patients. So we can give this to healthy volunteers. It stimulates the immune system very similar to the way the immunotherapy would. And they get something that approximate Cytokine Release Syndrome. So it's an incredibly strong model for us to test the efficacy of POLB 001 in. What we also saw in that trial was that POLB actually had an excellent safety and tolerability profile, as we expected. We were able to confirm potent target inhibition, that's the p38 MAP kinase. And we had a clear dose response relationship observed, which is really important from a drug development perspective. And then we also, from a CRS perspective, had a major reduction of key inflammatory cytokines. On this slide, we're showing IL-6 and IL-8. So just briefly, this LPS challenge trial was placebo-controlled and had 3 different doses of POLB 001. So the gray line, as indicated underneath, is the placebo. The green line is 30 mg of POLB 001 given twice daily. The blue line, again, twice daily 70 mg, and the red line is the highest dose of 150 mg POLB 001 given twice daily. And what we can see in the graph is that actually, if you just give placebo with the LPS challenge, you see this spike of IL-6 and as well, on the right-hand side, IL-8. But actually, as we introduce increasing concentrations of POLB 001, we see a suppression of these increases, which is exactly what we hypothesize it will do in Cytokine Release Syndrome. So the lowest dose produced a small decrease, but the 2 upper doses, actually you can see, they almost overlap, and this is probably the maximal inhibition through p38, where the inhibition is in the region of 85% to 95%, which is really promising as we move forward into further trials. So we have the potential to effectively prevent Cytokine Release Syndrome while preserving key immune system functionality. I think that's a key element that we always have from clinicians in that a lot of the existing drugs and that completely blocked pathway, they have their downsides. They often induce cytopenias or other adverse events, which really isn't preferable in an indication like this. So as Jeremy mentioned, we are really excited at the moment. We recently announced that we have all the approvals in place to start dosing patients, and the trial is moving forward at speed. So POLB 001 first-in-patients TOPICAL trial, and it's being conducted in the U.K. So it's a trial of prevention of immune cytokine adverse events in myeloma. It's being led by Dr. Emma Searle, who's a leading hematologist based in The Christie Hospital in Manchester. And it's being run by Accelerating Clinical Trials. Again, we've previously spoken about this to the market, that this is a specialist blood cancer organization who are equipped to run trials in the U.K., in these clinical trial centers that we're tapping into to recruit these patients. It's a really strong team who know the sites, who know the investigators, who are equipped to really accelerate this trial the way we need to. And the objective of the trial is to investigate the safety of POLB 001 and also the efficacy, in particular, its ability to reduce the incidence of CRS in patients receiving an approved bispecific antibody, teclistamab. Teclistamab being an immunotherapy that induces Cytokine Release Syndrome. So we'll have approximately 30 patients, and we will be recruiting a patient population of relapsed/refractory multiple myeloma patients and receiving this antibody. So we are really excited. All of the leading sites in the U.K. are really participating on this trial. So it's been led by Dr. Emma Searle, as I mentioned, at The Christie. But also we have UCH, we have The Royal Marsden, Birmingham, NHS North Midlands, Royal Stoke and Edinburgh. And so we have an exceptionally strong team that we're really optimistic that we can complete this trial quickly. Just a little bit more detail about the actual trial itself. So this is the design of the trial. On the top left, this schematic is showing the trial design. So I mentioned with the bispecific antibodies earlier in the presentation that they're getting step-up of micro-doses. So if you were to give a full dose of these bispecific antibodies, what would happen is you'll activate your T cells, you get other immune cells activated, you get overwhelming Cytokine Release Syndrome, which could potentially kill patients. The only way at the moment to deliver them safely is to give these micro-doses. And the micro-doses are there to give the body a small exposure to cytokines. And the body needs to get used to seeing these cytokines without inducing severe CRS. And once the body has seen the cytokines once or twice, actually then they can go forward with normal dosing. But these step-up doses are critical purely to mitigate the risk of Cytokine Release Syndrome. These typically happen over a 5 to 8-day period. During this period, patients are typically hospitalized, depending on the cancer center that they're in. And so what we're trying to do in the trial is we are going to pre-dose POLB 001 for prevention from before that first step-up dose until after the first dose. So here in the schematic, that would be indicated on day 1, 4, 7. So we'd be dosing. Actually 96% to 100% of all the Cytokine Release Syndrome happens in that period. And that's the period that's really hard for clinicians actually managing these patients at the moment and is mandating the hospitalization. So twice daily oral dosing of POLB 001. It's a single-arm trial, meaning no placebo. But we're really trying to get the evidence of efficacy as quickly as possible, so we want to give everybody our drug. 30 patients, as I mentioned. Teclistamab, really promisingly, is being provided by J&J. And it's an open-label trial in that all the patients know that they're getting POLB 001. So we're really excited that we have fantastic investigators. We have the collaboration with J&J. And we have the right team to really deliver this trial quickly. And the protocol has been finalized. All the regulatory approvals are in place and site initiation deals are scheduled, and patient recruitment and dosing to commence shortly. And we hope to be able to give further updates as we go. The key endpoints, as I mentioned: incidence of CRS, severity of CRS, confirmation of the safety and pharmacokinetics. That's more just to make sure that the drug, as I mentioned, is exposed to patients at the right level. And then obviously, CRS management and tocilizumab usage. CRS management, what we mean is the duration of hospitalization. So everything to do with the current challenges of managing CRS to be managed or measured in this trial. We have a great team of investigators. We have J&J. That's because there is a massive amount of excitement about this program. If we can find a drug that really solves the CRS problem, I think a lot of people realize the potential of it. So there's also been a GBP 3.4 million grant to the University of Manchester and The Christie. The program is called RISE. So RISE is about reducing immune stress from excessive cytokine release with advanced therapies. And it's being led by the University of Manchester and NHS Christie Trust, where we're the lead site on the TOPICAL trial, is the clinical lead. We are the lead business partner because we are experts in Cytokine Release Syndrome at this stage. And J&J are an industry partner providing teclistamab for it as well. So it's being led by a fantastic cell therapist who delivers solid cancer cell therapies to patients, Dr. Jonathan Lim. He's a Clinical Senior Lecturer and Honorary Consultant Medical Oncologist at The Christie and the University of Manchester. So we really have a multidisciplinary team. And the whole idea of this grant is actually to research things of this is an on-target effect of immunotherapy. So there's nothing surprising that these immunotherapies induce Cytokine Release Syndrome. It's predictable. We know the mechanism, we know the triggers. We know how to potentially prevent it. But that's a great opportunity to learn more, to really research this in the clinic. So POLB 001 is going to be a key element of the overall research grant for preclinical and clinical, but the TOPICAL trial itself will be a central focus of it. So we'll be generating additional clinical evidence as part of this on CRS from bispecific antibodies and CAR T cell therapies. Because as Jeremy will have mentioned before, there is a major commercial opportunity for the prevention of CRS related to CAR T cell therapies as well, not just bispecific antibodies. And so this is real significant recognition of the unmet need in CRS, and it's something that we're really excited for. We do expect if there's positive results from this trial, that the interest in the program is only going to grow. So we're really excited moving forward. And with that, I will hand back to Jeremy. Jeremy Skillington: That's wonderful, Liam. Thank you for that. I think it's a very nice segue as we do talk about the market opportunities. So as I mentioned at the outset, we've done a lot of work trying to assess what the global CRS market looks like. We've taken on board some consultants to get that independent perspective. And I'd say it's a very important acknowledgement when it comes to the partnering and partnerships, kind of what the value we're bringing to the table is here. So as I say, we're looking, from our analysis, about a $10 billion market opportunity. And I'd break that down as to how we came to that number briefly. But I just want to flag that for both bispecifics and CAR T, these are quite expensive drugs in their own right. But as Liam mentioned, we believe that these are life-saving drugs. Sometimes there's cures observed. But for CAR T, now it's more of a laborious approach where you take a patient's T cells out, you re-engineer them, and you introduce them back in, and they're bringing the immune system closer to the tumor. And these are quite expensive. But as I said, these are reimbursed in the U.S. by the American insurance companies. When you look at bispecific antibodies, it's slightly less, but it's still a significant cost to the insurance companies. Now what we did with this analysis is that we narrowed in on 2 different tumor types, 2 different blood tumor types: diffuse large B cell lymphoma and multiple myeloma. And if you look at the markets in the U.S. and the European 5, the incidence of these diseases, they total to about 500,000 patients between now and -- between 2023 and 2030. So the market is kind of large. Market is growing. But what we did when we looked at what would we charge, what would we charge the insurance companies for POLB 001, we looked at a very interesting and probably very appropriate comparator. This is a drug, Neulasta, which is used to treat neutropenia. So when patients get chemotherapy as an example, then they get -- they're obviously trying to reduce their tumor burden, but it also reduces a lot of their kind of white blood cells. So this Neulasta brings those back up. When that was launched many years ago, it was introduced in at about $18,000 per cycle. So we kind of took that realm, that POLB 001 could be in that. If you take roughly $20,000 by the 500,000 patients, then you're looking at a $10 billion market opportunity just for these 2 tumor types and for these 2 markets, the U.S. and the EU 5. And obviously, we could go broader than that. We've mentioned a few times that CAR T cell therapies, bispecifics are now moving more into solid tumors, so there's an opportunity there where CRS is also observed. And interestingly, looking into autoimmune diseases. But that's a story for another night. But as I say, we're looking to prevent CRS from happening in the first place. And I think that if we -- this is where we got J&J's attention, for example. And I'll talk a little bit later on about our partnering initiatives. But they got the attention. To prevent is obviously better than cure. It's an old statement that's well worn. But they see that if we can prevent CRS, then they can get their drug, their bispecific antibody, as an example, into community hospitals, getting it away from these dedicated cancer centers. Because you need people on hand to manage the CRS, but if the CRS isn't there, then we're in a fantastic situation. So as I say, it is a cost to insurance companies, cost to the health care system. We talk about Grade 3 CRS actually costing greater than $70,000 as a management, as treatment. But of course, let's not forget the patients who have to go through this issue. So there's many things at play here. But more recently, this is the most recent piece of work that we did that was very enlightening, where it's one thing about understanding the patient population, these multiple myeloma, diffuse large B cell lymphoma, but we needed to talk to ultimately the payers. These are insurance company. We looked at the U.S. because that's the large and major market. And we partnered with Acumetis Global. So they held 3 different payers that cover 75 million lives in the U.S. They introduced them to POLB 001, the target product profile, what it is, what it does, what it's intended to do, and asked about payments. "What would you be willing to pay for these drugs?" And I think there's a -- it's quite a long quote here. I won't go through it all. But it was very clear that there's a willingness to pay for a commercially meaningful price for POLB 001. Because they know the offset. They know that they can -- patients will spend less time in hospitals, so overall their insurance burden is less. It's obviously beneficial for the patients. But it takes the pressure off the health care system as well. And maybe it spreads a little bit thinner. Instead of these patients being in these dedicated cancer clinics, they can go kind of outside to their community hospitals. And that's really where people are attempting to go, have the treatments on your doorstep. And I think from a psychological standpoint, these patients are already going through cancer treatment, but if they can get it closer, their treatments closer to home, all the better off because they'll have family support networks around. So as they say, they see that POLB 001 is a compelling CRS solution with significant market potential. So that was obviously music to our ears when we -- we kind of believed in the program, but to see it in black and white that the payers would be willing to pay was very exciting and very gratifying, I must say. But again, from the market opportunity, and I've outlined this already, so 500,000 patients. There is that bottleneck where they can't get access to the drug rapidly because beds are being taken up in the CAR T setting. As I say, if you can remove CRS, then you can open up this. And we've talked, as Liam said, many key opinion leaders, thought leaders in the space, multiple myeloma docs. And they're all echoing the fact that if you can reduce or eliminate CRS, then a whole load of infrastructure falls away. Their lives are easier, the patients' lives are easier. And as I say, we now, we're confident that the insurance companies are willing to pay for the drug as it goes forward. So again, very exciting time for the company. Again, there is -- I see a question coming in about partnering, so maybe I'll address that right now. With my background, I'm a scientist by training, but in the industry, I spent a lot of time on business development in the partnering setting. So we spent the last, in particular, the last 9, 12 months really focusing, ramping up the partnering, as we're getting closer to the clinic, that laying the groundwork, talking to the big pharma companies, as I said, the midsize companies, about 001, what we do. We've caught a lot of attention. And I think that happens, and it's not by coincidence, that it's closer to the clinic, because then there'll be a data readout, and as I mentioned, a derisking readout. So again, people appreciate that there are more and more cancer immunotherapies coming to the market, and CRS is still an issue with them. Pharma companies are looking to fill their own pipeline as well with new programs coming through. And that's all linked to the patent cliff. I mean it's been shared that GBP 300 billion in annual prescription drug revenue will fall off because of patent cliffs. They'll be substituted by generics. So pharma need to kind of boost their bottom lines, so they get more drugs into their pipeline. But I think when we talk to the smaller companies and show that we can have POLB 001 in combination with any and all CAR T or any and all bispecific, they see this as a significant market opportunity. So over the last, as I mentioned, 9, 12 months, we've attended a lot of conferences. JPMorgan in San Francisco this year was particularly productive. Again, face-to-face meetings with decision-makers at pharma companies. We attended BIO in Europe, LSX as well. And these are, again, lots of partnering meetings talking about POLB 001. Just last weekend, Liam and our clinical colleague, Mina, attended the British Society of Hematology, meeting directly with our investigators, again, building momentum on that front. And then in the near-term future, we're attending the European Hematology Association meeting in Stockholm and then BIO Convention in San Diego. And again, that's where all the pharma kind of descend on a city. Obviously, the EHA is hematology-specific, so we'll be talking directly to the decision-makers in the hematology or myeloma spaces. And then BIO is on the business development front. And we've got meetings set up there as well. And again, they're very excited to see the clinical data as it comes through. So I think, obviously, from our past successes, you could say, great discussions with Johnson & Johnson providing their bispecific antibody free of charge. They want to see CRS reduced, and we're hopeful we'll be able to do that with this TOPICAL trial we've discussed. And as I say, the midsize pharmas are interesting because they've got smaller pipelines, but they see this cancer supportive care element that they could obviously get this drug to market relatively quickly. We can talk separately on that, but these are very short-term trials because we're only looking at that initial immune or inflammatory response. And as I say, lots of really productive discussions there. We have a virtual data room that's populated and open. And we've got people in the data room kind of exploring the, as I say, the preclinical and clinical data we have. And it's all a case of once we have that clinical data in hand, then we kind of trigger those negotiations around, a deal and a transaction, to generate revenue from there. So again, I'll reiterate from a POLB 001 standpoint, we're very excited with the progress we've made. And obviously, in the not-too-distant future, there'll be very exciting milestones to report. I think we've gone over a little bit on time, so I will just kind of go briefly through the GLP-1 program. People are very familiar with GLP-1, initially diabetes drugs, but now very applicable to obesity. These are primarily given by injection, and there's a big need or an unmet need to have an oral option for that. We've partnered with AnaBio here down in Cork. They've got drugs that -- sorry. They've got products on the market that use this encapsulation technology. And it's more in the food science space. But we're using this technology to encapsulate GLP-1, protect it from the stomach acids. And when there's a change in pH, that is released in the small intestine, which is the site of action here. So a huge market, huge opportunity. In our partnering discussions we've had at the partnering conferences, people have reached out to discuss this program. And as we're standing now, we've got a clinical trial that's designed, ready to execute. We are moving into that kind of manufacturing phase, the timelines for manufacturing, that's going on. Again, it's -- the manufacturing has been demonstrated before. We've done a lot of the validation studies on acids, et cetera. So now it's just to get that GLP-1 material ready for the clinical trial. It'll be run by a Professor Carel le Roux up in University of Ulster. He's very well recognized in the metabolic disease space. Again, it's a very straightforward clinical trial in that it's 20 volunteers. We're looking at safety and tolerability and pharmacokinetics, getting the drug onboard. And we'll test that from glucose tolerance test. Very simple study where we want to see the drug having effect on metabolism essentially in these volunteers. So it's designed to get the rapid readout and so very excited to see this program move forward as well. Again, there's a good deal of interest in that from a business development standpoint. I'll wrap up with this slide. I certainly want to leave time for questions and I see there are a few coming in. But again, a reminder, a very experienced team. We are executing right now. And I think we've done a very -- I'm very proud of the team. We've done a terrific job the last 12 months to move 001 to be here. We are on the precipice of dosing patients, so that's very exciting. These are very high-value programs. I think we've found the right disease for POLB 001 to go after, this acute inflammatory condition. Importantly, with the fundraise last year, we've got our financial runway into 2027. So that gives us time and scope to negotiate the best deal for Poolbeg once we have the data in hand. But as I said, the partnering discussions have been on many levels, as I say, large and small companies. We've got many discussions going on in parallel, data room open, reviewing the preexisting data. But as I say, people are waiting for this clinical data to read out. Because that's the value inflection point. That's the derisking episode where you're having data in this TOPICAL clinical trial in multiple myeloma patients -- relapsed/refractory multiple myeloma patients. This will be the key trigger for Poolbeg. So again, thank you all for your time again this afternoon, this late afternoon. And what we'll do now is that we'll switch to some of the questions that came in, and again, appreciate your time on that. Jeremy Skillington: All right, so we'll jump straight in. Oliver has a question. When are the CRS trials due to be completed? Summer '26. Can you pin this down, June, July or August? Although summer in the U.K. is virtually a 2-week period. Nice one. Good bit of levity there. Also once completed, will it be go or no-go decision? Or is there a potential for a phased decision tree solution if not the results you're looking for? I think, listen, that's a really good question. We could spend a while kind of talking about that. I think we mentioned earlier on, like one of our ambitions was to get the data as quickly as possible. That goes without question. And this is why with ACT, who are going to run the clinical trials with Emma, we're zoning in on 6 clinical trial sites. Now we're exploring options for more. And what comes from that then is kind of rapid enrollment. That's ultimately the goal here, get more patients onboard quickly, get more drug onboard quickly. Liam and Mina and the team have done a terrific job of kind of lining up that kind of analysis that comes after that. It's well understood that teclistamab drives CRS in greater than 70% of patients. But we're going to analyze that immune and inflammatory response at a molecular level. So these are looking at all of the cytokines that are there, signs and symptoms, but at the kind of blood and molecular level looking at that. So it depends is probably the answer. But it is once we have that certain number of patients going through where we can kind of interpret the data. We've done statistics, et cetera, that up to 30 patients would be the full trial. But as mentioned previously, this is an open-label trial, so we'll have access to the data pretty rapidly on that for each individual patient. So it's not blinded, so we know that each patient will get the drug. So it's a really good question, but as I say, we're planning and what we've built so far is going to get rapid enrollment to say 6 clinical trial sites, maybe more. And then your question around decision trees. I mean it's -- obviously, we got to wait to see what the data is. But I think if the data is strong, and the way we've built up the business development, partnership aspects, I think there'll be multiple suitors here. I think there'll be strong interest if the data's positive. Because it can be applied to multiple pharma companies, and I mentioned the cancer supportive care area. So as I say, we'll be running full steam on those negotiations when it comes to -- one of the interesting questions here is kind of the deal type. We feel that, on the one hand, with the big pharma may come in and just take over and run the trial themselves, there could be opportunity to partner with a smaller company where we would kind of help and assist, kind of run the clinical trial. Because it is our baby in one sense, but it is our expertise in what we're doing. So you're right. There'll be decision trees and discussion negotiations, multiple parties. We'll figure that out. Oliver had a second question here. Is 30 people enough for a trial for a commercial outcome? Again, maybe, Liam, you can talk to that just around the stats discussions that we've had around how we ended up with 30. Liam Tremble: Yes. So really happy to, Jeremy. Yes, so 30 patients is essentially more than enough for our purposes right now. About 70% of these patients are going to have CRS, so there's going to be a very strong indication of the level of efficacy. The priority from a clinical development perspective is to really get into your placebo-controlled trials as early as possible once you have an idea of the effect size. So we're going to see the effects in Grade 1 and Grade 2 and also the other elements of CRS management, like hospitalization, that will give us a really good indication of how to design later-stage trials. So 30 patients for this purpose is actually ample. Jeremy Skillington: Cool. These are kind of numbers that are not plucked out of the air. There's been kind of deep analysis into what are the right numbers. So again, credit to Liam and the team for their discussions with qualified statisticians to come up with those numbers. All right. Another question here. Could we see a deal after interim data? I mean again, it's a good question. Maybe I've already answered it. But when it comes down to what that data looks like, and as I say, rapid enrollment, we'll get an early read into what the data look like, if it's -- if we're seeing an impressive suppression of that inflammatory response, that CRS, then I think for certain companies, that might be enough to transact. For others maybe, and I've been through this in my past where there's always that next experiment or the next data point or the next dataset. Some companies are maybe a little more conservative when it comes to decision-making. Maybe I'm alluding to the fact these are more the bigger guys who have to work the chain of command. But I do think that, as I say, having interim data will be a key point. And if it's positive, I think there'll be strong interest. Richard had a question. Your projected time scale towards commercialization. Again, commercialization is always tricky in this industry. I mean getting on the market is one question. Again, that'll be done with a partner and we're driving that forward. As I say, we're experts in CRS, we're experts in running these initial clinical trials. The larger clinical trials we can do ourselves. But having a partner onboard to kind of fund that would be critical. But there are -- that'll be kind of a few years down the line. But as I say, once it's launched on the market, then it'll be -- we feel it'll be broadly applied to any and all bispecific CAR T. So again timeline, that'll be driven by the partner and say that we don't see ourselves as obviously driving that forward ourselves in isolation. Potentially through a partnership. Another question. If data lands well this summer, what does success look like? That's a really good question. I mean in my mind, and this goes back to my kind of business development training, I mean, we're looking at a nice, substantial transaction. We're looking at a partner to come onboard with capabilities, with funding, with funds. What happens in the industry when it comes to these licensing transactions, whether, as I say, maybe people want to buy the program, buy the company, just license the program, that'll be for another time and other discussions. But I think that what we're seeing what success looks like is certainly a juicy upfront payment when it comes to the work that we've put in. Because we've done a lot of work. We've derisked the program. It's a large market, it's an attractive market. We've filed important intellectual property, so we'll be protected. So we see significant value for our contributions there. And then, as I say, the structure after that is down to the individual company we'll speak with or decide to collaborate with, whether it's, as I say, just passing the baby across that a large pharma could develop, or co-develop ourselves. But that's all -- we believe, with strong data, that Poolbeg will have the leverage for those negotiations because the interest is so high. Appreciate that. I think we have time for one more question. How much interest are you seeing in the oral GLP-1 for potential partners? Again, appreciate the question. Good question. In our most recent partnering conference attendances at BIO-Europe, for example, we had companies reaching out to us. I was always pleasantly surprised, some of them are kind of in Asia, some of them in Europe. Some of them already had existing metabolic disease programs, and they were looking to kind of branch out, add to their pipeline. I think -- I don't want to be flippant and talk about no-brainer. But if you get GLP-1 that can be delivered orally, it opens up a whole host of markets and market opportunities. It's a huge and growing market. And moving away from injectables, the industry wants to go there, the patients want to go there. So if we can demonstrate that clinical proof of concept in the trial that I outlined with Carel le Roux, I think there'll be strong interest then in partnering the program out. And again, revenue from upfront payments, et cetera. So appreciate that. I think we've ran slightly over time. Appreciate people's patience. But yes, we can wrap up now. Just again, thank you again for attending.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Pizza Pizza Royalty Corp.'s Earnings Call for the First Quarter of 2026. [Operator Instructions] As a reminder, this conference is being recorded on May 1, 2026. I will now turn the call over to Christine D'Sylva, CFO. Please go ahead. Christine D'Sylva: Thank you. Good afternoon, everyone, and welcome to Pizza Pizza Royalty Corp.'s Earnings Call for the First Quarter ended March 31, 2026. Joining me on the call today is Pizza Pizza Limited's President and Chief Executive Officer, Paul Goddard. Just a quick note, our discussion today will contain forward-looking statements that may involve risks relating to future events. Actual events may differ materially from the projections discussed today. All forward-looking statements should be considered in conjunction with our cautionary language in the earnings press release and the risk factors included in our annual information form. Please refer to our earnings press release and the MD&A in the Investor Relations section of our website for a full reconciliation of other disclosures related to non-IFRS measures mentioned on this call. As a reminder, analysts are welcome to ask questions after the prepared remarks. Portfolio managers, media and shareholders can contact us after the call. I'll now turn the call over to Paul for a business update. Paul Goddard: Thank you, Christine, and good afternoon, everyone. We appreciate you joining our call. This afternoon, we released our results for the First Quarter of 2026, which you can find posted on our website. The overall macroeconomic conditions remained challenging through the first quarter of 2026. We saw the impact on consumer confidence, spending and demand, all of which negatively impacted our retail sales, specifically traffic. In the first quarter, our overall same-store sales growth was actually negative 4.1%. Pizza Pizza restaurants were down 4.3%, while Pizza 73 restaurants were down 2.7%. Beyond the current macroeconomic impact on sales, the impact of last year's nonrecurring sales tax holiday was also felt at both brands. So while consumer confidence remains low, businesses continue to face rising costs and ongoing uncertainty. In this environment, we are focused on controlling what we can, strengthening our product offering, further expanding our footprint across Canada and driving operational discipline. Starting with product offerings. Our core pizza category remains resilient, supported offerings at all price points. And while value continues to be critical, staying top of mind through innovation is equally important. Our innovation pipeline allows us to attract new customers, encourage trade-up within our existing mix through premium offerings and deepen overall brand engagement. This quarter, following the success of the Volcano Dipper Pizza at Pizza 73, we rolled out the product at Pizza Pizza. This unique, ownable new product provided us with the opportunity to showcase Pizza Pizza and our food in a fun and playful narrative while enforcing -- reinforcing our gift leadership position. We also recently introduced a $5 Meal Deal slice and drink combo in late March to strengthen our walk-in channel and compete with other QSRs offering entry-level value meals. We saw immediate improvements in both sales and traffic within this channel, which is exciting. We remain focused on delivering strong value to our customers, knowing that we're competing for a share of increasingly constrained consumer spending. Turning to our restaurant network. In terms of restaurant development, I'm pleased to share that we started the year stronger than we have in the last 5 years. And as a reminder, with over 800 restaurants from coast to coast, we have more points of convenience than any other QSR pizza chain in the country. During the quarter, we opened 6 traditional and 3 nontraditional Pizza Pizza locations and closed 1 traditional and 1 nontraditional Pizza 73 restaurant. Our new traditional restaurants span the country with openings in BC, Manitoba, Ontario, Quebec and 2 in Newfoundland. And as mentioned on previous calls, our business is driven by 2 revenue streams. First, our traditional restaurant network, which generates 90% of our Royalty Pool sales; and secondly, our nontraditional and special event locations, which typically generate the remaining 10%. Our nontraditional segment is currently facing some headwinds, particularly locations within colleges and universities where lower attendance tied to international student policies stemming from reduced immigration, et cetera, has resulted in reduced operating hours and overall sales. But looking ahead, we continue to see growth opportunities across our network. At the same time, we are taking a more disciplined approach, carefully selecting locations and formats to ensure long-term profitability, particularly in the context of rising costs. As I close out my comments, we expect us to continue to face headwinds across our entire system in the near future. Consumer confidence is still low, and there continues to be much uncertainty. However, we will continue to be there to provide our customers with the best food and especially for them. Our platform is solid and battle tested. We will drive further value and innovation, and we have the experience and track record to do so. The strength of our brands and experience of our team and our owner operators as a critical part of that team have enabled us to navigate through these challenging conditions before, and we have great confidence in our ability to successfully manage well through this latest period of economic uncertainty and leveraging our proven competitive advantages and leading brand platform. So thank you again for listening in today. And I'll now ask Christine to provide a financial update. Christine D'Sylva: Thanks, Paul. As a reminder, Pizza Pizza Royalty Corp. is a top line restaurant Royalty Corp. that earns a monthly royalty through a license agreement with Pizza Pizza Limited. In exchange for the use of the Pizza Pizza and Pizza 73 trademarks in its operations, Pizza Pizza Limited pays the partnership a monthly royalty calculated as a percentage of the Royalty Pool sales. Growth in the Corp. is derived from increasing the same-store sales of the restaurants in the pool and by adding new restaurants to the pool each year. As we announced earlier this year, on January 1, 2026, the Royalty Pool increased by 20 net new restaurants as a result of adding 39 new locations less than 19 restaurants which permanently closed. So for fiscal 2026, there will be 814 restaurants in the Royalty Pool, comprised of 712 Pizza Pizzas and 102 Pizza 73. This is in comparison to 2025 when the pool was 794 restaurants. So now briefly covering the financial results for the quarter. As Paul mentioned, same-store sales, the key driver of yield for shareholders, decreased 4.1% in the quarter. Both brands saw a decline in traffic, which resulted in Pizza Pizza restaurants reporting same-store sales decrease of 4.3% and Pizza 73 restaurants reporting a decline of 2.7%. The positive impact of the 20 net new restaurants added to the Royalty Pool was offset by the same-store sales decline and resulted in an overall decrease to the Royalty Pool System sales and the corresponding royalty income. Royalty Pool System sales for the quarter decreased 3.5% to $145.8 million from $151.3 million in the same quarter last year. By brand, sales from the 712 Pizza Pizza restaurants decreased 4.1% to $124.5 million and sales from the 102 Pizza 73 restaurants decreased 0.9% to $21.3 million for the quarter. The partnership's royalty income earned as a percentage of Royalty Pool sales decreased 3.5% to $9.4 million in the quarter. As a reminder, the Pizza Pizza and Pizza 73 restaurants are subject to seasonal variations in their business. System sales for the first quarter of the year are generally the lowest, while system sales for the last quarter are generally the highest. So turning to partnership expenses. Administrative expenses, which include listing costs as well as director, legal and auditor fees decreased in comparison to the prior year. This quarter, they totaled $132,000 compared to $152,000 in the prior year. In addition to administrative expenses, the partnership is making interest-only payments on the $47 million credit facility. Interest paid in the quarter was $435,000. The all-in rate for the credit facility for the next 3 years will be 3.51% compared to the maturing rate that expired in April of 2025 of 2.685%. So after the partnership received royalty income and interest income and paid administrative and interest expense, the resulting net cash was available to distribute to its 2 partners based on their ownership. After the [ event ] on January 1, 2026, Pizza Pizza Limited's ownership increased to 27.2% and Pizza Pizza Royalty Corp. shared in the remaining 72.8% of the partnership distribution. The Royalty Corp. received distributions, paid taxes on its share of the earnings and any residual cash was available for dividends to the company's shareholders. The company declared shareholder dividends of $5.7 million in the quarter or $0.2325 per share, which was consistent with the prior year. The payout ratio for the quarter was 134% and resulted in the company's working capital decreasing by $1.4 million to end the quarter at $2.3 million. This $2.3 million working capital reserve is available to stabilize dividends and fund expenditures in the event of short- to medium-term variability in system sales and interim royalty income. The company has historically targeted a payout ratio near 100% on an annualized basis, and any dividend decisions will be made with this target in mind. That concludes our financial overview. I'd like to turn the call back to our operator to poll for questions. Operator: [Operator Instructions] Your first question comes from Cheryl Zhang of TD Cowen. Yaozhi Zhang: So obviously, certainly not an easy quarter for anyone in the QSR space. I'm curious what you're seeing that customers are cutting back on in particular? And is there any notable changes in consumer behavior compared to last quarter? Paul Goddard: Yes, it's a good point, Cheryl. I think we see the landscape we live in and some common issues people face. I think just generally, not unlike our last call, I mean traffic is overall weak. I mean, we still did see some growth positively in pickup but certainly, people are shying away from delivery. So we saw negative in delivery, and that's something we certainly have some plans to try and address. We've been trying for a while, but we have some other ideas we think we will be more successful. So I think there are some signs of light, but definitely, people are just really hurting. I mean you've got the global geopolitical situation. Gas prices are on everyone's mind. I think we're $2 gas in British Columbia, things like that. And so really since sort of mid-Feb really, we and I think the whole market has seen just all that much more conservative, careful behavior on the part of customers. So that translates into things like less frequency, less add-ons, people just getting what they really need and not sort of treating themselves as much and as often. So we just sense it's just been weakening as we saw really in the quarter, weaker than it was even in the last quarter. Yaozhi Zhang: I see. That makes sense. And curious if you could offer any early reads on the trends so far in Q2? Paul Goddard: Well, it's still a little early, right? I mean we're just kind of end of April here. So I think we really need to see. We've got a lot of menu innovation going on and other things we're planning on doing later this year. But I think things like our $5 slice and a coke deal, we think that's out in the market that that's going to have a big impact in walk-in in a positive way. That's something that's really unique to us really as a major chain. There's others that do slice, but nowhere near kind of the volume that we do. So that's just one example. Things like that, we're actually pretty optimistic about having a material impact. But the overall landscape is still very tough. People are looking for value and you're seeing some extreme discounting -- extreme,extreme discounting by other folks that we don't think is really sustainable. So we certainly discount ourselves, but we're also trying to play the long game here and play to our advantages. So I think some of our menu innovations have done well, and we're going to keep pushing things like organic delivery a little more, and we've had some signs of success there. But I'd say it's still a little early for the quarter to really make more comment on that. Yaozhi Zhang: Yes. Speaking of competition, how do you feel about your pricing and offering compared to competitors? And how do you think about keeping your value edge without escalating discount? You mentioned in your prepared remarks some subsequent improvement after you launched the $5 new deal, and I'm curious if you could add some color to it. Paul Goddard: Yes. I mean I think we generally have a good sense of price. I mean when we look at competitors, which we're doing all the time and seeing where we have traffic strength, traffic dropping off, what's happening with relative check. I mean we saw check was up, generally speaking, but traffic was down. It's always hard to find that balance. We think we're well priced. I mean we are not shy to change prices. We've changed prices on a la carte items. We've changed prices on specials from time to time. So I think generally, we feel like we're in the right zone for what we offer. I mean we know we offer very high quality relative to some others. And yet we think with our cost structure, we can be very competitive with our pricing. So I think we feel we're sort of in the right zone, but we do see downward pressure overall from people that are being extremely aggressive, I guess, you could say. So we're aware of that. We have to get good results. We have to get top line sales growth. That's our job. But we also got to make sure it's profitable for our franchisees as well. So I think just overall, we're really looking to play to our strengths. So things like the slice deal, we launched chicken tenders at Pizza 73, some unique items there. We've got more in the pipeline. I think BOGO has been successful out there for us as well. So I think we've had some success with things that we think will work well and some other things that maybe haven't resonated quite as well. I mean one example would be the Volcano Dipper, which we did very well in Pizza 73, we translated it over here, didn't quite get the pickup that we thought, to be honest. So not everything we try does work, but we have a pretty quick cycle time on our innovative marketing team. So we don't always hit it right, but we thought that was great value. But we also have more success with things like our Vladdy Junior Special, the XXL [ $19.99 ] 3-topping pizza, which became very quickly one of our top mixing specials and it's certainly fantastic value in a fun way and especially in our major markets, it's done really, really well. So it's just not doing well enough because customers are still, at the end of the day, hurting so much that even though it's a great deal and talking to a lot of customers, even that only has limited potential. So we're also looking at how do we get something even better, more interesting that can drive traffic further. But overall, I think we're well placed as a value player overall. We're really careful about our pricing. We're looking for opportunities to accentuate things like dips as well, which we're really famous for having the best dips as add-ons. But we know people are cautious. So we need to really get more and more creative about how we can really leverage our advantages, still be a value player and get that traffic up. It's just all about transaction count, getting that traffic up and doing whatever we need to do to do so. Christine D'Sylva: And then to add on to that, Cheryl. We do have the multiple channels, right? We make sure that we have value at every point where the customer is interacting with us. If we're coming in for a walk-in, we've got a walk-in special. If you want to come in to pick up to save on the delivery and the tip, which as consumers are getting more constrained in their available spend, we have pickup specials that are available to you. So you can save on the delivery and tip. And we always have our delivery specials like the XXL Vladdy deal. So we try to make sure that at every price point and at every convenience point, we have something to offer our customers. Paul Goddard: And across dayparts as well, I mean, we slice and dice the numbers every way you can imagine, of course, but we're always looking for growth in various dayparts and those sort of omnichannels, like Christine said. So that is some flexibility that others don't have. But at the end of the day, we're still not getting enough transactions. We know we've got to get traffic up. And we are pretty excited about some of the things coming down the line. And some of them will take longer as well to bear fruit, to be honest, but it's kind of a -- we have kind of a long view on the platform and what we can do to really win over more people from competitors and then get our loyal customers actually coming to us more often, more frequently and adding on more items. So it's a bit of a long game, but we do think there's some signs of hope, but the overall economic climate is still pretty concerning. Yaozhi Zhang: It's very helpful. Actually, I did mention that you still see some improvement in organic delivery. I'm curious if there are any drivers for that, that you could highlight? Is it because of better speed visibility? Or is it SMS tracking from all construct like free delivery or anything that you could highlight there? Paul Goddard: Yes. I mean we do think there's benefits to the customer and there's economic benefits. I mean we've actually been -- as of the last couple of months, I think it was sort of the end of Q2, correct me Christine if I'm wrong, but the -- with the sort of time, the guarantee time, and we try to highlight that a little more because that is something that we -- people don't get on a third-party platform. So we do use those as a channel like everyone else, but customers can rely on a uniform Pizza Pizza delivery driver with really good tracking times. We have much like the third-party providers, a customer tracking map, see where your order is on the map as it comes to the customer with an SMS reminder as it's supposed to get to your door. So it's better service, better speed, it's cheaper rather than paying commission to a third-party aggregator. So we -- and we think that's helpful because our delivery charges are really nominal really compared to those. And we think that's a real competitive advantage we have. We're famous for our guarantee. And although the third parties are a channel that some people only order from, they're also shying away from that. I think we see some weakness overall in the sector there for third party because delivery is just so expensive. So we see people trending more towards pickup. But we think leveraging things like loyalty and cross-channel marketing, getting people to behave in multiple channels, loyal customers or winning new ones in some of our multiple channels, that's a good pathway to success. Christine D'Sylva: We also have on game days, because we have such big partnerships with a lot of the sports teams across Canada, we have free game day delivery. So we try to get those customers who are watching the game with friends at home, ordering and saving on that delivery fee to keep them coming to us. And we always promote our on time or free, right? We are always less than 40 minutes with a guarantee that Pizza Pizza has always had, and we're proud of it and the fact that you can trust your order now is something that our marketing team has done a great job this quarter of promoting as well. Yaozhi Zhang: That's great. And just last one for me. What are you expecting for network expansion in 2026? And are you seeing any early impacts from the rising costs like fuel costs? Any impact on equipment construction costs or input costs that might impact franchisee profitability and interest in opening new stores? Paul Goddard: Yes, we are. I mean we still are, I would say, on offense growth-wise. So we think in terms of traditional stores, we're still looking at 2% to 3% range. I mean last -- this quarter has been encouraging in that respect. And so we do think really most parts of the country, we have lots of green space to grow on it while others perhaps are being a little more defensive. We're certainly defensive about our key markets, but on offense on the store development side. So I think we are getting suppliers increasingly looking for fuel surcharges and things like that. But that does indirectly impact us. We're holding the line on that as best we can. We haven't seen sort of equipment costs necessarily go up yet, but I wouldn't be surprised if we see more of that in the future. And we've been really challenging our construction team to also ensure that the unit economics look good for a franchisee. Can we reduce construction costs? Can we skip certain items or reduce the cost of certain items so that the investment for the franchisee is more palatable? So I think we're being pretty creative with some aspects like that, and that's pretty exciting. I think we have a good record, a good franchisee pipeline. But certainly, there's headwinds. I mean with the inflationary pressure depending on how long this big crisis goes on overseas and just even without that general economic malaise, I mean, that's what we expect. So we say, well, if it's a tough environment, we still need to be successful. So what do we got to do? And if it ends up not being as bad, well, then we'll look even better. But we are seeing some pressure, things like fuel. Most of our Canadian ingredients are Canadian, for instance, so we mirror that quite well, and we've held the line pretty well there. But certainly, we'll control what we can control and make sure that the food basket overall is okay. And same with lease costs and things like that for franchisees. So we're trying to make sure that our economic -- unit level economics are attractive even in a sort of really not helpful economic backdrop. Operator: [Operator Instructions] There are no further questions at this time. I would hand over the call to Christine D'Sylva for closing comments. Please go ahead. Christine D'Sylva: Thank you. Thank you, everyone, for joining us on the call today. If you have any further questions after the call, please feel free to contact us. Our information is on the earnings release. And thank you for your support of Pizza Pizza Royalty Corp. You may now disconnect your lines. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Welcome to the Invesco Mortgage Capital Inc. First Quarter 2026 Earnings Call. Participants will be in listen-only mode until the question and answer session. At that time, to ask a question, press the star followed by the one on your telephone keypad. As a reminder, this call is being recorded. Now I would like to turn the call over to Greg Seals in Investor Relations. Mr. Seals, you may begin the call. Greg Seals: Thanks, operator. To all of you joining us on Invesco Mortgage Capital Inc.’s first quarter 2026 earnings call, in addition to today’s press release, we have provided a presentation that covers the topics we plan to address today. The press release and the presentation are available on our website, invescomortgagecapital.com. This information can be found by going to the investor relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide 2 of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital Inc. is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. Again, welcome, and thank you for joining us today. I will now turn the call over to Kevin Collins for his comments. Kevin Collins: Good morning, and welcome to Invesco Mortgage Capital Inc.’s first quarter 2026 earnings call. I will provide a few comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning for Q&A are our President, David Lyle, and our CFO, Mark Grexson. I am very excited to assume the role of Chief Executive Officer of Invesco Mortgage Capital Inc., and I would like to thank and congratulate our retiring CEO, John Anzalone, for his 17-year tenure with the company. John began his service as our CIO at the time of our IPO back in 2009, and he spent the past nine years as CEO, leading the company through a range of market environments and its transition more recently to an agency-focused strategy. John, please know our entire team is grateful for your leadership. I would also like to congratulate Dave on his recent appointment as President. Dave, Brian, and I have all worked very closely with John since IVR’s inception, and we are looking forward to building on our positive momentum alongside Mark, our CFO. Importantly, we share a commitment to disciplined investment management, consistent performance, strong governance, and expanded investor engagement. We believe our current team, capital structure, and investment portfolio are well positioned for the future. Looking ahead, we are excited to leverage our core competencies in Agency RMBS and Agency CMBS to continue delivering attractive outcomes for our investors. In addition to our team’s long track record and experience managing residential and commercial agency mortgages, we benefit from the insights of the global investment manager, which inform our views on macroeconomic conditions, interest rate dynamics, policy developments, and broader market risks. Our deep counterparty relationships enhance our ability to source, finance, and hedge attractive investment opportunities, and we believe these advantages differentiate us from our peers. Our entire management team remains committed to fully leveraging the resources and capabilities of Invesco. During the first quarter, we operated in a more volatile market environment, following the strong recovery in agency MBS valuations experienced in 2025. Financial conditions tightened as rising geopolitical tensions, higher energy prices, and renewed inflation concerns drove increased interest rate volatility and pushed U.S. Treasury yields higher across the curve. Short-term yields rose more sharply than longer-dated yields, largely reflecting a pullback in expectations for near-term monetary policy easing. At the same time, inflation expectations moved higher, with 2-year TIPS breakevens rising to approximately 3.25% by quarter end, up from about 2.3% at the beginning of the year. These dynamics weighed on risk assets broadly and resulted in higher-coupon RMBS underperformance relative to Treasuries, although our Agency CMBS investments performed well during the quarter. The benefit was outweighed by increased Agency RMBS risk premiums and notable swap spread tightening. Against this backdrop, book value declined by 7.9% to $8.08 at quarter end, which, when combined with our dividends of $0.12 per month, resulted in an economic return of negative 3.2% for the quarter. In the context of evolving market conditions, our economic debt-to-equity ratio increased to 7.5 turns as of quarter end from 7 turns at the beginning of the year, largely reflecting the decline in book value per share and our more constructive outlook on Agency RMBS as we entered the second quarter. At quarter end, our 7.3 billion investment portfolio consisted of 5.2 billion Agency RMBS, 1.2 billion Agency TBA, and 900 million Agency CMBS, and we maintained a sizable balance of unrestricted cash and unencumbered investments totaling 493.1 million. Earnings available for distribution declined modestly from $0.56 in the fourth quarter of last year to $0.55 in the first quarter. As of quarter end, we hedged 96% of our borrowing costs with interest rate swaps and U.S. Treasury futures. Entering the second quarter, agency mortgages have performed well as risk sentiment improved and interest rate volatility moderated. While near-term inflation concerns remain elevated, they have eased somewhat, with 2-year TIPS breakevens now below 3%, suggesting a modest stabilization in inflation expectations. As a result, our book value has improved by approximately 2% since the end of the first quarter. Looking ahead, we believe a further reduction in geopolitical tensions would likely provide additional support for risk assets. From a supply and demand perspective, Agency RMBS net issuance should remain manageable. The GSEs continue to provide steady demand, and bank participation is likely to increase. We have also taken steps to strengthen our capital structure, including actions that reduced our preferreds to approximately 20% of our total equity, which has reduced costs and benefited returns for common stockholders. We have taken steps to deepen alignment with investors, including transitioning this year from quarterly to monthly dividend distribution. We have received positive feedback that our capital structure positions us competitively within the sector and that our monthly dividend approach better aligns the cash flow needs of income investors while providing important monthly touch points regarding our key financial metrics. With that, I will now turn the call over to Brian Norris to discuss the portfolio in more detail. Brian Norris: Thanks, Kevin, and good morning to everyone listening to the call. I would like to begin by congratulating John on his well-deserved retirement, and Kevin and Dave on their newly appointed roles. The four of us have worked closely together for nearly 20 years, including the almost 17 years since IVR’s IPO in June 2009. I am very excited for John as he enters the next phase of his life, and I would like to express my sincere gratitude for his immeasurable contributions to IVR over the past 17 years. These transitions illustrate the advantages of our relationship with Invesco, our external manager, given the vast resources and deep bench from which our team benefits. Kevin and Dave bring a wealth of experience, consistency, and familiarity to their new roles, and I have no doubt that they, along with Mark and I, have all the resources necessary to continue the strong momentum that IVR has enjoyed in recent years. I am extremely excited for the future of IVR as we embark on the next chapter in our company’s leadership. Turning to financial markets on Slide 4, interest rate volatility moved notably higher during the first quarter as expectations for near-term monetary policy shifted amid concerns regarding AI’s impact on employment in February to the inflationary impact of the conflict in the Middle East in March. The 10-year Treasury yield traded in a 50 basis point range, closing at a low of 3.94% on February 27 before closing sharply higher at 4.43% on March 27 and finishing the quarter at 4.32%. As depicted in the chart on the lower left, two cuts to Fed funds were anticipated for 2026 at the beginning of the year. Those expectations were largely priced out in March amid escalating oil prices and a robust economy that showed little sign of impact from the conflict. This led to a flattening of the yield curve as 2-year yields ended the quarter 32 basis points higher while 30-year yields increased just 7 basis points. Positively, as shown in the upper right chart, repo markets for our assets have been remarkably stable despite broader market volatility, with financing readily available and spreads over 1-month SOFR remaining within a tight range. Slide 5 provides more detail on the agency mortgage market. The sector enjoyed a strong start to the quarter as the positive momentum from 2025 carried over into the new year, aided by low interest rate volatility, a steeper yield curve, and supportive supply and demand technicals. Although the GSEs had been adding to their retained portfolios throughout the second half of 2025, the announcement of a 200 billion mortgage purchase program on January 8 ignited a sharp response as investors rushed to get ahead of the program, leading to significantly higher valuations and lower mortgage rates in a matter of days. However, the move tighter in spreads faded the rest of January and into February as further details on the program were scarce, yet the prescribed presence of the GSEs as a buyer in the market was a clear indication that the supportive supply and demand technicals are on even stronger footing in the coming months and quarters. As interest rate volatility increased in February and March, agency mortgage performance continued to wane, but the resulting underperformance was much more orderly than in previous episodes of market stress in recent years. Lower coupons fared best in this environment, outperforming Treasury hedges for the quarter despite the volatility. Meanwhile, higher coupons lagged throughout the period, initially due to investor concerns on prepayment risk given the administration’s focus on mortgage rates, and subsequently because of their elevated sensitivity to interest rate volatility as compared to lower coupons. Positively, pay-ups improved during the quarter, offsetting some of the underperformance of higher coupons relative to lower coupons, given increased investor demand for additional prepayment protection and premium dollar-price bonds. We continue to believe that owning prepayment protection via carefully selected specified pools, particularly in premium-priced holdings, remains an attractive opportunity for mortgage investors and helps mitigate convexity risks inherent in agency mortgage portfolios. In addition to the GSEs, bank and overseas demand also improved in the quarter, providing additional support for the sector, while money managers and mortgage REITs were also steady contributors. The supply and demand technicals improved the economics for the dollar roll market, with most coupons enjoying attractive implied financing rates. Although this dynamic faded for conventional coupons in the latter half of the quarter, dollar rolls on production coupon Ginnie Mae TBA remained quite attractive, with implied financing rates well below 1-month SOFR. Slide 6 details our Agency RMBS investments as of March 31. Our portfolio increased 19% quarter-over-quarter as we invested proceeds from common stock ATM issuances. We sold our modest allocation to 6.5% coupons early in the quarter as efforts to reduce mortgage rates increased prepayment risk in our holdings, while purchases were primarily focused in 4.5% through 5.5% coupons. The decline in our 6% allocation was a result of paydowns and the overall growth in the portfolio, as we had limited trading activity in that coupon during the quarter. Agency TBA securities represented the majority of our purchases in the quarter as we sought to benefit from the attractive environment in the dollar roll market, ultimately increasing our allocation to approximately 17% of the total portfolio. Despite the increase in our TBA allocation, our total portfolio continues to benefit from significant prepayment protection, with over 80% of the portfolio allocated to securities with some form of prepayment protection via over 5 billion of specified pool Agency RMBS and nearly 900 million of Agency CMBS. We continue to favor specified pools with lower loan balances given their superior predictability of future cash flows, while we remain well diversified across collateral stories, with limited changes during the quarter. Leveraged returns on Agency RMBS hedged with swaps remain attractive, with the current coupon spread to a 5- and 10-year SOFR blend ending the quarter near 165 basis points, 25 basis points wider than year end and equating to levered gross returns in the high teens. April’s outperformance has since narrowed the spread by 10 basis points, with levered returns remaining attractive in the mid to upper teens. Slide 7 provides detail on our Agency CMBS portfolio. Risk premiums tightened meaningfully in January, consistent with Agency RMBS spreads, and also proved resilient amid the sharp increase in interest rate volatility in the latter half of the quarter, only modestly widening in February and March. Our Agency CMBS position performed in line with expectations, providing stability in times of stress and outperforming Agency RMBS across the coupon stack for the quarter. Despite the lack of new purchases, we continue to believe Agency CMBS offers many benefits, mainly through its inherent prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility. Leveraged gross returns are in the low double digits and remain consistent with lower-coupon Agency RMBS, while financing capacity has been robust as we continue to fund our positions with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation to the extent the relative value between Agency CMBS and Agency RMBS is attractive, in order to provide additional stability to the portfolio, recognizing the overall benefits as the sector diversifies risks associated with Agency RMBS. Slide 8 details our funding and hedge book at quarter end. Repurchase agreements collateralized by our Agency RMBS and Agency CMBS investments decreased from 5.6 billion to 5.3 billion, as most of our purchases during the quarter were in Agency TBA, while the total notional of our hedges increased from 4.9 billion to 5.1 billion. Our hedge ratio increased from 87% to 96%, primarily due to the increased allocation to Agency TBA. The composition of our hedges remained weighted toward interest rate swaps, with 81% of our hedges consisting of interest rate swaps on a notional basis and 65% on a dollar-duration basis. Swap spreads tightened during the quarter, creating a modest headwind in performance. Despite the recent tightening, we remain comfortable maintaining the majority of our hedges in interest rate swaps, as we believe swap spreads are relatively tight and offer an attractive hedge profile relative to Treasury futures. To conclude our prepared remarks, the sector experienced a more challenging environment in the first quarter as a supportive trend of moderating financial market volatility reversed amid escalating geopolitical tensions. While higher-coupon agency mortgage valuations recovered a portion of their first-quarter underperformance in April, developments in the Middle East conflict will continue to drive interest rate markets in the near term, leaving the sector somewhat vulnerable to headlines and further bouts of increased volatility. Positively, the supply and demand environment for the sector is at its most supportive in a number of years, with money managers, mortgage REITs, banks, overseas investors, and the GSEs providing more than enough demand to absorb net supply, both organic and runoff from the Fed balance sheet. This supportive environment has resulted in, and should continue to result in, reduced spread volatility from the levels experienced in recent years, reducing the risk of a more significant or more protracted dislocation. Lastly, our liquidity position remains ample, providing substantial cushion to withstand additional market stress while also allowing sufficient capital to deploy into our target assets as the investment environment improves. While we view near-term risks as balanced, we believe agency mortgages are poised to perform well as geopolitical tensions moderate and their impact on the U.S. economy becomes more clear. Thank you for your continued support of Invesco Mortgage Capital Inc. We will now open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1. You will be prompted to record your name. To withdraw your question, you may press 2. Again, press 1 to ask a question. One moment, please, for our first question. Our first question comes from Marissa Lobo with UBS. Your line is open. You may ask your question. Analyst: Thank you, and good morning. On the equity issuance this quarter, can you speak to the timing of those raises and how you are thinking about future ATM activity? Kevin Collins: Yes, sure. We raised nearly 134 million net of issuance costs in Q1 through our ATM. Those were timed pretty steadily throughout the quarter. Our capital structure is now well positioned to support IVR’s long-term success, but we do plan to selectively access the ATM to raise common stock when it provides a clear benefit to our shareholders. We continue to think that the ATM is the most efficient mechanism for raising capital. Lastly, I would emphasize that responsible growth reduces our fixed cost per share and improves liquidity in our stock, all of which we think are beneficial for the company. Analyst: Got it. Thank you. And just on risk management, can you speak to some of the decisions that were made for the portfolio during the volatile period in March, and would you describe upcoming periods of volatility as a trading opportunity or a reduction in your risk-taking? Brian Norris: Good morning, Marissa. The improved environment for agency mortgages that we have seen over the past 10 to 11 months gave us more comfort that the volatility we saw in March would pass and that mortgage valuations or spreads would be much less volatile than, for example, what we saw last April and in previous episodes. We were able to raise ATM throughout the first quarter, which allowed us to absorb some of that volatility as well. We did not sell assets as a result of the increased volatility, and we were able to invest and put money to work at wider levels as that volatility occurred. Operator: Our next question comes from Jason Weaver with JonesTrading. Your line is open. You may ask your question. Jason Weaver: Good morning, and congrats to Kevin and David on the elevations, and thanks to John on his transition after a long tenure. First, I was curious about the plan for the TBA position. Is this a structural, hold part of the portfolio, or more of a placeholder for rolling into specified cash pools over time? Brian Norris: Hey, Jason. Good morning. TBAs certainly have a place in the portfolio structurally. Right now, because they are so attractive, our allocation is at the higher end of what we would be comfortable with. Naturally, our inclination is to own more specified pools, as that is a more durable return profile, but we are very comfortable with where TBA dollar roll markets are, and we think it is quite attractive. At least in the near term, our plan is to keep that allocation where it is. In addition, agency TBAs offer increased liquidity for the portfolio, allowing us to shift leverage as we see fit in a very efficient manner. So structurally, they do have a place in the portfolio as long as they are not punitive from a return perspective. Jason Weaver: Thanks. I see the swap book maturity termed out a bit, particularly in the five-year bucket. Was that largely a function of rolling down from the shorter duration 6.5% into the 5% to 5.5% coupons? Brian Norris: The swap maturities were rolling down the curve themselves. Moving from 6.5s into lower coupons would actually require us to extend hedges, and that was done through a mixture of both Treasury futures and swaps. We tend to own a bit more longer-duration Treasury hedges than we do in swaps, with a lot of our swaps at the front end of the curve. Jason Weaver: One more, if I may. Do you have an updated book value quarter-to-date? Brian Norris: We are up about 2% since the end of the quarter. Operator: Thank you. Our next question comes from Doug Harter with BTIG. Your line is open. You may ask your question. Doug Harter: Thanks. Following up on the risk-reward, how are you thinking about the range we are likely to be in for spreads, and how should we think about the risks that we either break out on the high end or the low end of that range? Brian Norris: Hey, Doug, and welcome back. Mortgage spreads, particularly relative to swaps, are quite attractive. They are not quite as attractive as they were in previous years when volatility was much higher, but in the current environment, they are attractive. We could see a little bit of further spread tightening. That could come from wider swap spreads as opposed to necessarily tighter mortgage spreads versus Treasuries, because from a mortgage-to-Treasury basis, valuations are fair to slightly tight. In the mortgage-to-swap basis, there is some room for compression. Operator: Thank you. Again, if you would like to ask a question, please press 1. Our next question comes from Trevor Cranston. Your line is open. You may ask your question. Trevor Cranston: Thanks. Can you talk about how the GSEs performing as a backstop buyer of MBS impacts your thinking on leverage, and if having a lower level of downside risk equates to being willing to run at a higher leverage level going forward? And then I have a follow-up on hedging. Brian Norris: Sure, Trevor. Good morning. In March, we did see Fannie Mae come in and act as that backstop; they added, I believe, 18 billion in March alone. The GSEs added about 35 billion to their retained portfolios in the first quarter, and they still have about 117 billion left under their current cap. While they are much more opportunistic than the Fed during times of QE, and more selective on coupons and collateral stories, they certainly helped absorb a lot of the volatility in March. That reduces spread volatility and gives us more comfort. We did let leverage drift higher in March without selling assets because we felt more comfortable in this environment, and we will continue to be that way. The outperformance in April has brought leverage back down closer to where we were at the beginning of the year, which is probably a more normal long-term run rate for us, and we feel very comfortable from a liquidity and risk perspective there. Trevor Cranston: On the hedge portfolio, you mentioned that a lot of the longer-tenor hedges are in the Treasury bucket currently. How do you think about the balance between swap spreads being more negative further up the curve and potentially using longer-dated swaps to capture some of the negative swap spreads versus the liquidity of using Treasury hedges on that part of the curve? Brian Norris: Definitely, swap spreads for us, particularly in the 30-year portion of the curve, are quite negative, near negative 80 basis points, whereas in the front end like 5s and 10s they are more like negative 30 to negative 45. Longer-dated swaps are more attractive from a negative spread perspective, but you also get a lot of spread duration out there, so modest changes will add more volatility to the portfolio. Given that mortgage spreads versus swaps across the curve are still very attractive, we are more comfortable reducing swap spread volatility by hedging with swaps at the front end of the curve, call it between zero and ten years, as opposed to going out as far as 30 years. We do own some 30-year swaps, but to the extent that we hedge out there, it is mostly in Treasury futures. Operator: Thank you. I will now turn the call back over to management for closing remarks. Kevin Collins: With no other questions, we appreciate everyone’s interest in Invesco Mortgage Capital Inc., and we look forward to future engagement. Operator: Thank you. That concludes today’s conference. We thank you for your participation. At this time, you may disconnect your line.
Operator: Welcome to the Xerox Holdings Corporation First Quarter 2026 Earnings Release Conference Call. [Operator Instructions] At this time, I would like to turn the meeting over to Mr. Greg Stein, Senior Vice President and Head of Investor Relations. Gregory Stein: Good morning, everyone. I'm Greg Stein, Senior Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation First Quarter 2026 Earnings Release Conference Call hosted by Louis Pastor, Chief Executive Officer. He is joined by Chuck Butler, Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and/or rebroadcasting of this call are prohibited without the express permission of Xerox. During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor. We will make comments that contain forward-looking statements, which, by their nature, address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I'd like to turn the meeting over to Mr. Pastor. Louie Pastor: Good morning, and thank you for joining our Q1 2026 earnings call. Before we get into the numbers, I want to briefly introduce myself in this new capacity and share my thoughts about the role and how I intend to lead Xerox. First, I want to sincerely thank the Board for the confidence they've placed in me. This is not a responsibility I take lightly. As many of you know, I was appointed President and COO last September. And before that, I served in leadership roles spanning operations, transformation, corporate development and legal. I know this business well. I know our people well, and I have been deeply involved in the work underway to improve our performance, much of which is starting to show up in our results. The Board's decision to name me CEO reflects the progress we've made over the past 2 quarters, including structural cost reductions, early signs of momentum growing our revenue funnel, and the execution of key initiatives to strengthen our balance sheet, like the TPG Angelo Gordon joint venture and the warrant distribution. Separately, my decision to eliminate rather than retain and backfill the President and COO role was deliberate. There are no sacred cows here. The role is not needed anymore, and eliminating it reflects exactly the kind of cost discipline, operational efficiency and speed of execution this moment demands. I intend to lead this company with the same operating discipline I brought to every role I've ever held. Sleeves rolled up, deeply embedded in the work and with a clear-eyed focus on what actually moves the needle. We're aware of our stock price. We're aware of our credit ratings. I'm not going to paper over the challenges that Xerox faces. Rather, I have a disciplined, pragmatic approach to tackling them, and I'm focused on actions, not excuses. To our employees, our clients, our partners and our investors, I commit to being transparent and accountable with all of you. We will talk openly about our successes. We will acknowledge our challenges, and we will move quickly to address them. You deserve that. And frankly, it's the only way we'll make real progress. Let me also be clear about this. I am genuinely optimistic about the future of this business. I know what this organization is capable of, and I'm confident that we are closer to an inflection point than the external narrative suggests. Xerox has real assets, real client relationships and a team that has shown it can execute under pressure. Our strategy is not changing. It doesn't need to. What this company needs and what our leadership intends to deliver is relentless, disciplined execution against the strategy we have already laid out. The plan is in place. Now we run it. So with that, let's talk about our results. Q1 showed a continuation of the improving underlying trends we discussed on our Q4 earnings call. Revenue of $1.85 billion increased nearly 27% in actual currency and 24% in constant currency, reflecting the inorganic benefits of the Lexmark acquisition. On a pro forma basis, revenue declined 4%. Even excluding the benefit of some partner-driven pull forward from Q2, which Chuck will discuss in further detail, Q1 performance was a material improvement from the 9% organic revenue decline we saw in Q4. Quarterly adjusted operating margin increased on a year-over-year basis for the first time in 5 quarters. Adjusted operating margin of 3.9% was up 240 basis points year-over-year on a reported basis and was also up on a pro forma basis. This is a turning point in our profit trajectory, and it reflects the cost discipline our team has maintained through a complex integration. Overall market trends have improved from 2025 when demand was materially impacted by DOGE-related spending reductions, tariff uncertainty, and the government shutdown. In the Print segment, we're seeing steady demand in entry, led by better-than-expected performance at legacy Lexmark, continued softness in midrange and strong demand for our new production devices with Proficio, a recently launched device developed in partnership with Fujifilm, tracking well ahead of plan. Our overall print pipeline is now up meaningfully compared to this time last year, and we expect these trends to persist. I also want to highlight a partnership that speaks directly to the momentum we are building in production. Earlier this month, Toshiba Americas announced the addition of Xerox PrimeLink color and monochrome light production printers to their portfolio. This is a powerful validation, a well-respected global player with deep client relationships choosing to sell Xerox-branded devices through their network speaks to both the strength of our brand and the competitiveness of our production portfolio. We will actively seek to expand our distribution reach by pursuing partnerships like this with other OEMs. Our IT Solutions business delivered another solid quarter. Bookings grew 32%, billings grew 21%, and we delivered year-over-year profit growth. Total contract value of new deals continues to rise, and we are winning more managed services contracts, which provide greater visibility and long-term stability in our revenue trajectory. However, there are certain headwinds constraining that momentum. Memory lead times have extended, and in certain cases, higher memory prices have compressed margins as we prioritize establishing new relationships and expanding wallet share. We are also investing in technical talent to support a broader service offering. We believe these investments will lead to larger, more strategic deals over time, but they may create near-term pressure on IT Solutions profit expansion. As we look to the rest of the year, our positive expectations remain intact, though subject to quarterly timing variability, driven by OEM and inventory availability. A few other developments since our prior earnings call are worth noting. February Supreme Court ruling on tariffs is a net positive to Xerox's cost structure, particularly as it relates to our cross-border supply chain. That said, based on current forecast, those benefits will be slightly more than offset by increased memory prices, which are modestly higher than our last update, as well as higher oil prices, which impact toner, plastic and metal prices as well as transportation costs. Importantly, apart from certain international markets with exposure to the Middle East conflict, none of this to date has impacted overall demand. Given our solid start to the year and the momentum we have generated, we are reaffirming our 2026 financial guidance and are increasingly confident in our ability to meet these commitments. Looking ahead, our priorities are straightforward and every stakeholder should understand where we are focused: stabilize revenue, increase profitability, reduce leverage. That's it. First, stabilize revenue. Rightsizing our cost structure will remain a core focus, but we cannot cost cut our way to prosperity. We operate in a $50 billion print market facing secular headwinds, but there are real pockets of growth, particularly in entry and production. We intend to compete aggressively in those markets with better products, reduced manufacturing costs, stronger routes to market, improved service offerings and new partnerships. And over time, we expect growth in IT solutions and digital services cross-sold into our existing client base to offset print declines. Second, increase profitability. We expect to deliver $250 million to $300 million of incremental savings in 2026, including $150 million to $200 million from the integration of Lexmark. But I want to be clear, this is not a 1-year event. It is a multiyear journey. The cost actions we are taking today will continue to benefit us well into 2027 and beyond. We have guided to double-digit operating margins over time, and we intend to get there. Finally, reduce leverage. I want to address this priority directly because I know it is top of mind for many of you, as it is for us. While the $450 million TPG Angelo Gordon joint venture has increased our overall debt in the near term, it has provided meaningful liquidity to invest in and operate the business as well as the flexibility to take advantage of the dislocation in our bond prices. Between continued opportunistic debt repurchases and improving profitability, we expect our leverage ratios to improve as the year progresses. Reducing leverage is not just a stated priority, it is something you will be able to measure us against every quarter. Before I turn the call over to Chuck, let me take a minute to highlight some key operational initiatives that I believe are fundamental to how Xerox executes against the 3 stated priorities that I went through. Our go-to-market is now fundamentally different. We have moved from a fragmented structure with too much overlap and friction to a unified commercial engine with a simpler strategy, take share, cross-sell, upsell and mix shift toward higher-value offerings. On the enterprise side, we have eliminated account overlap and streamlined engagement. For corporate accounts, we have transitioned to a territory-based model with clear ownership, faster decisions and greater accountability. Our print go-to-market coverage is now structured into 3 regional theaters: North America, Western Europe and Rest of World, each designed around distinct client dynamics, routes to market and partner ecosystems. This simpler, more client-centric approach gives us the ability to meet clients where and how they need us, leverage our expanding global partner community and accelerate growth in targeted segments, all with clear rules of engagement and stronger accountability for both clients and partners. On inside sales, an initiative we launched last year to serve our smaller commercial clients with a greater touch, but at lower cost, equipment sales grew 24% year-over-year in Q1. On April 1, we expanded account coverage from 35,000 to 65,000 clients with revenue accountability quadrupling to more than $200 million. We expect to further scale this model over time. We also continue to take greater ownership of our product design and manufacturing, strengthening our control over quality, cost and speed to market. This will start yielding positive benefits to gross margin later this year. Xerox is becoming and in many respects, already is, a designer, developer, manufacturer, seller and servicer of our own technology. That end-to-end control matters enormously. We own the technology roadmap. We control the design costs. We make the decisions. And frankly, it means we control our own destiny. These initiatives, a transformed go-to-market and greater manufacturing control are central to how we stabilize revenue, increase profitability and ultimately reduce leverage. With that, Chuck, over to you. Chuck Butler: Thanks, Louis. Good morning, everyone. Louis just laid out our 3 priorities: stabilize revenue, increase profitability, reduce leverage. I'll walk through Q1 against that same frame. On revenue, trajectory improved versus Q4. On profitability, adjusted operating income more than tripled year-over-year. On leverage, we took deliberate concrete actions to strengthen the capital structure and position us to delever from here. We are reaffirming full year guidance with even more confidence today than when we set it. Before we get into the details, a brief note on tariffs. Our Q1 results and guidance do not reflect any potential refund benefits associated with the recent Supreme Court ruling on IEEPA tariffs. We expect additional clarity during the second quarter, and we'll provide an update on our next earnings call. Q1 revenue of $1.85 billion increased 27% year-over-year on a reported basis and 24% in constant currency, reflecting Lexmark's contribution. On a pro forma basis, revenue declined 4% year-over-year, a material improvement from a 9% decline in Q4. As Louis alluded to, Q1 revenue benefited by approximately 1% from the pull-forward of post-sale revenue, primarily in supplies, partly driven by customer and channel concerns around potential supply disruptions related to the conflict in the Middle East. Even adjusting for this benefit, Q1 revenue would have exceeded consensus expectations by approximately $80 million. As we have discussed on our prior calls, 2025 included meaningful headwinds from the exit of certain production print device sales. While their impact is diminishing, they have not fully dissipated. From this point on, we will no longer call these out separately. Our focus is on the trajectory of the business, not noise in prior period comparisons. On a similar note, as Louis mentioned, we have unified our go-to-market organizations. We will make select references to legacy Xerox and Lexmark on today's call where it adds context. But going forward, we will report and speak about the business as one. Turning to profitability. Adjusted gross margin was 30.3%, up 60 basis points year-over-year, driven by Lexmark's contribution and transformation benefits, partially offset by 100 basis points of increased product costs and declines in high-margin finance-related fees, largely a result of our forward flow arrangements, which shifts certain finance income off balance sheet. Adjusted operating margin was 3.9%, up 240 basis points year-over-year, driven by higher gross margins, integration synergies and lower marketing spend. Non-financing interest expense was $84 million, up $51 million year-over-year due mainly to higher net interest expense associated with Lexmark acquisition financing. GAAP loss per share was $0.84, down $0.09 year-over-year and adjusted loss per share was $0.43, $0.37 lower than a year ago, primarily due to higher interest expense and an unusual tax rate, the latter of which I want to address directly. Our non-GAAP adjusted tax rate of negative 219% looks unusual because we carry a valuation allowance against certain deferred tax assets. The practical effect is that pretax losses in the U.S. and U.K., along with disallowed interest expense do not generate a corresponding tax benefit while we continue to record tax expense on profits in certain jurisdictions. It is a GAAP consequence of where we sit today, not a reflection of operating performance or cash. As our profitability improves, we expect the tax rate to normalize and converge with our cash taxes. To put it in context, if we adjust for the impact of valuation allowances in the U.S. and U.K., EPS would have been negative $0.11, ahead of negative $0.27 consensus. We present non-GAAP taxes based on Q1 results, but we believe this is a more normalized lens to view underlying operating performance. Let me review segment results. Within Print and Other, Q1 equipment revenue was $378 million, up 33% as reported or up 31% in constant currency. On a pro forma basis, equipment revenue declined 2%, well ahead of the 10% decline last quarter, driven by stronger year-over-year trends at both legacy Xerox and Lexmark and fewer onetime headwinds. Legacy Xerox equipment revenue fell 5% compared to a 12% decline in Q4. The sequential improvement was driven by improved demand in entry and production. Legacy Lexmark equipment revenue grew 5% versus a 6% decline in Q4 on a higher demand across the enterprise and channel and a slight reduction in backlog. As we have noted previously, Lexmark's equipment revenue tends to be more variable than legacy Xerox, given Lexmark's higher concentration of large channel and OEM partner transactions. Print post-sales revenue was $1.31 billion, up 30% as reported and up 27% in constant currency. On a pro forma basis, print post-sale revenue declined 4%, mainly due to lower financing income and service rental and other declines within legacy Xerox. Print and Other adjusted gross margin was 31.3%, down 10 basis points year-over-year, as higher product cost, lower managed print volumes and lower high-margin finance-related fees were largely offset by transformation savings and Lexmark's contribution. The Print segment margin was 5.1%, up 190 basis points due to Lexmark's contribution, transformation benefits and integration savings. Turning to IT Solutions. Gross billings grew 21% year-over-year. Total bookings, an indication of future billings increased 32%. Both represent sequential improvements from Q4. GAAP revenue fell 5% in the quarter, but that number understates underlying activity. A growing share of what we sell, third-party service contracts, SaaS and certain fulfillment contracts where we act as an agent is reported on a net basis. The widening difference between GAAP and gross billings reflects accounting treatment, not changes in demand. We expect it will begin normalizing later this year and into 2027, though some revenue cycles could run longer. Going forward, gross billings and segment profit are the most useful lenses on this business. This is where you will see its health and trajectory. On profitability, gross profit was $30 million, with gross margin of 19.5%, up 230 basis points year-over-year, driven by changes in revenue mix and synergies, partially offset by higher memory cost. Segment profit was $6 million with profit margin of 3.9%, up 80 basis points year-over-year as higher gross profit was partially offset by investments in the sales and delivery organization and strategic hires. Cross-selling into our existing Xerox Print client base continues to build, with more than $32 million of new pipeline created in Q1. Moving to our cash flow and capital structure. For the quarter, operating cash was a use of $144 million compared to a use of $89 million last year, reflecting the inclusion of Lexmark, lower proceeds from finance receivable sales and working capital timing. Investing activity was a $24 million use of cash, $21 million from CapEx compared to a source of $6 million in the prior year, which included proceeds from asset sales. Financing activity resulted in a $242 million source of cash, reflecting the JV financing, partially offset by the paydown of the remaining IT savvy notes and partial payment of the 2028 senior unsecured notes. Free cash flow was a use of $165 million for the quarter, down $56 million year-over-year and in line with our internal expectations, as Q1 is typically a seasonal use of cash. Said differently, Q1 is our seasonal trough and the back half of the year is where the bulk of our free cash flow is generated. We expect improvements in adjusted operating income, working capital discipline and additional proceeds from finance receivables to deliver substantial free cash flow over the remainder of the year. We ended Q1 with $637 million of cash and cash equivalents, inclusive of $52 million of restricted cash and total debt of $4.4 billion. Approximately $1.4 billion of the outstanding debt supports our finance assets, with remaining core debt of $3 billion attributable to the nonfinancing business. On a pro forma basis, gross leverage was 7x trailing 12 months EBITDA. Our capital allocation priority remains debt reduction, driven by EBITDA growth and continued debt paydown, and we expect leverage to go down significantly as the year progresses. During the quarter, we announced an IP joint venture with TPG Angelo Gordon. This structure raised more than $400 million of liquidity net of fees against our intellectual property. Following the JV agreement, we repurchased $101 million of face value of our 2028 senior unsecured notes for $45 million, capturing $56 million of discount, reducing future cash interest and capturing real value for our shareholders. The result of these actions is a maturity ladder that has been meaningfully derisked in the near term. We have approximately $300 million of scheduled debt maturities between now and December 2027, inclusive of the $125 million of the 13% senior bridge notes that we will be paying at the end of Q2. That is a manageable window, and we will have multiple tools to address it, organic cash flow, continued open market repurchases, the warrant mechanism and capacity within our existing debt structure. We will continue to be opportunistic when market conditions support it. Importantly, we will continue to pressure test every action against one goal. Does it create sustainable long-term value for shareholders? That is the lens. Now, for guidance. For 2026, we still expect greater than $7.5 billion in revenue and expect adjusted operating income to be in the range of $450 million to $500 million, an increase of more than $200 million versus 2025, driven by $150 million to $200 million of in-year integration synergies and $100 million of in-year transformation savings. We expect free cash flow of approximately $250 million. Compared to 3 months ago, our free cash flow guidance is underpinned by higher interest expense resulting from the JV, offset by reductions in CapEx, improvements in working capital and lower cash taxes. The result of our assumptions remain unchanged. Our free cash flow guidance implies greater than $400 million of free cash flow generation for the balance of 2026. As a result, based on our implied guidance, by year-end 2026, we expect gross and net leverage to drop by approximately 1.5x to 5.6x and 4.5x trailing 12 months EBITDA, respectively. With that, I will now turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] And our first question comes from Ananda Baruah with Loop Capital. Ananda Baruah: A few, if I could. I guess, Louis, what -- you walked through a lot of great detail there in your prepared remarks. What you spoke about is new? And what might be some of the stuff that you'll be focusing on that could be new that may not have been mentioned in what you talked about? And I have a couple of follow-ups. Louie Pastor: Yes. Thanks, Ananda. I appreciate the question. I appreciate you joining the call. To be honest, a lot of what I was trying to emphasize was that the strategy actually is already in place and doesn't need to change. What's new, I would say, is perhaps the level of rigor and focus on solely these 3 priorities that we went through. So stabilizing revenue, expanding profitability and reducing leverage. Everything that we do needs to be framed through that lens. And as we do it, it just -- like I said, it just creates the opportunity to drive even greater focus and better execution. Ananda Baruah: I got it. And a point of clarification, going back to your prepared remarks. You made mention of -- and this is me paraphrasing, focus on entry level and production where you think there's attractive opportunity. What about the midrange? I know you also said midrange remains soft. What's the right way we should, sort of, think about midrange? And when you think about the core, your core enterprise customer, how do they fall across entry and midrange in the way in which you're describing entry and midrange? Louie Pastor: Yes. So the way we think about the strategy commercially is it's very much and we've talked about this in the past, a gain share mix shift strategy. And when we talk about the mix shift, a lot of people think just about the shift of the mix of our revenues from print in greater amounts into IT solutions and digital services. But there is also a mix shift within print. And that mix shift within print is actually part of the gain share component of the strategy. And that's the barbells that we were just talking about with entry and production. So we are responding to and following the trends in the market, which is why our investments are going into those 2 spaces in entry. Obviously, Lexmark historically has been a leader in the space. Now we're a fully vertically integrated player, controlling design, development, delivery, manufacturing end-to-end in that space, which allows us to compete far more effectively. And on production, we're so well positioned with respect to sales, distribution and service. And with new partnerships, we're bringing new hardware to market, but we're wrapping it around an end-to-end solution. And so part of how we grow and get back to a stable revenue stream in print is through the execution of that barbell strategy. Now the midrange is the most challenged part of the market. We've historically been a leader there. It's still highly profitable for us, and it's still a core component when we do an end-to-end managed print services offering at the enterprise. It's part of the mix of what is ultimately being purchased and delivered and serviced. But ultimately, our focus is going to be on the areas of growth and ensuring that the midrange plays a role where it's relevant and part of a holistic solution. And we'll continue to be in the space, but the focus strategically is going to be far more on entry and production. Ananda Baruah: That's helpful context. I got one more. You mentioned memory lead times have extended and that may have some sort of profit impact. And I think this is regard to IT savvy specifically. So correct me if that's not accurate. What I -- what we've seen is, some of the distribution folks, distribution vendors have been able to pass the memory cost through, without seeing impact to elasticity yet. So could you just give us a little more context around what it is you're seeing? Are you passing costs through? Are you able to pass costs through to some extent? Are you hitting elasticity points? Is it really a timing -- is it really a timing mechanism? Or to what degree is timing playing a role there as well? Just [ flip ] that for us, that would be great. And that's it for me. Chuck Butler: Louis, let me start and then maybe you jump in if I missed something here. Memory, it operates in both of our segments, both in the IT Solutions and in the print side of things, but impacts on both a little differently. On IT Solutions, what you'll find is that memory will slow down the buying patterns of some of our customers that we work with. We generally try to get in there and shape their demand to see what they want to spend their available budget on, make sure we keep equal wallet share in those customer bases because we have a broad product portfolio. And sometimes we work with them to say, look, you can extend the life of these hardware products that contain the memory and wait for the prices to come back down. So we try to help them shape that demand going forward. If they want to go ahead and buy, we largely pass that along to the end customer in the IT solutions space. On the print side of things, it can be a significant cost increase on some of the product line. The higher up you move the stack, the more price -- the more cost increase it has. What I will tell you is in our current forecast, we factored in the current macro environment for exactly where it is today, where we think it is today. So all the memory cost increases, what's happening with the fuel offset by the change in the tariff is all factored into our reaffirmation of the 2026 guidance. Operator: Our next question comes from Samik Chatterjee with JPMorgan. Unknown Analyst: This is Mark on for Samik. I guess my first question is kind of a follow-up to one of the previous ones for Louis. I guess with regards to some of the initiatives and new strategies that he's going to be -- or approaches that he's taking, I guess, anything to elaborate on in terms of how the approaches might differ from the prior management? Louie Pastor: No, I don't think we need to go into sort of granular detail around kind of what's changing from the prior leadership to my leadership other than to just emphasize once again kind of the 3 priorities that drive all of our decision-making. So stabilizing revenue, expanding profitability and reducing leverage. So ultimately, everything that we do is framed through that lens. We've talked about the strategy and where we're focused in what segments and how we execute the mix shift. And really, it's just continuing to make sure that everybody at this company is focused and empowered and accountable for delivering those results. Unknown Analyst: Got it. Chuck Butler: And if I could just add a little bit. I'll tell you from my seat, one thing you noticed and Louis touched on it there, it's every decision that we make right now is put through the lens of does it stabilize revenue? Does it expand margins? And does it delever this company as quickly as possible? And it's staying incredibly focused on those 3 points. Unknown Analyst: Got it. I guess on the margin side, there was some improvement in print profit margins quarter-to-quarter. I guess what are some of the drivers in the quarter-to-quarter improvement? And like how much of that would you consider structural versus like onetime benefits? Chuck Butler: Yes, the benefits that you're seeing as we continue to expand margin are largely related to the acquisition and synergy costs as we continue to realize those. Unknown Analyst: Got it. And then I guess the last question on top of that would be looking at the path of operating margins from around 4% this quarter to the midpoint of the guidance. I guess, what do you think about in terms of the quarterly cadence? What would be driving the step function changes? Any changes with regards to timing of how you envisioned it earlier this year? Chuck Butler: Yes, Louis, let me start and feel free to jump in. If you think about the seasonality of how we'll realize the synergy savings, it will expand each quarter-on-quarter successively and then peaking in the fourth quarter. Some of that's really seasonality because the scale of your business increases throughout the year, fourth quarter being the larger quarter in the space for us. And some of it is just the realization of another quarter, realizing full benefits from actions that you've taken. So you'll continue to see it expand each quarter on top of the other. Operator: Our next question comes from Asiya Merchant with Citigroup. Asiya Merchant: My question is also related a little bit to seasonality. And if you could just talk a little bit about the 2 segments. How envision sort of revenues seasonality between the 2 segments as you kind of look forward to your -- above $7.5 billion revenues for the year? And if you can also peel a little bit on cash flow here, free cash -- operating cash flow and free cash flow kind of seasonality. I think you guys are obviously expecting a lot more of it in the back half. What's driving that aside from operating income? How should we think about whether it's receivables flowing through or working capital as you progress throughout the year? Chuck Butler: Yes, I'll start here again. When you look at the seasonality of our revenue, even legacy Lexmark and legacy Xerox acted a little bit differently, but similar. Some of them depend on school cycles, government cycles, some of them depend on your geographic mix and where you operate in. Typically, what you would have seen for Lexmark and Xerox, though broadly, is one is light, two and three are in the middle and four is the biggest revenue month. IT Solutions appears to get its biggest traction in the third quarter. And it's largely driven by schools coming back in session and different buying cycles in the spaces that they play. Operating cash flow in the print space, working capital is a drag in the first quarter typically. And the first quarter tends to be -- it's your lower revenue month, so you don't get as much scale, and it tends to be the most compressed in those spaces. It was the same thing at legacy Lexmark. It was the same thing at legacy Xerox historically. And then the fourth quarter tends to be the best working capital and the highest revenue, so you generate the most cash flow accordingly. And you'll see that in the space. If you look back in '25, more than all the cash flow was driven in the back half of the year. And that's generally what we're going to see here in '26. We'd like to see that a little flatter, and we'll try to find ways to normalize it, so the impacts aren't so pronounced. But it is industry that drives a large piece of that. In addition to that, because of the expanding margins and the trajectory on realizing more synergy savings quarter-on-quarter, that will drive incremental cash flow throughout the year as well. Did I answer your question? Asiya Merchant: Yes, that's helpful. In terms of your billings and bookings, I know you're reporting pretty strong billings and bookings here in IT solutions. You're also talking about talent hires. Just help me understand like how we should think about those billings and bookings translate into revenues into that segment for the year? Louie Pastor: Yes. I'll start and then, Chuck, if you want to build on top of it. The way we run this business is with a focus on bookings and billings and then ultimately, how much of that actually pulls through to profit. So revenue is somewhat of a derivative of and a mid-level sort of gauge between those 2. But what we're really focused on is are we growing with our clients? Are we selling more to our clients? And ultimately, of what we sell, are we realizing a profit based on that? And so the trends overall that we're looking at bookings, billings and the flow-through on profit, we continue to see improvement in growth and the pipeline, albeit there are some macro headwinds there around memory and availability. But ultimately, it continues to benefit from secular tailwinds. Chuck Butler: Yes. The only thing I think I would add to that, a lot of times, gross billings doesn't always translate into revenue recognition on the face of your P&L. That's done based on the mix of customers and the mix of products that you take into that customer base, whether you treat it like an agent relationship or not. But the higher the gross billings go, you have a mind share and a wallet share in those customer bases that's meaningful. And the growth of that is operationally how you judge the health of that business. So we're excited about the growth we're seeing in the gross billing side of things. In terms of hiring talent, yes, we continue to invest in the space because that's the top line of the 3 priorities that Louis mentioned, stabilizing revenue. And we're going to invest in that to make sure it becomes the engine that allows us to achieve that. Operator: I would now like to turn the call back over to Mr. Pastor for any closing remarks. Louie Pastor: Thank you. Q1 gave us early proof points that the work we're doing is taking hold, an improving revenue trajectory, expanding margins and a growing pipeline across both print and IT solutions. We have more work to do, and we know it, but the business is moving in the right direction. In the coming months, Chuck and I plan to actively engage with our employees, clients, partners and investors. We will listen, answer questions and take feedback while keeping everyone focused on our 3 priorities: stabilize revenue, increase profitability and reduce leverage. Thank you for your time and for your continued support. We look forward to speaking with many of you in the weeks ahead. Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group First Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the conference over to James Lynch, Senior Vice President. You may begin. James Lynch: Thank you, Dani. Welcome, everyone, to our first quarter 2026 results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO, and Greg Milleman, our Vice President of Rates and Regulatory Affairs. Replay dial-in information for the call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until June 29, 2026. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website at www.calwatergroup.com. Before looking at our first quarter 2026 results, I'd like to cover forward-looking statements. During our call, we may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. And now I'll turn the call over to Marty. Martin Kropelnicki: Thanks, Jim. Good morning, everyone, and thank you for joining us this morning to review our first quarter 2026. There are really 6 primary areas that we want to talk about today. The first one being, obviously, the quarter, and I would say Q1 results were in line with our expectations, given the fact that we had a delayed 2024 general rate case. And to remind everyone, in March, we did get a proposed decision, and there's a comment period that follows that proposed decision, which is 30 days. Our comments were filed. And then yesterday, we received what's called a revised proposed decision that I've asked Greg to talk about a little bit more in detail later on in our discussion today. I will generally say that the revised proposed decision we're very happy with, and we are on the docket today for approval at the California Public Utilities Commission. In terms of the quarter, again, given the light of the rate case, there was stuff we could not book because of the delay. But given where we are in line with expectations, I think the highlight of the quarter is the fact that our infrastructure investment for the first quarter was up 17%, and we continue to make good progress on our PFAS treatment and cost recovery from the polluters who put in the grounds and the waters that we treat. On the business development side, there are really 2 areas. Obviously, we remain focused on the NEXUS acquisition deal, and we have filed our change in control applications in Texas to advance our purchase of the minority interest in BVRT, which is the Texas partnership that we've been involved in for the last 5 years. Yesterday, at our Board of Directors meeting, our Board declared our 325th consecutive quarterly dividend, and that follows, of course, the 59th annual dividend increase that we had in January. Additionally, as I mentioned on our year-end earnings call, we have officially kicked off our centennial year of operations, which means we've been going out to the regions that we operate, doing employee and customer celebrations, which have gotten off to a very, very good start. I'll talk a little bit more about that later on today. Before getting into some of the details in these 6 subject areas, I'm going to turn it over to Jim to actually go through the financial results for the quarter. Jim, I'm going to hand it off to you, please. James Lynch: All right. Thanks, Marty. As Marty mentioned, the proposed decision on our California 2024 general rate case is expected later this afternoon. And having said that, our first quarter results do not include the impact of the revenue requirement or any of the other provisions included in the revised proposed decision. Recall that the company does have an interim rates memorandum account, and that does authorize us to retroactively apply the decision back to January 1 once it's finalized. So we're not losing out on any of the potential benefit from the rate case for the time that the decision has been delayed. In Q1 of 2026, revenue was $214.6 million compared to $204 million in the first quarter of 2025. Net income for the quarter was $4 million or $0.07 per diluted share, compared to the prior year's first quarter of $13.3 million or $0.22 per diluted share. Moving to Slide 6. You can see the impact of activity during the quarter. The primary earnings drivers were rate increases, which added $0.11 per diluted share, and accrued and unbilled revenue, which added $0.06 per diluted share. The accrued and unbilled revenue increase was due primarily to warm and dry weather during the last month of the quarter. The revenue increases were partially offset by an overall decrease in consumption for the quarter, increased depreciation and interest expense related to new capital investments, and an increase in the effective income tax rate due to a reduction in tax credits, which, when combined with other items, reduced EPS by about $0.32 per diluted share. Turning to Slide 7. We continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable water. As Marty mentioned, our capital investments for the quarter were up 17.6% to $129.5 million. Our total planned capital investments for 2026 are $627 million, and this reflects the amounts included in the revised proposed 2024 California rate case decision. It also includes our estimated expenditures in the other states. The constructive impact our capital investment program is having on our regulated rate base is presented on Slide 8. If approved as requested, the 2024 California GRC and Infrastructure Improvement plan, coupled with planned PFAS investments and capital investments in our utilities in the other states, would result in a compounded annual rate base growth of over 11%. Moving to Slide 9. We continue to maintain a strong liquidity profile to execute our capital plan, and we continue to pursue tuck-in M&A opportunities as we progress on the acquisitions of Nevada, Oregon, and BVRT. As of March 31, 2026, we had $58.1 million in unrestricted cash and $45.6 million in restricted cash, along with approximately $470 million available on our bank lines of credit. We maintained credit facilities totaling $600 million that are expandable to $800 million with maturities that extend into March of 2028. We also have over $340 million remaining on the shelf registration we filed in connection with our ATM program after completing approximately $6.1 million of program sales during the first quarter. Importantly, both group and Cal Water maintained strong credit ratings of A+ stable from S&P Global, underscoring the strength of our balance sheet. Turning to Slide 10. We just declared our 325th consecutive quarterly dividend of $0.335 per share. We also announced our 2026 annual dividend of $1.34 per share. This is our 59th consecutive annual increase and is 8.1% higher than 2025. And with that, I'll now turn the call over to Greg to discuss the revised proposed decision on our rate case. Greg Milleman: Thanks, Jim. As Marty mentioned earlier, we received a revised proposed decision on our 24 California general rate case yesterday, and a final decision is expected later today or shortly thereafter. The revised proposed decision provides clear visibility into revenue growth, including approximately $91 million in 2026, followed by $43 million in 2027 and $49 million in 2028. Importantly, it continues key regulatory mechanisms like the Monterrey-style RAM and authorizes cost-balancing accounts such as our pension cost-balancing accounts, health care cost-balancing account, and a new general insurance liability balancing account, which helps stabilize earnings despite variability in customer usage and certain operating costs. While decoupling was not included, the decision introduces a new sales reconciliation mechanism and an updated rate design that better support this fixed cost recovery. Overall, we view the revised proposed decision as constructive and supportive of continued infrastructure investment and long-term earnings stability. And now Marty will take us through the remainder of the deck. Martin Kropelnicki: Thanks, Greg. And just echoing what I said earlier, I'm very happy with the PD that's going to the commission today for approval. And obviously, when it's approved, we will issue an appropriate press release and related 8-K with more of the details of what's included in that final decision. But I think it's fair to say from Greg's perspective, managing our rates department, and Jim's perspective as being our CFO, I think we're very happy with the outcome and look forward to getting the rate case wrapped up and moving on with our plans for 2026. Moving on to Slide 12, just a quick update on where we are with our NEXUS project. As you may recall, we announced that we reached an agreement with NEXUS to acquire their Nevada and Oregon operations. We have continued to progress very well, working with NEXUS. They're a great company to work with. We filed our change of control applications with both the state of Oregon and the State of Nevada. The state of Nevada has a 6-month statutory decision timeline. Oregon does not. We're hoping the 2 will try to stay on track around the same time, and we could drive to close these transactions as early as the end of the year. In the interim, the subject matter experts continue to work very, very well together, and we are mapping their processes into our systems. I've also had the pleasure of visiting all the sites in Oregon and Nevada. And very happy to say I was very pleased with all the employees that I met with. They are very, very professional and very, very sound operators, as well as an outstanding management team. In addition, since we last talked, I have had meetings with all the commissioners in the state of Oregon, as well as the commissioners in the state of Nevada and their staff. Those meetings have all gone very well as well. When we conclude this acquisition of the NEXUS assets, essentially, it will give us almost 100,000 connections outside of the state of California in total, which is about 20% of our total connections. So again, diversifying out of California, expanding our footprint on the West Coast. In addition, I think this is significant and something we don't talk a whole lot about. But for those of you who have been with us for a long time, if you remember, in 2008 and 2009, we started talking more about water and the wastewater business and recycled water. And back then, we really had the 2 wastewater treatment plants that we operate. When we get this deal closed with NEXUS, as well as the BBRT final buyout of the minority interest, we'll have over 24 wastewater plants that we'll be operating in the western half of the U.S. And I think, again, that just goes to show our diversification out of California into wastewater and then also recycled water, which I believe is going to play a very important role for water in the western half of the United States. Looking at Slide 13, on the DBRT slide, we filed the change of control application with the Texas Commission, which is on file with them. In addition, we added another 210 connections to our existing system. So we are waiting for the Texas Commission there as well, and then we will close on the minority interest that still remains in DBRT, and then that will become a wholly owned subsidiary of Texas Water Service Company. Moving on to Slide 14. We have started officially celebrating our centennial anniversary. I'd encourage everyone to take a look at our annual report. Our corporate communications team, headed by Shannon Dean, did an outstanding job going through kind of then now and next, which is the theme of the annual report. I'm also very happy that we've had over 41,000 people visit our Centennial website, which has a lot of information about the company, the rich history of the company, and how we grew from the idea that started with 3 World War I veterans to being the multibillion-dollar company that we are today. If you're interested in that site, I encourage you to look at it. You can visit it, and the URL is 100years.talwatergroup.com. In celebrating our 100-year anniversary, we have scheduled a number of events throughout the state of California. That includes both employees and local officials. We held our first one in Bakersfield. That was a big success, and we'll have another one here in Southern California in June. The overall goal of the program in celebrating this at a regional level is to allow us to increase awareness of the company's track record among our local communities and our public officials that we are allowed to serve. In addition to getting people together to celebrate our success, we are also getting a lot of reclamations and resolutions from, for example, the speaker of the California State Assembly, the City of Icealia, the City of Chico, Chamber of Commerce, the Central Valley Aging Chamber of Commerce, and the San Joaquin Hispanic Chamber of Commerce, and there's more to come. So it's actually fun to be out there talking about 100 years of service and reflecting on where we started to where we are today. With that, Dani, let's open it up for our Q&A, please, for the guests on the call. Operator: [Operator Instructions] Your first question comes from the line of Davis Sunderland with Baird. Davis Sunderland: Two questions for me. Maybe a PFAS question and then a balance sheet question. I guess I'll just start. I know the EPA has been talking recently about microplastics and potentially regulating some other substances outside the initial PFAS guidelines. Just wondering if you guys have any early thoughts on this, and specifically if these might be treatable within your current plans, or if this would require further capital investment beyond what you've already laid out? Martin Kropelnicki: Yes. Good question, Davis. And some of you have heard me talk about UCMR, which is really the unregulated contaminant list that the EPA publishes, and they update that list every so many years. If you really want to see what's coming down the pipe, no pun intended, on water regulation, you really want to monitor that UCMR list, and microplastics have shown up, and it has evolved on that list. And so it is certainly something that is a hotter topic at the EPA right now, and it is something that's in the water supply. And it's something that you will likely see regulations establishing MCL to make sure there are no microplastics in the water. So there's more to come from the EPA on that. Obviously, they go through a scientific process, and they come up with standards. Those standards get handed off to the states, and the State Department of Health is responsible for implementing those standards at the state level. So do I believe you ultimately have a standard that will come up on microplastics? Yes, I do. And I think as a society, we've gotten a lot better at not putting microplastics into the ground or into the ocean. So I think that part of it is actually improving. But I do think at some point, we will actually have a standard that will evolve that we'll have to treat for. And as part of that process, the EPA will also talk about what the appropriate methods and techniques are to treat the water that has microplastics in it. James Lynch: Yes. I think it's uncertain or unclear right now whether or not our current treatment that we're putting in place for PFAS will be effective for the microplastics, and that will depend largely on the EPA. Davis Sunderland: Maybe then just turning Jim, to the balance sheet. I appreciate all the comments on liquidity and available credit. But maybe if you could just talk a bit about how you're thinking about equity issuance and capital needs more broadly throughout the balance of the year, that would be super helpful. James Lynch: Yes. I think we're going to knock on wood, we feel very confident that we'll be successful in closing both BVRT and the Nexus acquisitions in Nevada and Oregon. And so that will be incremental to our normal cadence of debt and equity issuances. We'll take a look in terms of the timing on when we anticipate that's going to occur, and rightsize or determine the most efficient way that we can actually approach the capital markets to fund those transactions when the time comes. I think that there are some pretty interesting instruments out there relative to forwards that will allow us to time it a little closer to where we can minimize any sort of dilution that could occur in terms of the difference between the time we raise the equity and the time we actually close the transactions. And so we'll be looking into that. We believe when the transaction is closed, it would likely occur towards the end of the year, and that's when I would take a look at when we would look to raising the capital for those. Otherwise, we would continue to rely on our ATM and our normal lines of credit taken out by longer-term debt as we work through our capital programs and fund our other capital needs. Martin Kropelnicki: Yes. If you don't mind me jumping in. Davis, it's probably worth mentioning too, as you recall, we have our PFAS program, which is fairly substantial, and we have a separate application before the commission that we're waiting to hear on because that will add further pressure on Jim on the capital side. But the flip side of that is we've been very successful on the litigation side. And just last week, we received another $6.5 million gross from the polluter's trust that has been set up. So we have recovered about $66.5 million in gross receipts in our recovery process, going after polluters, which in essence just about $50 million. That $50 million will be a direct offset to our PFAS program and help keep those costs lower for our customers. So we're approaching 20%, 25% of those estimated PFAS costs being covered through our legal efforts. And our legal team continues to do a very, very good job at leading our industry efforts and getting recovery on that. So that will help a little bit. James Lynch: And for some perspective on that, we initially anticipated 2 basically segments of the program, one is treatment, and one is well replacement, with our objective to get the treatment in by the end of 2028. And then the well replacements will take a longer time. Of the total amount we plan to spend on PFAS, about $60 million of that is for the wells, and the remainder is for treatment. Operator: [Operator Instructions] There are no further questions at this time. I will turn the call back over to Martin Kropelnicki, CEO, for closing remarks. Martin Kropelnicki: Thank you, Dani. Thanks, everyone, for joining us today. Obviously, I think the big thing to watch for moving forward is really what happens at the commission today. We're hoping for approval. And again, I think we're very happy with the revised proposed decision that's on the docket for today. As we move into the second quarter, what are we going to be focused on? Obviously, we have to implement the results of the rate case. And while that sounds like an easy task, there's a lot involved in doing that. Obviously, there's a retroactive piece that goes back to January 1, which Jim and his team will have to work on, and we'll give a lot of clarity around that as we wrap up the quarter and have the appropriate disclosures in our financials for our second quarter 10-Q. In addition, there are thousands of table changes that have to take place on the billing cycle with the new tariffs. And so the rates team, working with our customer service team, the accounting team, and the IT team, will be making those tariff changes and doing the appropriate testing to make sure our tariffs are accurately being built. We are assuming an approval today, and we'd anticipate starting billing the new tariffs on July 1 of this year. And then in addition to that, obviously, we're staying very focused on our M&A side and really the Nexus transaction and the BVRT transaction, answering the commission's questions on the change of control applications as well as doing all the integration work and being ready to do a quick close and integrating those assets onto our platform once approved by the appropriate commission. So it's going to be a busy, busy second quarter, and then throw in the 100-year celebrations on top of that. We have a lot going on. But certainly, the team remains laser-focused on the tasks at hand. The last thing I want to do before we hang up is this is Greg's last earnings call with us. And if you know Greg Milleman, he's not a person who wants a lot of hoopla and fanfare, but I couldn't let the morning go without recognizing his contributions to California Water Service Group. We recruited Greg from Valencia Water in 2013, where Greg served as Senior Vice President of Administration. And believe it or not, we're Greg's third job out of college, and started off with Arthur Anderson, and then went to Valencia Water, and then he joined us. So we brought Greg in as a Manager of Special Projects. We were very impressed with him when we met Greg and didn't really have a spot for him, but we thought he was a very quality hire, a senior hire from within the water industry. Within a year, he was promoted to the Director of Operations, helping the operations team focus on deploying capital more quickly and more efficiently, and making sure that the plant is getting into service as quickly as possible. In 2017, he was named the Interim Director of Rates to help lead our rate case efforts. And in 2019, he was named Vice President of Rates for California. And then in 2022, when Paul Townsley retired, he took the helm as our Vice President of Rates and Regulatory Affairs to lead our overall rate strategy for all of our operating companies. Greg has only been with us for 13 years. And from a Cal Water standpoint, that's not a lot of time. We have a lot of employees who are in their 30s and have 40 years of service with the company. But Greg's impact on the company has been nothing short of outstanding. And if you look at our rate cases over the decade that he has been with us, the 13 years he's been with us, we have done the best with our rate cases under his leadership and his management. So I would be remiss if I didn't take this opportunity to tell Greg, thank you, and to wish him and Jim all the best in retirement, and we look forward to keeping in touch as we do with all of our retirees. So Greg, thank you. And with that, Dani, we'll wrap it up, and we'll see everyone next quarter. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Westwood Holdings Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jill Meyer, Director of Fiduciary Services. Please go ahead. Jill Meyer: Thank you, and welcome to our first quarter 2026 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as in our Form 10-Q for the quarter ended March 31, 2026, that will be filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our Chief Executive Officer; and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey. Brian Casey: Good afternoon, and thank you for joining us for Westwood's First Quarter 2026 Earnings Call. I'm pleased to share our results and key developments from the quarter as well as our outlook for the remainder of the year. Before going into the details, I would like to highlight a few points from the first quarter. Our AUM grew to $18.3 billion, up from $17.4 billion at year-end 2025. Our ETF suite of products surpassed $315 million in combined AUM. West II closed at over $300 million and West III fundraising is now underway. Combined institutional and intermediary gross sales were approximately $529 million. And finally, we completed the sale of Vista Bank, generating a net gain of approximately $2 million. I'll start with a brief overview of our assets under management. Firmwide AUM increased from $17.4 billion at December 31, 2025, to $18.3 billion at March 31, 2026. This growth was driven primarily by our energy and real asset strategies, particularly private energy funds and energy-focused ETFs, which more than offset modest declines in U.S. value equity. Private fund AUM was the largest contributor, reflecting new commitments and capital deployment in our energy secondaries and co-investment vehicles. This growth was structural in nature rather than market dependent, which we see as a healthy and durable source of AUM diversification. The first quarter reflected the continuing evolution of our AUM mix. Client allocations are shifting toward income-oriented real asset and private market solutions, driven by macroeconomic forces like energy security concerns, record global infrastructure investments and persistent power demand growth from data centers and AI-linked infrastructure. Traditional U.S. value equity strategies remain under pressure, although the pace of decline moderated during the quarter. Turning to the market environment. After reaching new all-time highs in late January, U.S. equities quickly faced a reversal. Military actions by the United States and Israel against Iran drove oil prices significantly higher in March, amplifying persistent market uncertainties. The S&P 500 fell 4.3% for the quarter, while SmallCap and MidCap stocks posted modestly positive returns. The standout story was energy. S&P 500 energy stocks gained more than 38% over the 3-month period, and market leadership continued to broaden out from mega-cap technology towards sectors like materials, utilities, consumer staples and industrials. The Fed held the funds rate steady in the 3.5% to 3.75% range as fourth quarter annualized GDP growth of 0.7% and lingering inflation kept policymakers on hold. Meanwhile, bond yields edged slightly higher, producing modestly negative returns for the quarter. With that market backdrop, let me turn to our long-term investment performance. Our results across strategy groups reflect the challenging near-term environment for value-oriented equities, along with several areas of genuine long-term strength that we find very encouraging. Within our U.S. value equity strategies, our SMidCap strategy continues to be a standout, ranking in the top quartile of both its eVestment and Morningstar peer groups over the trailing 3 years, a consistent and well-earned result. On a 10-year basis, our LargeCap value strategy has delivered competitive results relative to peers. We recognize that parts of U.S. value strategies remain under pressure, but we are actively focused on delivering improved results and have seen some moderation in outflows. Turning to our Multi-Asset strategies. Our results here are really encouraging. Our Multi-Asset income fund ranks in the top decile of its Morningstar peer category over both the trailing 3- and 5-year periods, a strong and consistent performance. And our income opportunity strategy ranks in the top third of Morningstar peers over the trailing 3-year period. Taken together, half or more of our Multi-Asset strategies are delivering top-tier results over meaningful time horizons. Our Salient Energy and Real Asset strategies delivered solid performance amid a favorable environment for the sector. Our MLP SMA strategy is in the top 1/3 of its eVestment Master Limited Partnership peer group over trailing 3 years and is performing well relative to the Alerian MLP Index on a net of fee basis. MBST and WEEI, the Westwood Salient Enhanced Midstream Income ETF and the Westwood Salient Enhanced Energy Income ETF continue to provide attractive yields to income-focused investors, consistent with their stated objectives. Our Tactical Growth mutual fund also delivered positive results while providing capital preservation during the March correction. Looking ahead, we believe market conditions are evolving in a way that increasingly favors our investment philosophy. The broadening of sector leadership out from mega-cap technology stocks toward energy, industrials, utilities and other value-oriented segments is precisely the environment in which our active quality-focused approach has historically excelled. Geopolitical uncertainty, inflationary pressures from elevated oil prices and potentially slower economic growth all create volatility, but they also create opportunity for disciplined investors like us who prioritize companies with strong cash flow, sound balance sheets and reasonable valuations. Over the long term and across market cycles, we have consistently demonstrated that quality and value are durable sources of outperformance, and we are well positioned to capitalize on that dynamic as the environment continues to evolve. Turning to distribution. Our institutional channel reported gross sales of $322 million for the first quarter with net inflows of $32 million. One major highlight was successfully onboarding our first institutional managed investment solutions client, accounting for over $200 million in gross sales, an important validation of the MIS capability we've been building. Our pipeline remains robust across both value and energy strategies with many new opportunities added during the quarter. We are also initiating SMidCap due diligence with 2 of the largest national consultants, which reflects the attraction of SMidCap's quality and competitiveness. We expect to see continued momentum in SMidCap Value for defined contribution plans, and we anticipate that our private capital platform will attract increasing institutional interest following significant enhancements we have made to our personnel and organizational structure. In our intermediary channel, gross sales reached $207 million, led by Energy and Real Assets with net outflows of $34 million. MBST gained approval from its first major wirehouse, a very important distribution milestone, and it continues to receive approvals from major national platforms. YLDW, our Enhanced Income Opportunity ETF, is approaching the $25 million threshold typically required for platform onboarding. Our Broadmark strategies are gaining traction as investor demand for risk mitigation has increased in the current elevated market volatility environment. And finally, momentum from our West II capital raise is underpinning West III as it attracts early interest from RIAs, family offices and independent advisers. Moving to our Wealth Management business. We entered 2026 with solid momentum as we continue to strengthen our multifamily office platform. Client engagement remained elevated throughout the quarter, reflecting ongoing market uncertainty and continued demand for proactive planning and thoughtful portfolio oversight. Our advisers maintained a disciplined long-term approach to asset allocation, which helped reinforce client confidence during periods of volatility. Client conversations are increasingly focused on holistic planning, particularly around tax positioning, liquidity management and coordination with trust structures, areas where our integrated model is optimal. From an operational standpoint, we continue to make progress on process standardization and cross-functional alignment across our advisory, client service and trustee. Our efforts are improving scalability while enhancing the overall client experience. Business activity remained steady during the quarter, including several notable large inflows from our multifamily office approach. We continue to prioritize high-quality client relationships with significant long-term potential. Looking ahead, our focus remains on refining internal processes, enhancing reporting and communication and strengthening collaboration across the platform to support sustainable growth. Beyond core business results, I'd like to highlight significant events and milestones achieved during the quarter. Our Enhanced Income Series ETFs achieved an important milestone as MBST, our Enhanced Midstream Income ETF crossed the $200 million AUM threshold in February, a landmark for a fund that has been in the market for less than 2 years. Together with WEEI and YLDW, our 3 Enhanced Income Series ETFs have now surpassed $320 million in combined assets. YLDW, the Westwood Enhanced Income ETF we launched last December, represents an important extension of our income ETF platform, being the first of our Multi-Asset strategies to be marketed as an ETF. YLDW combines a disciplined Multi-Asset allocation approach with a strategic covered call overlay, providing investors with a consistent and diversified source of current income plus potential capital appreciation. It is approaching $25 million in assets. MBST continues to maintain an annualized distribution rate of approximately 10%, consistent with its income generation objective and its recent wirehouse approval is a truly meaningful step in expanding our distribution reach. We will continue to look for opportunities to expand our ETF lineup with innovative strategies that address investor demands. Our Energy Secondaries business reached an important milestone as Westwood Energy Secondaries Fund II closed with over $300 million in capital commitments, more than double our initial $150 million target. Since launching our first Energy Secondaries fund in 2023, we have raised nearly $350 million and deployed over $250 million across 2 flagship funds and 3 co-investment vehicles. During the first quarter, we also received commitments for a new co-investment fund focused on an operated upstream platform. We have commenced fundraising for Westwood Energy Secondaries Fund III and its related co-investment fund, which we expect to market through early 2027, and it's generating substantial early interest. To support this growing platform, we have added team members to our private capital operations team and implemented a new AI-driven technology tool to streamline key operational processes. We completed the sale of our interest in Vista Bank during the quarter, receiving both cash and a stock consideration that enabled us to recognize a gain of approximately $2 million. In March, we celebrated the 25th anniversary of the Westwood Real Estate Income Fund, marking a quarter century of disciplined investing, durable income generation and a successful active management of publicly traded real estate securities. Since inception in 2001, the fund has navigated real estate and economic cycles while maintaining a philosophy grounded in fundamental analysis, valuation discipline and rigorous risk management. We're proud of the team that has delivered consistent results for our clients over such a long investment horizon. Finally, on April 1, 2026, Westwood celebrated its 43rd year in business, a testament to our commitment to clients, our culture of continuous innovation and the dedication of our entire team. We are proud to be one of the very few asset management firms with this depth of history, and we remain committed as always to the principles that have guided us since our founding. Looking back on the first quarter of 2026, we are encouraged by the strategic progress we have made across our business. Our ETF platform has scaled meaningfully. Our private capital strategy is gaining significant institutional and intermediary traction, and our distribution channels continue to build a healthy pipeline. The evolving market environment characterized by broader sector leadership, elevated energy prices and a renewed interest in quality and value is one in which we believe Westwood is well positioned to deliver for our clients and shareholders. With 43 years of experience, a diversified and growing product platform and demonstrated long-term performance in our core strategies, we are confident in our ability to capitalize on the opportunities ahead. Thank you for your continued support and confidence in Westwood. I will now turn the call over to our CFO, Terry Forbes. Terry Forbes: Thanks, Brian, and good afternoon, everyone. Today, we reported total revenues of $25 million for the first quarter of 2026 compared to $27.1 million in the fourth quarter and $23.3 million in the prior year's first quarter. First quarter revenues were lower than the fourth quarter due to lower average AUM as well as fourth quarter recognition of performance fees for the prior year. First quarter revenues were higher than last year's first quarter due to the solid growth in our business reflected in higher average AUM and growth from our ETFs and private energy secondaries funds. Our first quarter income of $0.8 million or $0.09 per share compared with $1.9 million or $0.21 per share in the fourth quarter on lower revenues and higher compensation expenses, offset by a gain from the sale of our investment in a private bank and lower income taxes. Non-GAAP economic earnings were $2.8 million or $0.31 per share in the current quarter versus $3.3 million or $0.36 per share in the fourth quarter. Our first quarter income of $0.8 million or $0.09 per share compared favorably to last year's first quarter income of $0.5 million due to 2026's higher revenues and gains from our investment in the private bank, offset by higher compensation expenses. Economic earnings for the quarter were $2.8 million or $0.31 per share compared with $2.5 million or $0.29 per share in the first quarter of 2025. Firmwide assets under management and advisement totaled $18.3 billion at quarter end, consisting of assets under management of $17.3 billion and assets under advisement of $0.9 billion. Assets under management consisted of institutional assets of $9 billion or 52% of the total, wealth management assets of $4.2 billion or 24% of the total and mutual fund and ETF assets of $4.1 billion or 24% of the total. Over the quarter, our assets under management experienced net outflows of $50 million and market appreciation of $0.8 billion, and our assets under advisement experienced market appreciation of $48 million and net outflows of $50 million. Our financial position continues to be solid with cash and liquid investments at quarter end totaling $34.2 million and a debt-free balance sheet. I'm happy to announce that our Board of Directors approved a regular cash dividend of $0.15 per common share payable on July 1, 2026, to stockholders of record on June 1, 2026. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website, reflecting quarterly highlights as well as a discussion of our business, product development and longer-term trends in revenues and earnings. We thank you for your interest in our company, and we'll open the line to questions. Operator: [Operator Instructions] I am showing no questions at this time. I will now turn it over to Brian Casey for closing remarks. Brian Casey: Great. Well, thank you. And I first want to thank our long-term and our new shareholders for approving our entire slate of directors today and all the other items we have on the agenda. Just in closing, our SMidCap performance has remained strong and our pipeline of opportunities has grown to over $1 billion. Our Managed Investment Solutions pipeline is improving every week, and we're optimistic that we will land our next institutional client in the coming months. We continue to build out our private capital platform, and we're anxious to kick off fundraising for our next fund. And finally, our ETF platform is seeing strong demand with higher trading volumes and growing AUM, and we're excited to see MBST go fully live tomorrow across one of the major wires. So that should be exciting. Thanks so much for your time. We appreciate it. Visit westwoodgroup.com or call Terry or I if you have questions. Thanks so much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Cerus Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference over to Tim Lee, Head of Investor Relations. Please proceed. Timothy Lee: Thank you, and good afternoon. I'd like to thank everyone for joining us today. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at ir.cerus.com. With me on the call are Obi Greenman, Cerus' President and Chief Executive Officer; Vivek Jayaraman, Cerus' Chief Operating Officer and incoming President and Chief Executive Officer; and Kevin Green, Cerus' Chief Financial Officer. Cerus issued a press release today announcing our financial results for the first quarter ended March 31, 2026, the company's recent business highlights and outlook. You can access a copy of this announcement on the company's website at www.cerus.com. I'd like to remind you that some of the statements we'll make on this call relate to future events and performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include those related to our future financial and operating results, including our 2026 product revenue guidance and our expectations for product gross margin, non-GAAP adjusted EBITDA performance, P&L leverage and our government reimbursed R&D expenses and corresponding revenue, expected future growth, the potential for us to achieve GAAP profitability, the availability and related timing of data from clinical trials, our mission to establish INTERCEPT as the global standard of care, anticipated regulatory submissions and milestones, commercial expansion prospects, projected market opportunities for the INTERCEPT Blood System, including for ISC demand expectations with respect to our group purchasing agreement with Blood Centers of America and our multiyear agreement with the French National Blood Service, our potential platelet opportunity in Germany, the anticipated impact of tariffs and ongoing inflationary pressures and related regulatory effects of our business and other statements that are not historical facts. These forward-looking statements involve risks and uncertainties that can cause actual events, performance and results to differ materially. They are identified and described in today's press release and our slide presentation and under Risk Factors in our Form 10-Q for the quarter ended March 31, 2026, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. On today's call, we will also be discussing non-GAAP adjusted EBITDA, which is a non-GAAP financial measure. Non-GAAP adjusted EBITDA should be considered a supplement to and not a replacement for measures presented in accordance with GAAP. For a reconciliation of non-GAAP adjusted EBITDA to net loss attributable to Cerus Corporation, the most comparable GAAP financial measure to the extent reasonably available, please refer to today's press release and the slide presentation available on our website. We will begin today with opening remarks from Vivek, followed by Kevin to review our financial results and lastly, closing remarks from Obi. Now it's my pleasure to introduce Vivek Jayaraman, Cerus' next President and Chief Executive Officer. Vivek Jayaraman: Thank you, Tim, and good afternoon, everyone. We appreciate you joining us today. At Cerus, our mission is clear: to expand access to safe blood for patients around the world. As we enter 2026, we are focused on delivering against that mission while executing on 3 core priorities: driving sustainable double-digit growth, advancing innovation, and strengthening our financial foundation. Our first quarter results reflect disciplined progress across each of these areas and reinforce our confidence in the path ahead. 2026 is off to a great start with strong first quarter results and increasing confidence in our sales outlook for the full-year. In the first quarter, product revenue, which reflects our core commercial business was $53.7 million, up 24% compared to the first quarter of 2025. This performance was driven by continued strength in our global platelet franchise and also accelerating demand in our U.S. IFC business. Based on our better-than-expected start to the year as well as our growing conviction in the underlying demand for INTERCEPT, we are raising our full-year 2026 product revenue guidance to $227 million to $231 million. In addition, we are raising full-year IFC revenue guidance to $22 million to $24 million. This updated guidance represents total year-over-year product revenue growth of 10% to 12% compared to 2025 and approximately 30% to 40% for IFC. From a top line perspective, North America accounted for nearly 70% of first quarter product revenue as our U.S. platelet franchise continues to serve as a foundation of our overall business. We are deeply grateful to our key customer partners, like the American Red Cross, who continue to place their trust in INTERCEPT. First quarter North American platelet volumes and treatable doses increased 6% and 9%, respectively, when compared to the first quarter of 2025. This gain outpaced the overall historical market growth rates. Looking forward, we anticipate further platelet penetration as we continue to expand adoption among blood centers and hospitals. A key enabler of this growth is our group purchasing agreement with Blood Centers of America, whose members represent approximately half of the U.S. blood supply. Since the agreement took effect on January 1, we have been focused on execution, educating members through targeted engagement, supporting implementation and expanding both existing and new customer relationships. We are already seeing early signs of traction, including increased activity at existing Cerus customers and new agreements to adopt PR platelets at BCA members who have yet to utilize INTERCEPT. Internationally, our EMEA business delivered another strong quarter, led by performance in France and Belgium. We continue to view the region as an important contributor to both near and midterm growth. The recently signed multiyear contract with the French Blood Establishment or EFS, enhances visibility into our forward outlook. We are deeply grateful to EFS for their continued trust in INTERCEPT. France was the first country of scale to fully adopt INTERCEPT to safeguard their platelet supply, and this contract renewal is a strong confirmation of the value they see in INTERCEPT. In Germany, progress on the INITIATE study continues to build the clinical and operational foundation for broader adoption over time. While we remain encouraged by the global opportunity, we are also navigating near-term challenges in certain regions. In the Middle East, ongoing conflict has created logistical complexities that may impact shipment timing. That said, we are actively managing the situation and believe that potential disruptions can be mitigated by strength in other parts of the business. Importantly, we remain confident in our long-term growth prospects in that region, and these near-term challenges were considered when deciding to increase our product revenue guidance for the full-year. Innovation remains central to how we expand access to safe blood and drive long-term growth. A key example is the continued successful rollout of our next-generation INT-200 illuminator across international markets, where we are seeing encouraging adoption and operational performance. Domestically, we are on track to submit our PMA for the INT -100 to the U.S. FDA this quarter, which represents an important milestone in bringing this technology to the U.S. market. Innovation is also evident in our U.S. IFC franchise, where demand continues to increase, supported by a growing number of blood centers manufacturing IFC, deeper utilization within hospitals and increasing awareness of its clinical and logistical advantages, particularly the highly valuable combination of immediate availability of fibrinogen alongside 5-day post- shelf life. As with our platelet franchise, we are seeing a marked increase in ISC engagement and adoption from BCA member blood centers under our new agreement. As a result, ISC demand in the first quarter measured by therapeutic dose equivalents increased approximately 120% year-over-year with revenue growth approaching 90%. We are seeing a continued shift towards kit-based sales, which supports both operational efficiency and long-term margin expansion. Taken together, these results reflect a business that is executing with focus, expanding access to safe blood, delivering sustainable double-digit growth, advancing innovation and strengthening our financial profile. While there is much work to be done, we are encouraged by the progress we are making and confident in the opportunities ahead. At the end of the day, the most important point to note is that we were able to meaningfully expand access to safer blood in the first quarter of 2026. Thank you for your continued interest in Cerus. I'll now turn the call over to Kevin to review our financial results in more detail. Kevin Green: Thanks, Vivek. You've just heard Vivek speak to 2 of our 3 pillars: growth and innovation. Today, I'll focus my comments on our third pillar, financial strength. First quarter financial tables are included in today's press release. As such, I'll focus most of my comments on key takeaways and insights. In addition to the 24% product revenue growth that Vivek mentioned, total revenue, which includes government contract revenue, increased 23% compared to the prior year results. By geography, product revenue growth was broad-based with both North America and EMEA reporting year-over-year gains of 20% or more. In EMEA, demand for our platelet product was the primary contributor, driven by both increased kit volumes and pricing discipline. As reported, EMEA revenues grew by 28%. Of that reported growth, favorable foreign currency exchange rates benefited EMEA revenue by approximately 11%. On a consolidated basis, FX provided a benefit of approximately 3% when compared to Q1 2025. In North America, growth was led by higher U.S. IFC sales as well as increased demand for platelet kits in both the U.S. and in Canada. Speaking to IFC, which at this point is exclusively a U.S. product, first quarter revenue was $5.7 million compared to $3 million during the first quarter of 2025. Switching now to government contract revenue. Reimbursement for government-related R&D expenses increased year-over-year. As I noted on our Q4 earnings call, we still expect full-year government-related R&D expenses and the corresponding reimbursement, which we recognize as government contract revenue to taper this year compared to 2025. Turning away from the top line to gross margin. Our first quarter gross margin was 52% compared to 58.8%. We call that first quarter 2025 margin is an unusually tough comp and was artificially high by approximately 2% due to a onetime true-up from the capitalization of inventorable charges and the nonrecurring release of previously accounted for favorable variances. With that said, the factors that we forecast to be headwinds in Q1 have proven to be slightly less impactful than we originally predicted. Nevertheless, these headwinds have been persistent, and we expect that to be the case for the remainder of the year. These referenced headwinds include inflationary pressures with shipping and fuel costs expected to persist, the impact of foreign currency exchange rates and the ongoing tariffs. Given the current trends, we continue to believe 2026 gross margin will be in the low 50s range, although we may see some relief should our assumptions on external factors prove conservative. Moving down the income statement. Operating expenses for the first quarter declined 7% compared to the first quarter of 2025. One of our key areas of focus supporting financial strength is disciplined control of operating expenses while growing revenue. To that end, SG&A expenses were largely consistent with the prior year, reflecting our ongoing focus to drive revenue growth without the need for proportional incremental investments in SG&A. R&D expenses declined year-over-year due in part to lower development costs of the INT-200 as we approach our planned U.S. PMA submission. Importantly, as you can see from this slide, Cerus funded development programs have been trending down as a percentage of total R&D expenses. Similar to SG&A, we've been making a concerted effort to generate leverage by focusing relatively more R&D spend on government-reimbursed initiatives compared to those that Cerus funds. Let's now turn to the bottom line and non-GAAP adjusted EBITDA results. For Q1 2026, GAAP net loss attributable to Cerus continued to show year-over-year improvement to a modest level of $1.6 million. As an organization, we are committed to not just growing non-GAAP adjusted EBITDA, but achieving GAAP profitability. On a non-GAAP basis, adjusted EBITDA for the first quarter totaled $4 million and marked our eighth consecutive quarter of posting positive adjusted EBITDA. We continue to match the strong commercial results with disciplined expense management and deliver the inherent leverage in our business. Looking ahead, for the balance of 2026, we expect to deliver our third consecutive year of positive adjusted EBITDA results. Turning to the balance sheet and associated cash flows. We ended the first quarter with cash and equivalents of $80.4 million compared to $82.9 million at the end of 2025. Cash used from operations was $3 million compared to $800,000 during the same period of the prior year. Cash used during the first quarter was primarily tied to working capital investments, specifically increased inventory levels in support of the expected revenue growth as suggested by our increased guidance. With all of this said, this progress has resulted in a stronger business. Since 2019, product revenue has grown at a compound annual rate of 18%. We've used that growth to expand patient access to INTERCEPT in new geographies and to continue investing in our new wave of innovation, including INTERCEPT fibrinogen complex, the new INT-200 device and INTERCEPT red blood cells. At the same time, we've managed the business with discipline. Since 2019, operating expenses have increased by less than 3% annually, demonstrating the operating leverage in our business as we continue to scale. As a result, net loss has narrowed meaningfully during the period from 2019 to now, and our adjusted EBITDA has consistently grown over the last few years. Accordingly, we have line of sight into GAAP profitability. With that, let me turn it over to Obi for his closing comments. William Greenman: Thank you, Kevin, and good afternoon, everyone. I want to thank all of you for joining us today for what will be my final earnings call as Cerus' President and CEO. As I reflect on 15 years in this role and more than 30 years with the company, I do so with deep gratitude to our shareholders, to our blood center partners, to our employees and to the clinicians and patients who have believed in our mission. The advocacy for our pathogen inactivation technology from our largest and longest-term blood center customers like the French EFS, Canadian Blood Services, the Swiss Red Cross, One Blood and especially the American Red Cross mattered meaningfully over the company's 35-year-old history. From the beginning, our vision has been to make INTERCEPT the global standard of care for transfused blood components and to establish Cerus as a leader in transfusion medicine innovation. When I became CEO 15 years ago, Cerus was still in the early stages of translating that vision into broad clinical and commercial impact. Earlier in 2006, when we took back the global commercial rights to INTERCEPT from Baxter and built our European organization to commercialize the platform in Europe and beyond, the clinical experience with INTERCEPT amounted to fewer than 10,000 platelet units transfused. Today, INTERCEPT is available in more than 40 countries. We have secured 4 FDA PMA approvals in the United States, established INTERCEPT as the standard of care in multiple markets, including the U.S., France and Switzerland and shipped kits equivalent to treating more than 22 million blood components. That is meaningful progress for Cerus and more importantly, it's meaningful progress for patients and healthcare systems around the world. Yet, the underlying need remains as compelling as ever. Safe and available blood is one of the fundamental requirements of modern health care. Patients undergoing cancer treatment, trauma care, complex surgery, childbirth and chronic transfusion support all depend on blood products that are both safe and ready when needed. That is the mission we share with our blood center customers every day. It is also why our work has impact far beyond our company, advances in blood safety and availability strengthen care delivery across the global health care system. Today, Cerus is better positioned than at any point in our history to help meet that need. We have built a global commercial footprint, a maturing INTERCEPT portfolio designed to address all major transfused blood components and an organization with the experience and discipline to execute. While we have made meaningful strides towards making INTERCEPT the global standard of care, I believe the opportunity ahead remains substantial. That is especially true as we advance the INTERCEPT red blood cell program. 2026 is an important year for the RBC program with major regulatory and clinical milestones ahead in the second half. The Phase III RedeS study, which includes the broader chronic transfusion experience required for an FDA PMA has completed enrollment and is expected to read out in the fourth quarter. As a reminder, the RBC program previously met its primary endpoint in the Phase III ReCePI study and the acute transfusion data from that study were included in the CE Mark submission, which is now under French ANSM competent authority review for potential approval in Europe. We believe INTERCEPT red cells remains one of the most important opportunities in blood safety and success there could materially expand both our clinical impact and our long-term growth potential. For those of you who have followed Cerus over the years, you know that transfusion medicine is careful and slow to adopt innovation. One of the defining moments in Cerus' history was the FDA's 2019 guidance on reducing the risk of transfusion-transmitted bacterial infections with an implementation deadline in October 2021. That guidance helps accelerate INTERCEPT adoption in the U.S. and influence many other markets that look to the FDA as an important benchmark. It was a reminder that durable change in the field is possible and that when regulatory standards evolve, the impact on patient care can be significant. We have built a strong foundation that supports an enduring company, a clear mission, differentiated technology, deep customer relationships, global regulatory and commercial capabilities and a pipeline with meaningful growth drivers still ahead. That foundation is what gives me such confidence in Cerus' future. Over the last 3 decades, we have built an exceptional team united by the opportunity to protect the blood supply and help ensure that life-saving transfusions are available for patients when they are needed most. For many of us, this mission has always been personal. We remember the devastating impact that HIV and hepatitis had on the blood supply in the 1980s and 1990s, and we were determined to help create a different future, one in which transfusion-transmitted infections would pose far less risk in the face of new pandemic threats and blood centers and hospitals would be better equipped to serve patients safely and reliably given the positive impact of INTERCEPT on blood donor deferrals. It has been the privilege of my career to help build Cerus into a lasting purpose-driven company, and I am very pleased to pass the baton to Vivek. He is a bold, team-first leader who will build on the strong foundation we have established, continue advancing our patient-first mission and lead Cerus through its next phase of growth, innovation and value creation for all stakeholders. With that, let me turn the call over to the operator for questions. Operator: [Operator Instructions]. The first one comes from the line of Josh Jennings with TD Cowen. Joshua Jennings: Congratulations, Obi, on moving into your next chapter. It's been a long resilient run by you and you're leaving the company in a position of strength here looking at these 1Q results and being on the cusp of some RBC approvals globally. We'll miss you, but congratulations, Vivek, on your new CEO seat. I'd like to start just with -- just asking about guidance. It seems like the uptick is -- or it looks like the uptick is being driven mostly by IFC strength, but also by INTERCEPT platelet strength. Maybe just talk about the outlook for the U.S. INTERCEPT platelet franchise versus OUS INTERCEPT platelet franchise and where you're seeing more upside relative to the outlook at the beginning of the year. William Greenman: Yes. Thanks a lot, Josh, and thanks for the kind comments to start. Vivek, do you want to handle that question? Vivek Jayaraman: Yes, I'd be happy to. Josh, echoing of these statements, thanks for the kind words, very much appreciated and certainly appreciate your continued interest in our story. The thing that's most encouraging to me about Q1 results is that the strength of the performance is really broad-based, both globally and across product category. You're right to point out that IFP performed quite well and was a significant part of our revised upward guidance. As you also correctly pointed out, platelets is a big component of that as well. If you recall, late last year and earlier this calendar year, we pointed to the BCA agreement in the U.S. and the opportunity to have effectively a hunting license in about half of the U.S. market where relatively speaking, PR platelets were underpenetrated. We saw good progress in the first quarter in that section of the market. We also saw strength with platelets internationally as evidenced by what Kevin spoke to in terms of strength in our EMEA organization. Then we also highlighted the renewed contract with the ESS. As we think about the outlook for the balance of the year, we see continued solid platelet growth in both geographies, continued expansion in the U.S. under the umbrella of the BCA agreement as well as continued adoption, both in growth areas internationally, but then also in some of our core markets where we're seeing a recommitment for customers. Really, there's a lot of enthusiasm coming out of first quarter results and the general qualification of demand in the marketplace. Joshua Jennings: Maybe just clearly, the BCA agreement is bearing early fruit here that may get stronger over the course of the year. Just within U.S. IFC and BCA blood centers, I think you commented, Vivek about marked increased demand from BCA blood centers. Any way you could just build out, provide a little bit more detail and whether you're seeing kind of new IFC customers coming on and how that outlook drove the guidance uptick for the IFC franchise. Vivek Jayaraman: Yes, of course. Yes, certainly happy to provide a bit more color there. There are multiple factors at play, Josh, as I'm sure you can appreciate. The first is we're actively in the process of moving our historical production partners under the BCA agreement. As we do that, they're able to take advantage of the resource sharing model that BCA utilizes. Their outlets in terms of potential both blood center customers and ultimately hospital customers continue to grow. In addition to that, we've had BCA members who weren't previously IFC manufacturers reach out to us and initiate the process of beginning IFC manufacturing. Then fundamentally, as we've talked about previously, as we transition from selling the finished therapeutic to the kits to blood centers, that enables us to leverage and partner with the sales and marketing channels up to blood centers, thereby significantly expanding our reach and our ability to engage with more hospitals. All of those factors come together and effectively create an environment where we're just reaching out to more hospitals, engaging a broader number of clinicians about IFC, and that's all occurring while the data we collect and the user experience on the product continues to grow. It's been really encouraging, but still very much early days. I mean we're proud of the Q1 results and the outlook, but I'll remind you that we're still single-digit share in terms of market penetration. There's a tremendous amount of upside in this market. Joshua Jennings: Congrats on a strong start to the year. Operator: Our next question comes from the line of Bill Bonello with Craig-Hallum. William Bonello: I also wanted to say congratulations to Obi and Vivek. In terms of questions, so you gave some timing on the expected regulatory catalysts. I'm wondering if you could maybe give us some sense of the time line from the events that you talked about today until we reach revenue generation and maybe some of the key milestones along that pathway to commercialization. William Greenman: Yes. Thanks for the question, Bill. I presume you're talking about red cells and not the INT-200, which we will be filing for PMA imminently here in the United States. William Bonello: Talking about them both. William Greenman: Well, I'll start with red cells, and I'll let Vivek cover INT-200 because we're also really excited about that. For the near term, the milestones through the remainder of the year, we clearly are very focused on the ANSM review of the red cell program, and we're happy to announce this week, we actually completed our recertification audit with TUV. That's exciting. We have 2 additional milestones for the CE Mark. One is the ANSM review and then ultimately, an audit of the manufacturing facility. Then as far as the pathway to ultimate revenue there, we would -- once we have an anticipated approval of the red cell CE Mark, we move into sort of an early launch of that product with an iteration of the device to ultimately improve the overall scale-up and operational efficiency of processing red cells. That's still a few years out, but the goal right now is to just focus on getting that CE mark so that we can launch the product. Vivek, do you want to cover the INT -200 in the U.S.? Vivek Jayaraman: Sure. I'd be happy to. Thanks for the question, Bill. As we indicated earlier, we're moving towards a submission to the U.S. FDA, PMA submission for the INT -200 device this quarter, in the second quarter of 2026. We would anticipate a launch in the first half of '27. I anticipate similar to what we're experiencing in international markets that there'll be a lot of enthusiasm for that launch. It's clear evidence of our commitment to innovation in this space, which I think differentiates us from a lot of our peers, and it will serve ultimately as the device foundation for the U.S. market. hat is an upcoming catalyst and one that we're very excited about given the positive receptivity to the Illuminator in international markets. William Bonello: Just as a follow-up to that, maybe just give us some thoughts on sort of the implications in terms of business, whether it's penetration or pricing or simply this being an enabler of retention in terms of launching that INT -200. Vivek Jayaraman: There's a significant market in the U.S. with respect to our installed base of illuminators, and that will be an area of focus for us there. Beyond that, as we think about de novo growth opportunities, as I mentioned earlier in response to Josh's question, there are some customers in the U.S. who have yet to begin their journey with us in terms of adoption of the INTERCEPT technology and part of that process will be equipping them with Illuminator that will be the -- most likely the INT-200 device. While we're not providing specific product level guidance in terms of our device placement, what I can say is a significant enabler in terms of serving as the underlying foundation for our business. Beyond that, too, as we think about, as we stated before, the sort of demonstrated investment in innovation and commitment to continuing to advance research and device development in this space, we're positioned very uniquely relative to our industry peers in this area because we continue to invest in R&D research and ultimately bring products to market that meet customer needs and enhance their operational efficiency. We're very much looking forward to introducing that product, and you'll hear more about our plans for U.S. commercialization certainly post-submission of the PMA and then as we approach our launch date. Operator: [Operator Instructions]. Our next question is from Mark Massaro with BTIG. Mark Massaro: Obi, it's been great working with you, and congrats as you transition into the Chairman role and Vivek, congrats on your well-deserved promotion to CEO. All right. Moving into the business, I wanted to get a better sense on the guidance because when I look at the IFC business, you grew 90% in Q1 here. The 2026 guidance for IFC has been raised to approximately 30% to 40%. I'm just trying to get a sense about the seasonality of this business. It looks like in Q3 last year, it was down sequentially. I recognize there's probably lumpiness as you roll this out. Can you just walk us through the assumptions as to just the delta between the really strong growth in the start of this year and your full-year growth outlook for IFC? William Greenman: Yes. Thanks for the question, Mark, and thanks for the comments to start as well. Vivek, do you want to cover that? Vivek Jayaraman: Yes, I'd be happy to. Mark, thank you for the kind words about the org transition, much appreciated. You're right to point out that the business is a little bit lumpy as we're in this early growth stage. I just want to emphasize that our conviction around continued growth and the fact that it's still we're a single-digit market share player and feel that there's a tremendous amount of headroom. I don't want any of that enthusiasm to be lost as we talk about some of the specifics about the current position itself. I'll remind you that a year ago, there were some anomalies in terms of our posted results. If you recall, we deferred from an accounting standpoint, some revenue recognition in the second quarter as we were sort of starting the process of transitioning from a finished therapeutic sale to a kit sale. That transition continues and really, we're driving towards being fully kit sales ideally by the end of this calendar year. That may bleed a little bit into 2027. We've been talking about really unit volume from the standpoint of therapeutic dose equivalents as opposed to the revenue growth. You'll see that current transition -- you'll see that transition accelerate through the balance of 2026. That was part of what's factored into the guidance for the full-year. Obviously, we took it up pretty significantly from original guidance of $20 million to $22 million for the full-year now to $22 million to $24 million. Underlying growth remains strong. There'll probably be some period-to-period idiosyncrasies just given that transition and the nature of our business model. As we think about blood centers manufacturing IFC, hospital starts, some of the things that we're paying attention to, all of those trend lines are pretty strongly positive. Hopefully, that gives you a little bit more color. Certainly happy to answer any more questions about the IFC business as you have them. Mark Massaro: Maybe switching gears to red blood cells. I think I heard you talk about the transition to ANSM, and it seems like we're now getting close. I think you're on the clock. As we put these pieces together, I think you've talked about a readout in Q4 of '26. Would it be reasonable to think that CE Mark could occur shortly after that -- the readout time period? I'm sort of coming in somewhere between either late Q4 or first half of '27, but I just wanted to get your sense on the timing of CE Mark. William Greenman: Yes. Thanks, Mark. I think right now, it's probably safe to assume that it will be in the first half 2027 approval time line, just given that we don't know what questions ANSM will ask and the time line for our responding to those questions. I think that's the timing you should be looking at. I mean I think we'll have a lot more clarity through the year-end. I think specifically as we think about our Q3 earnings call, not only will there be the Phase III RedeS study readout in that time frame, but also some increased clarity around the ANSM timing. That's the way I think you should think about it. Mark Massaro: Then I know probably not core to the thesis or anything, but I figured I would ask if you're still planning to pursue regulatory approval for platelets in China and maybe any update on that process? William Greenman: Yes. Thanks, Mark. Yes, Vivek, do you want to cover that? Vivek Jayaraman: Yes, I'd be happy to. Mark, it's a great question. We absolutely continue to be excited about the opportunity in the China market. In fact, we will be meeting with our joint venture partner, ZBK, at the upcoming ISCT meeting, which is scheduled to take place in Kuala Lumpur in mid-June, and so part of what we're continuing to refine is our strategy to collect in vitro data that's requested in the Chinese market for resubmission to the NMPA. In parallel with our continued channel checks and clinical engagement, it sort of continues to validate the excitement for and the need for pathogen activation in that marketplace. It's probably an opportunity that will realize in terms of revenue generation towards the latter part of this decade, but it's very much a market opportunity that we're working in partnership with ZBK under our joint venture agreement to advance. Operator: Thank you. Ladies and gentlemen, this will conclude our Q&A session and conference for today. Thank you all for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the First Quarter 2026 Brookfield Renewable Partners L.P. earnings results and webcast. At this time, all 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. I would now like to introduce your host for today’s program, Connor Teskey. Please go ahead, sir. Connor Teskey: 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+ and 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 the 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 and, without a secure, consistent, and 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 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 scale 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. 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, I will turn the call over to our Chief Investment Officer to discuss our approach to growth and our recently announced agreement to acquire Boralex. Unknown Speaker: Thank you, Connor, and good morning, everyone. 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 in M&A. While the option set is better than ever, our proven M&A playbook and 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 leverage 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 la Caisse is a great example of our disciplined, repeatable, and consistent approach to value creation through M&A. Similar to our recent successful acquisitions—our Nouyen in France and Australia; OnPath in the UK; and acquisitions in the U.S. of Geronimo, Dereva, Scout, and Urban Grid—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’s strong base in its core markets, including Canada, complements our current business and gives us an opportunity to do more in this highly attractive and growing market. Under the terms of the transaction, la Caisse 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 executing 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 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 at the business. 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 Partners L.P. 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 for players such as ourselves. We 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. Patrick Taylor: Thanks, and good morning to everyone on the call. 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, 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 Dereva 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 Partners L.P.’s future and look forward to sharing further updates on our progress over the course of the year. We will now open the call for questions. Operator: Certainly. Our first question comes from the line of Sean Steuart from TD Cowen. Your question, please. Sean Steuart: Thanks. Good morning, everyone. I wanted 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 a broader perspective on returns you are crystallizing through those initiatives. Second question is with respect to the M&A opportunity set. The previous quarter’s commentary was that 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: Good morning, and thanks for the question, Sean. Three things are worth highlighting 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 build more wind, solar, and other assets in-house, we increasingly look 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 expect it to grow on a similar trajectory going forward, and it is increasingly becoming a very normal course and consistent part of our business. Second, in terms of targets for size and scale, we will 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. We are not working to a fixed target, but for direction, at our Investor Day last year we spoke about a $9 billion 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 five years to come from asset recycling—and perhaps more if we see strong values in the market. Lastly, we have a fairly robust capital recycling program ahead of us in 2026, purely as a result of the strong bids we are seeing for both platforms and stabilized assets in the current market. On balance, the returns that we are generating through this program are consistently at the high end, or even above the high end, of our target range. On your M&A question, we continue to see opportunities in both public and private markets. For all the same reasons we mentioned last quarter, public markets still present compelling opportunities; those opportunities did not stop with Boralex. Some public companies are more constrained for capital and therefore not able to capture the tremendous demand environment we are operating in. Public companies with access to capital that they can use to capitalize on this environment are performing well, while companies that do not have the right access to capital are struggling. We therefore continue to see opportunities in public markets, and we are also seeing a robust pipeline across private markets for the remainder of the year. Operator: Thank you. Our next question comes from the line of Mark Jarvi from CIBC. Your question, please. Mark Jarvi: Thanks. Good morning, everyone. Could you clarify the comments you made about progress with the U.S. government and Westinghouse in terms of long lead items? Have those long lead items actually been signed now, and are you starting to get support from the U.S. government at this point? If not, when does that come? And then a follow-up: you mentioned an outsized ability to drive growth in the near term. Is the expectation that you can exceed 10% FFO per-unit growth in the next couple of years, and if so, what are the primary drivers? Excluding asset sale gains, is the ability to drive FFO growth from organic development and M&A stronger today? Connor Teskey: Hi, Mark. This is a very live discussion, and we hope to be in a position to announce 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 for nuclear around the world and particularly in the U.S., from the government as well as the utilities. That demand is coming from all stakeholders—offtakers, utilities, and government. We are making significant progress on establishing frameworks under which initial orders can be made, and we hope to make announcements as soon as practicable. On growth, in the current environment we feel well-positioned to exceed our long-term target of 10% per year. This is driven by three things: M&A, significant new capacity coming online from organic growth, and our ability to recycle assets at very attractive values in the current environment. There can be timing variability, but based on fundamentals we are well positioned in the short to medium term to exceed 10%. Excluding gains on asset sales, we would still say the operating fundamentals and organic growth profile of our business are as strong as they have ever been; gains on sale and accretive recycling are upside to that. Operator: Thank you. Our next question comes from the line of Analyst from National Bank of Canada. Your question, please. Analyst: Good morning. On Northview Energy, how should we think about the cadence of future dropdowns and the potential mix of assets into this vehicle? Should we think of this as more of a steady-state annual funding lever or something that could scale more opportunistically depending on market conditions? And a second one: on the prevailing hyperscaler agreements, could you provide an update on how those agreements are progressing and what the potential pipeline looks like? How are conversations evolving? 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. 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 consistent with what we have seen and expect to achieve in third-party asset sales outside this vehicle. This structure helps us de-risk development and enables funding of further high-margin growth. In terms of cadence, the additional capital for future dropdowns is expected to be utilized over a two- to four-year period, among asset sales to third parties outside of Northview. At the end of the initial allotment, we will consider next steps—potentially expanding this vehicle or creating new vehicles—but for now we are focused on consuming the initial commitment over that two- to four-year horizon. On hyperscalers, two things characterize our activity. First, demand continues to increase—higher today than last quarter and last year—and we expect it to be higher next year than it is today, particularly in their core markets. Second, our activities continue to broaden and evolve. For example, our first framework agreement with Microsoft focused on wind and solar; we continue to contract more of those, but last quarter we also contracted some hydro under a long-term contract, and we are increasingly including battery storage either with the projects or as part of the broader arrangement. The broadening of scope is where our scale and diversity differentiate us in serving the largest corporate consumers of electricity. Operator: Thank you. As a reminder, if you do have a question at this time, please press 11 on your telephone. Our next question comes from the line of Christine Cho from Barclays. Your question, please. Christine Cho: Good morning. I wanted to ask about the potential single combined corporate structure. You have been trying to increase the liquidity of BEPC for a while, so this seems like a natural progression. What led you to evaluate this, and what is on the table other than the tax-free aspect? Could you talk about other considerations in trying to do this, and would this change how you view your distribution policy? Also, are there any regions or technologies where execution risk has increased more than you would have thought, especially with the surge in power demand from hyperscalers and community pushback around permitting, interconnection, and supply chain? Patrick Taylor: Hi, Christine. There is not much more we can say beyond our opening remarks and press release. Our focus as we begin the work is to determine whether we can achieve a simplified structure on a tax-free rollover basis for our investors, and capture potential benefits around broader index inclusion and enhanced trading liquidity that we see among corporate securities relative to partnerships. Lastly, we are focused on whether this can create value for the entire investor base. We cannot provide further details at this time, and we would not expect any change in our distribution policy if we proceed. Connor Teskey: On execution dynamics, a few points. First, this is an “all of the above” environment—the demand for energy will require multiple sources. We are seeing the greatest growth in renewables because they are quick to deploy and low cost, but demand additions will come across the spectrum. Second, the fastest-growing technology across Brookfield Renewable Partners L.P. today is batteries and energy storage. We are seeing this within all our development platforms and increasingly as stand-alone opportunities. They remove grid congestion rather than add to it and are very quick to deploy. Further, CapEx for batteries and storage is down roughly 65% to 70% over the last 24 months, making these investments very economic. Third, we are seeing a dramatic increase in interest and growth in behind-the-meter solutions. The reality is that the demand trajectory is greater than the pace of grid expansion, so while the vast majority of growth will still go through grids, behind-the-meter solutions are growing faster off a very low base. Operator: Thank you. 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 big opportunity. Looking at your current solar and wind portfolio, is it economic to add batteries to existing sites, and are offtakers willing to pay extra to firm up their power given many assets are contracted? And then switching gears to South America: the environment is not great for renewable development and rates are high, and you are not that active on the development front, but on M&A you recently increased your stake in Isagen—are there other M&A opportunities you are seeing in South America? Connor Teskey: Absolutely—yes in no uncertain terms. The value proposition for batteries in today’s market is very compelling for offtakers in terms of providing a load profile that better matches their 24/7 demand curve. We are seeing batteries deployed alongside existing projects, in new developments, and on a stand-alone basis. In South America, we will continue to pursue opportunities when we can do so at strong risk-adjusted returns. Our more modest activity over the last two to three years outside of the Isagen transaction has been episodic. Brazil experienced very high hydrology and rapid build-out that pushed prices down and made new build less compelling for a period; we are seeing hydrology normalize and markets strengthen again. We continue to do significant growth in Colombia within the Isagen platform, so it does not show up as a discrete M&A transaction, and we have completed smaller transactions in other countries, including Chile and parts of Central America. It remains a compelling region, but it will be a smaller portion of our business relative to our core markets in North America and Western Europe. Operator: Thank you. Our next question comes from the line of Anthony Crowdell from Mizuho. Your question, please. Anthony Crowdell: Thanks so much. Two quick ones. First, a follow-up on the corporate consolidation: is there a timeline for when you hope to have a decision? Is it next quarter or by year-end? Second, on nuclear—you talk about the success and momentum with the AP1000 and the U.S. government. Where do you see the bottleneck before we get an announcement: utility side, government side, regulatory? Patrick Taylor: Hi, Anthony. We have just begun our assessment, so we cannot provide an indicative timeline or add more at this time. Connor Teskey: On nuclear, I would not characterize it as a bottleneck. The potential for new-build nuclear reactors in the U.S. represents a step-change versus the last 10 to 20 years. We are talking about additions that in one shot could exceed 10 times what has been done over the last 15 years. That scale requires alignment from all stakeholders—the government, nuclear-eligible utility operators, regulators, and financing parties. The momentum and traction over the last six to nine months have been incredibly significant and reflect the demand for growth in the asset class. The interest and support for getting this done are overwhelming; it is about finalizing alignment among the appropriate groups. Operator: Thank you. This concludes 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 Partners L.P., 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 concludes the program. You may now disconnect. Good day.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Please standby. Hello, and welcome, everyone, to the Matthews International Corporation second quarter fiscal 2026 financial results. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call is being recorded. It is now my pleasure to turn the meeting over to Daniel Stopar, Chief Financial Officer and Treasurer. Please go ahead. Daniel Stopar: Good morning. I am Daniel Stopar, Chief Financial Officer of Matthews International Corporation, and with me today is Joseph C. Bartolacci, our company's President and Chief Executive Officer. Before we start, I would like to remind you that our earnings release was posted last night on the Investors section of the company's website, matw.com. The presentation for our call can also be accessed in the Investors section of the website under Presentations. Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the company's results to differ from those discussed today are set forth in the company's Annual Report on Form 10-K and other public filings with the SEC. In addition, we will be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. In connection with any forward-looking statements and non-GAAP financial information, please read the disclaimer included in today's presentation materials located on our website. I will now turn the call over to Joseph C. Bartolacci. Joseph C. Bartolacci: Good morning, and thank you for joining us to discuss Matthews International Corporation’s fiscal 2026 second quarter results. On our last earnings call, we said that we were focused on execution, and we did just that in the second quarter. The redemption of our high-cost notes is complete, our balance sheet is significantly improved, interest expense is down materially, and for the first time in several years, we are entering the second half of our fiscal year with greater clarity and flexibility in our outlook. Our Memorialization business continues to set the pace, delivering its fourth consecutive quarter of year-over-year EBITDA growth. And while our Industrial Technology segment remains challenged, we are actively working to convert a substantial order pipeline that has grown since last quarter. Let us start with our balance sheet. In January, we completed the early redemption of our 300 million dollars of senior secured notes. This was not simply a refinancing exercise; this was a significant structural repair of a balance sheet that now looks fundamentally different than it did just 18 months ago. Our total long-term debt is now 579 million dollars, down from 822 million dollars one year ago, a reduction of over 240 million dollars. Net debt stands at approximately 543 million dollars today, and the interest expense savings from retiring those high-cost notes are now flowing through, reducing annual interest expense by approximately 10 million dollars and materially improving our cash profile dollar for dollar. The debt extinguishment charge of 16.3 million dollars recorded in Q2 included non-cash items of 3.4 million dollars and is a one-time cost. It should be read for exactly what it is: the price of materially improving our cost of capital, a trade that we are very comfortable with. Turning to Propellus, our 40% equity interest continues to represent what we believe is one of the most compelling unrecognized value drivers in our portfolio. The Propellus team is making great progress on their SAP migration, the single most important operational milestone that will unlock the next layer of significant synergies. As we shared last quarter, this migration is expected to unlock over 25 million dollars of the more than 60 million dollars in total identified synergies. The Propellus team has successfully stood up their own instance of SAP during the quarter, and we will begin the migration of SGS locations onto SAP over the next six to nine months. We expect to begin to see the results of these actions in our fourth quarter. Also, as further evidence of the performance of Propellus, we expect to receive a partial redemption of our preferred interest in the coming quarter. Propellus is continuing to perform well above the 100 million dollars EBITDA run-rate that was assumed when we structured the transaction. As they move through 2026 and execute on their synergies, their EBITDA run-rate is expected to be around 130 million dollars going into 2027. We continue to expect an exit from this investment within the next 12 to 18 months. Every quarter Propellus continues to grow EBITDA and capture synergies increases the value we expect to realize upon exit. With regard to our second quarter results, total revenues were 259 million dollars compared to 428 million dollars a year ago. As we have consistently communicated, year-over-year revenue comparisons will continue to reflect the deliberate portfolio reshaping we executed in fiscal 2025 and early fiscal 2026. The divestitures of SGK, warehouse automation, and European packaging and tooling account for the majority of the reduction. Adjusted EBITDA for the fiscal 2026 second quarter was 45 million dollars compared to 51 million dollars in the prior year's second quarter. A solid result when you consider that the prior year's second quarter included a full quarter of SGK results, while this quarter contains only our 40% interest in Propellus. Stripping out the businesses we have deliberately exited, the continuing portfolio is performing as we projected: Memorialization delivering, the balance sheet improving, and Industrial Technologies remaining the variable we are actively working to improve. That is what we laid out at the start of this fiscal year. Daniel will walk you through our cash flow in detail, but I want to briefly note that our first-half operating cash outflow reflects a cluster of discrete items: a legacy settlement payment, transaction-related fees from our recent divestitures, and annual recurring payments concentrated in our first quarter that do not represent the underlying cash generation capacity of our continuing businesses. We expect both Q3 and Q4 to generate positive operating cash flow. Turning to our businesses, the Memorialization business continues to be the engine that drives this company. Our core Cornerstone segment reported sales of 215 million dollars for the second quarter, an almost 5% increase over the prior year, and adjusted EBITDA of 49 million dollars, up 8% year over year. For fiscal 2026 year-to-date, sales grew to 419 million dollars and adjusted EBITDA grew to 88 million dollars. This segment continues to perform well. The Dodge acquisition continues to contribute meaningfully, adding approximately 10 million dollars in sales per quarter and is ahead of our EBITDA targets. Our team has done an excellent job integrating Dodge, and we are now realizing cost and commercial synergies we expected when the deal was first identified. After accounting for asset monetization and working capital actions, we expect the adjusted purchase price of Dodge to be under 50 million dollars with EBITDA contributions exceeding 12 million dollars. This will stand as another highly accretive acquisition for our shareholders. We are also seeing continued strength in mausoleum construction orders through our Gibraltar Mausoleum business, which not only generates good margins directly, but pulls through demand from bronze lettering, vases, and other memorialization products. Pricing realization remains solid in the business, and we continue to benefit from productivity improvements across the segment. We believe there are more M&A opportunities in the Memorialization space that look like Dodge—highly accretive, strategic, defensible market positions. Our relationships in this industry are deep and longstanding, and we are positioned well to move when the time is right. With regard to the tariff environment and its impact on our businesses, the situation remains fluid, and we will continue to manage this proactively as we have over the past several years. Moving on to Industrial Technologies, revenue was 43 million dollars for the quarter compared to 81 million dollars a year ago. The year-over-year decline reflects the divestitures of the warehouse automation and tooling businesses completed in 2025. What remains is a focused, technology-driven portfolio of high-value Product Identification and Engineered Solutions, and we continue to see significant opportunities in both businesses. Let me start with Product Identification. We can report that we shipped our first production units to paying customers, several of whom were beta customers that saw the tremendous value of the technology. As noted last quarter, we had stopped deliveries as we corrected certain minor issues noted during beta testing, but now those issues have been resolved. The commercial response to Axiom remains strong. The value propositions that we hoped to deliver are proving true: higher quality marks using significantly less solvent, while reducing the cost of maintenance, are driving strong interest in our new product. As we noted last quarter, we have expanded our total addressable market estimate to about 3 billion dollars as we have validated interest from customers currently using high-quality but more expensive solutions. We continue to actively pursue and engage in strategic partnership discussions, including white-label opportunities with leading industry participants, to accelerate adoption and market reach. These opportunities will speed up adoption and give us access to markets that we would not develop for a while. We hope to have news to share on these discussions before fiscal 2026 year end. With that said, let me reiterate that Axiom will not be a material contributor to the top line this year given last quarter's delays, but we expect to see a more meaningful contribution from the product line next year. Moving now to our Engineering and Energy Solutions business. The second quarter was again challenging, as expected. However, let me walk you through our pipeline. We were recently awarded a 25 million dollars order converting line to be delivered to the United States. Together with 75 million dollars of orders that we continue to confidently work on, we expect a material change in this business next year. In addition to those orders, we are working on multiple partnership agreements that utilize our highly proprietary DBE technology. We hope to announce those partnerships before the end of our fiscal year as well. Included in those partnerships are discussions with global ultracapacitor manufacturers looking to move their production to DBE technology. Ultracapacitors, an essential element of energy delivery to the data storage industry, are yet another energy storage solution that will benefit from DBE. On the DBE front, we received an important legal development in the second quarter. On February 13, an arbitrator issued an interim decision that favorably affirmed our ownership of and rights in our DBE technology, and denied Tesla's request for broad injunctive relief. Tesla's attempt to prevent us from selling our own proprietary DBE technology was rejected again. The very narrow injunction on certain components has had no material impact on our technology, as we already have alternative components. This is a meaningful win for our IP position and for the long-term value of our Energy Solutions business. Practically speaking, the ruling removes a key overhang that we believe has caused several sophisticated counterparties to delay deepening their engagement with us. Moreover, this ruling meaningfully mitigates any material liability. Our near-term expectations from the DBE market remain measured, but the long-term thesis is intact and is actually strengthening. Many industry participants continue to affirm that DBE is a critical enabling technology for next-generation chemistries, including solid state. We expect to take additional cost reductions within the Engineering business in the second half to protect cash while we wait for the market to absorb our pipeline. With regard to our full-year outlook, we set guidance of at least 180 million dollars in adjusted EBITDA for fiscal 2026, inclusive of our 40% interest in Propellus. Achieving the full-year target requires a stronger second half, driven primarily by Memorialization continuing its current trajectory, Industrial Technologies converting its pipeline, and Propellus’ continuous operational execution. We continue to believe this is achievable. Memorialization is operating at an annualized run-rate well above 175 million dollars in adjusted EBITDA on its own. Propellus' contribution provides meaningful incremental EBITDA in our Brand Solutions segment, and the recent win in Engineering gives us confidence in our Engineering forecast. But several things may impact that forecast: the pace and timing of Engineering orders, the outcome of current tariff discussions at the federal level, the timing of synergies at Propellus, and the economic impact of geopolitical challenges all can have an impact on our full-year results. With that said, we are working hard on things that we can control to deliver those results. The pipeline is real, the synergies are clearly identified, and tariffs can come and go. With these factors in mind, we are reaffirming our full-year adjusted EBITDA guidance of 180 million dollars. Finally, our strategic alternative review continues. As I have noted above, we have multiple potential partnerships and arrangements currently in discussion. The Board is actively engaged, and our focus remains on delivering on the full value of our intellectual property, particularly in Energy Solutions and Axiom, through partnerships, licensing, or other structures that do not require us to sell our businesses at a discount to their intrinsic value. I will now turn it over to Daniel for a deeper dive on our financial performance. Daniel Stopar: Thank you, Joe. Before starting the financial review, I want to give a reminder on the financial reporting with respect to the SGK business. As you are aware, the divestiture of this business closed on 05/01/2025. The fiscal 2025 consolidated financial information presented in this release reflects the financial results of the SGK business through the closing date. As a result of the integration process of Propellus and transition to its standalone reporting systems, our 40% portion of the financial results of Propellus is reported on a one-quarter lag. Consequently, for the three months ended 03/31/2026, the company's portion of earnings or losses for its equity method investment in Propellus includes the months from October 2025 through December 2025. Similarly, for the six months ended 03/31/2026, the company's portion includes the months from July 2025 through December 2025. Now let us begin the financial review. For the fiscal 2026 second quarter, the company reported a net loss of 21.8 million dollars, or 0.69 dollars per share, compared to a net loss of 8.9 million dollars, or 0.29 dollars per share, a year ago. The change primarily reflected a loss recorded this year on the redemption of 300 million dollars of senior secured notes, higher strategic initiative costs, and lower operating performance in the Industrial Technology segment, which was partially offset by lower acquisition and divestiture costs, reduced net interest and other deductions, and higher income tax benefits. Consolidated sales for fiscal 2026 second quarter were 259 million dollars compared to 428 million dollars a year ago. The decrease primarily reflected the divestitures of the SGK business on 05/01/2025, the European packaging and tooling businesses on 12/01/2025, and the warehouse automation business on 12/31/2025. The consolidated sales impact of these divestitures was approximately 166 million dollars for the current quarter and was partially offset by an 11 million dollars contribution from the acquisition of the Dodge Company. Sales for the Industrial Technologies and Brand Solutions segments were lower for the quarter, offset partially by higher sales for the Memorialization segment. Consolidated adjusted EBITDA for the fiscal 2026 second quarter was 44.7 million dollars compared to 51.4 million dollars a year ago. The decline reflected lower operating performance by the Engineering business within the Industrial Technologies segment. In addition, our 40% share of Propellus' adjusted EBITDA included in our results for the quarter was lower than the amount of adjusted EBITDA that we reported for the SGK Brand Solutions segment last year. The Memorialization segment reported higher adjusted EBITDA for the quarter, while corporate and other non-operating costs were lower in the current year. On a non-GAAP adjusted basis, net income attributable to the company for the current quarter was 11.6 million dollars, or 0.37 dollars per share, compared to 10.5 million dollars, or 0.34 dollars per share, last year. The increase primarily reflected the impact of lower interest expense and higher other non-operating income, which more than offset lower operating profits. Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release. Sales for the Memorialization segment for the quarter were 215.3 million dollars compared to 205.6 million dollars for the same quarter a year ago. The Dodge acquisition contributed sales of approximately 11 million dollars to the quarter. Sales volumes for caskets and cemetery memorials declined in the quarter due to lower estimated U.S. casketed death rates. Sales of cremation equipment and mausoleums were also lower in the current quarter. These volume declines were partially offset by the impact of inflationary price increases. Memorialization segment adjusted EBITDA for the current quarter was 48.8 million dollars compared to 45 million dollars for the same quarter last year. The increase was primarily contributed by the Dodge acquisition. Benefits from inflationary price realization and cost savings initiatives were partially offset by the impact of lower sales volume combined with higher labor and material costs. Sales for the Industrial Technologies segment for the quarter were 43.4 million dollars compared to 80.8 million dollars a year ago. The decrease primarily reflected the divestiture of the segment's tooling business on 12/01/2025 and warehouse automation business on 12/31/2025. The segment's Engineering business also reported a decline in sales compared to last year, which was offset partially by higher sales for the Product Identification business. Changes in foreign currency rates had a favorable impact of 3.1 million dollars on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the Industrial Technologies segment for the current quarter was a loss of 3.3 million dollars compared to a profit of 6 million dollars for the same quarter a year ago. The decrease primarily resulted from the impact of the warehouse automation divestiture and lower Engineering sales, offset partially by the segment's cost-reduction actions in its Engineering business and the impact of lower compensation expense. With the divestiture of the European packaging operations on 12/01/2025, combined with the divestiture of the SGK business on 05/01/2025, the Brand Solutions segment did not have reportable revenue for the quarter ended 03/31/2026. A year ago, the divested operations reported sales of 141.2 million dollars. Adjusted EBITDA for the Brand Solutions segment was 9.6 million dollars for the current quarter compared to 15.6 million dollars a year ago. The current quarter mainly reflects the company's 40% interest in Propellus. To reiterate, our 40% portion of the financial results of Propellus is reported on a one-quarter lag; as a result, the consolidated financial information for the quarter ended 03/31/2026 includes our 40% interest in the financial results of Propellus for the months of October through December 2025. Cash flow used in operating activities for the six months ended 03/31/2026 was 67.4 million dollars compared to 18.7 million dollars a year ago. During the period, the company made significant disbursements in connection with divestitures, including income taxes, transaction fees, and repayments of securitized receivables. Expenditures for litigation and proxy defense also consumed significant cash in the period. Additionally, our first half of the fiscal year is typically slower than the second half, generally reflecting a net operating cash outflow due primarily to seasonally lower earnings and the payment of year-end bonus accruals and other annual payment items. Outstanding debt at 03/31/2026 was 579 million dollars, and net debt, which represents debt less cash, was 543 million dollars. The net debt decreased by 135 million dollars since the end of fiscal 2025, driven by the receipt of 243 million dollars of cash proceeds from the divestitures of the warehouse automation business and the European packaging and tooling businesses during the first quarter. These cash inflows were partially offset by cash used in operations and the payment of fees to redeem the 300 million dollars senior secured notes. During fiscal 2026, the company purchased 22,953 shares under its stock repurchase program at an average cost of 26.33 dollars per share. These repurchases were solely related to the withholding tax obligations for vested equity compensation. Finally, the Board declared this week a quarterly dividend of 0.255 dollars per share on the company's common stock. The dividend is payable on 05/25/2026 to stockholders of record at 05/11/2026. This concludes the financial review. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please press star and 1 on your keypad. To leave the queue at any time, press 2. Once again, that is star and 1 to ask a question. We will take our first question from Daniel Moore with CJS Securities. Please go ahead. Your line is open. Daniel Moore: Good morning, Daniel. Good morning, Joe. Let us start with Memorialization outlook. You guided to modest sales growth through the remainder of the year. I think Dodge has maybe a half a quarter left. Looking at your expectations for organic growth beyond the next quarter or so with the revised mix, including Dodge. And then from an inorganic perspective, are you seeing more inbound inquiries from competitors or other players in that arena since the acquisition? Joseph C. Bartolacci: Let me parse that out. First, with regard to our forecast for the balance of the year, I would tell you to expect volume to be stable to modestly down. If you listen to some of our customers' earnings calls, you will recognize that casketed deaths had a pretty low period this past quarter. We performed better than that because of some things that we have done internally—both the addition of Dodge and pricing—and, frankly, some better execution in other markets that we serve. As we move forward through the balance of the year, we are in the midst of cross-selling activities, trying to get both Dodge customers to become our customers on the casket and bronze side and our customers to become Dodge customers as well. Those efforts are baked into our forecast looking forward. Hopefully, they will be successful, but that is part of the synergy expectations we expect to get. On the M&A front, we are always in the market and there are always a few opportunities floating around. I would not say there are a lot of inbounds, but there are opportunities out there. We will pick timing based on when it is right for us as well as when others are ready to sell. There still are small opportunities like that. As I said, these are highly accretive over a wonderful base that we have, so we expect to be able to pull those off. I just cannot pick the timing of them all the time. Daniel Moore: Understood. On Propellus, are we at the front end of the IT and SAP implementation? Talk about your progress and when we will have a better sense for execution. Joseph C. Bartolacci: We are in the middle. The biggest part of that middle was standing up their own instance of SAP. All of the SGK team has separated onto their own instance of SAP. We are still supporting, but they have separated. That is a massive lift, and that is the key to bringing on the other parts of the company, in particular SGS. One thing I would stress: we have already implemented all of the changes necessary to make SAP adaptable to a brand-related business like SGK when we bought SGK, so it is not a novel ERP implementation. Yes, there are some flows that are going to be different and some keystrokes that are going to be different, but at the end of the day, SGS is moving onto a platform that is already fully baked and ready to go for brand-related systems. We are very confident in their ability to execute going forward. They will start that migration in about 90 days and will go location by location like we did in 2014 successfully. I would hope that would go even easier because the SGK team will populate the SGS team with people that know how the system already works for their business. Daniel Moore: Thanks. One more on the arbitration with Tesla announced in February. What are the next steps, and more importantly, have you seen increased engagement with potential customers since that ruling? Joseph C. Bartolacci: I am not in the minds of our friends, nor do I want to be, but I can tell you it has given a lot of clarity both to us and to the customers that we have been trying to work with for a while. Those efforts will continue. We have opened more doors in the last 60 days or so. We have expanded our geographies to include Japan, we have gone deeper with our European potential customers and partners, and we have had some U.S.-based companies reach out to us that had not been very specific in the past. This clarity has been the hindrance for a long time. I cannot tell you what is next for them; I can tell you that we are emboldened by it. Operator: Thank you. Our next question comes from Colin William Rusch with Oppenheimer. Please go ahead. Your line is open. Colin William Rusch: Thanks so much. Could you talk about the breadth and depth of the supercapacitor and ultracapacitor customers? The need for voltage buffering at the data center is enormous. How quickly could that opportunity develop and how many folks might participate? Joseph C. Bartolacci: We have the three largest producers of ultracapacitors at our doorstep today. As you know, this is how we got into DBE in 2015. We converted some activated carbon for Maxwell using our technology back then, so we are well down the path. When we talk about partnerships, there are multiple forms with the three largest producers we are dealing with—both in terms of joint investment to produce the electrode used for an ultracapacitor as well as to provide the electrode to them. We have a piece of equipment in Germany right now that is being commissioned as we speak. That production-level equipment will be ready shortly, and we are lining up to produce test results at production rates of speed, something we did not have capacity to do before. So the opportunity on the ultracapacitor side is significant, and it is something we have already done; we do not need to relearn it. Colin William Rusch: Understood. And on re-shoring of supply chains—particularly around drones and U.S. military requirements for integrated North American supply—how active are conversations around supporting battery manufacturing in the U.S. for those applications? Joseph C. Bartolacci: You could not have teed it up better. We are operating in several forms with respect to that. You have heard us speak about a relatively large order for North American battery separators—that is one of the big orders we expect here over the next three to four months, going specifically to the United States for onshoring. We are having significant discussions with solid-state manufacturers who use, or have used, our equipment to produce batteries necessary for solid state, which is a military application. Importantly, it is not limited to our battery business. We have talked about our 3D printing capabilities in our Memorialization segment. That business produces 3D-printed molds at highly rapid speeds, with great application to the military for spare parts and other cast-related products. We think we have some legs in front of us on a couple of fronts in our industry, not just the battery side. Operator: Thank you. Once again, that is star and 1 on your telephone keypad if you would like to join the queue. We will move next with Justin Laurence Bergner with Gabelli Funds. Please go ahead. Your line is open. Justin Laurence Bergner: Good morning, Joe. Good morning, Dan. Nice quarter, particularly on the Memorialization side. A few clarifying questions. I think you said you got 11 million dollars of revenue from Dodge, but you lost about 166 million dollars from the divestitures. Do I have those numbers correct? Daniel Stopar: 166 million dollars from the divestitures is correct. Justin Laurence Bergner: On Propellus, you said it is already doing a 100 million dollars-plus EBITDA run-rate, but the 40% figures of roughly 9.5 million dollars to 9.9 million dollars are slightly below that. Is that just seasonality being a little bit weaker in the fourth calendar quarter? Daniel Stopar: That is exactly right. Their slowest quarter is typically the fourth calendar quarter, and that is the quarter we reported in this fiscal quarter for Matthews International Corporation. Justin Laurence Bergner: On Memorialization, did it perform better than you expected in the quarter or about in line? And is there any element of price-cost timing from inflation in your average cost method of inventory that might have temporarily boosted EBITDA in March at the expense of future quarters? Joseph C. Bartolacci: The quarter actually performed better at an execution level and worse at a revenue level. One of our customers reported a 4.5% decline in casketed deaths. We were well better than that. Our casket volumes outperformed that level, but we were not anticipating that dynamic. We had a strong early flu season with strong results in our November and December period that did not carry forward, so volumes were modestly lower than we would have expected. Price was consistent with expectations, and execution was even better. Justin Laurence Bergner: When you say execution was better, what does that mean in terms of KPIs? Joseph C. Bartolacci: In the factories, they are running well. Yields and efficiencies are performing at admirable levels, and that helped this quarter tremendously. There are things going on that are somewhat out of our control, such as tariffs coming and going, which are difficult to anticipate. Those flow through our forecast today as if they would be implemented, so we are cautious looking forward on items we do not control. On the things we do control, we have it under our belt. Justin Laurence Bergner: So you are actually factoring in some incremental tariff headwind for the rest of the year? Joseph C. Bartolacci: Rather modest, yes. We have implemented some expectation around Section 232. Whether that gets worse or better is something we do not control, but there is a forecast for some impact. Justin Laurence Bergner: On cash costs that are mostly one-time—debt redemption, transaction fees, legal and proxy costs—were there any other major buckets? And are you paying a material amount for the ongoing strategic review, or is that more conditional on outcomes? Daniel Stopar: The items that hit in the quarter were payments pursuant to the closure of the warehouse sale. We received 225 million dollars right at the end of last quarter and closed that deal on the 31st. We had tax payments this quarter, deal fees that had to be paid, and we also had to settle out on securitized receivables. Justin Laurence Bergner: What are securitized receivables at as of now? Daniel Stopar: About 55 million dollars. Justin Laurence Bergner: And ongoing cash costs associated with the strategic review? Joseph C. Bartolacci: There are no ongoing costs associated with that. It is mostly done internally. To the extent we need external advice, it will be around legal more than anything else. Justin Laurence Bergner: Thank you for taking all my questions. Daniel Stopar: Thank you, Justin. Operator: Once again, that is star and 1 on your telephone keypad if you would like to join the queue. We will pause a moment to allow any further questions to queue. We show no further questions in queue at this time. This will conclude our Q&A session as well as our conference call. Thank you for your participation. You may disconnect at any time.