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Operator: Good morning, and thank you for joining us today for Select Medical Holdings Corporation's earnings conference call to discuss the first quarter 2026 results and the company's business outlook. Presenting today are the company's Chief Executive Officer, Thomas Mullen, and the company's Executive Vice President and Chief Financial Officer, Michael Malatesta. Also on the conference line is the company's Senior Vice President, Controller, and Chief Accounting Officer, Christopher Weigel. Management will give you an overview of the quarter and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including without limitation statements regarding operating results, growth opportunities, and other statements that refer to Select Medical Holdings Corporation's plans, expectations, strategies, intentions, and beliefs. These forward-looking statements are based on the information available to management of Select Medical Holdings Corporation today, and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference over to Thomas Mullen. Please go ahead. Thomas Mullen: Thank you, operator, and good morning, everyone. Welcome to Select Medical Holdings Corporation's earnings call for 2026. I would like to begin today's call with a brief update on our previously announced take-private transaction. On March 2, 2026, we announced that Select Medical Holdings Corporation entered into an agreement to be acquired by a consortium led by our Executive Chairman, Robert Ortenzio, together with Martin Jackson and Welsh, Carson, Anderson & Stowe. Under the terms of the agreement, unaffiliated shareholders will receive $16.50 per share in cash. The transaction was unanimously approved by the members of the Board of Directors, and we expect it to close in mid-2026, subject to regulatory approvals, shareholder approval, and other customary closing conditions. As part of the regulatory review process, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act expired on April 27, 2026, satisfying one of these conditions. Upon closing, Select Medical Holdings Corporation will become a privately held company. In connection with and contingent upon the completion of the transaction, our senior secured credit facilities will provide for an additional $1 billion of term loan borrowings bearing interest at a rate equal to SOFR plus 3%. With that update, I will now turn to our development activity, where we continue to focus on expanding our inpatient rehabilitation business. So far this year, we have added 166 beds across three newly opened inpatient rehabilitation hospitals, including our fifth hospital with Baylor Scott & White in Temple, Texas; a new hospital with CoxHealth in Ozark, Missouri; and the fourth hospital in our Banner Health joint venture in Tucson, Arizona. Across the remainder of 2026 and into 2027, we expect to add 275 more beds: 209 in IRF and 66 in critical illness, through a combination of new hospitals, acute rehab units, neurotransitional units, and expansions. Later this year during the third quarter, we plan to open a 60-bed hospital with AtlantiCare in Southern New Jersey, along with two acute rehab units in Florida and two neurotransitional units scheduled for the second and third quarters of this year. Early in 2027, we are expanding one of our Banner rehabilitation hospitals by another 20 beds. Later in the year, during the third quarter, we plan to open a 76-bed inpatient rehabilitation hospital in Jersey City and an acute rehab unit in Richmond, Virginia. Importantly, these projects represent only a portion of what is ahead of us, as we continue to advance a broader development pipeline to support our long-term growth strategy. Before turning to our financial results, I will briefly touch on capital allocation. Our Board of Directors approved a cash dividend of $0.0625 per share payable on May 28, 2026, to stockholders of record as of May 14, 2026. Turning now to our consolidated financial results. All three of our operating divisions delivered revenue growth versus the prior-year period, with total revenue increasing by 5% overall. Adjusted EBITDA declined 6.5% to $141 million compared to $151.4 million in the prior-year period. Earnings per common share was $0.35 compared to $0.44 in the prior year. When adjusted for the take-private transaction costs, earnings per common share was $0.36 for the quarter. Now turning to our segment performance, beginning with the inpatient rehabilitation hospital division. Revenue increased more than 14% year over year to approximately $351.9 million, while adjusted EBITDA increased 15% to $81.1 million. Revenue per patient day increased nearly 3%, and average daily census grew 12%. Occupancy increased to 83% from 82% in the prior-year period, while same-store occupancy increased to 87% from 83%. Adjusted EBITDA margin increased slightly to 23% compared to 22.9% last year. On the regulatory front, in April, CMS issued the proposed rule for inpatient rehabilitation facilities for fiscal year 2027. If finalized as proposed, we would expect an increase of approximately 2.6% in the standard federal payment rate. The final rule is expected in late July or early August of this year following the public comment period. In the critical illness recovery hospital division, revenue increased to $638.8 million from $637 million in the prior-year period. Adjusted EBITDA declined 15% to $73.4 million from $86.6 million in the prior-year quarter, resulting in an adjusted EBITDA margin of 11.5% compared to 13.6% last year. Revenue per patient day increased by more than 2%, and admissions increased 1%. CMS also issued the proposed rule for long-term acute care hospitals for fiscal year 2027. If finalized as proposed, we would expect an increase of 2.66% in the standard federal payment rate, and the high-cost outlier threshold will remain steady at $78,936. As with the inpatient rehab proposed rule, the final rule is expected in late July or early August following the public comment period. Finally, our outpatient rehabilitation division delivered revenue growth of more than 4%, reaching $321.3 million compared to $307.3 million in the prior-year quarter. This was driven by over 4% growth in patient visits. Net revenue per visit was consistent with the prior year at $102. Adjusted EBITDA was $22 million compared to $24.3 million last year, resulting in an adjusted EBITDA margin of 6.8% compared to 7.9%. That concludes my remarks. I will now turn the call over to Michael Malatesta to provide additional details before we open the call for questions. Michael Malatesta: Thank you, Tom, and hello, everyone. At the end of the quarter, we had $1.9 billion of total debt outstanding and $25.7 million of cash on the balance sheet. Our debt at quarter-end included $1.04 billion in term loans, $125 million in revolving loans, $550 million of 6.25% senior notes due 2032, and $165 million of other miscellaneous debt. We ended the quarter with net leverage of 3.75x under our senior secured credit agreements and $443.5 million of availability on our revolving loans. Our term loan carries an interest rate of SOFR plus 200 basis points and matures on December 3, 2031. Interest expense for the quarter was $28.3 million compared to $29.1 million in the same quarter last year. For the quarter, cash flow from operating activities was $37.9 million. Our days sales outstanding, or DSO, was 60 days at March 31, 2026, compared to 60 days at March 31, 2025, and 57 days at December 31, 2025. Investing activities used $56.7 million, primarily driven by $58.9 million of expenditures for purchases of property and equipment. Financing activities provided $18 million, which included $25 million in net borrowings under our revolving credit facility. This was partially offset by $8.8 million in net distributions to noncontrolling interests, $7.8 million in dividend payments, and $2.6 million in term loan repayments. We are maintaining our full-year 2026 guidance. We continue to expect revenue to range between $5.6 billion and $5.8 billion and adjusted EBITDA between $520 million and $540 million. Fully diluted earnings per common share are expected to be in the range of $1.22 to $1.32. Lastly, capital expenditures are expected to range between $200 million and $220 million. This concludes our prepared remarks. We will now turn the call back to the operator. Operator: We will now open the call for questions. To ask a question, please press 1-1 on your telephone and wait for your name to be announced. Our first question will be coming from the line of Ben Hendrix of RBC Capital Markets. Ben, your line is open. Ben Hendrix: Thank you very much. I was hoping we could touch a little bit on the outpatient rehabilitation margin. It looks like we saw a nice sequential bounce back from a recent low in the fourth quarter. I wanted to talk about some of the operational improvements you have been working on in that segment—scheduling and whatnot—and how you are thinking about margin in that segment going forward. Thanks. Thomas Mullen: Yes, happy to answer. We have been doing a lot around scheduling and schedule optimization, so you will see some productivity increases as we go through the year. We are also looking at some of our markets that have been underperforming, and if we do not see a path out, we are going to be exiting those markets. There was one market in particular in the first quarter that suppressed our earnings to a degree as we exited that market, and that was approximately $1 million of costs that flowed through in the first quarter for us, and that was Oregon, where we closed four clinics. There will be more of that as we get through 2026, and we are going through an exercise where we are looking at each of those markets, and we will consolidate certain markets where we see a path forward and where we can go from a one-PT clinic to potentially two or three PT clinics and get more productivity. So there is an ongoing assessment happening at Select Medical Holdings Corporation right now. Ben Hendrix: Appreciate that. And then, appreciating also the comments around the high-cost outlier and the progression in the proposal to 2027, any broader commentary on efforts in Washington to address the issue more broadly? I know that has been an active dialogue. Any update there? Thomas Mullen: What I can say is we have been looking closely at high-cost outlier, and we were encouraged in the proposed rule to see that it is going to remain consistent with the prior year because it shows that CMS is getting the effect that they expected with the 20% transmittal that they put through. What we are seeing with our preliminary data for the first six months of this year is that we are running at or below the threshold that is set by CMS of 7.975% of Medicare revenue being in the outlier bucket, and we know that some of our competitors out there also run at or below. So we are projecting that in the out years we will actually see the fixed-loss threshold start to come back down, which would show that everything that CMS has done in the space has taken the effect that they were looking to see. Then we can pivot to more of the patients that we are unable to take in the LTACH industry right now as a result of the criteria that was set about a decade ago, and we think that there is an opportunity to potentially expand to some patients that could really benefit from LTACH and include them in the appropriate bucket for the hospitals moving forward. I think that is what you will see as our focus moving into the lobbying efforts and the conversations with CMS and those at the House Ways and Means Committee. Ben Hendrix: That is great color. Thank you. Operator: Our next question will come from the line of Ann Kathleen Hynes of Mizuho. Ann, your line is open. Ann Kathleen Hynes: Great. Thank you so much. There has been some data that there is an increase in commercial or just denials in general. Are you seeing anything, at least in inpatient rehab or outpatient, where you have seen an increase in denials from Medicare Advantage? Thomas Mullen: Yes. We did see a decrease in conversion for Medicare Advantage in the first quarter, and it was more so in our long-term acute care hospitals, as well as our inpatient rehab also saw a decline. We are seeing more denials in the Medicare Advantage space for our hospitals. In outpatient, it has been relatively flat. Whenever we look at our hospitals, though, we have seen an increase in both commercial as well as Medicare conversion, so although we are seeing an increase in the denials in Medicare Advantage, commercial and Medicare are both improving. Ann Kathleen Hynes: Okay. And then maybe shifting to the inpatient rehab rule, was there anything within that rule that surprised you either positively or negatively? Thomas Mullen: No. There were no concerns with the rule. It was pretty consistent with the past couple of years. It was a modest increase, and we expect to continue to see the Review Choice Demonstration expand, and we are prepared for that. We have many states that are already working under that program, so it was pretty benign and nothing out of the ordinary. Ann Kathleen Hynes: Okay. Great. Thank you. Operator: Our next question will come from the line of Joanna Gajuk of Bank of America. Your line is open. Analyst: Hey, thanks. This is Joaquin on for Joanna. I was just wondering, could you talk about the worse margins in the CIRH segment, and do you expect a recovery throughout the rest of the year? Michael Malatesta: Hi. This is Mike. As Tom previously alluded to, Medicare Advantage—we did see our conversion rates go down for Medicare Advantage, which impacted our volume. That impact year over year was approximately $13 million to $14 million, so that did have an impact on performance and our margin. Again, critical illness is always the most difficult business unit to project throughout the year, even though we are always within a certain range for each quarter due to seasonality. We do expect to still be within our expectations for the remainder of the year. Analyst: Got it. Thank you. And then, lastly, is there any early read on the impact of the TEAM model? Could you talk a little bit more about that? Michael Malatesta: I will first address it, and then if Tom wants to add some color. The Medicare TEAM model—thus far, we have not really seen an impact to our census in the inpatient rehab space. It is a very low portion of our census for the types of patients we take that could potentially be impacted by the TEAM rule. And Tom, I do not know if you have any additional color. Thomas Mullen: I agree. Everything that we have seen so far is that it is a very minor issue in our rehab hospitals. Analyst: Got it. Thank you. Operator: I would now like to turn the call back to management for closing remarks. Thomas Mullen: Thank you, operator. No further remarks. We appreciate your time this morning. Operator: This concludes today's call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the nVent Electric plc First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tony Riter, Vice President of Investor Relations. Please go ahead. Tony Riter: Thank you, and welcome to nVent Electric plc's first quarter 2026 earnings call. On the call with me are Beth A. Wozniak, chair and chief executive officer, and Gary Corona, our chief financial officer. Today, we will provide details on our first quarter performance and outlook for the second quarter and an update to our full year outlook. All results referenced throughout this presentation are on a continuing operations basis unless otherwise stated. Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward-looking statements, subject to future risks and uncertainties, such as the risks outlined in today's press release and nVent Electric plc's filings with the Securities and Exchange Commission. Forward-looking statements are made as of today; the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by a presentation which you can find in the Investors section of nVent Electric plc's website. References to non-GAAP financials are reconciled in the appendix of the presentation. We will have time for questions after our prepared remarks. With that, please turn to slide three, and I will now turn the call over to Beth. Good morning, everyone. Beth A. Wozniak: I am pleased to share with you our outstanding first quarter results and cover some key business highlights. We had a tremendous start to the year with record sales, orders, and backlog exceeding our expectations. This was our third consecutive quarter with sales of more than $1 billion. Both sales and EPS significantly exceeded our guidance, driven by strong sales growth in the Infrastructure vertical led by data centers. Our data center business grew across the portfolio in both the gray and white spaces. In the gray space, we had strong growth in engineered buildings, enclosures, and power connections. In the white space, we had outstanding growth in liquid cooling, along with strong growth in power distribution units and cable management. We are winning with a wide range of customers, from hyperscalers to neo-clouds and multitenants, and also through our distribution partners. Our investments in new products and capacity have been key to our ability to scale and respond to customer demand. The tremendous growth in data centers was accomplished by our team working tirelessly to increase and expand capacity in our facilities and across our supply base. Earlier this week, we celebrated the opening of our new Blaine, Minnesota facility that started production in Q1. We expect production to ramp throughout the year. In Q1 for total nVent Electric plc, we had record orders and backlog. Organic orders were up approximately 40%, primarily driven by orders for the AI data center buildout. Excluding data centers, organic orders grew mid-teens. In addition, we continue to see our backlog grow, up low double digits sequentially to $2.6 billion, giving us visibility through the year. Our free cash flow and balance sheet are strong, and our disciplined capital allocation is focused on growth and returning cash to shareholders for continued value creation. We are raising our full year sales and EPS guidance to reflect our outstanding first quarter performance and significant momentum in data centers. Now on to slide four for a summary of our first quarter performance. Sales were up 53% and 34% organically, led by the Infrastructure verticals. New products contributed over 20 points to our sales growth, and we launched 11 new products in the quarter. The EPG acquisition exceeded expectations, growing sales strong double digits year over year. Adjusted operating income grew 53% year over year, with return on sales of 20%. Adjusted EPS grew 63%, and free cash flow grew 21% year over year. Looking at our key verticals, sales grew across all verticals. Infrastructure led the way with organic sales up nearly 80% driven by outstanding growth in data centers and double-digit growth in power. Both Industrial and Commercial/Resi grew mid-single digits. Turning to organic sales by geography, the Americas led, growing over 40%, Europe was up low single digits, while Asia Pacific was down. Looking ahead, we believe the Infrastructure vertical has the highest growth opportunity with the trends of electrification, sustainability, and digitalization. Infrastructure is expected to grow strong double digits this year, driven by AI data center CapEx acceleration. Our greatest growth opportunity within the Infrastructure vertical is data centers. Power Utilities is next, with strong secular tailwinds as the demand for electrical grid capacity is increasing with electrification and the need for power for AI data centers. Our expectations for Industrial and Commercial/Resi remain the same. For Industrial, we expect mid-single-digit growth with increasing CapEx investment, automation, and reshoring. The Commercial/Resi vertical is expected to grow low single digits. Move to slide five. Our portfolio transformation to become a more focused, higher-growth electrical connection and protection company is showing up in our results. We have intentionally increased our exposure to the high-growth Infrastructure vertical through both organic investments and M&A. Infrastructure made up 12% of sales at spin, expanding to 45% last year, and now is over 55% in Q1. We have been significantly investing in our data center and Power Utilities which are rapidly growing, and more capacity is needed to meet customer demand. Overall, I am proud of our nVent Electric plc team and how we continue to perform and deliver for our customers. We are on track for another strong year. This wraps up my opening remarks. I will now turn the call over to Gary for further details on our first quarter results as well as our updated outlook. Gary, please go ahead. Gary Corona: Thank you, Beth. We had another excellent quarter, exceeding our guidance with record sales, orders, backlog, and adjusted EPS. Let us turn to slide six to review our results. Sales of $1.242 billion were up 53% relative to last year. Organically, sales grew 34%, well ahead of our guidance, driven by very strong data center sales. Acquisitions added $138 million to sales, or 17 points to growth, ahead of our guidance. Foreign exchange was a two-point tailwind. Adjusted operating income was $249 million, up 53%. Return on sales came in ahead of expectations, percent flat to last year. Price plus productivity offset inflation of nearly $60 million, including approximately $40 million in tariff impact. We also continue to make investments for growth in data centers and Power Utilities. We had record earnings, and it was the first time we reported quarterly adjusted EPS north of a dollar. Adjusted EPS grew 63% year over year to $1.09, well above the high end of our guidance range. We generated free cash flow of $54 million, up 21% year over year. Now please turn to slide seven for a discussion on the first quarter segment performance. Starting with Systems Protection, sales of $895 million increased 70%. Acquisitions contributed 24 points of sales and have performed ahead of expectations. Organically, sales grew 50% with all verticals growing. Infrastructure grew more than 100%, largely due to continued strength in data centers. Industrial was up mid-single digits, and Commercial/Resi grew in the high teens. Geographically, the Americas grew by over 65%, while Europe was up low single digits. Asia Pacific was down in the quarter. First quarter segment income was $203 million, up 95%. Return on sales of 22.7% increased 220 basis points year over year on strong volume and productivity. Moving to Electrical Connections, sales of $347 million increased 15%. Organic sales were up 8%, and the EPG acquisition contributed six points to sales. From a vertical perspective, Infrastructure led, growing in the high teens. Industrial grew mid-single digits, and Commercial/Resi was up low single digits. Geographically, all three regions grew. Sales were up high single digits in the Americas, Europe was up low single digits, and Asia Pacific grew mid-single digits. Segment income was $85 million, flat versus last year. Return on sales of 24.4% was down 390 basis points year over year. The margin performance was impacted by higher-than-expected raw material inflation. We have taken pricing and productivity actions and saw margins improve as the first quarter progressed. We expect margins to improve in Q2 and for the balance of the year. We ended the quarter with $109 million of cash on hand and $600 million available on our revolver, putting us in a strong liquidity position. Our debt stands at $1.6 billion. Our healthy balance sheet and strong liquidity position give us financial flexibility to support our disciplined capital allocation strategy. Turning to slide nine on capital allocation where we outline how we deploy capital to drive growth and sustain financial outperformance. Our framework has been consistent and is centered on disciplined growth investment and rigorous execution of our M&A strategy, maintaining the balance sheet flexibility to consistently return capital to shareholders. Our capital allocation priority is growth, and that starts with reinvesting in the business by funding capacity expansion, innovation, and the capabilities required to win in high-growth verticals. This year, we expect to invest approximately $130 million in CapEx, up 40%. We spent $36 million in Q1, up over 70% versus last year. Most of this increased investment is for new capacity to support growth and gain in data centers, Power Utilities, and supply chain resiliency. In Q1, we returned $84 million to shareholders, including share repurchases of $50 million, and we recently increased our quarterly dividend by 5%. We exited the quarter with net leverage of 1.5 times, well below our target range of 2 to 2.5 times, providing ample flexibility to invest in growth and acquisitions. Overall, our disciplined capital allocation approach positions us to prioritize growth and create long-term shareholder value. As Beth shared earlier, we are significantly raising our full year reported sales and adjusted EPS guidance, primarily due to our continued momentum in Infrastructure. We now forecast reported sales growth of 26% to 28%. This includes expected higher organic growth, approximately five points from acquisitions, and flattish on foreign exchange. For organic sales growth, we now expect to grow 21% to 23% versus our prior guidance of 10% to 13% due to our strong first quarter performance and momentum in Infrastructure. We are raising our full year adjusted EPS range to $4.45 to $4.55 versus our original guidance of $4.00 to $4.15. This new guidance continues to reflect tariff impacts of approximately $80 million. We continue to expect to offset the impact of inflation, including tariffs, through pricing, supply chain productivity, and operational mitigating actions. For free cash flow, we still expect conversion of 90% to 95%. Looking at our second quarter outlook on slide 11, we forecast reported sales of 28% to 30%, with acquisitions contributing approximately five points to sales. Organic sales growth is expected to be up 23% to 25%. Pricing coupled with productivity are expected to offset the impact of inflation, including tariffs, in Q2. We also expect to continue to invest for growth, particularly in data centers and Power Utilities. We expect adjusted EPS to be between $1.12 and $1.15, which at the midpoint reflects over 30% growth relative to last year. Wrapping up, I am very pleased with our first quarter performance. We delivered strong sales and earnings growth, and are well positioned for another outstanding year. Through disciplined portfolio transformation and strong execution, our growth profile has meaningfully accelerated. We significantly raised our midterm financial targets at our Investor Day in March, and we are off to a great start. nVent Electric plc is well positioned for the secular trends in electrification, digitalization, and sustainability. We are confident in the growth and value creation opportunities ahead. I will now turn the call back over to Beth. Beth A. Wozniak: Thank you, Gary. Please turn to slide 12 titled Our 2025 Sustainability Report. Last month, we published our latest sustainability report that outlines our commitment to sustainability and the meaningful progress we are making in our three pillars: people, products, and planet. A few highlights from the report. We achieved an employee satisfaction plus recommend score in our 2025 employee engagement survey that was three points above the global benchmark. 100% of our new products launched last year did not use single-use plastic packaging. We reduced our normalized CO2 emissions by 24%. We continue to receive accolades for our progress. We were recognized as one of the world's most ethical companies by Ethisphere for the third consecutive year and received a gold sustainability rating from EcoVadis, placing us in the top 2% of our industry. Our sustainability efforts are key to our strategy and how we operate. I am proud of everything we have accomplished and the journey we are on. Wrapping up on slide 13, we are off to a tremendous start to the year with record sales, orders, backlog, and adjusted EPS. Our portfolio transformation and the AI data center buildout are accelerating our growth. We expect another record year with strong sales and earnings growth, and we believe we are well positioned with the electrification, sustainability, and digitalization trends. Our future is bright. We will now open the call for questions. Operator: We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Our first question comes from Deane Michael Dray with RBC Capital Markets. Please go ahead. Deane Michael Dray: Thank you. Good morning, everyone. Hey, Beth, I think you get the understatement of the year award for your analyst meeting just saying that orders were tracking above initial expectations, but that is a pleasant surprise. Would love to hear a bit more color in terms of what drove the outperformance. In your prepared remarks, you gave us some real highlights regarding what was the white space, what was the gray space. It really did sound broad based. But if we just kind of zero in on what drove the outperformance this quarter, that would be a good place to start. Beth A. Wozniak: Thanks. As we said, first of all, our growth was broad based. We saw growth in all of our verticals. When it came to Infrastructure, certainly that was leading with the most growth. We saw nice growth in Power Utilities, but I would say a significant portion of our growth was coming from data centers. As you know, we have continued to expand capacity for liquid cooling, but we also saw nice growth across the entire portfolio. I would say white space was leading, stronger growth there, but continued growth as we focus on the gray space as well. We were very pleased to see that where we have been investing in new products and capacity, we have seen strong orders and have been able to execute to deliver on that growth. Deane Michael Dray: Alright, really good to hear. And I want to follow up on the new capacity adds. You reaffirmed CapEx at $130 million, that is up 40% year over year. You just had orders up 40% organically. Take us through the timeline for the new capacity that is coming online, and then when do you expect this new capacity to start to contribute to operating leverage for the firm? Beth A. Wozniak: As I commented, we had our grand opening of our Blaine facility just this week. It took us 100 working days to sign a lease to get that facility up and running. We have been building our capability, training new operators, and we expect production to ramp as we go through the course of the year. A lot of the strength that you saw was our execution in our other plants, but this Blaine facility will be coming online and really ramping through the year. Operator: The next question comes from Joseph Alfred Ritchie with Goldman Sachs. Please go ahead. Joseph Alfred Ritchie: Hey, good morning. What a start to the year. Maybe just on that last point, Beth, let us talk about how you are thinking about capacity going forward. The data center market, the whole Infrastructure market is white hot. How are you thinking about maybe even incremental investment from here? And then secondly, I do not know that I heard a specific number, but I think last quarter you told us that Infrastructure was going to be up around 20% this year. Obviously, it seems like that number has been revised upward. Any updated thoughts on what Infrastructure is expected to grow in 2026? Beth A. Wozniak: The way that we have been looking at our capacity—and by the way, it is not just our new Blaine facility. We have expanded our capabilities globally to be able to support some of the data center product growth that we are seeing, liquid cooling and others. We have been investing across multiple factories. We also have been investing and expanding some of our engineered building solutions sites because we have seen growth there from both data centers and utilities. We have expanded within existing sites as well. We continue to look at the orders as we are winning more customers and launching new products—what do we view as that order acceleration or order growth, and what do we need to do to support that. This is an area where we are going to continue to make those investments for growth. As far as Infrastructure, we gave that back in our Investor Day that our outlook on Infrastructure was really strong, and that is what is playing out. Our ability to expand capacity and execute and manage our supply base has really been a differentiator for us in terms of realizing that growth. The teams are working really hard. It is a lot of work to be able to grow at these double-digit rates. Joseph Alfred Ritchie: Great. My second question, Gary, bringing you into the discussion, just on margins, talking through Electrical Connections for a second. I think you made a comment that sequentially, as the year progresses, things should get better. Help us understand the margin progression a little bit for that segment going forward. Gary Corona: Thanks, Joe. I will start with our margins for nVent Electric plc across the company—they were higher than we guided. That was driven by the strength of Systems Protection and leverage that more than offset the headwind that we saw in Electrical Connections, where we saw higher-than-expected inflation, primarily due to copper. We took pricing and productivity actions, as I mentioned, leading to improved margins month over month throughout the quarter. We expect our margins to improve in Q2 and the balance of the year more towards historical levels that segment has delivered. We are seeing proof of that in market and expect improvement in the balance of the year. Operator: The next question comes from Nigel Edward Coe with Wolfe Research. Please go ahead. Nigel Edward Coe: Not a bad start—I will put it that way. Congratulations. On that last one, Gary, do you expect to be sort of flat margins by the end of the year, and getting there pretty progressively? How do you think about that? Gary Corona: We should see meaningful improvement in Q2, Nigel. As I mentioned, we will get towards more historical levels of margin in Electrical Connections as we move throughout the year. Overall, in our initial guidance, we had those headwinds coming into the first half of the year on margin, and we will be essentially flattish for the first half versus year ago. We will see nice sequential improvement overall in Q2, have nice margin growth and healthy incrementals overall in the second half. Nigel Edward Coe: Thanks. And then thinking about the framework, your Q2 guide embeds pretty flat sales with Q1, and I think the sales are pretty flat for the year. Normally, we have a nice pickup in Q2, Q3, and then coming down Q4. Is the data solutions business flattening out the seasonality? With Blaine still ramping, I would expect some lift there. What are you seeing? Gary Corona: We have organic sales growth in Q2 of 23% to 25%, so all in, almost 30% growth for the quarter. We feel really good about the progression we are making on growth. We start to ramp with higher comparisons as we get into Q2 and then in the back half of the year. Our historical seasonality has become a bit reshaped as our portfolio has changed. We are excited about the growth that we will post in Q2 and in the back half of the year, and you see that very meaningful guidance raise. Operator: Next question comes from Julian C.H. Mitchell with Barclays. Please go ahead. Julian C.H. Mitchell: Maybe I just wanted to circle back to the organic sales growth assumptions. First, with that backlog of $2.6 billion at March, how much visibility are you now having into second-half revenues? Has there been any change in lead time or ordering patterns from customers? And on the revenue point, it looks like on a two-year stack basis you are assuming maybe mid-30s organic sales growth year on year each quarter. Is that the right framework? Beth A. Wozniak: Let me start with our backlog. Our backlog continues to grow sequentially, and as we look at it, most of it is over an 8–12 month period, the majority of it. So that takes us into 2027. Our view is we are trying to ensure that we are being competitive on our lead times. Of course, we have to work with our supply base. As we are ramping, a significant part of our effort is to make sure that our supply base can ramp with us. We are making good investments that are allowing us to get there. I will let Gary talk to the guidance and the organic growth numbers. Gary Corona: Yeah, Julian, you have it exactly right. We are looking at mid-30s two-year stack growth pretty much throughout the year. Julian C.H. Mitchell: Great. And then a follow-up on margins. Is it fair to say the operating margin expansion guide for the year is largely similar to what you said three months ago—up maybe some tens of basis points total company? And within that, how much extra cost inflation dollar headwind are you now assuming, with that extra price offset in turn? Gary Corona: We are essentially in line with what we had guided previously—mid-20s incrementals in the second half and, call it, 30–40 basis points overall for the year in margin expansion. As we think about inflation, we have updated our expectations. We shared mid-single digits at the initial guide; it is up a little bit—under a point of inflation—still mid-single digits. We have taken action with additional pricing in the first quarter to offset that inflation. Operator: The next question comes from Jeffrey Todd Sprague with Vertical Research. Please go ahead. Jeffrey Todd Sprague: Thanks. Good morning, everyone. A couple from me. Just on Blaine—do these orders represent filling the book for the year? I think you were holding off taking orders on a lot of those new products that you introduced and the factory was not ready. I know the sales need to ramp, but do the orders reflect booking the year out? Beth A. Wozniak: Some of our new products are launching in Q2 and Q3, and we expect that as those products get launched, the orders will follow. With respect to Blaine, we are currently building out for the orders that we have but expanding our capabilities within that site for both new products and existing business. Jeffrey Todd Sprague: Thinking about Systems Protection structural margins—you clearly would have had factory inefficiencies in the quarter; you also would have had more inflation than you expected. It is not visible given the volumes, but there are naturally factory inefficiencies in any startup. Should we be thinking about structurally higher margins as we look forward for Systems Protection? I understand the margin should probably ramp somewhat over the course of the year, but thinking beyond that. Gary Corona: We were very pleased with the margin expansion that we saw in the quarter from Systems Protection. We will continue to see nice leverage, and we will also continue to see investment. We will continue to invest both in capacity expansion as Beth talked about, as Blaine ramps throughout the year, and also in our capabilities as I mentioned in my remarks. I think we will see margin expansion throughout the year for Systems Protection, but we will continue to invest to set us up for the future. Jeffrey Todd Sprague: Great. And just a quick follow-up. Incremental tariffs $80 million—what is the all-in tariff expectation for the year now? Gary Corona: Incremental is $80 million this year following $90 million last year—so $170 million all in. The U.S. tariff environment remains highly fluid, and we did have a lot of puts and takes since we were last talking to you 90 days ago, but we landed essentially in the same spot, with an $80 million headwind primarily in the first half of this year. Jeffrey Todd Sprague: We had an unrelated CEO say the administration is opening up discussion on this. Are you aware of that? Do you see any possibility of tariff relief relative to your current position? Beth A. Wozniak: We have kept to our current outlook, and I guess we will wait and see. Jeffrey Todd Sprague: Great. Thank you. Awesome results. Beth A. Wozniak: Thank you. Operator: The next question comes from Vladimir Benjamin Bystricky with Citi. Please go ahead. Vladimir Benjamin Bystricky: Hey, good morning, Beth and Gary. Thanks for taking my questions here. Congrats on a nice quarter and nice start to the year. I just wanted to ask you about the orders we are seeing here because I know you have talked in the past about how orders can be lumpy quarter to quarter, but my math is that orders have grown almost 40% a quarter on average over the past year, and you are seeing accelerating contributions from NPIs with more products to come. Can you talk about how you are thinking about the durability of this accelerated orders pace over the coming quarters? Beth A. Wozniak: You are correct in that orders can be lumpy and can vary month to month. As we broke it out, we said our orders were still very strong when you exclude data centers. That is really great—broad based across all of our verticals outside of data centers. With data centers, they tend to be lumpy, but we believe, and this is part of why we took up our guidance, that the backlog and the current order book give us visibility to a stronger growth year. Vladimir Benjamin Bystricky: Appreciate that. And then stepping back to capital allocation, you highlighted net leverage back down at 1.5 times, well below your longer-term target. Can you talk about what you are seeing in the M&A pipeline and how we should think about your operational capacity to potentially digest a meaningful acquisition even as you are still ramping production and still integrating prior acquisitions? Beth A. Wozniak: At our Investor Day six weeks ago, we raised our outlook in terms of what we thought acquisitions or inorganic growth could contribute, and that speaks to our confidence and our ability to do large deals. We have a really robust pipeline and, consistent with how we talked about Infrastructure being the highest-growth vertical, our focus is there. We believe there is opportunity for M&A. We remain very disciplined, and we continue to develop our execution capability. We are very thoughtful about the different targets that we go after and how they would integrate into nVent Electric plc, ensuring that we have the right teams and capability to do that. Operator: The next question comes from Nicole Sheree DeBlase with Deutsche Bank. Please go ahead. Nicole Sheree DeBlase: Thanks. Good morning, and I will add my congratulations on a great start to the year. Starting with a question on the order pipeline, the book-to-bill that we calculated is also really strong, 1.2 times this quarter. When you look at the pipeline of orders and the magnitude of customer conversations that you are having, what would you say about the strength of the pipeline and the sustainability of that 1.2 times book-to-bill ratio? Beth A. Wozniak: A couple of comments. Some of the new products that we are working on launch in Q2 and Q3, and we know we have a lot of customer interest. In data centers, we are seeing a wide range of customer interest from hyperscalers, neo-cloud, multi-tenant, and we are seeing strength through distribution as well. That diversification and breadth of customers is a real positive. Second, excluding data centers, organic orders grew in the mid-teens, again across all of our verticals and through distribution, which is a good indicator that we are seeing momentum. Nicole Sheree DeBlase: One thing that stood out in the prepared remarks was that within Systems Protection, Commercial/Resi was up high teens in the quarter, which is stronger than expected. Can you give us some color on what you are seeing in the Commercial/Resi vertical—where that improvement is coming from? Beth A. Wozniak: In both Systems Protection and Electrical Connections, we are seeing Commercial/Resi growth. Some product sold through distribution is sold to our contractor base, and it is sometimes hard to distinguish exactly where it ends up. It may be sold to a commercial contractor and then ends up in a data center; we may not necessarily know that. Some of our products—core enclosures or power connections—are seeing uplift with construction buildout, leading to stronger orders. Operator: The next question comes from Brian Paul Drab with William Blair. Please go ahead. Brian Paul Drab: Six weeks ago you said you were expecting about three points of growth from new products, and then first quarter new products contributed over 20 points—that is incredible. Can you elaborate on which categories are seeing the most success? Do you feel like you are taking share? How do you expect that contribution from new product to play out throughout the year? Beth A. Wozniak: We have continued to see strength, and it is a big focus for us to drive velocity through our new product pipeline. Our new products that contributed so strongly in Q1 were really related to data centers—liquid cooling and some of our other offerings were the strong contributors. Brian Paul Drab: Can you comment more on new versions of the CDU or anything more specific? Beth A. Wozniak: Back at Supercomputing in the fall, we showcased a lot of our new products, and many of those are still to launch through this year. We think we are going to have continued momentum with these new offerings. Brian Paul Drab: In terms of visibility, you mentioned backlog takes you into 2027. Can you talk about some of the projects with hyperscale or colocators—how far out are these projects going? We are hearing five-plus years of visibility, even talking about projects for 2030. Beth A. Wozniak: With some of our key customers, we have a view to their demands several years out. As we think about making investments in our capacity—for liquid cooling, engineered building solutions for data centers or Power Utilities—we are getting a multi-year view and staying very close to those customers to make sure we are making the right investments for expansion. Operator: The next question comes from David Tarantino with KeyBanc Capital Markets, on for Jeff Hammond. Please go ahead. David Tarantino: Hey, morning, everyone. Could you give us an update on Trackd and EPG as it seems the modular theme is playing out quite well here? What are you expecting from a growth perspective, and can you give some color on driving margin improvement in the deals as well? Beth A. Wozniak: With Trackd and EPG, we decided that was a great platform because it extended capabilities from enclosures and integration, and we thought it was a good way to strengthen what we do in utilities. That continues to grow nicely. In addition, we have found significant opportunities in data centers—modular data centers and the gray space. We are seeing a really nice pipeline and are looking at how we expand across our current sites to drive throughput and capture opportunities. I will let Gary talk to margins. Gary Corona: It is one year to the day that we closed on EPG, so they will flip to organic as we move through the second quarter. We are running the playbook on both Trackd and EPG, leveraging our scale to drive synergy. EPG has exceeded our expectations not just on the top line but on the bottom line as well. We are focused on growth, and margin expansion is impacting our results as well. David Tarantino: You highlighted orders outside of data center were quite strong as well. How much was driven by Power Utilities, and are you starting to see some broadening out of the order growth outside of Infrastructure? Beth A. Wozniak: We had double-digit growth in Power Utilities from a sales standpoint and nice orders there. Overall, orders were up mid-teens, and we see strength through our distribution channel, which is where we see that broadening across all verticals. Operator: The next question comes from Analyst with Evercore ISI. Please go ahead. Analyst: Thanks very much. Good morning. I appreciate the opportunity to ask a question. Could I dig into the order development for a little more color? To double check, you said Power Utilities up mid-teens. And then on data centers, can you give us a sense—qualitative is fine—of liquid cooling versus others? And with about $1.5 billion in the quarter, how much of that is actually data centers? Beth A. Wozniak: As we mentioned on orders, outside of data centers our orders grew mid-teens across Commercial/Resi, Infrastructure, and Industrial. Organic orders were up 40% overall, with most of that being from data centers. We have seen very good strength in liquid cooling, but also in other product lines. In the gray space: engineered buildings, enclosures, and power connections. In the white space: very strong liquid cooling, but also power distribution units and cable management. We are seeing good order growth across the board. Operator: The next question comes from Neil Burke with UBS. Please go ahead. Neil Burke: Good morning, everyone. I had a question on the competitive landscape. There are a lot of relatively new players in liquid cooling, and you have talked about having the largest install base. How do you see the competitive environment evolving, and does a strong quarter like this give you confidence you are maintaining or even taking share in liquid cooling? Beth A. Wozniak: Our liquid cooling capability was developed organically, starting pre–data centers in industrial and medical applications. Because we have been working in liquid cooling for a while, we have strong application expertise, modeling capability, and field experience. We are continuing to invest in new products, strengthen our portfolio, and work with our supply base. The space is growing significantly, so it is not a surprise that there are more entrants. We have confidence in our strategy and our ability to work with partners from chip manufacturers to hyperscalers and others. We have a roadmap in some cases for our next CDUs out to 2030 with some chip manufacturers. We will continue to invest, build our portfolio, and, importantly, scale and deliver for customers. Operator: The next question comes from Scott Graham with Seaport Research. Please go ahead. Scott Graham: Good morning, Beth, Gary, and Tony. Great quarter, flat out. I wanted to ask about inflation a little bit more. I know you said ex-tariffs inflation was $20 million. We have seen commodities prices rise across the board. What was the run rate of that number at the end of the quarter? If it was a higher run rate, are you still increasing prices to catch up to that? Gary Corona: We did see elevated inflation in the quarter. As I mentioned earlier, we have raised our expectations for inflation—a little under a point for the year. It is really driven by fuel and copper. We have taken actions on pricing in the quarter, and we feel like we can offset this emerging inflation with pricing and productivity for the year. We have a playbook to do this, and we have taken action. Scott Graham: Thank you. A seldom-discussed subject—because you are so U.S.-centric and doing so well stateside. Electrification is a secular trend in Europe as well. Do you have plans to move into Europe more aggressively over the next couple of years to tap some of that opportunity? Beth A. Wozniak: The answer is yes. One of the changes we made a year ago was to put in place a president for both Europe and Asia Pacific to ensure we had focus on our customers, growth opportunities, and channel partners. We had growth in Europe. We see growth and need for power, and data centers are expected to grow more globally. We have been making investments for manufacturing capacity in our plants as well as our commercial teams. Operator: The next question comes from Analyst with GLJ Research. Please go ahead. Analyst: Hi, guys. Congratulations on a great quarter. If you back out the lion's share of the inorganic sales for the quarter, you can get to an incredible organic growth rate for the total Infrastructure vertical that is kind of in the 80s for Q1. I know it is chunky and early in the year, but is it fair to think that both overall data centers and liquid cooling and power within data centers are growing around the overall growth rate for that as well? How do you want us thinking about those businesses growing this year as we head into more difficult comparisons in the balance of the year? Beth A. Wozniak: As you try to look at those different pieces, you are right—it is very strong growth. Liquid cooling is growing significantly, but we are also seeing other portfolios beyond liquid cooling growing at significant rates in both gray and white space. Looking to our backlog and orders gave us confidence to raise our guidance—that is the runway we have. As we add capacity and new products, we are confident in what we will be able to execute through the back half of the year and set up for 2027. Analyst: Could we get a handle on the size of the gray space business last year? I know some acquisitions make it messy, but maybe as a percentage of overall sales. Gary Corona: What we said at Investor Day was 80% white space and 20% gray space within the total data center business. Analyst: Got it. Thank you so much. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Beth A. Wozniak for any closing remarks. Beth A. Wozniak: I want to end by saying today is May 1, which actually is our birthday, so it is a great day for our employees to celebrate. Thank you for joining us today. We are confident in our strategy, which has remained consistent, and our ability to execute. We have many growth opportunities and multiple levers to expand margins, and we significantly raised our midterm targets at our Investor Day to reflect these opportunities. I am proud of our performance in the first quarter. We will continue to focus on delivering for our customers, employees, and shareholders. nVent Electric plc is a top-tier, high-performance electrical company well positioned for the electrification, sustainability, and digitalization trends. Thanks again for joining us. This concludes the call. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the first quarter 2026 Hamilton Insurance Group, Ltd. earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. As a reminder, this call is being webcast and will also be available for replay with links on the Hamilton Investor Relations website. I will now hand the conference over to Darian Niforatos, Head of Investor Relations. Darian, please go ahead. Darian Niforatos: Thanks, operator. Hi, everyone, and thank you for joining our earnings call. Before we begin, please note that certain statements made during this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed. These risks are provided in our earnings release and SEC filings. We will also refer to certain non-GAAP financial measures, which are reconciled to the most directly comparable GAAP measures in our earnings release and financial supplement, available on our website at investors.hamiltongroup.com. Now I will introduce the Hamilton executives leading today's call. Pina Albo, Group Chief Executive Officer, and Craig William Howie, Group Chief Financial Officer. We are also joined by other members of the Hamilton management team. With that, I will hand it over to Pina. Thank you. Pina Albo: Thank you, Darian, and hello, everyone. Let me start by welcoming you to Hamilton’s first quarter 2026 earnings conference call. We are very pleased with our performance this quarter, particularly in the context of a global economic and geopolitical environment that has become more complex and volatile, and an insurance market that remains competitive. Pricing across parts of the industry continues to come under pressure, so underwriting discipline takes center stage. In this context, we continue to stay true to our strong culture of cycle management this quarter, writing the business we wanted to write at pricing and terms that met our return requirements and stepping away from business that did not. We believe that sticking to this disciplined approach will continue to help us produce the kinds of results we have delivered since going public in 2023. On that note, Hamilton delivered very solid results in the first quarter with net income of $134 million, equal to an annualized return on average equity of 19%. This result was underpinned by an attritional loss ratio of 54.5%, strong investment income of $94 million, and thoughtful growth with gross premiums written increasing by 11% for the quarter. While this growth was more measured than in prior periods, it was selective, targeted, and fully aligned with the view we shared with you last quarter. Let me start with a few broader market observations before I walk through our segment results. Starting with reinsurance renewals, as you will have heard, record levels of industry capital, both traditional and ILS, and manageable cat losses impacted the April 1 renewals, which largely involved property cat reinsurance in the Asia-Pacific region. While this region does not form a large part of our book, we saw a continuation of the competitive pricing experienced at January 1 with outcomes broadly in line with expectations. Having said that, while pricing levels deteriorated, they were still risk-adequate and structures, terms, and conditions remained largely intact. Other renewals in the quarter outside of this region were also competitive, but we were satisfied with the book we wrote and the signings we achieved. As for the upcoming midyear renewals, which are largely property driven, given robust capital positions, we expect pricing pressure to be similar to what we experienced so far this year. It is important to note that softening is coming off historic highs, so we expect margins, particularly in our portfolio, which is largely U.S.-driven, to remain above our thresholds. In reinsurance, we will continue to execute our strategy of supporting key clients with whom we have a broad trading relationship. That said, in this environment, growth for growth’s sake is not the objective—at least not ours. Margin preservation, attachment points, and terms and conditions, which we expect to remain largely untouched, matter far more, and that philosophy will guide our underwriting decisions and our portfolio. Moving on to the broader geopolitical environment, the ongoing conflict in the Middle East is yet another reminder of the uncertainty embedded in today’s risk landscape, which has implications for our industry. On a line of business level, based on what we have observed to date, direct insured losses are concentrated primarily in the specialty insurance classes such as marine hull and political violence, which we write. Losses will continue as long as the conflict does, and may also impact reinsurance programs going forward. At this time, for Hamilton, our exposure remains manageable as we have always been mindful of the capacity we deploy in that region. The conflict in the Middle East may also have broader ramifications for our industry, namely inflationary pressures. We will continue to monitor this closely and make adjustments as warranted. Moving on to the segments, let us take a look at the top line growth this quarter for Bermuda and International. In Bermuda, which renews about one third of its business during the first quarter, we wrote $497 million in gross premiums, an increase of 5% over last year. Our most significant driver of growth came from casualty reinsurance. Some of this is attributable to business bound in prior quarters earning through and the rest from business written during the quarter where we had the ability to increase our modest shares on accounts where underlying rates are still attractive as well as some new business. Our casualty strategy remains unchanged. We focus on counterparties with a strong underwriting and claims culture who keep meaningful net retentions and with whom we enjoy broad trading relationships. Where those characteristics are not present, we are comfortable passing on the opportunity. I also want to highlight our recently announced casualty reinsurance sidecar, which reflects a proactive approach to capital and portfolio management. This structure allows Hamilton to support targeted casualty reinsurance growth, while providing us with an additional source of fee income. The sidecar will provide reinsurance capital over a multiyear period with ceded premium over the duration of the structure expected to be about $300 million. Craig will discuss this in more detail shortly. Moving on to property reinsurance in Bermuda, premiums fell compared to the same period last year, mainly because of substantial nonrecurring reinstatement premiums resulting from the California wildfires in 2025. If these reinstatement premiums are excluded, property reinsurance writings during the quarter would have been largely flat, reflecting a disciplined approach in this market. Our specialty reinsurance line grew 2.7%. We grew our financial risk treaty account, both new and renewal business, but pulled back in multiline accounts which were not as attractive. On the insurance side of our Bermuda book, we also reduced writings in our large account property D&F book as we were not satisfied with the pricing. Now turning to our International segment, which houses Hamilton Global Specialty and Hamilton Select, International gross premiums written grew 20% over the prior period. Starting with Hamilton Global Specialty, gross premiums written were up 20%, driven by specialty and casualty classes, specifically in the core classes such as accident and health and M&A, which benefited from some seasonality in these lines and the continued earn-out from the prior underwriting year. At the same time, we pulled back writings in our property binders and D&F lines where we saw rate reductions we were unwilling to support. Overall, our pricing assessments and underwriting framework continue to indicate that we are comfortable with the margins we are achieving on the business we are writing, but our teams are being more selective in many lines. And finally, a few words on Hamilton Select, our U.S. E&S platform. This business is all casualty insurance and grew 17% this quarter, driven by excess casualty, general casualty, and small business where we still see attractive pricing, terms, and conditions. Growth in professional and medical professional lines, on the other hand, was muted given the competitive pricing environment. Overall for the quarter, Hamilton demonstrated a continued ability to manage the underwriting cycle appropriately. While submission flow remains healthy across many products we write, we were disciplined in binding only those risks that met our underwriting and pricing requirements. As a result, growth varied by class, which we view as the right outcome in the current environment. Stepping back, our message is a simple one. While the market still offers pockets of attractive business, it is one where cycle management is key. In other words, it is not a market where everything should be written, nor one where top line growth alone should be encouraged. This is a market where risk and client selection and the fortitude to walk away will serve as differentiators that ensure underwriting performance. It is a market that plays to Hamilton’s thoughtful and disciplined approach and its culture of prioritizing sustainable profitability, strategic growth, and thoughtful capital deployment. With that, I will turn the call over to Craig to walk through the financial results in more detail. Craig William Howie: Thank you, Pina, and hello, everyone. Hamilton is off to a strong start for 2026, with net income of $134 million, or $1.31 per diluted share, and an annualized return on average equity of 19% in the first quarter of 2026. We had operating income of $167 million, equal to $1.64 per diluted share, producing an annualized operating return on average equity of 24%. As a reminder, our operating income excludes net realized and unrealized gains and losses on fixed maturity and short-term investments and foreign exchange gains and losses, but it does include the results of the Two Sigma Hamilton Fund. These results compare favorably to the first quarter of 2025, where we reported net income of $81 million, or $0.77 per diluted share, operating income of $49 million, or $0.47 per diluted share, and annualized returns on average equity of 14% for net income and 8% for operating income. Moving on to our underwriting results for the first quarter of 2026, gross premiums written increased to $940 million, compared to $843 million this time last year—an increase of 11%. Each of our platforms—Hamilton Global Specialty, Hamilton Select, and Hamilton Re—pursued thoughtful, strategic growth in areas presenting strong returns, while pulling back from lines with less attractive risk-adjusted returns to maintain and enhance overall profitability. Hamilton had underwriting income of $58 million for the first quarter compared to an underwriting loss of $58 million in the first quarter last year. The group combined ratio was 89.8% compared to 111.6% in the first quarter of 2025. In the first quarter, the loss ratio improved to 56.9%, down 22.3 points from 79.2% in the prior period. The improvement was driven by no catastrophe losses in the quarter, compared to about 30 points of catastrophe losses in the first quarter last year, primarily due to the California wildfires. This was partially offset by a higher attritional loss ratio of 54.5% compared to 51.9% in the prior period. As a reminder, this increase in attritional loss was within expectations, given our guidance of 55% expected for the full year of 2026 after making a change to our large loss threshold that we announced last quarter. We also had unfavorable prior year development of $14 million driven by an increase in reserves for the Baltimore Bridge. The expense ratio increased 0.5 points to 32.9% compared to 32.4% in the first quarter of last year. The increase was driven by higher acquisition costs, partially offset by a decrease in other underwriting expenses, which included benefits from the Bermuda substance-based tax credit and third-party performance fee income. Next, I will go through the first quarter results by segment. Let us start with the International segment, which includes our specialty insurance businesses, Hamilton Global Specialty and Hamilton Select. In the first quarter of 2026, International grew premium to $443 million, up from $370 million—an increase of 20%. This was primarily driven by growth in our specialty and casualty insurance classes. International had underwriting income of $7 million and a combined ratio of 97.5%, compared to underwriting income of $1 million and a combined ratio of 99.7% in the first quarter last year. The decrease in the combined ratio was primarily related to no catastrophe losses in the quarter, whereas the first quarter of 2025 had about 12 points driven by the California wildfires. This was partially offset by the current and prior year attritional loss ratios and the expense ratio. The current year attritional loss ratio was 54.9%, or 2.8 points higher than the prior period. The increase was anticipated, given our changing business mix and the large loss threshold change we announced last quarter. We still expect this ratio to be about 54.5% for the full year 2026. The prior year attritional loss ratio was an unfavorable 1.4 points due to the increase in the Baltimore Bridge reserve estimate. The expense ratio increased 2.1 points to 41.2% compared to 39.1% in the first quarter last year. The increase was primarily driven by the acquisition cost ratio due to changing business mix. I will now turn to the Bermuda segment, which houses Hamilton Re and Hamilton Re U.S., the entities that predominantly write reinsurance business. For the first quarter of 2026, Bermuda grew premium to $497 million, up from $473 million—an increase of 5%. The increase was primarily driven by new and existing business in casualty reinsurance classes. Bermuda had underwriting income of $51 million and a combined ratio of 81.8%, compared to an underwriting loss of $59 million and a combined ratio of 122% in the first quarter last year. The decrease in combined ratio was primarily related to no catastrophe losses in the quarter, whereas the first quarter of 2025 had about 47 points of catastrophe losses related to the California wildfires. The Bermuda segment also saw a decrease in expense ratio, partially offset by an increase in the current and prior year attritional loss ratios. Bermuda’s current year attritional loss ratio increased 2.1 points to 53.9% in the first quarter compared to 51.8% in the first quarter last year. Similar to my comments in International, this increase was anticipated, given our changing business mix and the large loss threshold change we announced last quarter. We still expect the Bermuda current year attritional loss ratio to be about 56% for the full year 2026. The prior year attritional loss ratio was an unfavorable 3.6 points due to an increase in the Baltimore Bridge reserve estimate. The Bermuda expense ratio decreased by 1.9 points to 24.3% compared to 26.2% in the first quarter of 2025, driven by a decrease in the other underwriting expense ratio related to the Bermuda substance-based tax credit and increased third-party performance fee income. This was partially offset by the acquisition cost ratio due to a change in business mix. Bermuda segment results also reflected our new casualty reinsurance sidecar, which Pina mentioned in her comments. This sidecar enhances our ability to support casualty reinsurance underwriting through scalable and efficient capital solutions, and it also provides Hamilton with an additional source of fee income. Premium cessions to the sidecar began in the first quarter of 2026 and will continue over a multiyear period, and are expected to total about $300 million. You may have noticed that Bermuda retained about 74% of its gross premium written in the first quarter of 2026, compared to 79% in the first quarter of 2025, reflecting the premium ceded to the sidecar. Now turning to investment income, total net investment income for the first quarter was $94 million compared to investment income of $167 million in the first quarter of 2025. The fixed income portfolio, short-term investments, and cash produced a gain of $1 million for the quarter compared to a gain of $64 million in the first quarter of 2025. As a reminder, this result includes the realized and unrealized gains and losses that Hamilton reports through net income as part of our trading investment portfolio. The new money yield was 4.3% on fixed income investments purchased this quarter, and the duration of the portfolio is now 3.7 years. The average yield to maturity on this portfolio was 4.5% compared to 4.1% at year-end 2025. The Two Sigma Hamilton Fund produced a $93 million net return for the first quarter, equal to 4.3%, compared to $104 million, or 5.5%, in the first quarter last year. The Two Sigma Hamilton Fund made up about 38% of our total investments, including cash and investments, at 03/31/2026. Now turning to capital management. As a reminder, we declared a $200 million special dividend in February, which was paid in March. We also repurchased $20 million of shares in the first quarter of 2026. We still have $159 million remaining under our share repurchase authorization. Both the special dividend and the share repurchases reflect our ongoing commitment to active and effective capital management. Next, I have some comments on our strong balance sheet. Total assets were $9.9 billion at 03/31/2026, up 3% from $9.6 billion at year-end 2025. Total investments and cash were $5.9 billion at March 31. Shareholders’ equity for the group was $2.7 billion at the end of the first quarter. Our book value per share was $27.42 at 03/31/2026, up 3% from year-end 2025 after adjusting for the impact of the $2 per share special dividend we paid in March. In conclusion, we are very pleased with Hamilton’s start to the year. Our balance sheet remains strong, our attritional loss ratios are tracking where we expect them to, and we believe we are well positioned to continue delivering attractive returns even as market conditions evolve. Thank you, and with that, we will open the call for your questions. Operator: We will now open the call for questions. Please limit yourself to two questions. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Hristian Getsov with Wells Fargo. Your line is open. Please go ahead. Hristian Getsov: Hi, good morning. My first question is on the PYD. Pina, you laid out the Iran conflict exposure, and it sounds like it is manageable. But did you take any development in the quarter either through the cat line or PYD? Pina Albo: Craig, why do you not talk about the PYD, and then I can cover Iran? Craig William Howie: Sure. Let us start with the PYD. The PYD was one event, first quarter, it was the Baltimore Bridge. It was $14 million. It was 2.4 points in total, so it was literally one event. But I will provide a little bit more color around the Baltimore Bridge loss, which happened in 2024. The industry loss estimate at that point in time was $1 billion to $3 billion. We had initially posted a conservative reserve at the high end of that range. But after ongoing feedback and specific renewal information during 2025 that indicated an industry loss estimate of $1.5 billion, we adjusted our reserve down to about a $2 billion industry loss estimate range. However, in light of the new recently announced settlement of that loss, we have taken our reserve back to our original ultimate loss estimate of $38 million, and that increased our prior period development this quarter by $14 million, or 2.4 points, in the first quarter. We did not take into account any potential subrogation on this loss. And, as you know, we have a history of overall favorable prior year loss development each and every year since the inception of the company. There was no offset to this prior period development in Q1 since we did not complete any reserve studies in the quarter. You may recall that we complete our reserve studies in quarters two, three, and four. Over to you, Pina, to talk about Iran. Pina Albo: Yes, just briefly on Iran, the losses were driven by specialty insurance classes in Q1, which we write in our International segment out of Lloyd’s, of course. Those are predominantly political violence and terror covers and marine lines. We continue to provide some selective coverage in that region at appropriate rates because we often offer our products on an international basis, but we are mindful of our total exposure. In fact, we are very mindful that there are some areas in the world that are more prone to conflict than others, so we adjust our risk appetite accordingly, and we carry appropriate outwards protection. But in Q1, the losses came from specialty insurance. And, Craig, over to you. Craig William Howie: Yes. Just on the Middle East conflict, our exposures in the first quarter did not meet or exceed our new large loss or catastrophe loss thresholds of $10 million. The exposure, as Pina said, was really related to insurance lines. And as this conflict continues, the loss exposures are expected to continue as well. We would expect to include those losses in our catastrophe loss line going forward, consistent with the way we reported our loss estimates for Ukraine. Hristian Getsov: Got it. Thank you. And then for my second question, could you elaborate on your appetite for Florida renewals? It sounds like pricing is going to be down mid–double digits, similar to 1/1, but there has been a lot of tort reform, which is probably providing a benefit on loss trends. How are you thinking about growth there given the expected price dynamics currently? Pina Albo: I will take that, Hristian. The upcoming 6/1 renewals are largely Florida driven, and the 7/1 renewals are largely national accounts. Regarding the Florida-only market, this is not a big part of our portfolio, and I do not expect that to change at this coming 6/1. We do, however, use Eta Re, our third-party capital arm, to service Florida renewals, and that will be the vehicle that we use to address Florida this renewal as well, or predominantly. Our focus is on key clients at the 7/1 renewals, and these are clients with whom we enjoy broad trading relationships across classes. We expect pricing at midyear to be more of the same, but we also expect the terms, conditions, and attachment points to largely hold. And just as a reminder, the pricing again comes off historic highs after the market reset when pricing went up materially. So even with some pricing pressure at 7/1, we expect the rates on the accounts that we renew to be more than adequate. Operator: Our next question comes from the line of Daniel Cohen with BMO Capital Markets. Your line is open. Please go ahead. Daniel Cohen: Hey, good morning. My first question is maybe just an update on how Select is doing—17% is still a really strong result there. Is this really the only weak spot you are seeing in your book, just professional lines? And then maybe also just checking in on whether there is an update to the smaller or midsized E&S property rollout that you are looking into? Thank you. Pina Albo: Sure, I will take that. We are really, really pleased with the continued development of our Hamilton Select platform. As we said, our growth was predominantly in casualty lines—excess casualty, the general casualty products, and contractors, small business. There we are seeing still very healthy terms, conditions, and pricing. Where we wrote less business in Select were, again, medical and professional lines because we just did not like the pricing that we were seeing. Our property launch just got started, so that is a Q2 update to give you. But I think what we can say in general about property in the E&S market is that on the large accounts—the shared and layered business—we do not write that in Select, but we see that in the group on that business. And as I said in the call, we are seeing pricing pressure and we have reduced our book as a result. If we do not see it meet our threshold, we will not write it. On the smaller to midsize property business, which we also write in Hamilton Global Specialty and will focus on in Select, we are seeing the rates still hold up, so we will have more to report on our property launch at Select in Q2. Daniel Cohen: And then maybe just a follow-up on reserves. Is there anything with the review process that has changed there? Last first quarter there was some favorability, and now it sounds like maybe nothing moved ex Baltimore. Has anything changed there, or am I misinterpreting something? Thank you. Craig William Howie: Good question. Nothing has really changed. We still complete our casualty reserve studies in the second quarter, specialty in the third quarter, and property in the fourth quarter. We really do not expect to see much in the first quarter after going through the full study at year-end and comparing with our outside actuarial views at year-end. So we really do not expect to see much in the first quarter. As I said, the only thing that we saw this first quarter was new information that we got about the settlement for the Baltimore Bridge; that is the reason we took that prior period development. Daniel Cohen: And was there anything in the prior-year quarter that was unusual when we look at the favorability last year? Craig William Howie: The only thing I would say is we are quick to react to new information that we see. So if something happens within a quarter that is outside our reserve studies, we would be quick to react to that. But that would have to be new and additional information to react. Daniel Cohen: Okay, makes sense. And then maybe just on the third-party fee income in Bermuda, is there an update on what the quarterly run rate should be following the sidecar, or is that still the same expectation? Craig William Howie: We have two components to that fee income. We still have performance fee income from Eta Re, which is our ILS property cat platform. That favorable development from lower catastrophe losses last year still continues to come through this year. That is tracked as a contra expense in other underwriting expenses. And then you mentioned the new casualty sidecar. That fee income will come through as profit commissions, and those profit commissions received will offset the acquisition cost ratio—that is similar to the way that we treat other profit commissions today as well. Operator: Our next question comes from the line of Analyst with Citi. Your line is open. Please go ahead. Analyst: Hi, good morning. First question: how worried should we be about the knock-on effects of the accelerating property rate declines with regard to property premium re-estimates and midyear renewal pricing? Pina Albo: Thank you. A quick answer: we do not expect to see any material impact from that. It is still a very profitable line for us. Analyst: Okay. And then are there any material MGA relationships that would potentially impact volume if rate trends persist? Pina Albo: By way of context, we do bind a percentage of our business—predominantly in Hamilton Global Specialty—via what you would call coverholders or MGAs. This is a common method of acquisition in the Lloyd’s market. The majority of our relationships are long-standing, tried and tested relationships. None of our MGA relationships are of a size or have parameters that would lead us to expect any kind of outsized premium adjustments, and we have a tight oversight, control, and governance mechanism for these relationships. Analyst: One last one, if I could sneak it in. Would the rapid deterioration in fundamentals in certain markets potentially make inorganic growth more difficult to contemplate at this time? Pina Albo: At this stage in the market, as I said in the call, it is a differentiated market. We are still seeing opportunity across a number of classes that we write, and we will continue to focus our efforts on those classes where risk-adjusted returns are still attractive. Where returns do not meet our threshold, we will reduce our writings. It is not a one-size-fits-all market; it is differentiated, and that is where our underwriters shine with risk selection and appropriate capital deployment. We feel comfortable navigating this market now. Analyst: My question was more oriented towards inorganic growth. Pina Albo: Understood—on inorganic growth more broadly, you saw activity during the course of 2025, and markets that are struggling to find growth in their portfolios may look for inorganic growth opportunities during the course of 2026. That would not be unheard of. As for us, we did do one acquisition in my tenure at Hamilton, and that was a game changer for us. Our bar for inorganic is incredibly high, and it will continue to stay high. We still feel very comfortable about our organic opportunity. Operator: Our next question comes from the line of Thomas Patrick McJoynt-Griffith with KBW. Your line is open. Please go ahead. Thomas Patrick McJoynt-Griffith: Hi, good morning. The increased mix of the casualty business has driven the acquisition cost ratio higher on a year-over-year basis. Is the level that we are at in the first quarter a good run rate to use going forward, or could there be a further uptick in that acquisition cost ratio to the extent that casualty continues to grow faster than property? Craig William Howie: Hi, Tommy, appreciate the question. I would say the majority of this is change in business mix. Let us go through the two segments. If you look at Bermuda, Bermuda writes about one third of its book in the first quarter. We wrote more specialty and casualty business and less property, for example. Although it appears as if the acquisition expense ratio is higher year-over-year, first quarter to first quarter, if you look at where it was at year-end 2025, it is right in line with where we would expect for this business mix, and we really do not expect the business mix to change very much from here on the Bermuda side. On International, we wrote more specialty business this period compared to the period last year. For example, as Pina said, we wrote more accident and health business—almost double what we did a year ago—and that carries a higher acquisition expense ratio or commission ratio. Similarly, we wrote less property, which again would have a lower cost ratio. So again, it is based on business mix—that is what is driving the acquisition expense ratio, similar to the loss ratios that we discussed before. Each line has its own loss ratio and separate loss pick; acquisition expenses are the same way. The metric where we see potential benefit would be an improvement in our other underwriting expense ratio, something that we have been able to do every year since 2019. Thomas Patrick McJoynt-Griffith: Great, thanks. And then thinking about property reinsurance writings in the second and the third quarter, can you talk a little bit about your account mix in terms of whether a lot of the counterparties you are negotiating with were loss-affected accounts last year or non–loss-affected, and for the business that you are writing, how typically high up in the tower is it or is it lower layer? Maybe give us some metrics around that to help us think about the ability to write and grow property reinsurance in the upcoming renewals. Pina Albo: The upcoming renewals are the 6/1s and 7/1s. Again, on the 6/1s, which are largely Florida, I do not see us changing our appetite on Florida domestic covers. That is more the realm of Eta Re—our sidecar—which would participate in those classes. In terms of the 7/1s, which are the national account business, we will look across layers and support our clients where it makes sense for us, where we are seeing appropriate risk-adjusted returns, and also in the context of the broad trading relationship that we have. We are not chasing lower layers. We are not chasing aggregate covers. We are keeping true to our underwriting, which is broad-based across key clients in layers where we enjoy pricing that is still more than risk-adequate. Operator: As a reminder, if you would like to ask a question or rejoin the queue, please press star 1 to raise your hand. Our next question comes from the line of Matthew John Carletti with Citizens. Your line is open. Please go ahead. Matthew John Carletti: Thanks, good morning. Most of my questions were asked and answered. I just have a numbers follow-up. Pina, I think you said in Bermuda property growth would have basically been flat ex reinstatement. So I just want to make sure I am lining it up right in the supplement. Is that about $30 million in terms of what the reinstatements were in the year-ago period? Pina Albo: Craig, do you want to take that? Craig William Howie: I can give you those numbers, Matt. The reinstatement premium for Bermuda—and it is essentially property—was $26 million. So the growth in Bermuda ex reinstatement premiums would have been 11% instead of 5%, but property growth ex reinstatement premiums would have been minus 2%. Matthew John Carletti: Got it. That is exactly what I was looking for. Super helpful. Thank you very much. Operator: Our next question comes from the line of Hristian Getsov with Wells Fargo. Your line is open. Please go ahead. Hristian Getsov: Hi, thank you for taking my follow-up. I just had a Two Sigma question. Can you remind us of the reporting cadence of that? Is it live—as in, whatever the Q2 results are is what the return is? I am just thinking about the equity drawdown in the quarter and whether there are ramifications for the Two Sigma returns in Q2. Craig William Howie: Hristian, we announce the Two Sigma results on a quarterly basis with no lag, just like the rest of our portfolio. Our monthly results that we receive—we do not have the monthly results for April at this point in time. As you know, Two Sigma has historically outperformed in volatile markets. You saw that already in the first quarter. With a 13% annualized net return since the inception of the fund in 2014, we feel very good about our relationship with our Two Sigma partnership. Hristian Getsov: And then just one more. It sounds like property cat is going to have maybe lower growth opportunities given the pricing dynamic. How should we think about buybacks as we get to the second half? If your shares continue to trade at an attractive valuation, could we see a more elevated level, or how should we think about maybe even the use of another special dividend later on in the year? Craig William Howie: Thank you for the question. First of all, the special dividend was an active and effective way for us to return capital quickly to our shareholders. And as you know, we bought back $20 million of shares in the first quarter. We had the flexibility and the ability to do both of those—meaning both dividends and buybacks. We have a track record of being good stewards of capital. If we see strong business opportunities, we are going to deploy our capital there. For example, we have been able to grow our premium at double-digit levels each and every year since 2017. Otherwise, we will continue to return some of that excess capital to shareholders, and that could be through a special dividend or buybacks throughout the rest of the year. We have $159 million remaining on our share repurchase authorization, and we plan to use that to buy back shares as we see that being accretive. Operator: There are no further questions, and we have reached the end of the Q&A session. I will now turn the call back to Pina Albo for closing remarks. Pina Albo: To wrap up, we are very pleased with our performance this quarter and remain confident in our strategy, in the talent we have, and in our positioning going forward. We want to thank you all for your continued interest and support of the company and look forward to speaking to you again soon. This concludes today’s call. Thank you for attending. Operator: You may now disconnect.
Cary Savas: Good afternoon, everyone. Welcome to Grid Dynamics First Quarter 2026 Earnings Conference Call. I'm Cary Savas, Director of Branding and Communications. Joining us on the call today are CEO, Leonard Livschitz; CFO, Anil Doradla; CTO, Eugene Steinberg; and SVP, Global Head of Partnerships and Marketing, Rahul Bindlish. Following the prepared remarks, we will open the call to your questions. Please note that today's conference call is being recorded. Before we begin, I'd like to remind everyone that today's discussion will contain forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainty as described in the company's earnings release and other filings with the SEC. During this call, we will discuss certain non-GAAP measures of our performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the 8-K filed with the SEC. You can find all the information I just described in the Investor Relations section of our website. I now turn the call over to Leonard, our CEO. Leonard Livschitz: Thank you, Cary. Good afternoon, everyone, and thank you for joining us today. We started 2026 with solid execution, delivering Q1 revenue of $104.1 million that was higher than our guidance range and ahead of market expectations. This performance reflects continued strength in our business model and validates our focus on AI-led transformation and high-value enterprise engagements. Three trends stood out this quarter, a meaningful and growing contribution from AI revenue, a structural shift in vertical mix toward technology and financial services, and our top customers are undergoing meaningful vendor consolidation with Grid Dynamics emerging as a clear beneficiary. Last quarter, we called 2026 a pivotal year for the accelerating adoption of our AI offerings. Our first quarter results support that conviction with AI revenue reaching 29.3% of total company revenue, growing nearly 60% year-over-year. Given this concentration and growth trajectory, AI practice has become the core of our business, fundamentally reshaping our offerings, our talent development and our client relationships. I'm confident we are well positioned to further accelerate AI revenues in 2026. For the first time, our top 5 accounts are entirely outside of retail, reflecting meaningful diversification into technology and financial services, sectors where AI adoption is accelerating and our capabilities are highly differentiated. This group includes 2 leading global technology companies, a global fintech leader, a U.S.-based global bank and a leading financial institution. What makes this group notable is that each of these customers has undergone meaningful vendor consolidation and Grid Dynamics has emerged as a clear beneficiary. This positions us to capture greater market share in 2026 and beyond. Additionally, we have been actively engaged in AI initiatives across all 5 customers, with some of our largest and most strategic programs driven by this group. Our size and AI technology focus are strategic advantages in a rapidly changing environment. Large enterprises are increasingly seeking highly capable, nimble partners like Grid Dynamics, who can move quickly and deliver meaningful AI outcomes rather than relying on incumbent global system integrators burdened by legacy delivery models. In many ways, headcount leverage is no longer a competitive moat and differentiation comes from the main knowledge, AI capabilities and ability to rapidly scale relevant expertise. We're not a systems integrator. We're a product-centric engineering company focused on solving the most complex mission-critical challenges for Fortune 1000 clients with a deliberate emphasis on driving revenue-generating capabilities, not just cost optimization. As enterprises migrate to our custom-developed solutions, the advantage shifts to partners who can build sophisticated production-grade software from concept to deployment. This is precisely what Grid Dynamics does. AI meaningfully expanding Grid Dynamics addressable market. For example, AI-native SDLC and agentic coding fundamentally changed the economics of delivering services. With delivery time and cost compressing, we can take on larger client initiatives that were previously out of our reach. Also, AI is unlocking a wave of legacy modernization that was not previously economically viable. For years, replacing core legacy infrastructure was considered too expensive, time-consuming and risky. AI lowers these barriers. At the leading home improvement retailer, the infrastructure for global operations is based on legacy mainframe platforms. Modernizing the legacy mainframe platform was considered risky, and required specialized and expensive talent. Using AI agents, Grid Dynamics delivered a full modernization program within the time line and budget. Grid Dynamics expertise is now extending into physical AI. In CPG & Manufacturing, enterprises are turning to self-learning robotics and AI technologies to drive operating efficiencies. Our GAIN platform for physical AI makes intelligent robotics more accessible and economically viable. In the first quarter, we closed our first commercial engagement in physical AI with a heavy equipment manufacturer. We're enabling their mining equipment with intelligent autonomous capabilities. We're building the company around AI. Four pillars define this transformation: AI native delivery, productized engineering, AI consulting, and internal AI automation. The first pillar, AI native delivery, marks a fundamental shift in how we work from human-led workflows to AI agent-driven, spec-based executions across our fixed bid engagements. The economics are compelling and adoption is accelerating. Early indicators point to material productivity gains in select workflows and a structurally different cost base. In Q1, at our global bank, our autonomous AI workflows analyzed 150 green production applications and uncovered latent defects across systems, including test, and coding and correct behavior. By expanding validated behavior coverage to greater than 70%, we reduced false confidence in system integrity and mitigated production security and regulatory risk. The second pillar, productized engineering, focused on converting our repeatable IP into AI native platform-based offering under the GAIN platforms. GAIN consists of 4 domain-specific platforms spanning from Agentic AI Commerce, SDLC, Risk and Compliance, and Physical AI. Our engineers increasingly operate as forward deployed specialists composing and customizing these platforms to each client's specific environment, data and workflows. The result is deeper differentiation and stronger client retention. A good example is that what we achieved in one of the world's largest food distributors. Our client sales associates were spending hours on manual research and proposal preparation for their restaurant clients. We developed AI agents that compressed the preparation process to minutes while improving the quality of the reports. Our efforts resulted in 50% reduction in preparation time and 18% increase in monthly spend for the targeted accounts. The third pillar is AI consulting. As companies undergo AI transformation, existing business workflows must be evaluated and reimagined for agentic world. Clients are seeking out domain knowledge and deep understanding of AI and data. As a leading global fintech company, our engagement focused on development of AI agents which automate enterprise workflows. Early efforts with our Forward Deployed Engineers embedded inside the client organization have identified inefficiencies and deployed AI agents to automate, optimize and scale the process with a human in the loop, resulting in 15% productivity improvement. The fourth pillar is tied to adapting AI for our internal operations. Over the past several months, we have been adopting AI tools both off-the-shelf and internally developed in enhancing our productivity and efficiency. This includes areas such as recruitment, RFP responses, knowledge management and HR. With recruitment, we have seen a 2x productivity improvement in terms of number of applicants we can process. With RFPs, we have increased the number of responses by 50% without growing headcount. With knowledge management, our responses to employee questions improved from hours to minutes. And with HR, multiple initiatives are being rolled out, and we expect more than 20% operational improvement. Q1 project highlights. Our vertical execution in the first quarter is best illustrated by a few, notable client engagements. TMT. For a global technology company operating large-scale manufacturing environments, Grid Dynamics designed and validated a unified manufacturing intelligence platform to replace fragmented, manual data flows. The solution is projected to reduce data discovery and reporting cycle times by over 95%. It also lays the foundation for enterprise-wide operational intelligence. CPG & Manufacturing. Grid Dynamics built and deployed a unified agentic AI platform for a leading global CPG manufacturer, creating the shared infrastructure required to develop, govern and scale AI agents consistently across the enterprise. Running on a major cloud platform, the solution serves as an operational backbone for AI-driven transformation across the manufacturers' supply chain, consumer and commercial domains, the highest complexity, highest impact areas of the business. Automotive part retailer. For a leading global retailer, Grid Dynamics led the end-to-end modernization of a mission-critical inventory and replenishment platform, migrating from legacy on-premise infrastructure to a cloud-native environment. The program delivered over 70% reduction in infrastructure costs and approximately 40% improvement in core responses time, restoring the platform's ability to support real-time replenishment decisions at the global scale. At a premier global multi-brand restaurant company, Grid Dynamics deployed an AI coding harness to replace the manual QA workflows that struggle to keep pace with frequent enterprise changes across web and mobile. AI agents continuously simulate customer behavior and adapt automatically to UI modifications in real time, eliminating testing bottlenecks without human intervention. The platform has reduced testing time by approximately 50%. With that, I will hand over to Rahul Bindlish, Global Head of Partnerships and Marketing, who will share some of the exciting initiatives currently underway and give you a closer look at where Grid Dynamics is headed. Rahul? Rahul Bindlish: Thank you, Leon. Good afternoon, everyone. Partnerships are now a key component of how we go-to-market. Our partner inference revenues have grown to 19.1% of total company revenue in quarter 1, underscoring the value of our ecosystem-driven approach in the agentic era. The majority of our partner inference revenue is driven by Google Cloud, AWS, and Microsoft Azure, our 3 core hyperscaler relationships. They are an active go-to-market channel for our platforms and services. Our go-to-market strategy is aligned with the AI strategy described by Leonard in his comments. We will be deploying all our platforms on the marketplace of hyperscalers. Our GAIN platform for risk and compliance is now listed on both Google Cloud Marketplace and AWS marketplace. Enterprises searching for production grade capabilities in this domain within those ecosystems will find Grid Dynamics IP directly, increasing our sales pipelines. We also have joint sales motions with the hyperscalers to accelerate deal closures. That is a fundamentally different way to win business compared to traditional service and sales. This is the first deployment in a deliberate rollout. We are moving additional platforms onto the marketplaces of every major hyperscaler. It also deepens our co-sell relationships with these partners. Our GAIN platforms plus Forward Deployed Engineers model is a new approach to go-to-market with the hyperscalers. The platform creates the entry point, our engineers deliver the value realization. Enterprises see this clearly and the first few engagement wins reflect their willingness to pay for it. Each platform we bring to market addresses a specific business pain point with domain-specific IP. This changes the sales dynamics in a way that matters for our growth model. When we lead with a vertical-specific platform, whether that is agentic commerce, compliance or physical AI, we enter a client conversation with a validated solution for a specific business problem. Sales cycles compress, conversion rates improve and initial contracts expand faster because the platform's value is visible to both the business buyer and the technical evaluator. This vertical specificity is what makes our co-sell relationships with Google, AWS and Azure productive. Grid Dynamics technical depth and domain knowledge, combined with the hyperscalers cloud infrastructure, is what allows us to win engagements against competition. Our AI revenue acceleration is the output of that combination. We are also expanding our partnership with NVIDIA by porting our solutions onto their software stack. Our GAIN platform for physical AI is built on NVIDIA stack, including Omniverse, and we are taking it to market with NVIDIA for manufacturing and CPG companies. Industrial AI in manufacturing environments requires simulation fidelity and sensor integration that generic AI infrastructure does not support. Building on NVIDIA's stack positions us to address that requirement and enables joint go-to-market with NVIDIA into a customer segment where the demand for production-grade physical AI is accelerating. We have also expanded our partnership ecosystem in the AI consulting space, entering into relationships with specialized firms in business process mining and organizational change management. Effective enterprise AI deployment is more than just a technology problem. Clients who deploy agentic workflows are simultaneously reengineering the processes those agents replace and managing the organizational change that follows. By integrating specialized process mining and change management partners into our delivery model, we extend the value that Grid Dynamics offers from platform and engineering, through to adoption and measurable ROI capture. There are 2 more trends worth noting. Many of the engagements that we are winning through partner channels are extending beyond the initial project. When an AI project delivers clear ROI and our clients are seeing this at scale, the relationship does not close, it expands. Clients return for more use cases, projects and programs. That pattern is visible in our retention data and in the expansion of existing hyperscaler co-sell accounts. At one of the largest food distributors in North America, that pattern played out across 3 distinct phases. The initial engagement was a first project delivered through a co-sell motion with Google Cloud and built on GAIN platform for agentic commerce. The platform search capabilities were in production within weeks. The client retained Grid Dynamics immediately following go-live to extend the program, using our catalog enrichment solution built on the same platform to improve the quality of the search results. We are now in the third phase, the development of an agentic platform for the client's commercial operations with the first use case targeting sales efficiency already in production. The margin profile of AI engagements, especially those built on GAIN platforms, is meaningfully different from the traditional services pipeline. When we win through a joint sales motion, clients are buying a validated solution at a fixed commercial structure. That changes the margin profile, higher gross margins than our blended services average. The GAIN platforms plus Forward Deployed Engineers model is not just an acquisition strategy. It's a retention and margin expansion strategy too. With that, I'll hand it to Anil to walk through the financials. Anil Doradla: Thanks, Rahul. Good afternoon, everyone. We recorded the first quarter revenues of $104.1 million, slightly above the higher end of our guidance range of $103 million to $104 million. Our revenues grew 3.7% on a year-over-year basis. Non-GAAP EBITDA was $12.5 million or 12% of revenues and was at the midpoint of our $12 million to $13 million guidance range. In the first quarter, there was a negative impact from FX fluctuations on a year-over-year basis. We are exposed to a currency basket across Europe, Latin America and India. While we utilize both natural hedges and an active hedging program, the net impact on a year-over-year basis on our EBITDA was a headwind of approximately $1.2 million. As Leonard highlighted, our top customers are global technology and financial enterprises. And this is by design. Our growth strategy is deliberately focused on verticals where AI adoption is accelerating and our capabilities are highly differentiated. In the first quarter, revenue breakdown reflects this redistribution with meaningful diversification into our TMT and financial verticals. Looking at the performance of our verticals, TMT became our largest vertical and accounted for 29.5% of total revenues for the quarter with growth of 30.3% on a year-over-year basis. The growth was primarily driven by a combination of our largest technology customers as well as new customers. Retail contributed 28.4% of total revenues in the first quarter of 2026. The finance vertical accounted for 23.5% of total revenues in the quarter, and we witnessed strong demand from our banking and fintech customers. For the remainder of 2026, we are bullish on our outlook with our banking and fintech customers. Turning to the remaining verticals. CPG & Manufacturing represented 9.4% of quarterly revenues. In the quarter, we witnessed growth from our manufacturing customers in North America and new engagements in Europe. The Other vertical contributed 7.1% of first quarter revenues. And finally, Healthcare and Pharma contributed 2.1% of our revenues for the quarter. We ended the first quarter with a total headcount of 4,964, up from 4,961 employees in the fourth quarter of 2025 and from 4,926 in the first quarter of 2025. We continue to rationalize our overall headcount as we align our skill sets and geographic mix. At the end of the first quarter of 2026, our total U.S. headcount was 353 or 7.1% of the company's total headcount versus 7.2% in the year ago quarter. Our non-U.S. headcount located in Europe, Americas and India was 4,611 or 92.9%. In the first quarter, revenues from our top 5 and top 10 customers were 40.8% and 59.7%, respectively, versus 35.6% and 56.6% in the same period a year ago, respectively. Moving to the income statement. Our GAAP gross profit during the quarter was $36.2 million or 34.8% compared to $36.1 million or 34% in the fourth quarter of 2025 and $37 million or 36.8% in the year ago quarter. On a non-GAAP basis, our gross profit was $36.7 million or 35.3% compared to $36.6 million or 34.5% in the fourth quarter of 2025 and $37.6 million or 37.4% in the year ago quarter. On a year-over-year basis, the decline in the gross margin was from a combination of FX headwinds and higher cost structures across our delivery locations. Non-GAAP EBITDA during the first quarter that excluded interest income expense, provisions for income taxes, depreciation and amortization, stock-based compensation, restructuring, expenses related to geographic reorganization and transaction and other related costs was $12.5 million or 12% of revenues versus $13.7 million or 12.9% of revenues in the fourth quarter of 2025 and was down from $14.6 million or 14.5% in the year ago quarter. The sequential and year-over-year decline in EBITDA was largely due to a combination of FX headwinds and higher operating costs. Our GAAP net loss in the first quarter was $1.5 million or a loss of $0.02 per share based on a diluted share count of 84.7 million shares compared to the fourth quarter net income of $0.3 million or breakeven per share based on diluted share count of 86.4 million and net income of $2.9 million or $0.03 per share based on 87.8 million diluted shares in the year ago quarter. On a non-GAAP basis, in the first quarter, our non-GAAP net income was $7.5 million or $0.09 per share based on 85.9 million diluted shares compared to the fourth quarter non-GAAP net income of $8.7 million or $0.10 per share based on 86.4 million diluted shares and $10 million or $0.11 per share based on 87.8 million diluted shares in the year ago quarter. On March 31, 2026, our cash and cash equivalents totaled $327.5 million, down from $342.1 million on December 31, 2025. Since our fourth quarter earnings call, we repurchased approximately 1.8 million shares for a total consideration of $11.5 million. Since our Board authorized the $50 million share repurchase program, we have repurchased approximately 2 million shares for a total of $13.5 million, reflecting our continued confidence in the long-term value of the business. M&A continues to take priority in our capital allocation strategy. We are committed to augmenting our organic business with acquisitions that strategically enhance our capabilities, geographic presence and industry verticals. Coming to the second quarter guidance. We expect revenues to be in the range of $106 million to $108 million. We expect our second quarter non-GAAP EBITDA to be in the range of $14 million to $15 million. For Q2 2026, we expect our basic share count to be in the range of 84 million to 85 million and our diluted share count to be in the range of 85 million to 86 million. For the full year 2026, we're maintaining our revenue outlook of $435 million to $465 million. That concludes my prepared remarks. We're ready to take your questions. Cary Savas: [Operator Instructions] First question comes from Puneet Jain of JPMorgan. Puneet Jain: So Leonard, thanks for sharing updates on the GAIN framework. As these platforms become increasingly integrated in your delivery, could you talk about the impact it has on overall operations, say, like are these necessarily fixed price contracts? Do clients pay for tokens like for LLMs or are they bundled in your overall services? You talked about like Forward Deployed Engineers. Can you train your current employees to be FTEs? Or do you have to change your hiring mix to be able to offer GAIN platform to your customers? Leonard Livschitz: Let me try to unpack some of your questions. It's a lot than one. But let's go backwards, probably a little bit easier. So let's start with engineering talent and Forward Deployed Engineers. Majority of the people who we deploy, obviously, are internally trained. We have a large number, substantial large number of very technically educated people who we internally build our services and promotions and train them in the models. And it's led by our R&D organization, so you see Eugene is going to give you some more comments, which combining with retraining the delivery organization brings the talent. Obviously, when we bring the talent from the market, it still needs to be structured so they're going to be able to adapt Grid Dynamics GAIN platforms approach. The GAIN platforms approach is really what makes us different. So rather than talking about a very specific model for each individual customers, let me explain a little bit in the words what these new platforms means for the contracts. So basically, we developed a lot of tools over time. And even in the last Board meeting, we introduced lots and lots of different names. And now we're maturing to the point that we can offer a suite of solutions to the client where we actually define a kind of a combination of Grid Dynamics IP and open available sources into the total solution. And the total solutions which we offer are driven by adoption of the engineers and agents in the form of the guidance, where we expect the return on investment for the client. So answering your question, the number of non-T&M projects -- and because there is a lot, there is a tokenization, there is offering of the fixed bid, there is a performance related. They are significantly increased and they continue to increase. And you will actually see that as we continue to answer your questions today because that model itself requires not only training the FD engineers, but adapting the internal processes and the program management and delivery team to actually control a proper engagement in a different venue. So answering your question, definitely, there is a big shift toward non-T&Ms. The training and rollout of our engineering force is going very successfully. You haven't seen right now from the absolute number of employees, how the dynamics of the headcount has changed yet because number looks flat. But if you again unpack that number, you will see a significantly higher contribution on the engineering workforce because some of them require an additional training and reclassification before we deploy them to the clients. But the good news is, overall, we have a very strong vector where we are building our position with adopting our clients, new models related to the GAIN platforms. Puneet Jain: Got it. No, it's a big change. And so it seems like you're already doing a lot of hard work that's involved. Let me ask Anil. So the guidance, like the full year on top line, so it does imply like a mid single digit growth even in the lower half, mid single digit average sequential growth in second half to hit the lower half of the guidance. So what drives the confidence or the visibility on achievement of this guidance for the full year? Anil Doradla: So there are 2 or 3 factors here. Leonard, do you want to talk about pipeline, then I can take it. Leonard Livschitz: Well, I will answer the easy part. And then Anil will dive you a little bit of the numbers. There are 2 parts of the confidence level we have. The number one, the demand has grown substantially. So we have the record number of demand. And I'm avoiding the word number of engineering demand because, again, we're talking about the teams, the platforms, the offering, but overall demand, the vector is very steep right now. That's a subjective factor because, again, this could happen, it may not happen or whatever, but it's a good news. It's a record high. The more interesting factor is, and Anil will dive into the financial estimates, we are facing a larger, as I mentioned in the previous comment to you, number of non-T&M projects. This work force is defined by a different estimate, how do we qualify the revenue based on this project in which point. So when we unpack the number, we are a bit more conservative, which we're going to guide this particular quarter or the next quarter because now it becomes a little bit more of a financial exercise. The work has been signed. The work is going on, but Anil probably give you a little bit better feedback. But the summary for you, the takeaway for me, 2 parts, significantly higher number of the pipeline and a very large number of the non-T&M project, which require a little bit more financial attention, how we guide the numbers for the near future for the next couple of months. Anil Doradla: No, look, I mean, Leonard, you pretty much hit it. Let me kind of build upon that. Leonard and the team in our prepared remarks talked about a fundamental transformation on how we're moving. And the word you will see again and again is a platform. Now the historical approach we all know is that you take the engineer, you have a certain T&M rate, you multiply it by hours, days; and the formula, as you know, is very linear. We're transitioning. We're seeing that. Rahul is leading the way from a partnership and Eugene is leading the way, obviously, on the CTO. We've introduced all these new products and platforms, and we're working on monetization. Now there are stages of monetization. There's upfront, that will get start off small. There's greater stickiness with these engineers. And as our clients become comfortable with both our products as well as our engineers in this new model, that's when we start seeing a lot more monetization there. So when we started looking at these numbers, the obviously, revenue recognition is a key component to it, right? And we're taking, think of it as baby steps right now. We see the pipeline. I look at year-to-date from January 1 through now, compare that with last year, really good. I look at some of these initiatives we're working on, on AI, really good. But the question will be, how do we time it? Is it a linear timing or nonlinear timing? So from that context, for the full year, we're keeping it. Now let's see the couple of quarters. Does it turn out much stronger because we have some of the recognitions or not. So we're still experimenting with this. We're working through it. So the optics of it looks slightly different from what you can see underneath from a business point of view. Leonard Livschitz: Let me add one more factor, because it could be a bit missed from the first point of view. We also guide substantially better margins. So if you look at the delta between Q1 and Q2, you may ask a question, how can you grow such a steep increase of profitability on relatively modest increase of revenue? So this gives you a little bit more a story that we look at the new projects we've been awarded to us -- as Rahul was mentioning in his statement -- at a different margin profile than the current business. We just don't want to run ahead of the time and do all the financial qualification of that until we see the results. But we are very confident in the progress we're about to make. Puneet Jain: So it seems like you are at the cusp of that monetization and that drives the confidence. Cary Savas: The next set of questions comes from Maggie Nolan of William Blair. Margaret Nolan: I wanted to ask about your partner revenue that crossed 19% of revenue. So where do you anticipate that going? And to what extent do you expect that to be a positive margin driver for the company? Leonard Livschitz: I think the best way to start is with the person who is responding to that. I think, Rahul, you have a perfect opportunity to tell how you build the business continue to grow. So please go ahead. Rahul Bindlish: Yes. Thanks for that question, Maggie. Like you have seen, partnerships have become one of our key go-to-market channels, and it will continue to be. We have a long-term goal to get to about 25% to 30% of our revenues being influenced by partnerships. And we are well on our path to achieve that. In fact, I would say we are tracking slightly ahead when we look at our internal goals to achieve that. And with GAIN platforms being deployed on the hyperscaler marketplaces, we'll probably see acceleration of that partner inference revenues in the future quarters. Leonard Livschitz: Let me just add one more color maybe on this. Rahul, a bit kind of mentioned in his prepared remarks, but it's important because, again, it's new. So we talked with Puneet about the new model of the business. Now we talk a little bit different model of engagement with our partners. In the past, we've basically been talking about hyperscalers. And that was a very consistent is, frankly, the influence revenue generated with these partnerships. Now we start adding, especially with the physical AI, some interesting new level of partnerships. And monetization is a little bit lower yet, but we see a substantial growth because now we're adding into with the heavy hitters in the industry because it adds more addressable market. The other element, which is kind of getting also related to our GAIN platforms, it's a consultancy part. So now we're also getting partnerships with some of the business organizations which are asking us to become the lead technology implementation partner, which is adding a little bit more of the flavor from transition from the business conceptual idea to implementation related to specific AI platforms. As you know, business leaders are a little bit more cautious about spending the budget because you can spend a lot of money on experimentation. So they would like to seek some clarity where they would have a confidence that the investment is not going to be not just risky, but send them to wrong direction. And Grid Dynamics is becoming the partner of that, their consultancy work. So I think it's another really important difference from the past. Margaret Nolan: On the TMT growth, do you think that's durable into the back half of the year? To what extent was that driven by concentration with particular clients? And what's the visibility into those clients that drove that? Rahul Bindlish: Yes, Maggie, that's clearly a highlight, and it's super exciting. Not only the TMT, but if you look at some of our financial clients there, we have seen many of these customers consolidating. And the other thing is that in some of them, we have now become a preferred vendor. We were always there, but now as they were consolidating, we reached the preferred vendor status. With the TMT, there are 2 nuances to the movement. There's obviously our work with them, what we're doing. They know what AI is, and they appreciate us. It's a very interesting thing. The smartest technology customers are the one who are seeking our AI capabilities and more, which is a little counterintuitive, right? But the other interesting thing that is going on with these customers is that there's a hyperscaler relationship too. So on both fronts, we are seeing a lot of activity. Now every quarter, there might be some negatives moving there, but the trajectory is very strong as we get consolidated as we're one of the few vendors, as we've got a clean sheet with many of these new stakeholders and we augment that with some of the hyperscaler growth that is going on. Leonard Livschitz: But I think the important color, very specific color for you, Maggie, is that Anil mentioned about selection being a preferred vendor. We're not talking about generic preferred niche vendor anymore. The AI proliferation equalize the supply base. In other words, there is -- the size does not provide advantage to some of the largest vendors. The capability of deploying AI solution at scale has been determined as a vital part. And being a smaller company and being able to transition faster remember, again, the very first question from Puneet -- how quickly we can train people. It's amount of quality work with those specialized teams, which determine our awards on the business side. And with the TMT, it's definitely the #1 followed right now with the financial clients. We'll talk a little bit more about others as time comes. But the top 5, top 6 clients, we are in the driver seat for AI deployments. Cary Savas: The next question comes from Surinder Thind of Jefferies. Surinder Thind: When we think about the non-time and materials model, how do we think about the incremental risk that you're taking on? Obviously, over the past decade, 2 decades, we moved in that direction because projects got bigger, they got more complex. There is maybe greater uncertainty about scope or changes in scope. How does that work in the new model? Because if you're looking at an outcome-based or fixed price token usage, like where is the risk in the model for you guys? Or how are you guys addressing that? Leonard Livschitz: Surinder, I will actually have Eugene Steinberg, our CTO, to start talking because she is a bit of an architect of the system. And uncertainty has 2 prongs. One of them is a risk level, the second one is a reward level. And I will let Eugene talk about the coexist on both and how we handle it. Please, Eugene. Eugene Steinberg: Yes. Of course, when you are taking a fixed price project, you always have to balance risk versus reward. So on the risk standpoint, the main risks in the fixed price projects are coming from uncertainty. Uncertainty is coming usually from understanding of the requirements and finding gaps in the requirements of the project. We are using very actively our AI agents and our specific game, Rosetta framework, to uncover all the uncertainties in the requirements and clarify with our sources ahead of time during the presale phase, and that builds us a very strong confidence in the understanding of what needs to be done. During implementation, we are very actively using always AI coding assistance and our GAIN Rosetta framework, helping to accelerate the delivery of a project and building the buffer for any unknown unknowns, which usually happen in those projects. Anil Doradla: So let me just add one thing to what Eugene just said. So Surinder, you know you've been in the IT industry, and this is a risk not unique to Grid. It's a universal risk. All I'll add is a couple of additions to what Eugene said. The first thing is that when you scope out projects, if you don't have a deep understanding of the project or as Eugene says, the risk, it's a problem. Now when I look back at the history over the last 5 years, historically, we were a T&M shop. We moved towards fixed price. And actually, during those first year or 2 of our fixed price, we learned a lot. We have committed mistakes in the past. This is the pre-AI era, and we worked. As a matter of fact, there were times when our fixed price project margins were comparable with our T&M, and I always went back to the team what's going on. So we learned. Now when you look at our fixed price margins pre-AI, they're higher than our T&M. And those learnings are now moving into our AI. So we really know what we're doing. I think what we've learned is that if you don't understand the problem that you're dealing with and you don't have a technological know-how, you're absolutely right, there is a heightened level of risk. We'll always have that risk. But as Leonard pointed out, there's a reward component too with that. Leonard Livschitz: Yes. And I just want to close on that with one simple statement. In my prepared remarks, I mentioned clearly that Grid Dynamics is not a system integrator. We are a product-centric engineering company. And that actually gives us the higher level of confidence that we take on the projects, we have a higher probability of success. So Eugene was mentioning Rosetta, another methodology we're using. It's all part of the GAIN platforms. Now the outcomes on a greater scale, Surinder, will be seen as we will propagate more and more results of this work. So it's not about how much money we generate in the project, but how much rate of growth we're going to see in this project going forward. Right now, at the size that we have and the scale of the tasks, we are training not only the models, but our customers, how to react on gradual, I would say, continuation of the development and approaching the goals. So it's very, very important for the fixed bid for us to make sure we have intermediary goals because the approximation of the work and deliver results have to be iterative process. And that's very important. So we're improving not only our technology capability, but our project management relationship with the clients as well. Surinder Thind: Maybe just a quick related follow-on. Any color or commentary on the delta between kind of the fixed price margins that you're able to achieve currently and what you're achieving on the time and materials side? Anil Doradla: Sure. So when I look at -- now it varies quite a bit, right? So I'll throw a number out and somewhere in the ZIP code. I have seen the contribution margins when we get to some of our AI work somewhere in the 60-plus range too. Now I mean, not every project is a 60%. Otherwise, we would have been a 60% gross margin, but this is a contribution margin and then obviously, you have to offset by some of the overhead. In general, if you look at most of our AI work, it is higher margins. If you look at the deltas between our T&M business and non-T&M business, there is a delta. So we see non-T&M in general being higher. And then when you look at AI business portions of the business, we do see some outliers, very positive outliers. Surinder Thind: Ultimately, what does this mean from a gross margin perspective? There's obviously the near term that you're able to handle from both managing headcount. But can you talk about where utilization is relative to your headcount goals and how we should think about the evolution over not just next quarter, but the next 12 to 24 months? Because it sounds like there's a big opportunity here, and I just want to make sure I understand the component that you control through managing headcount and utilization versus the component that's ultimately going to roll out as a result of just the revenue mix itself. Anil Doradla: Very good question. So the way I look at, Surinder, your question is there is what I call the near to intermediate areas of focus, which is part of our 300 bps margin expansion, right, Q4 to Q4, and you're already seeing that, right? Then there's a more fundamental question that you're asking is what is this pricing model and what is the margin model. So that is a more evolutionary thing that will not happen overnight, that has a more longer term. And that is what we are all working on as we work on these AI platforms. The whole GAIN -- as a finance guy, if you really look at what I tell Rahul from a GAIN platform and Eugene, who's always excited about technology is, what does it do to the margins and what does it do to the stickiness and what does it do to the growth? I mean, that's what it really boils down to, right? And our long-term model is to embed GAIN platforms with our customers -- that is just not human capital, but it's agents and actually IP -- create more stickiness, move towards a more fixed price model, which should result in a higher margin structure. Now what is that finally going to end up being? It's work in progress. Leonard Livschitz: Yes. So I think Anil gave you a lot of financial guidance. Let me break it down to a couple of key elements, which I gauge the business. So there are 3 elements, obviously, adoption of AI in terms of the efficiency of the business, the marginality of the business. But there's a third factor, which you guys use quite often, which is not totally irrelevant. I think it's quite appropriate. It's the revenue per person. So utilization of the test becomes more driven by the revenue per person increase. And there are 2 parts of it. On an overall EBITDA margin on a net margin, this is the fourth pillar of the platform, how internally we utilize it. But that doesn't help with the growth of the business. With the growth of the business, it comes actually with the idea that we are going to have repeatable and kind of reusable IP intelligence of our platforms. So the utilization part comes with the utilization of humans and IP capital. So it's a new formula, which is really -- will be gauged in my opinion, which I'm going to drive the company -- is increased revenue per person. Now saying that, there's another factor, right? It's Europe versus India versus U.S. local consultancy. Different categories of different regions create a different ratio between revenue and the margin. And I'm telling my team, it's irrelevant. The revenue per person as a guidance for utilization has to grow everywhere. The new ability to create game-based platforms Forward Deployed Engineers and the models should drive the efficiency as we already see in the early adoption regardless of the regions and the traditional T&M models, which are not going to be as much used as we go forward. Cary Savas: The next set of questions comes from Bryan Bergin of TD Cowen. Bryan Bergin: Maybe just at a high level to start on client sentiment. Just given the war in Iran, anything you can comment on how the conversation with enterprises has progressed over the last 2 months here? And just more recently as well, anything in recent weeks that's different? Rahul Bindlish: Yes, I can do that. Thanks for that question, Bryan. So there are clear trends, Bryan, that we are seeing with our clients. Number one is whereas last year, there was clearly clients who were looking at AI projects as POCs and trying to progress them into projects. Clearly, this year, there are production projects being invested in clients across the industries, very consistent. Second trend we are seeing is with AI, it is driving more projects and programs even for application modernization and data platforms. So we are seeing our pipeline grow in those 2 areas as well. Third, very clearly we are saying -- whereas the last year, they were the early adopters of AI, now we are seeing a wave of fast followers. That is increasing really our pipeline as well as, in some ways, our total addressable market. Anil Doradla: Bryan, coming to your point, the Iran war, to me, at least when I look at the business, it's a non-event at this stage, right, in the third place. Leonard Livschitz: Yes, I would say I would not really comment right now because the situation is very fluid there. We don't conduct the business in an area of the direct impact. So it's very hard to say that. The secondary impact on the business, again, it's negligible. I think that we had a huge impact continuing to the impact of the Russian invasion to Ukraine, right? That's much more dear to us. I don't think we're affected as much. But the global world has changed more with the conflict of Middle East and obviously conflict between Russia and Ukraine. And there are various factors. I mean, look, ultimately, the peace and resolution is the benefit for everyone. But how the peace is going to be achieved is very important. Right now, we're just plugging alone. And in our business model and our customer relationship, there is no detriment. There are some positive movements related to their retooling, especially in the manufacturing space because there are obviously more demand for manufacturing of certain type of products. If we talk about our digital twin approach and about our physical AI approach, we're gaining momentum. But I would hate to say that it's really driven specifically by the individual event. But we definitely see the shift of manufacturing to the much higher retooling and scaling the production. And one of them is related to the traditional manufacturing. One of them is related to more semiconductor manufacturing. Bryan Bergin: Second question here, just as it relates to kind of the AI productivity conversation, just coming out of a lot of the larger traditional SIs, the conversation around productivity, pricing compression for them became more pronounced here in recent weeks. I fully understanding you're not competing in many of the places that they are. But just how are the enterprise conversations for you in engagements that are not transitioning under the game framework as far as that type of a dynamic? Eugene Steinberg: So how the conversations are going in the framework -- so in this case, very often, we still enjoy significant productivity improvements from AI. I can give you some examples. So we just completed a project with one of the wealth management client of ours. And this is where we deployed AI agent across the CA pipelines in one of their large business units. So there, we saw 3x to 6x productivity improvements in the creation of the test coverage. And that allowed us to go wide in this customer and increase our stickiness and increase our reach to all business units of these customers going forward. That proved that we can do more with less resources and this differentiates us across other vendor base of this customer. Anil Doradla: Yes. So let me add a couple of statements to what Eugene just said. So the question is really how is the pricing environment right now beyond the AI. So AI obviously has its own dynamics, and I will put that aside. When I look at the business, I look at a couple of very interesting things. One is that I do not see clients coming and asking that now that same engineer give me a big discount now. I'm not seeing that. Now we can argue whether I'm seeing a premium or more premium, that's second question. But we're not seeing any pricing pressures. Number two is that in our case, tied to Leonard's opening comments, we've seen a lot of vendor consolidation over the last 18 months. Very interesting thing about vendor consolidation, it's good news and not so good news. The good news is that they go from hundreds to dozens. The bad news is that, okay, they say that you're one of the chosen one, give me a little bit of a discount for the next year or so, something like that, right? So we've gone through that. So I would say maybe that would be the closest thing I could come to. But the team does a very good job when it comes to new customers, new logos. They're very particular. We have a very strong discipline in terms of ensuring that the margins come in. It's with our well-established customers. And there, we're seeing some of these trends. Leonard Livschitz: You have a very clear example now. Rahul Bindlish: Yes. I just want to add a couple of points there, Bryan. Number one, productivity improvement in the industry is still being shown at individual developer level. When you translate that into projects, especially brownfield projects where majority of our business is, where you are integrating into legacy systems, that productivity at a project level actually falls down to significantly lower numbers, right? So from that perspective, there is less pressure because you are executing projects and programs and not providing individual engineers. At the same time, when we have examples of consistently showing productivity improvements, we are able to go back to our customers and grab more business. So it becomes expansion of a business strategy rather than play on the margin or the rate. Leonard Livschitz: I think let me just conclude. In a good environment people talk about their side cases and I kind of summarize from the global business positioning. So what I see, and this is quite promising because when I personally meet with the leaders or clients and usually, when you go to the top, the conversations on the overall spendings, and the priorities and budgets come quite clearly as a critical path, especially when those leaders coming from technology organizations, which depend to show concrete results to their business leaders. They are much more focused on productivity in terms of the overall return to the clients. Remember, we talked about this in the past. So you agree with business people on ROI on a total budget versus outcome and then you go to the VMO, and VMO breaks it down by the rate per person. We are getting right now in a budget discussion overall projects, where the budgets are driven by the fixed bid by the deliverables. And that model, that productivity conversation usually goes on a deployment of the measurable results before somebody starts looking at productivity, because when are you going to ask productivity if it's a total budget being agreed between both sides. So this environment a little bit better. But before when Surinder was talking about, he acknowledged, obviously, the question of the risk of the model. But that risk is not related directly to productivity anymore at those new adapted businesses. Bryan Bergin: I've got one last one for Rahul here since he's on the call. Just Rahul beyond the major hyperscalers, as you think ahead, what other types of partner ecosystems are you focused on? Rahul Bindlish: So I think there are going to be at least 3 categories. I already spoke about NVIDIA. I do expect that partnership to take off from here. The second category would be specialized partners. I talked about on the AI consulting area. But I do expect as technology evolves, there are more specialized AI firms that we will start to partner with, potentially even the likes of your LLM providers, right, as their strategies evolve. The third category is what Leonard had talked about. We are starting to see interest from large consulting business consulting companies who are looking for technology partners to enable capabilities that they want their clients to have, right? And that's the third very interesting partnership area that I see us progressing with. Leonard Livschitz: This is immediate. This is we're developing right now. Rahul Bindlish: This is we're developing right now, yes. Cary Savas: The next questions come from Mayank Tandon of Needham. Mayank Tandon: I don't know if there's much to ask. But I'll go ahead anyway, give it a shot. Anil Doradla: Mayank, we expect you to be the best questions. Mayank Tandon: I'm sorry, I'm running out of questions here. But I guess just very quickly, just to keep the call on schedule. The question I had was around your visibility. I think you talked about that earlier, Anil. In terms of the revenue, how much of the business would you say is sold versus you have to still go out and win? So what is sort of potentially at risk versus what you already have in the bag in terms of your guidance? Anil Doradla: So you recall, Mayank, we have had a very traditional model or a well-established model about 85%, 10% and 5%, right, where 85% of our revenue in any given year comes from customers who have been with us 2 years and beyond, 10% comes from over the last 12 months and 5% comes from new. That framework more or less continues to be intact. There might be some variations, especially as we ramp some of these new customers. So the way -- I look at it through this lens. Now when you look at our whole guidance philosophy and when you look at our whole outlook philosophy, what we know well is potentially where we have some of these downside risks, right? I mean, we're dealing with these customers and these are big customers, and we have some sense of what we do. So when we give our guidance, for example, at least in the short term, we're taking that into account. When I switch from my short-term guidance to my long-term guidance, I basically switch from a bottoms up to a top down a little bit, right, where I look at the overall pipeline, I look at the forecast, I look at our customer engagements and come up with this. Now if you were to ask me whether I have a number that I believe is at risk, I mean, it's a whole probabilistic distribution, right, on how I look at it. I would say when I look at the business today versus 3 months ago versus 4 months ago, things are improving. So qualitatively, I would say that things are improving. Now there's always that risk that we have with any one particular customer due to circumstances or as someone asked a question on the Iran war, there's a macro issue, consumer-sensitive industries are impacted. That's always there. But as we see right now, we feel good about where we see the overall business. Leonard Livschitz: So let me just give you, as always, direct pointers. After listening to Anil we need some guidance on his guidance. There are 2 areas which I think are very important to understand. Number one, the retail business, which traditionally was the most volatile has been derisked and continues to be derisking because it's a smaller contribution. It's not little, but it's small. So that's area where the variance of uncertainty you are talking about. But the second risk is actually growing as we're going to grow the business is how the AI deployments will actually convert into the measurable profits and gain, not Grid Dynamics GAIN platform, but the client gain, right? And that business is growing very fast. So we're very happy that we can actually forecast a better deployment of these projects. But again, when we talk about fixed bids, we're talking about outcome-based, we're talking about criterion, which before was not that clear, exactly it's how do you measure that ROI. So this criterion becomes a system of criteria, which is growing more and more of our business. So I would say that the business we project is very certain that we're substantially derisking with retail. However, I see as we grow macro going forward, we need to make sure we bet on the right partners. And that's when actually the ecosystem of the partners also evolves. Remember, Bryan's question, who is going to be the next level of partners besides hyperscalers. And then Rahul mentioned 2 parts, of course, consulting is very clear gain. But then which of the other elements of the LLMs on other substantial guys who will provide us data centers, who provide us the material traffic of these deployments, the cost of these models is going to play a much bigger role. We are tuned to the system. We're selected to be preferred in many cases. We're confident. But the whole dynamics of AI deployed deliverable value, it's still something we have to prove on a major scale for everyone. Mayank Tandon: Just to close out, Anil, you mentioned that M&A is still a priority for you. So just wanted to get some context in terms of what you might be looking for. And then, have private companies maybe sort of recognize that valuations have come down a lot and maybe are more inclined to sell versus resisting a potential sale to a company like Grid? Anil Doradla: Yes. So as you rightly pointed out, yes, we're very focused, fingers crossed. We hope to close some deals -- and most of them are tuck-ins. What we're looking at right now are tuck-ins from a capability point of view. So obviously, technology has elevated to be very important, data, AI and certain end markets tied to our strategy. So now when it comes to the valuation, you will always have to pay a premium for good companies. For good, capable companies, you will always have to pay some level of premium. But overall, you're right, they have come in. And things are looking better from a valuation point of view. But at the end of the day, if someone has some true differentiation, you do have to pay. Leonard Livschitz: The bottom line is, the accretiveness of these acquisitions have been the vital point, and we're very close to prove to the market we can still come back and do our M&As because, again, you're right, the appetite for them has been a little bit more modest, but it's not as critical as our broader net, which we threw around the world related to the 2 elements, really 2 elements: AI-related technologies, especially the cutting-edge technologies, we can benefit more as a congruent business than the particular company on themselves. And the second part is looking for the partnership outside of the traditional path, which we're enhancing. So stay tuned. We're in good shape with that. Cary Savas: Ladies and gentlemen, this concludes the Q&A portion of our call. I will now turn it over to Leonard for closing [Technical Difficulty]. Leonard Livschitz: Q1 2026 is proof that our AI transformation is working. Our revenue reached 29.3% of total revenue. GAIN has matured from a framework to platforms with Forward Deployed Engineers. Agentic AI solutions are now in production across a range of industry verticals and are generating measurable ROI at commercial scale. The pipeline entering Q2 is the strongest it has ever been. AI consulting and hyperscale partnerships are expanding. We're executing on our strategic road map, including AI-native delivery, productized GAIN platforms, consulting and internal automation. We look forward to updating you next quarter. Thank you.
Operator: Good morning, everyone, and welcome to the Lear Corporation First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Tim Brumbaugh, Vice President, Investor Relations. Please go ahead. Tim Brumbaugh: Good morning, everyone, and thank you for joining us for Lear Corporation's first quarter 2026 earnings call. Presenting today are Raymond E. Scott, Lear Corporation President and CEO, and Jason M. Cardew, Senior Vice President and CFO. Other members of Lear Corporation's senior management team have also joined us on the call. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before Raymond E. Scott begins, I would like to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear Corporation's expectations for the future. As detailed in our safe harbor statement on Slide 2, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-Ks and other periodic reports. I also want to remind you that during today's presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today's call is on Slide 3. Raymond E. Scott will review highlights from the quarter and provide a business update. Jason M. Cardew will then review our first quarter results and provide an update on the full year. Finally, Raymond E. Scott will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I would like to invite Raymond E. Scott to begin. Raymond E. Scott: Thanks, Tim. Please turn to Slide 5, which highlights key financial metrics for the first quarter. We started the year strong, delivering significant increases in both revenue and earnings in the first quarter compared to last year. Sales increased 5% to $5.8 billion and core operating earnings grew by 10% to $297 million. Adjusted earnings per share was $3.87, a 24% increase from 2025, and our highest quarterly EPS since Q1 2019. Operating cash flow improved significantly to $98 million for the first quarter. Slide 6 summarizes some of the key business and financial highlights from the first quarter. Our strategic priorities remain focused on four key areas: extending our global leadership in Seating, expanding E-Systems margins, growing our competitive advantage in operational excellence through Idea by Lear, and supporting sustainable value creation with disciplined capital allocation. During the quarter, we continued our momentum of winning key awards in both Seating and E-Systems. Our most significant E-Systems award, announced in March, was with General Motors, where we will supply wire harnesses for the full-size SUV programs starting late 2027. This is a major new win for Lear Corporation on a key GM platform. Our execution track record and automation capabilities gave GM the confidence to award a portion of this program mid-cycle. This award positions Lear Corporation to win additional content on subsequent generations of GM's full-size SUV platform. During the quarter, our E-Systems team was also awarded the power distribution module for the next-generation electrical architecture with a key North American automaker. Our power distribution module proactively detects electrical issues to help ensure critical systems continue to operate. This capability is essential across all powertrains, particularly as new vehicles adopt software-defined architectures, electrification, and advanced driver assistance technologies. This award leverages our PACE award-winning technology and establishes Lear Corporation as an industry benchmark and trusted leader in this fast-growing strategic segment. Another key award in the quarter was for a high-voltage power distribution unit with Audi for a new program in North America, continuing our momentum in power electronics. These awards build on the reputation that we have been developing across our customer base. As these new programs launch, our E-Systems revenue will improve customer diversification. We are accelerating our growth with Chinese automakers in both segments. In E-Systems, our collaboration with Seating to leverage key relationships, as well as investments designed to strengthen our local engineering capabilities, enabled us to secure wire harness awards that will generate consolidated average annual revenue of $140 million, surpassing our new business awards with Chinese automakers for all of 2025 in just the first quarter. Key wins include conquest awards with Dongfeng and SAIC, as well as new business with Geely. These programs launch as early as mid-2026 and are accretive to our two-year backlog we announced in February. In Seating, we secured complete seat awards with BAIC, Dongfeng, and Geely in China that will also generate average annual revenue of approximately $140 million, a portion of which is in our non-consolidated joint ventures. In addition, we are in a strong position to secure business with two Chinese automakers expanding their production in Brazil. We also continue to see additional opportunities with Japanese automakers. In the first quarter, we were awarded a new program to supply complete seats for FAW Toyota in China through one of our non-consolidated joint ventures. In Seating more broadly, the pace of awards for our thermal comfort modularity is accelerating. In the quarter, we won four new awards for ComfortFlex and ComfortMax seat solutions, bringing the total to 38 for these innovative products. Two awards are with BMW in Asia, one combining lumbar massage and another combining heat, ventilation, and seatbelt reminders. We also won our first module awards with Audi in Europe, combining lumbar massage, and our ComfortMax seat solution with Geely in Asia. Two programs launched during the quarter, with 12 additional programs launching through the rest of this year. These awards extend our leadership in Seating and also customer adoption of these modular solutions. We expect adoption rates will continue to accelerate as these solutions become more pervasive. Many of these new business awards launch this year and next, particularly those in China, where the time from sourcing to launch has significantly accelerated. This increase in our 2026 and 2027 two-year backlog is approximately $250 million, improving our near-term growth outlook in both business segments. We are accelerating the capabilities we are developing under our Idea by Lear framework, particularly in automation and the use of digital tools. Progress is being made at our Rochester Hills Advanced Manufacturing Center, where we will showcase some of our key product and process innovations, and we continue to implement these capabilities into our current manufacturing processes. The Orion facility supporting GM's expanded full-size SUV and pickup truck production is utilizing Idea by Lear from the start. Leveraging our process-related acquisitions, approximately 80% of our capital is being developed and deployed in-house, including 100% of our advanced robotics and vision systems. This demonstrates how we are using Idea by Lear to reduce manufacturing costs and improve profitability from day one, rather than implementing cost savings initiatives over the life of the program. In E-Systems, we validated and launched two differentiated wire automation solutions internally developed by our most recent acquisition, StoneShield. These solutions deliver Lear Corporation-specific competitive advantages by improving cycle time and productivity in seal insertion and heavy-gauge crimping. It was a strong quarter both commercially and financially. Revenue in the quarter increased 5% year over year, with growth in both segments, even after the reduction in revenue resulting from changes in tariff policy, as well as the impact from the end of production of the Ford Escape, Focus, and Lincoln Corsair. Stronger conversion on higher volume and continued momentum in our underlying net performance drove improved margins in both segments and for the total company. Free cash flow improved by $5 million in the quarter, allowing us to take advantage of the attractive stock price and accelerate our share repurchase program. In the first quarter, we repurchased $75 million of shares and continued to repurchase shares throughout the quiet period, putting us on pace to buy back over $300 million in the year. This combination of strong financial results and our disciplined capital allocation plan has driven consistent earnings per share growth. Our first quarter EPS increased by 24% year over year, a truly remarkable accomplishment by the team and a clear indicator of the value we are generating for our shareholders. Slide 7 provides an update on key metrics to track our progress on expanding margins and generating long-term revenue growth. The pace of awards is normalizing after several years of delays as customers adjusted their production portfolio strategies. This gives us much better visibility into our pipeline of future opportunities. In the quarter, we secured several conquest awards for seat components such as surface materials. The pipeline for complete seats awards is concentrated in the back half of the year, very similar to the pattern we saw in 2025. For E-Systems, we are seeing increased conquest opportunities in wire harnesses, particularly as competitive landscapes have shifted significantly due to strategic actions and operational performance of key competitors. In the quarter, we won three conquest awards for wire programs, two in Asia and one in North America. Two of these awards were for wire harnesses previously supplied by a key competitor. We also won a small conquest award in electronics for a second North American automaker. These wins will generate approximately $200 million in average annual revenue and represent about a third of our increased two-year backlog. We see additional conquest opportunities expected to be sourced throughout the remainder of the year. Awards for our thermal comfort modular solutions are accelerating. New wins with Audi and Geely bring us to 17 unique customers for ComfortFlex and ComfortMax seat solutions. Notably, approximately half of the revenue from this quarter's thermal comfort awards will come from modular solutions. The collaboration between Seating and E-Systems, combined with the strength of our local teams, continues to drive new business with Chinese automakers. In the quarter, we won new business in both segments with the same customers like Dongfeng and Geely, clearly illustrating the synergies between our two business units. Our continued investments in Idea by Lear and automation are expected to generate an additional $75 million in savings this year. The first quarter delivered approximately $70 million in savings, putting us well on track to achieve our target, with savings expected to build throughout the year. Our teams continue developing innovative methods to drive efficiency. For example, our Seating team held a global inventory workshop during the quarter to leverage digital tools that will improve supply chain and inventory efficiencies, ultimately enhancing future free cash flow generation. We also held our Lear AI Olympics in North America. Over 400 hourly and salaried operations employees participated, generating more than 100 AI projects with solutions throughout our manufacturing value stream. This grassroots event exemplifies Lear Corporation's innovative culture, empowering employees to identify and drive efficiency improvements in all facets of the business. As Idea by Lear continues to mature, we see our employees developing and participating in new and innovative future events. Restructuring savings from last year's investments combined with actions planned for this year are expected to total $80 million. In the first quarter, we generated $26 million in savings, giving us a strong start towards our full-year target. Our first-quarter net performance puts us on track to achieve our full-year margin expansion targets: 40 basis points for Seating and 80 basis points for E-Systems. Despite higher engineering and launch costs to support our growing backlog and a challenging year-over-year comparison, our Q1 net performance exceeded expectations. Slide 8 illustrates the significant shift in our customer mix in China. In the first quarter, we secured $280 million in business awards with Chinese automakers across both Seating and E-Systems, ranging from complete seats and thermal comfort solutions to wire harnesses. The speed to market with the Chinese automakers is significantly faster than in other regions. We are seeing request-for-quote to sourcing to launch cycles completed within the same calendar year. This accelerated pace drove a portion of our $250 million increase in our 2026 and 2027 backlog from recent business wins. Strategically, these wins validate the organizational changes we made in 2023 to bring Seating and E-Systems under the same leadership to better align how we serve Chinese automakers. The collaboration between our Seating and E-Systems teams in that region, combined with strengthening our local engineering capabilities, is helping us win across both segments, often with the same customer. Our ongoing rigorous review of the Chinese automakers' competitive positions and product strategies, both inside and outside the country, is a cornerstone of our strategy. We are focusing resources on the customers that have the greatest long-term potential for market success and pursuing programs with the highest risk-adjusted returns and strongest margin potential. As Chinese automakers expand both within China and globally, we believe this integrated leadership model positions Lear Corporation to capture a large share of that growth with a broader, more competitive product offering. Chinese automakers continue to expand production outside of China, particularly into Europe and South America. We are in a strong position to secure business with two Chinese automakers expanding their production in Brazil, which we expect to be awarded within the next coming months. We are actively pursuing additional opportunities globally with BYD, LEAP Motors, among other Chinese automakers. While we maintain a strong, profitable business with multinational customers in China, our new awards with Chinese automakers are aligning our customers' revenue mix with the country's market share dynamics. We expect China automakers to represent more than half of our 2027 China revenue. And with that, I will turn the call over to Jason for a financial review. Jason M. Cardew: Thanks, Tim. Slide 10 shows vehicle production and key exchange rates for the first quarter. Global production on a calendar basis decreased 3% compared to the same period last year. This year's fiscal calendar resulted in four additional production days this quarter compared to last year, which will be offset in the fourth quarter. On a Lear Corporation fiscal basis, production increased by 3% in North America and 4% in Europe, while China was down 5%. As a result, global vehicle production was up 3% on a Lear Corporation sales-weighted basis. The U.S. dollar weakened against both the euro and the RMB. I am sorry. Let us skip the page. Turning to Slide 11, I will highlight our financial results for the first quarter of 2026. Our sales increased 5% year over year to $5.8 billion. Organic sales were up 3%, reflecting higher volumes on Lear Corporation platforms and the addition of new business in Seating. Core operating earnings were $297 million compared to $270 million last year, driven by higher volumes on Lear Corporation platforms and favorable foreign exchange. Adjusted earnings per share were $3.87 as compared to $3.12 a year ago, reflecting higher earnings and the benefit of our accelerated share repurchase program. First quarter operating cash flow was $98 million compared to a use of $128 million last year due to higher core operating earnings and improvement in working capital and payments related to commercial settlements for EV clients. Now turning to Slide 12. Slide 12 summarizes the revenue impacts from recent changes to U.S. tariff policy. Although there is no earnings impact, we felt that the complexity of changes in U.S. tariff policy and significant impact on revenues warranted further explanation. There were two significant changes to the tariff regime that are expected to result in lower revenue both on a year-over-year basis and relative to our February outlook. OEMs are now receiving import adjustment credits based on a percentage of MSRP for vehicles assembled in the U.S. These credits can be allocated down the supply chain, allowing suppliers to import components effectively tariff-free. As a result, we had lower pass-through revenue from tariff reimbursements in the quarter, which we expect to continue going forward, as well as from a one-time adjustment for credits applied retroactively. This will also improve cash flow by eliminating the timing lag between paying tariffs and receiving customer reimbursement. Second, the Supreme Court struck down tariffs imposed under the International Emergency Economic Powers Act, or IEEPA. As those tariffs are refunded, we will return the proceeds to customers who had previously reimbursed us. In anticipation of those refunds, we recorded a one-time adjustment in the first quarter to reverse IEEPA-related recoveries that had previously been recognized as revenue. In 2025, we recognized $194 million in revenue due to the recovery of tariffs we paid during the year. Our February full-year 2026 outlook included a $100 million year-over-year revenue tailwind from tariff recoveries based on the assumption that there would be no changes to the tariffs in place at the time. In the first quarter, the one-time reversal resulted in a $175 million year-over-year revenue reduction, which, when combined with the application of customer credits, led to a $243 million reduction in revenue from what was assumed in our February outlook. For the full year, we now expect a $285 million year-over-year revenue reduction driven by the one-time adjustment in the first quarter as well as tariff-free imports using customer-allocated credits throughout the remainder of the year. This represents a $385 million revenue reduction from what was assumed in our February outlook. The magnitude of these revenue impacts with no corresponding effect on earnings is a testament to the team's ability to achieve full recovery of tariffs, both in 2025 and 2026. Our strong track record of navigating tariff policy changes and protecting earnings gives us confidence in our ability to continue to mitigate impacts regardless of the policy environment. Slide 13 explains the variance in sales and adjusted operating margins for the first quarter in the Seating segment. Sales for the first quarter were $4.4 billion, an increase of $253 million, or 6%, from 2025. Organic sales were up 3%, reflecting higher volumes on Lear Corporation platforms such as the Jeep Grand Wagoneer and the Ford Explorer and Lincoln Aviator in North America, as well as the addition of new business including the Series M7 in China, the BMW iX3 in Europe, and the Jeep Cherokee in North America. Adjusted earnings were $305 million, up $25 million, or 9%, compared to 2025, with adjusted operating margins of 6.9%. Operating margins were higher compared to last year primarily due to higher volumes and the mix of production by program, a margin-accretive backlog, and net performance, partially offset by the impact of foreign exchange. Slide 14 explains the variance in sales and adjusted operating margins for the first quarter in the E-Systems segment. Sales for the first quarter were $1.4 billion, an increase of $9 million, or 1%, from 2025. Organic sales were flat as higher volumes on Lear Corporation platforms, including the Ford Expedition, Bronco Sport, and Lincoln Navigator in North America, were offset by the build-out of the Ford Escape, Focus, and Lincoln Corsair reflected in our backlog. Adjusted earnings were $86 million, or 6.1% of sales, compared to $74 million and 5.2% of sales in 2025. Higher operating margins were driven by increased volumes on Lear Corporation platforms, net performance, and the impact of foreign exchange, partially offset by the build-out of the programs reflected in our backlog. Slide 15 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full-year outlook. Our production assumptions are based on several sources, including internal estimates, customer production schedules, and S&P forecasts. At the midpoint of our guidance range, we assume that global industry production will be down less than 2% on a Lear Corporation sales-weighted basis, driven by lower volumes in our largest markets: North America, Europe, and China. From a currency perspective, our 2026 outlook assumes an average euro exchange rate of $1.17 per euro, and an average Chinese RMB exchange rate of 6.91 RMB to the dollar. Slide 16 reaffirms our outlook for 2026. Our first quarter results were strong and the second quarter is trending favorably, putting us on a trajectory to deliver results between the midpoint and high end of our guidance range. However, given the uncertainty around the overall global macro environment and potential impacts from the conflict in the Middle East, we felt it was prudent to simply maintain our full-year outlook at this time, essentially protecting for the risk of these events impacting global industry production in the second half of the year. Moving to Slide 17, we highlight the value created through the execution of our disciplined capital allocation strategy. Over the past four years, we have returned more than $1.8 billion to shareholders through share repurchases and dividends, consistently reducing our share count each year. From 2021 to 2025, cumulative revenue per diluted share grew 36%, while adjusted earnings per diluted share increased 61%, with steady growth in both metrics every year over this period. Performance significantly outpaced both the S&P 500 and the S&P 1500 Auto Components Index. Despite this consistent execution and outperformance, our valuation multiple significantly lags that of the S&P 500. We believe this disconnect reflects an underappreciation of our future earnings power, strong cash flow generation, and disciplined capital returns in an industry experiencing modest growth in production. Given our current valuation and confidence in our ability to enhance long-term shareholder value, we believe the best near-term use of excess cash is to continue prioritizing share repurchases and our sustained dividend. We remain focused on generating strong cash flow, investing in the core business to drive profitable growth, and returning excess cash to shareholders. In 2026, we are targeting free cash flow conversion of more than 80%, which will enable us to buy back at least $300 million worth of stock, with additional repurchases depending on free cash flow generation and tuck-in acquisition opportunities. As we drive growth and margin expansion, the resulting strong cash flow and our disciplined capital allocation strategy will continue to generate shareholder value. Now I will turn it back to Raymond E. Scott for some closing thoughts. Raymond E. Scott: Thanks, Jason. Please turn to Slide 19. The first quarter was exceptional, demonstrating the strength of our strategy and our ability to execute. Our commercial success continues the momentum from 2025, including the major conquest truck program and the GM Orion plant in Seating, and the $1.4 billion of business awards in E-Systems. Our first quarter key business wins, such as the major GM full-size SUV wire harness award, key power distribution module wins, and growth with Chinese automakers, increase our two-year sales backlog. More importantly, the near-term success winning new business awards combined with significant opportunities to secure new business throughout the remainder of 2026 positions both businesses to generate sustainable revenue growth over the next several years. Idea by Lear continues to differentiate us. Our automation capabilities are key drivers of new business wins, enabling us to launch at speeds previously unprecedented in the industry. While our competitors are trying to catch up, we will be creating the next generation of solutions, further widening our advantage. Financially, first quarter results were strong across the board: revenue up 5%, core operating earnings up 10%, and adjusted EPS up 24% to $3.87, the highest quarterly EPS since Q1 2019. Free cash flow improved by $25 million, enabling us to repurchase $75 million in shares, putting us on pace for over $300 million of buybacks in 2026. We are on track to deliver our full-year net performance targets: 40 basis points in Seating and 80 basis points in E-Systems. The pace of new wins and strong pipeline position us for long-term success. We will now open the call for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star and then one on your touchtone phones. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw your questions, you may press star and two. Again, that is star and then one to join the question queue. We will pause momentarily to assemble the roster. Our first question today comes from Dan Meir Levy from Barclays. Please go ahead with your question. Dan Meir Levy: Hi. Good morning. Thanks for taking the questions. I wanted to first start with a question on the revenue outlook. You are cutting—there is a negative impact from tariffs, there is a lower LVP outlook, there is a little bit of positive offset for FX. I think you are talking about some positive backlog. Maybe walk through the moving pieces that allow you to maintain outlook? And in fact, I think you sort of gave some implied commentary that there is potentially even some upside on that piece. I interpreted that correctly. So if you could just focus on the moving pieces on the revenue side. Thank you. Jason M. Cardew: Sure, Dan. Just from a revenue perspective, you have highlighted the key drivers pretty well. We have the reduction in revenue due to the changes in tariff policy, which is $385 million. That is largely been offset by two things. One, foreign exchange—so the change in assumptions around the euro and the RMB, among others. And then also the impact of commodity and other pass-throughs to customers, and the most notable change there is around copper. We have also seen commodity increases with foam chemicals, with steel, and so there is a pretty meaningful increase in revenue with no corresponding earnings impact as we pass through those adjustments, mostly on a one-quarter lag. So there is a small leakage from an earnings perspective. And then in terms of the industry volume assumptions, first of all, we recognize S&P adjusted the overall industry, but we obviously do not sell to every program in the industry. If we look at our mix of programs, there were actually some programs that S&P increased their full-year outlook on, so we have favorable mix that is offsetting a portion of that lower industry volume. And then we also have the benefit of the new business awards that launch starting in the second half of the year. So there is a small incremental revenue from the backlog that also helps offset that industry volume. Dan Meir Levy: Thank you. Second, if we could just double click on the margins, please. You just did your best quarterly margin, I think, in something like five years. I know that there are some nuances there that are going on with tariffs and what is happening there. But the guidance does imply a decrease in margins for the subsequent quarters. Maybe you could just walk us through the margin dynamics—what would drive this implied decline in margins? Or is that some form of conservatism? Raymond E. Scott: Why do I not go first here, Dan, and Jason can talk a little bit about it. I think one is, Jason in his narrative talked a little bit about it. Given the uncertainty around how we are looking at the second half of the year—and that can go in a lot of different directions—we are probably conservative if things play out differently. And I will tell you right now, I talked about the momentum and how I felt about this year. Now we have the actual facts in front of us as to how we are performing. Think about E-Systems—E-Systems has done a great job. We had some operational issues. We had some issues relative to the decrease in volume here in North America around the EV market. I feel really good that the majority of that is behind us. The operations are running significantly better. So from a sustainability and durability perspective, the margins in E-Systems are at a better place. In Seating, we are doing a really good job, particularly in Europe, around some very similar situations around volume, cleaning that up. We started the year off strong. I think we are just looking at the second half, and I think there is a lot of narrative around—not just us—but what the second half brings with the situation that is going on with Iran, and inflation, and what demand is. But I feel really good about the things that we can control. I think it would have been an absolute beat and raise, but we are just being a little bit cautious given some of the things that we are being faced with that are outside of our control. But the things we are controlling—we crushed it. I talk about momentum, now to be able to back it up. What we did in Seating with the truck award, the conquest wins validated our modularity and our technology around automation and the digital changes within our manufacturing plants. And then right behind that, with this major conquest win on a mid-cycle program—that is very rare—opening that door on the T1 platform mid-cycle, putting us in great position for the next generation T2 on a very popular product line. And the wins that we saw in China were exceptional. I feel the momentum. I feel really good operationally how we are performing in both segments. And the wins were exceptional. That is where my head is at. I think we are just being a little bit mindful of what we are being faced with outside of our control. Jason M. Cardew: And, Dan, I will give you a couple of data points to help round that out as well. It is important to note that the first quarter margins benefited from this change in tariff policy, so that reduction in revenue creates a little bit of an artificial boost to the margins in the quarter. It was about 20 basis points in Seating and 40 basis points in E-Systems. We also had a little bit of a benefit from commodities in E-Systems in the first quarter, just the way we account for copper revaluation as copper prices have come up, and then that kind of unwinds itself through the balance of the year. So, very strong first quarter, but there are a couple of nuances there that are important to highlight. Looking at the second quarter, we have a pretty good line of sight now on production schedules and our operating plans, and we feel like the second quarter is going to be strong as well. We expect revenue of $6.1 billion to $6.2 billion in the second quarter. As I look at that year over year, we would be up about 2%—so roughly $100 million year over year—in the second quarter. Looking at each of the business segments, we expect Seating margins to be in the mid-6s and E-Systems to be in the low 5s. E-Systems would be up a little bit from last year, and Seating would be down to flat compared to last year. We also see strong net performance in both business segments in the second quarter. Forty and eighty basis points is our full-year guidance, and that is similar to how we see the second quarter playing out. We also expect very strong free cash flow in the second quarter—likely $150 million or maybe a bit more than that. So the second quarter is set up pretty nicely. That leads to the obvious question: why are you not raising full-year guidance? And Raymond explained it pretty effectively. It is really a bit of conservatism on our part. You may recall on the fourth quarter earnings call, when we talked about the full year, we said that the high end of our guidance range effectively represents what our customers’ production schedules are and how we see the year playing out. Then at the midpoint, we had $400 million of revenue protection, and another $400 million at the low end of the guidance range for the unexpected or deterioration in the market that we are not currently seeing, but we protected for that nonetheless. We have not used really any of that protection through the first half of the year. So if things hold together, we are tracking between the midpoint and the high end of the guidance range for the full year. I think that would help smooth out the progression of operating margins throughout the balance of the year and would make a little bit more sense overall. I just want to reinforce one point that Raymond made around execution. I have been here for 34 years. I have seen good performance and bad performance over that time period. I would say, right now, what we are seeing in both Seating and E-Systems is the best execution operationally probably in ten years, and I think it is not just in the segments overall, but it is in every region and every subsegment. We have not had that in quite some time. We are not happy with where operating margins are today—there is lots of room for improvement, particularly on the E-Systems side—but that consistent execution and operational discipline really is a key enabler to achieving not just the 40 and 80 basis points of net performance that we see this year in Seating and E-Systems respectively, but into 2027 and beyond. It is important to highlight that the performance of the team is at another level today than where it was a year ago, two years ago, five years ago. It is really a strong performance across the board. That is what really gave us mixed feelings about whether to adjust the full-year outlook. We have so much confidence and so much momentum, we really wanted to raise—sort of take the low end of that guidance range out—but with all that is happening with the uncertainty around Iran, as Raymond mentioned, we thought it was prudent just to hold serve for now and provide an update. We will have a chance at the end of the second quarter and at a couple of public investor events to provide an update on how Q2 is playing out, and we hope to provide a little more color again on the full year at that point. Dan Meir Levy: Great. Thanks. That is very helpful. Operator: Our next question comes from Colin M. Langan from Wells Fargo. Please go ahead with your question. Colin M. Langan: Oh, great. Thanks for taking my questions. Just wanted to follow up on the comments, just so I understand. You mentioned that tariffs helped margins in Q1. Is that just because the accounting is more skewed on the sales impact in Q1 versus the rest of the year? And then also you mentioned that copper actually helped margins on E-Systems in Q1. That kind of surprised me a bit because I thought copper prices were kind of all over the place—there might actually have been a headwind. So why would copper actually help in Q1? Jason M. Cardew: I will start with that and then move back to tariffs, Colin. The way we account for copper and value our inventory—if there is a large change in the copper price, we revalue our inventory. That led to a step up of the inventory and a benefit to cost of sales in the quarter. That was partially offset by the higher copper prices and the lag of recovery, but it was a tailwind in the quarter. In regards to the tariffs, we had the full value of this refund for 2025 tariffs all recorded in the first quarter. We had $175 million of refunds between the IEEPA tariffs and the use of credits that our customers have given us applied retroactively to last year. It is about $70 million, or a little less, in IEEPA tariffs and $106 million in the Section 232 credits that we are able to apply for refunds. That is the disproportionate impact on the first quarter revenue and margins as a result of that. Colin M. Langan: Okay. That is helpful. And then since we are talking about raw material, can you remind us what your hedging is on copper in particular and steel and resins and other commodities? And is there an impact in the guide for a little bit of a pinch on some of those? Jason M. Cardew: We do not hedge commodities, Colin, but we do have back-to-back indexing agreements in place pretty much across the board now. The vast majority of copper, steel, foam chemicals, and leather are all on pass-through agreements. In certain cases, with steel, for example, the customers are buying that steel for us, so we see no impact from that. In other cases, there is a one-quarter lag or two-quarter lag, and so we are seeing across-the-board increases in commodity costs. But the end result, in terms of the earnings impact, is pretty negligible. It is about $10 million worse than where we were sitting here on the fourth quarter earnings call for the year, but it is a pretty modest impact. Colin M. Langan: Got it. Alright. Thanks for taking my questions. Operator: Our next question comes from Joseph Robert Spak from UBS. Please go ahead with your question. Joseph Robert Spak: Thanks. Good morning, everyone. Raymond, I wanted to go back to some of your comments. You talked about some changing competitive dynamics in wiring, and I was wondering if you could spend a minute talking about how you are positioning Lear Corporation to take advantage of that. I know you mentioned some conquest wins, which sound pretty exciting. But from your perspective, is it better to win conquest business or really go after some of these new architectures? Do you have a preference there? Maybe I have a follow-up, but I will pause there. Raymond E. Scott: I think it is a combination of both. The conquest opportunities have presented themselves over the last six months. I think I have been hinting at this or talking about it—the amount of requests we have got for quotes, mid-cycle or next generation. That is something that is relatively new. I think it is a combination of maybe strategic directions with other companies or performance. Quite candidly, I think we have gotten a lot of requests for quotes because of the lack of performance by others. I have always said that the ticket to get into quoting is you have to perform every day around quality and delivery—you have to meet the customers’ expectations. Those are more of a recent anomaly that continue to persist. We still have a significant amount of electrical opportunities when we think about newer platforms, and that is part of what we just announced too. Some of these new electronic awards are very strategic. They are placed right where we have really good capabilities and competencies. The customers spend a lot of time with us and our capabilities. The electronic wins also come in at a higher margin than our overall target margin, so they are coming on at a very good accretive level as we start to launch them. The third element I will say is this new ability to gain access to the domestic Chinese market. I was just in China last week. It is amazing—the amount of opportunities we are seeing not just in Seating but in E-Systems. We had a dinner with a key customer and we expanded the relationship to include commercial trucks, both in Seating and E-Systems. That door is more of a recent area. We had more wins in this quarter. Hopefully, we have the same success we had at the last call—right after we got off, we had two significant awards in China. I see that as a really nice opportunity for us to continue to grow. It is the combination of what we have done from a leadership organizational perspective. That door is open and we are seeing significant opportunities. I am excited. It is very rare—when we get these conquest wins that are mid-cycle, they do not do that because they are happy and content. They are doing it very strategically, very intentionally. Our job on that T1 is to deliver. When that door is open, I hope we can take advantage of it post-delivery and continue to expand our position on the next generation of that platform. That was very strategic. What is good about all this is that we have target margins, we are competitive, and we are hitting what we believe is an absolutely acceptable return for our company. It shows that the automation and the digital changes we are making in our manufacturing plants, both across electronics and wiring, are very competitive. Our reputation is as a leader for quality and delivery. I am excited where we are at in E-Systems, but it is across a lot of different areas, not just the current conquest wins, but also the new generation of electrical architecture. Joseph Robert Spak: Great. Thanks for that. And then, Jason, maybe if I could—two quick ones. First, I appreciate all your comments on margin expansion cadence throughout the year. But in the quarter, you mentioned extra days, extra volume. Did that also help the margin—did you get a little bit more fixed cost leverage, or is it really just a dollar thing? Second question is with the metals Section 232 tariff changes—I do not think there is any change there—but it is a little confusing because when we start looking to some parts, there are definitely elements of wiring that are listed in there. Maybe you could confirm that auto wire harnesses are not really impacted by the change, or if they are, that would be great to know as well. Jason M. Cardew: There really are no new tariffs that are impacting us, other than you have the Section 122 tariffs replacing the IEEPA tariffs, and that is a little bit of a wash—maybe a little bit lower overall. That has been factored into the updated commentary around the impact of revenue for the full year due to tariffs. In regards to your question about the additional workdays—yes, that would benefit the quarter on a year-over-year basis. It really shows up on the volume line. Volume overall, I think, was about $190 million, and roughly two-thirds of that is a result of the additional workdays, with the balance being higher volumes on a normalized basis. It is important to point out that that was a positive development for us. We had full-year negative volume/mix factored into the initial guidance and the first quarter was off to a positive start relative to that. So even normalizing for the workday difference, it is still a positive trajectory relative to what we had anticipated when we issued our initial guidance. Joseph Robert Spak: So just on the shape of the year-end margins, if I am following right, you have got to have greater expansion over the next two quarters because I am assuming there is giveback in the fourth quarter just on the calendar. Is that the right shape of the year? Jason M. Cardew: That is exactly right. If you think about first half, second half, you have your normal seasonality in the third quarter, where you are going to have downtime in Europe. Then you have typically a strong fourth quarter, particularly in China—historically very strong in the fourth quarter. That may be a little more tempered for us on a year-over-year basis as a result of the change in the calendar and the impact on the number of workdays in each quarter relative to the prior year. Operator: Our next question comes from Mark Trevor Delaney from Goldman Sachs. Please go ahead with your question. Mark Trevor Delaney: Yes. Good morning. Thanks for taking the questions. I think the two-year net backlog was $1.325 billion at the end of last year, and you spoke about the new awards adding $250 million. I believe that is all scheduled to ship for 2027. Maybe you could share more on where the backlog now stands. Were there any other puts and takes to it besides the $250 million? And in terms of the linearity, can you confirm that the incremental does all ship in 2027? Jason M. Cardew: There is a little bit of that $250 million that will hit 2026 and, given the volatility of customer plans, we did not want to put a pinpoint number to it, but it is positive within 2026 as well. That is a comprehensive look at the overall change in the 2026 backlog and 2027 backlog, so it includes some timing changes and other assumption changes embedded in that. If we look at it on a three-year basis, if you were to include 2028, where some of these awards show themselves more fully, it is about a $400 million increase in our three-year backlog. We did not provide a starting point for 2028, but overall, over that three-year period, the awards received in the first quarter increased the backlog by $400 million. It was an incredibly strong start to the year. As Raymond pointed out, the new development—particularly in China—is how short the development windows are and that the gap in time between award and launch is much shorter than what we are historically accustomed to seeing. We are excited about the opportunity to continue increasing the 2027–2028 backlog with awards that happen throughout the remainder of this year. Mark Trevor Delaney: Thanks for that color, Jason. I also wanted to talk about the competitive landscape. You already mentioned the momentum that Lear Corporation is seeing with conquest opportunities in wiring and E-Systems. Could you give an update on Seating? I ask because last quarter you announced the largest conquest award in the company's history on the Seating side, and I think that was driven in part by the automation capabilities that Lear Corporation has. With that award now in place, and what it shows for the industry more generally with what Lear Corporation can deliver, can you give an update about whether it is generating additional interest from other auto OEMs that may also want to take advantage of what Lear Corporation can provide? Raymond E. Scott: There is a lot going on in Seating, and it is important how we are communicating this. The award you mentioned was very important on that truck platform because it validated the work we have been doing for ten years. The way we differentiate ourselves—if you think through all the different acquisitions—what is important is we talk about manufacturing our own capital, how we have a modular system, how we are looking at automation and digital changes on the plant floor. That is very attractive to all of our customers. That win was significant because it was based on everything I just mentioned. Think back through IGB, Cogsberg, InTouch, WIP automation, the most recent acquisition in E-Systems, ASI, M&N—the list is long. We have been doing these great acquisitions for over ten years to really build the competencies and capabilities that we have. In a world where automation and digital are the buzzwords, we have been building on that for over ten years, and we are really putting it in place. What is important in how we track ourselves—before we started communicating this externally—we had to have contracts and proof points that this is real. The 38 contract wins are because we are vertically integrated and we manufacture the module itself down to the lumbar. We are not partnering or using supply agreements. Customers see the real value in that, and that helps us expand our margins and help our customers with efficiencies and purpose and use within the vehicle. When I was in China last week, it was amazing—the content that is going in the vehicles and the need for speed to accelerate technology within the seats. When you have the vertical capabilities like we have, we can meet their timing. We can meet their specifications and the requirements they are looking for—adaptability and customer preferences. We have built an innovation center to showcase it to analysts and our investors. The customers have seen it. You are seeing in-production use of automation of a modular system. It is amazing how that is adapting because the timing could not have been better. We thought about this ten years ago, but every one of our customers—the domestic Chinese are accelerating speed to market and really wanting to ensure they are driving a competitive seat system. The traditionals are trying to understand how they can get to that, and we are showing them what we are doing. We are doing it both with the domestic Chinese and here at home with the North Americans and Europeans. We are being very selective too. The Orion facility was a very targeted approach that will have all of our best capabilities for automation and digital tools. What we are doing with the innovation centers can replicate and speed to market within our production facilities. It is picking up momentum. I was hesitant when we talked about all this, and now we have 38 contracts within the modular arena. We are the only ones doing a modular system where we vertically integrate our own components. It is a differentiator for sure. Frank has done a great job now in Audi in Europe. Obviously, we are in North America. As this becomes more prevalent, our customers were somewhat concerned around wanting to see it in production first. Now that it is in production, we can take production parts and show them, and then walk them through a line. That is what they did with the truck business we got—they went through an audit, they saw our facilities. Every one of our customers is coming back and saying, I have never seen this. We just had a major OEM come through our facility in Rochester and they said there is no seat company doing what you are doing. Think about the time we have been doing this—it is over ten years. We have acquired specific skill sets that have been integrated—just that integration takes time. Now we are at full momentum of what we are seeing. We are going to be selective. The Orion win was a conquest too because we had a competitor with a plant sitting right there and we won that business. We are going to be selective on customers, how we position ourselves, how we invest in them on a particular platform. We are definitely differentiating ourselves. We have to do a better job of explaining that because it is not a fancy marketing slogan. This is real. We are in production. We vertically integrate. We have the components. The automation side in our manufacturing plants is incredible. It has really taken off, and I am excited. Particularly with the domestic Chinese, they are pushing the market to think differently. The timing could not be better for what we have been putting in place over ten years. Again, we can extend the meeting. I would love to have everyone out to Rochester Hills. You have to see what it is—and that is in production. That is not theory. Those are production parts that are built in an automation facility around digital tools that are 100% going into production. Operator: Our next question comes from James Albert Picariello from BNP Paribas. Please go ahead with your question. James Albert Picariello: Hi. Good morning. Can you speak to the content and margin opportunity for E-Systems as we think about OEMs transitioning to domain-centralized architectures? I assume a portion, if not all, of the wiring awards you called out this morning are on this type of platform. For many folks on the outside looking in, the headline features of these next-gen electrical systems call for dramatic reductions in copper and overall wiring content. It is a much more simplified design. I know it is more complicated than that. Can you speak to the positive features of these next-gen electrical systems as it pertains to your E-Systems business? Thank you. Raymond E. Scott: A couple of things. We mentioned these electronic modules that we won. They are smart and specifically used on these new architectures. We have really put ourselves in a leadership position. We will be able to announce a little bit more about the platforms and what we won as we work with our customers. Those are really the leading-edge electronic systems for this architecture you are referring to, and we are in a very good position there. On wiring, we do get asked—so far we have not seen significant changes in wiring. There are different alternative materials and things that are being tried. Upfront design—we work closely with BMW. When I talked about the wins that we got around early development of the harness upfront, that is a big ingredient in how you can really save and look at cost savings within the harness program. Usually the after-design gets put into the vehicle, but with BMW upfront, we put our automation tools in place so we could get a more efficient design. The changes to wiring—we are seeing more content added. I was in China last week. It is amazing—with LiDAR and what they are doing with their architectures that are becoming very complex around features. It is a balance. We are working with alternative materials and alternative designs. We see a combination of those applications. When we think about the next level of architecture, where we have done a nice job is on the electronics capabilities that we have, and we keep announcing these new programs. They are very unique to our capabilities and put us in a good position to be a leader in that area within the new architecture. James Albert Picariello: Got it. That is super helpful. I really appreciate that color. And then just to clarify on the tariff recovery reversal, the February outlook embedded a full-year revenue reduction of $385 million, and now it is a $285 million year-over-year reduction, but you are keeping your revenue range intact. Is that just better FX predominantly that is a positive offset to that year-over-year hit? Jason M. Cardew: Yes, James, it is primarily FX and the pass-through on commodities, particularly copper. That is where the biggest impact is in terms of the copper price change from our original guidance and the pass-through mechanisms that we have in place. Then to a lesser extent, foam chemicals and other commodities that are on these pass-through mechanisms. That, in addition to FX, is largely offsetting the impact of the reduction in revenue due to the tariff accounting. Operator: Our final question today comes from Emmanuel Rosner from Wolfe Research. Please go ahead with your question. Emmanuel Rosner: Great. Thank you. Hi there. A question on the longer-term potential for E-Systems, in particular margin. One of your larger competitors just became an independent company as opposed to being part of a larger one, and that has put a pretty big spotlight on the fact that they are very profitable with very solid margins, with a goal to improve those by another 200 basis points over three years. To what extent is there a similar opportunity for Lear Corporation? Is there a different business mix or reasons why you could not get there? What are some of the structural differences and what is the potential for Lear Corporation? Raymond E. Scott: We just took business from that big competitor and won it at a competitive price, and we are going to make fair returns when we look at returns. We can compete with anyone and we can generate very similar returns. As I have mentioned before, we have had some operational challenges that we have been working on, particularly in Mexico and particularly around EV. We did a great job of winning significant business in EV, and we have been working through the volume reductions both commercially and operationally. The operation turnaround led by Nick and the team down in Mexico has done a great job. We have really good business within E-Systems. We had some pockets that we had to clean up that were within our control. The business we are winning is accretive, and we believe that is on pace to continue to get us good returns in E-Systems. We do not see anything inhibiting us from growing our margins. That is why we put net performance on there. We are confident that we will continue to expand our margins in E-Systems. There is a pace to it because we have some programs that are lower from an assumption standpoint with volume or inflationary costs that we did not completely catch up with commercial negotiations. But I have not felt this good about E-Systems and the operational performance and what we are doing until really this last quarter. I feel good where we are at with E-Systems, Emmanuel. We can compete against anyone out there, and we have proven it—at a good return. Nothing prohibits us except for some of the operational things I touched on that we have to stay focused on and continue to clean up. Jason mentioned that we are operating at a much better level. We still have room to continue to improve. We are not there yet. That is going to continue to improve our margins. Another thing that maybe was an Achilles’ heel was our ability to grow. Well, we are growing. We had $1.4 billion of awards last year in E-Systems after we pivoted away from the North American EV decline. That was a great year. And now we crushed it—more Chinese awards than we had all last year in E-Systems—and we have a great pipeline right now. Jason M. Cardew: The only thing I would add to that is they do have a scale advantage. You have to also look at the portfolio of programs. You may recall when our E-Systems business was at its peak performance, we had a large, 2 million-unit program globally that allowed for a unique scale advantage and higher margins. I think they may enjoy a similar phenomenon that skews the margin profile a little bit. But as Raymond mentioned, we are super excited about the combination of continued net performance of 80 basis points a year and then getting back to growing the top line after digesting what happened with EVs in North America and the decision that we made to exit certain products. As you get into 2027 and 2028, you start to see that inflection from these new business awards starting to exceed the impact of the wind down of the products we exited. When you take net performance plus the effective volume/mix/backlog wind-down as a number, that is when you see a meaningful move higher in E-Systems margins. Emmanuel Rosner: That is great color. One quick follow-up. On growth over market. With the backlog improving and some of these new things launching later this year, what would be your best guess on when growth over market could turn more positive for Lear Corporation? Timeline. Jason M. Cardew: If we look at the full year for Seating, we are expecting positive growth over market this year, and E-Systems is negative primarily because of the build-out of the Escape, Corsair, and Focus weighing on the top line. As the year progresses, our growth profile improves, particularly in China. We had negative growth over market in the first quarter in China, which was largely driven by Seating. E-Systems actually had positive growth over market in the first quarter in China. As we look at the balance of the year, the first quarter for our China growth over market is the trough, and it improves based on our volume assumptions and the backlog improvements that we highlighted. That improves throughout the year. We feel really good about how that market is playing out for us, and for the full year, we think we are pretty close to neutral in China on a growth-over-market basis. After last year being negative—certainly the way we exited last year—that is a positive development. The momentum is even more important because it is not just this year. As you look out to next year and beyond, we see an opportunity to grow in line with that market and to have a revenue base that more closely resembles the underlying market share of the customers in that market. Raymond E. Scott: Thanks, Emmanuel. You are welcome. Okay. Tim, that is it. Just for the team, again, thank you. We talked about coming out this year with momentum, and we definitely have it. Your hard work keeps reinforcing what that momentum looks like in a quarter. It was a great quarter, great performance. Thanks to the team around the world. The growth opportunities and the contract wins were incredible. I appreciate all the hard work. We have a lot of work to do and a lot of things that we are focused on that we can control, as you know. But we have great momentum, and so let us keep it—keep the focus, keep the momentum going. Thank you for a great quarter. Operator: And with that, ladies and gentlemen, the conference call has concluded. We thank you for attending today's presentation. You may now disconnect your lines.
Operator: Please stand by. Welcome to the Merit Medical Systems First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. I would now like to turn the call over to Martha Aronson, Merit Medical Systems' President and Chief Executive Officer. Martha Aronson: Thank you, operator, and welcome, everyone. I'm joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer; and Brian Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, would you please take us through the safe harbor statements? Brian Lloyd: Thank you, Martha. This presentation contains forward-looking statements that receive safe harbor protection under federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to risks and uncertainties. The utilization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from the expectations and projections expressed or implied by our forward-looking statements. In addition, any forward-looking statements represent our views only as of today, April 30, 2026, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements, except as required by applicable law. Please refer to the sections entitled Cautionary Statement regarding forward-looking statements in today's press release and presentation for important information regarding such statements. For a discussion of factors that could cause actual results to differ from these forward-looking statements, please also refer to our most recent filings with the SEC, which are available on our website. Our financial statements are prepared in accordance with accounting principles, which are generally accepted in the United States. However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations. This presentation also contains certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in today's press release and presentation furnished to the SEC under Form 8-K. Please refer to the sections of our press release and presentation entitled non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call. Readers should consider non-GAAP financial measures in addition to, not as a substitute for financial reporting measures prepared in accordance with GAAP. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today's press release and our presentation are available on the Investors page of our website. I will now turn the call back to Martha. Martha Aronson: Thank you, Brian. Let me start with a brief agenda of what we will cover during our prepared remarks. I will begin with a brief summary of the first quarter financial results. Then I will discuss several areas of operating and strategic progress that we have made in recent months, including an important strategic acquisition in the oncology space that we made subsequent to quarter end. Then Raul will provide a more in-depth review of the quarterly financial results as well as our financial guidance for 2026, which we updated in today's press release. We will then open the call for your questions. Beginning with a review of our first quarter results. We reported total revenue of $381.9 million, up 7% year-over-year on a GAAP basis and up 5% year-over-year on a constant currency basis. Our constant currency revenue results exceeded the high end of the expectations that we outlined on the Q4 2025 earnings call. First quarter constant currency growth was driven by 2.7% organic constant currency growth and contributions from our acquisitions of Biolife and the C2 CryoBalloon device, both of which exceeded the high end of our expectations. Our organic constant currency growth includes the impact of the strategic divestiture of our DualCap product line in February of 2026, which we discussed in our Q4 2025 call. Excluding divested revenue, our organic constant currency growth was 3.7% in the first quarter. With respect to the profitability performance in Q1, we delivered financial results that significantly exceeded expectations. Our non-GAAP operating margin increased 47 basis points year-over-year to 19.7%, representing the highest first quarter operating margin in the company's history. The team delivered 9% growth in non-GAAP EPS, which exceeded the high end of expectations. We generated $25 million of free cash flow, an increase of 26% year-over-year. We are pleased with the solid start to fiscal year 2026, and I want to thank our team members all around the world for their effort and commitment to our customers. We updated our guidance in today's press release to include the expected financial impacts from our acquisition of View Point Medical on April 1. Importantly, we remain confident in our team's ability to drive stable constant currency growth, improving profitability and solid free cash flow this year. Our organization is aligned around our priorities for 2026, specifically to drive strong execution around the globe and to successfully complete our continued growth initiatives program, which includes our previously disclosed financial targets for the 3-year period ending December 31, 2026. Turning now to a discussion on 3 key operating and strategic announcements we made since our last earnings call. First, on March 16, we announced the U.S. commercial introduction of The Resilience Through-the-Scope or TTS Esophageal Stent. The Resilience Stent is indicated for treatment of esophageal fistulas and structures caused by malignant tumors. Resilience is designed to demonstrate the greatest migration resistance amongst currently available TTS Esophageal Stents and facilitates physician control and accurate placement. Resilience targets an attractive market opportunity in the United States, and we expect adoption and utilization of this differentiated product to contribute nicely to the growth in Merit's endoscopy platform in the coming years. Second, on April 1, building upon our oncology platform, we announced the acquisition of View Point Medical for an aggregate transaction consideration of $140 million, of which $90 million was paid in cash at closing. View Point Medical is based in Carlsbad, California and manufactures the OneMark Detection Imaging System and OneMark Tissue Markers. This unique ultrasound enhanced technology offers an innovative solution to localize more lesions at the time of biopsy, representing an estimated 1.3 million procedures annually in the United States alone. This represents an expansion of the annual addressable procedure opportunity of approximately 3x for our oncology business. Merit has built a market leadership position in wire-free non-radioactive breast localization procedures. Our leadership has been built upon our SCOUT platform, which utilizes the precision and accuracy of radar. The OneMark system is U.S. FDA cleared for percutaneous placement in soft tissue tumors to mark biopsy sites or lesions, and it consists of a surgical detection system and ultrasound enhanced tissue markers. After placement, the tissue markers are designed to be visible across commonly used imaging modalities and engineered to minimize interference with future imaging studies. This acquisition expands our portfolio of therapeutic oncology products dedicated to the diagnosis and localization of breast and soft tissue tumors. The combination of SCOUT and OneMark provides physicians with localization options during the initial diagnostic biopsy, which may reduce the need for a separate procedure to mark the location of the tumor prior to surgery. We believe this acquisition presents multiple strategic and financial positives. Importantly, this acquisition is consistent with our continued growth initiatives program. This acquisition represents another example of Merit selectively investing to expand our product portfolio in key strategic markets that leverage our existing commercial footprint. Finally, I want to highlight our new presentation of revenue, which we formally introduced in a Form 8-K filed on April 13. As discussed on our Q4 call, Merit's new executive leadership team and I have been working through a comprehensive analysis of the business, and it became clear during this process that we had an opportunity to streamline our internal planning and reporting processes with the goal of aligning how we think about, evaluate and plan each of our underlying businesses. We also identified an opportunity to streamline how we talk about the business externally as well. We believe there is significant value in aligning how we talk about the business, both internally and externally, and we expect these changes to help the investment community not only better understand the composition of our business today, but also the underlying growth drivers of our business going forward. To that end, as disclosed in the Form 8-K on April 13 and reported in our earnings press release today, we are now reporting our revenue in 2 product categories: foundational and therapeutic. Foundational products are used primarily for access and enabling functions in vascular and other procedures. Merit's foundational products comprised about 2/3 of our total revenue in 2025 and sales increased at a 6% compound annual growth rate over the last 3 years. Therapeutic products are devices and systems that treat disease in a number of very large markets that together represent significant growth potential. Merit's therapeutic products comprised about 1/3 of our total revenue in 2025 and sales increased at an 11% compound annual growth rate on an organic basis over the last 3 years. Given that we call on a wide variety of clinicians and our products are a part of so many procedures, we have solidified our new operating model internally around 8 platforms: Access, Vascular intervention, procedural solutions, cardiac therapies, renal therapies, oncology, endoscopy and OEM. The Access and Procedural Solutions platforms are comprised entirely of foundational products. The Vascular intervention and OEM platforms are comprised of both foundational and therapeutic products. Cardiac therapies, renal therapies, oncology and endoscopy are comprised entirely of therapeutic products. In the Form 8-K, we shared 4 years of historical revenue in each of these platforms. To reiterate, going forward, we plan to report revenue results by foundational and therapeutic products. In addition, we intend to continue to highlight additional color on the underlying drivers of growth within the underlying platforms. As I shared last quarter, each of our platforms is being co-led by a marketing lead and a research and development lead. Each team is comprised of cross-functional and cross-geographic members so that we have better alignment on product and commercial priorities, improved communication across functions and geographies and a team who feels accountable for that platform globally. I am very pleased with how our teams are taking ownership, increasing communication and thinking about how best to serve our customers in each area. I truly believe that focusing our efforts in this way will enable us to drive even greater growth within each one of these platforms in the years to come. With that, I'll turn the call over to Raul for an in-depth review of our quarterly financial results and our updated financial guidance for 2026. Raul? Raul Parra: Thank you, Martha. I will start with a detailed review of our revenue results in the first quarter. Note, unless otherwise stated, all growth rates are approximated and presented on both a year-over-year and constant currency basis. First quarter total revenue increased $18.6 million or 5%, exceeding the high end of the expectations we outlined on our fourth quarter call. Excluding sales of acquired products, our total revenue growth on an organic constant currency basis was 2.7% at the high end of our expectations. Excluding divested revenue, our organic constant currency growth was 3.7% in the first quarter. By geography, our total revenue in Q1 was primarily driven by growth in the U.S., where sales increased $14.5 million or 6.8% and international sales increased $4.1 million or 3%, both of which modestly exceeded the high end of our expectations in Q1. Turning to a review of our revenue results by product category. First quarter total revenue was driven by a $10.1 million or 4% increase in sales of foundational products and an $8.5 million or 7% increase in sales of therapeutic products. Including the contributions from acquired products of $6.6 million and $2.5 million, respectively, sales of foundational and therapeutic products increased 1.5% and 5.2%, respectively, on an organic constant currency basis. Organic growth in the foundational product category was driven primarily by our Vascular Intervention and access platforms, which offset year-over-year declines in sales of OEM and procedural solution products, the later of which impacted by our divestiture of DualCap product line. Organic growth in the therapeutic product category was driven by strong growth in our cardiac therapies and Endoscopy platforms and contribution from solid growth in our Vascular Intervention and oncology platforms, offsetting year-over-year sales declines in our OEM and renal therapies platforms. We were pleased with our first quarter total revenue results that exceeded the high end of our expectations despite the notable headwinds to year-over-year revenue growth experienced in our OEM business in Q1. OEM sales declined 14% year-over-year in Q1, significantly lower than what was assumed in our guidance. Sales to OEM customers outside the U.S. continue to see demand trends impacted by the macro environment, particularly in the APAC region, and these headwinds were largely consistent with our expectations. OEM sales to U.S. customers were impacted by inventory destocking dynamics related to product line transfers to Tijuana, Mexico as expected. That said, customer orders came in lower than expected, which we would characterize as transient or timing based rather than a reflection of share loss. Our OEM business remains healthy despite the quarter-to-quarter fluctuations in growth rates. We continue to believe the appropriate normalized growth profile of our OEM business is in the mid- to high single digits annually. Turning to a review of our P&L performance. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-GAAP results during the first quarter of 2026, and all growth rates are approximated and presented on a year-over-year basis. We have included reconciliations from our GAAP reported results to the most directly comparable non-GAAP item in our press release and presentation available on our website. Gross profit increased 7% in the first quarter. Our gross margin was 53.2%, down 20 basis points year-over-year, but notably stronger than our internal expectations. Q1 gross margin included a $4.6 million impact from tariffs compared to no impact in the prior year period, representing a 120 basis point impact to gross margin in the period. Operating expenses increased 5% in the first quarter. The increase in operating expense was driven primarily by $5.4 million or 5% increase in SG&A expense and to a lesser extent, a $1.1 million or 5% increase in R&D expense compared to the prior year period. Total operating income in the first quarter increased $6.9 million or 10% from the prior year period to $75.3 million. Our operating margin was 19.7% compared to 19.3% in the prior year period, an increase of 47 basis points year-over-year. First quarter other expense net was $1.2 million compared to $1.7 million for the comparable period last year. The change in other expense net was driven primarily by gain loss on foreign exchange and higher interest income. First quarter net income was $56.7 million or $0.94 per share compared to $52.9 million or $0.86 per share in the prior year period. First quarter net income and EPS exceeded the high end of our guidance range by $3.7 million and $0.07, respectively. Turning to a review of our balance sheet and financial condition. As of March 31, 2026, we had cash and cash equivalents of $488.1 million, total debt obligations of $747.5 million and available borrowing capacity of approximately $697 million compared to cash and cash equivalents of $446.4 million, total debt obligations of $747.5 million and available borrowing capacity of approximately $697 million as of December 31, 2025. Our net leverage ratio as of March 31 was 1.6x on an adjusted basis. The increase in cash and cash equivalents in the first quarter was driven by a combination of strong free cash flow generation of $24.7 million and $25.5 million of proceeds from our divestiture and sale of the DualCap product line, offset partially by $6.3 million in cash used for financing activities in the period. Subsequent to quarter end, we acquired View Point Medical for an aggregate consideration of $140 million. Of that amount, $90 million was paid in cash at closing and 2 deferred payments of $25 million each are scheduled to be paid no later than first and second anniversary of the closing date, respectively. In addition to the favorable strategic rationale for this acquisition that Martha outlined earlier, the financial rationale for this transaction is compelling. While we expect the transaction to be $0.05 dilutive to our 2026 non-GAAP EPS for the 12 months ending December 31, 2027, the acquisition is projected to be accretive to our non-GAAP EPS. Longer term, we project this acquisition to be accretive to Merit's multiyear growth and profitability profile. Specifically, we project sales of View Point Medical's OneMark system to grow at least 20% per year with 70% non-GAAP gross margins and non-GAAP operating margins above our company average. Turning to a review of our fiscal year 2026 financial guidance. As reported in our earnings press release, we have updated our financial guidance for 2026 to reflect the projected contributions to our total revenue and impact on our non-GAAP EPS previously disclosed on February 24, 2026. Specifically, from the acquisition effective date of April 1, 2026, through December 31, 2026, the acquisition is projected to contribute revenue in the range of $2 million to $4 million and to dilute Merit's initial 2026 guidance for non-GAAP earnings per share by approximately $0.05. This non-GAAP EPS dilution includes approximately $2 million of lower interest income on cash balances used for the total purchase consideration and excludes approximately $5.3 million of noncash and nonrecurring transaction-related expenses. For the 12 months ending December 31, 2026, we now expect total GAAP net revenue growth in the range of 6.3% to 7.8% year-over-year and 5.6% to 7% year-over-year on a constant currency basis, excluding an expected 80 basis point tailwind to GAAP growth from changes in foreign currency exchange rates. There are a few factors to consider when evaluating our projected constant currency revenue growth range for 2026, including: first, our constant currency growth range assumes sales of foundational products increase in the mid-single digits year-over-year and sales of therapeutic products increase in the high single digits year-over-year. Second, our total net revenue guidance for fiscal year 2026 now assumes inorganic revenue contributions in the range of approximately $17 million to $20 million compared to $13 million to $15 million previously. This increase in inorganic revenue expectation is driven by the combination of $2 million to $4 million of View Point Medical revenue and stronger-than-expected contributions from our Biolife and C2 acquisitions in the first quarter. Excluding inorganic revenue, our 2026 guidance continues to reflect total net revenue growth on a constant currency organic basis in the range of approximately 4.5% to 6% year-over-year. Third, our total net revenue guidance for fiscal year 2026 continues to assume U.S. revenue from the sales of the WRAPSODY CIE of approximately $7 million. Fourth, our total net revenue guidance for fiscal year 2026 reflects the impact of our DualCap divestiture. Product sales and royalty revenue for DualCap totaled approximately $20 million in 2025 and net of approximately $1.6 million of sales in Q1 2026, the divestiture represents an estimated year-over-year headwind of approximately 130 basis points to our total constant currency revenue growth in 2026. With respect to profitability guidance for 2026, we continue to expect non-GAAP diluted earnings per share in the range of $4.01 to $4.15, up 5% to 8%. Note, our non-GAAP EPS range reflects the $0.05 of dilution from the acquisition of View Point Medical, funded by the better-than-expected non-GAAP EPS results we delivered in the first quarter. All of the modeling considerations regarding our profitability and cash flow expectations for 2026 introduced on our fourth quarter call remain unchanged. For avoidance of doubt, our 2026 non-GAAP EPS guidance continues to assume a 12-month tariff impact of approximately $15 million or $0.19 per share compared to a $9 million or $0.12 per share realized during the last 8 months of 2025. As a reminder, the expected 12-month tariff impact assumed in our 2026 non-GAAP EPS range was based on tariff policies in place prior to the decision of the U.S. Supreme Court in late February. This continues to be an evolving situation. The ultimate impact of the U.S. Supreme Court decision and subsequent new and/or additional tariffs or retaliatory actions or changes to tariffs on our business will depend on the timing, amount, scope and nature of such tariffs, among other factors, most of which are currently unknown. We intend to review our 2026 financial guidance when we report our financial results for the 3- and 6-month periods ending June 30, 2026. We will provide an update on the estimated 12-month tariff impact and potential gains related to refunded tariff payments in prior periods. Finally, we would like to provide additional transparency related to our growth and profitability expectations for the second quarter of 2026. Specifically, we expect our total revenue in the range of $400 million to $410 million, representing a growth of 5% to 7% year-over-year on a GAAP basis and up approximately 4% to 7% on a constant currency basis. Note, our second quarter constant currency sales growth expectations include inorganic revenue in the range of approximately $4 million to $4.5 million. Excluding inorganic contributions, total revenue is expected to increase in the range of approximately 3% to 5% on an organic constant currency basis. With respect to our profitability expectations for the second quarter of 2026, we expect non-GAAP operating margins in the range of approximately 18.7% to 20.4% compared to 21.2% last year and non-GAAP EPS in the range of $0.90 to $1 compared to $1.01 last year. With that, I will now turn the call back to Martha for closing comments. Martha Aronson: Thanks, Raul. As you can hear, we continue to be on a nice trajectory to successfully complete the third and final year of CGI. I want to commend the organization once again for staying focused on delivering these results while also closing a strategic acquisition on April 1 and embarking on our long-range strategy work. I want to add that when our extended leadership team spent several days kicking off our long-range strategy work during the quarter, we had very robust conversations about each platform, and there was tremendous energy around this work. We also recommitted ourselves to ensuring that our infrastructure is solid so that we can continue to scale our business globally. As I've said before, we will do that with both organic product development alongside disciplined tuck-in acquisitions focused on our strategic platforms. Finally, as I've continued my global travels and spend time with customers, investors and employees, I continue to be inspired and excited about the future of Merit Medical. Operator, we would now like to open the line for questions. Operator: [Operator Instructions]. Our first question will come from Michael Petusky of Barrington Research. Michael Petusky: Nice results. I guess there wasn't much in the way other than, I guess, the reaffirmed guide on WRAPSODY. Martha, are there any updates you want to share there, whether it's anecdotal or more quantitative just on early days progress? Martha Aronson: Yes. Thanks very much, Mike. You asked -- just to clarify, you asked about WRAPSODY? Michael Petusky: Yes. Martha Aronson: No, we're real pleased with how WRAPSODY is going. Again, just to remind folks, we did a bit of a reset, if you will, on how we're approaching our go-to-market strategy with WRAPSODY. We really instituted that toward the end of last year. I'd say at this point, we're very pleased with how we're doing. We've given, I think, our previous guidance or our revised guidance in 2026 of $7 million for WRAPSODY for the fiscal year, and we're tracking right on that. Michael Petusky: Then I'm not sure who this is for, but just curious about -- are you guys -- like is there a formal process? Are you guys seeking refunds in terms of the tariffs that you had to pay last year and the first part of this year? If so, how does that process work? Raul Parra: Yes. Maybe just -- I'll just kind of give a guidance overview, if you don't mind, Mike, because there's a lot of moving parts to this. Just as a reminder, for our 2026 guidance, we have left it unchanged essentially from what we did in the first quarter, which is we've got $15 million that's baked into our guidance for 2026 versus the $9 million that we had in 2025. That's unchanged since the U.S. Supreme Court decision. I think there's still a potential for the administration to challenge that, I believe, through May. I think we'll reevaluate that as part of our second quarter kind of reevaluation and we'll discuss that further, I think, after the second quarter once we kind of get a little -- I guess on firmer ground, right? It's a moving target. There's also the Section 232 stuff that's hanging out there. Michael Petusky: I was just going to say, have you guys filed -- like is there a paperwork to file to seek refunds at this point for you guys or no? Raul Parra: Yes. We have started the process of reimbursement. Like I said, though, I think the challenge is that the administration can still challenge the reimbursement through May. I think from our perspective, we've started the process of filing and have essentially filed for the majority of that. I think we'll have an update, hopefully, on our second quarter call as to how that shakes out. Feeling optimistic, I would say, if things stay as they are today, I definitely think that the $15 million would come down. Operator: Our next question comes from Jason Bednar of Piper Sandler. Jason Bednar: Nice start to the year here. I wanted to start first on View Point, the recent deal. It's a pretty sizable revenue contribution step up from this year to next. Maybe just if you could help us out with how you see this coming together? What's supporting that growth ramp going from $2 million to $4 million in revenue this year up to $14 million to $16 million next year? Then should we think about that 20% growth rate you referenced starting in 2028, building on that $14 million to $16 million? Then I guess, looped in here, just any considerations around synergies that could be realized with respect to that SCOUT platform? Martha Aronson: Yes. Thanks, Jason. I appreciate the question. A couple of comments on that, if you will. I mean, first of all, I mean, I'm just going to kind of take a step back, if you will, on oncology, right? It's about a $100 million platform for us, and it's been growing very nicely. Yet it's been a one product -- pretty much a one-product platform. We have been looking for a while at ways to try to add to that platform because we have an outstanding field organization, and we want to get some additional products in their hands. If you think about the breast cancer market, right, and particularly, you have to go to the biopsy phase, in terms of the whole phase. Somebody has a mammogram or something is seen, and so in the U.S. alone, there's 1.6 million breast biopsies that are done each year. For SCOUT, the product that we've had for a period of time now, the applicable market has been about 300,000 of those procedures each year. With the addition of OneMark, you actually expand the market 3x to 4x because now that other 1.3 million breast biopsies that are done tend to be done for lower-risk patients. The SCOUT tends to be used for higher-risk patients. We're really just seeing a terrific market expansion opportunity here. It really then just comes down to a physician choice about whether they'd rather use Radar technology or ultrasound technology. We're super excited about that. I'll just say, I think the other really important thing about this is that both of these approaches happen at the time of biopsy, whereas many of the other -- if you don't do something at a time biopsy, a patient may have to go through an additional localization procedure before their surgery. We're really excited about what it means for patients. I think, again, breast cancer grows about 4% a year and actually the wire-free localization market where we play is growing at about 13% a year. I think when you ask about our confidence in the future growth rates, we feel good about that. Raul Parra: Yes. I'll add, Jason, at the midpoint of our '27 guide, which was around $15 million, you can definitely tack on the 20% that we called out. On the synergies, just to be clear, in the guide for 2027 on a full-year basis, it is accretive both on the top line and the bottom line with nice strong gross margins at 70%. We're really excited about it. Jason Bednar: I want to pivot to the OEM part of the business. I appreciate all the extra color in the prepared remarks, Raul. I heard you on the 1Q performance and the normalized growth profile for OEM. I guess kind of the genesis of the question here is, can you say that the worst is behind you for OEM? Does that performance get sequentially better in 2Q? Does growth return in the second part of this year, second half of this year? Bigger picture on OEM, Martha, we've obviously seen you take some actions on portfolio management at Merit. How do you think about the value OEM provides to Merit versus maybe what you could potentially realize through strategic moves like some of the actions we've seen across other medtech OEM players here in the last several months? Raul Parra: I'll take the last part of the question first, Jason, if you don't mind. I think just to kind of level set people on what our OEM business is, we essentially sell capacity, so I would say that we're different than other OEM companies out there. We're not a contract manufacturer. We are selling our own product. Divesting of that just doesn't really work, right? We end up with a bunch of extra capacity. Having said that, we love our OEM business. It's a great asset. Our OEM business remains healthy despite the quarter-to-quarter fluctuations. I know you guys find that frustrating. I think as we see the visibility specifically, we're getting excited about what we can do there. We continue to believe the appropriate kind of normalized growth profile is in the mid- to high single digits. I think we're starting to see orders for Q2. That gives us a lot of confidence that I think we are going to be in that mid -- at the very least, I always kind of like to point to the low end. You guys know how I work, but we should be at the very least at that mid-single digits growth profile that I just talked about. Excited about to see how the quarter goes, but early start is looking really good. Jason Bednar: Just to clarify, you're saying mid-singles is how you're seeing 2Q come together, mid-single-digit growth for OEM. Raul Parra: That's right. Operator: Our next question comes from Sam Eiber of BTIG. Sam Eiber: Maybe I can follow up on some of the supply dynamics in the cardiac business that was called out in the prior quarter. Just curious to get an update on how that's shaking out here? Then I'll have a quick follow-up. Raul Parra: Yes. I mean I think we continue to be on track. I think maybe to kind of walk through that issue, right, when we initially had our first quarter -- or sorry, fourth quarter call, it was a supply chain issue that unfortunately did turn into a recall. I'm sure a lot of you guys saw the notice go out. Again, from a financial perspective, it's immaterial to our 2026 financial results. We continue to be on track to have this product back on the market. It's unfortunate that this came to this, but just to kind of highlight it, it's a Class I recall, but we haven't had any of those since 2017. Just to clarify, this was in renal, right, just for clarity. Sam Eiber: Maybe just a quick follow-up on some of the geopolitical issues we're seeing out of the Middle East. Just wondering if you're able to help, I guess, quantify or think through any kind of impact on the revenue line and then the input costs, whether it's freight, oil, how should we be thinking about that over the course over the rest of the year? Raul Parra: Yes. I mean on the positive side, I mean, we have yet to receive any price increases from our vendors. We are seeing fuel surcharges. I think those are pretty typical. We usually see those at least once a year as gas prices fluctuate. That's nothing that we're used to dealing with that. I would say that right now, I think what we're seeing, everything is manageable. I guess if the issue continues, I think we'll have to reevaluate that. As of now, we feel like we can overcome whatever is coming our way. The other thing, too, that I'll call out is on the sales side, we continue to get orders from the Middle East region. We did leave about $1.5 million of revenue on the table from shippers that just weren't able to come and pick the product up and deliver it. We are seeing an impact. I would say that it's very manageable. Again, we continue to feel really optimistic about the guidance that we put out there for 2026. Operator: Our next question comes from David Rescott of R.W. Baird. David Rescott: Two from us, and I'll ask them both upfront. I heard some of the commentary around OEM as it relates to the quarter and Q2 and the guide for the year. I recall there is some Asia Pac impact in there in general. Curious on if you could provide any color just around what the assumptions are for China and Asia Pac at this point and more broad strokes on how that is shaking out versus contribution from that region in the prior year, at least? Then thinking more on the operating margin side, I believe the results that you put up were a little bit better than we had expected on the operating margin front, lower OpEx growth, it seemed to be the case, better gross margin. Can maybe you help us think about how you're thinking about some of the controls on the OpEx side through the rest of the year? I believe you've commented on gross margins already, but I would be curious around any of the underlying assumptions you have for better-than-expected operating margins through the year. Raul Parra: Yes. Maybe I'll just hit on the APAC region, right? I mean I think on the OEM side, that's where you started, specific to kind of the APAC region. That was essentially in line with our expectations. APAC as a whole was up 1% on a constant currency in Q1, which was a beat for us. It was versus the high end of our guidance. China sales increased by about 2% year-over-year on a constant currency in Q1, essentially in line with our expectations. [VBP] impact was, I would say, modestly better than expected. As far as China, I think we continue to expect, I would say, low single digits for 2026 as we continue to deal with volume-based purchasing. Moving on to the operating expense side of things. Yes, look, I mean, I think when -- obviously, we were expecting a lower gross margin. We controlled operating expenses and then with the conflict, as that came out, we really kind of talked to the executive team about being in control of those operating expenses. I think they did a really good job of doing that. We obviously let that flow through to the bottom line with $0.11 beat and a much better operating margin than we had initially indicated on the fourth quarter call. One of the nice things is that we were able to offset the $0.05 dilution of View Point and essentially increased our EPS guide to cover for that. Again, overall, I think the P&L was off to a really good start, strong start for Q1. We beat on the revenue side by over $4 million. Gross margin was better than anticipated. We've controlled operating expenses. That gives us a lot of confidence as we head into the rest of the year and really confident in the full-year operating margin guide and obviously focused on our CGI targets. Martha Aronson: David, I might just throw in one comment, if I could. I mean hats go off to Raul and Travis and our finance team. I think one of the things we've been working on is a number of our processes across the company and getting our finance partners involved in that earlier in the process. I just think we're doing our best to ensure discipline, I'd say, throughout the organization when it comes to spend. Again, just a hats off to our finance team partnering up with all of our engineering staff, our operations team, etc. Operator: Our next question comes from Ed Leahy of Bank of America. Unidentified Analyst: Two for me on OneMark. One, when you did the deal, how much were you factoring in it being complementary versus cannibalistic to SCOUT? I know you said a physician preference. Is this a move that can open up broader accounts? Would some accounts have both systems? Do you think there are any impact on SCOUT sales during the inorganic period that could impact growth? Martha Aronson: Yes. Thanks for the question. No, we really do think this is a market expansion play, right? Obviously, there could be a handful of accounts. As you said, we could have a situation where some have both. and there could be some where someone does choose one over the other, but there really is an opportunity, frankly, it's a little bit of a -- we call it a better and the best offering, if you will. There's really an opportunity to target the accounts very specifically, which our team has done a great job already in being ready to go do that so that we really see it as a total expansion of that time and biopsy localization market. Unidentified Analyst: Then I think we saw one market was actually running a trial that was head-to-head with SCOUT. Obviously, now that both products are yours, do the outcomes of that trial change the strategy with SCOUT depending on if it goes one way or the other and what are the plans there? Martha Aronson: No. Again, I mean I just literally got off the phone earlier today with one of the team members from OneMark. I mean, this group is super excited to be part of Merit. Merit is super excited to have them as part of our team. There was actually -- there's a major congress happening literally starting today, the society for breast surgeons, and there was a training with fellows earlier today. Literally, what the team was reporting back to me is how it really is a physician preference kind of a thing. Some people are just more sort of audible and they like the radar and hearing it. Then frankly, others say being able to see it visually, they prefer that approach. We're just excited to have this enhanced product offering across the portfolio. As we said, just a great add to the Merit Oncology platform. Operator: Our next question comes from James Sidoti of Sidoti & Company. James Sidoti: If I heard you correctly, with gross margin, we're able to maintain that, keep that basically flat despite about $5 million of tariff expense. What drove that? Was that a mix issue? Or can you give us some more color on that? Raul Parra: Yes. I mean, it was essentially 100 basis point impact to -- or 120 basis point impact to our gross margin, the tariffs were. Again, hats off to our sales force and focusing on selling the right product at the right price. Obviously, we have some acquisitions, too, that are helping us, and that's part of that mix component. We continue to focus on the throw the kitchen sink approach at the gross margin. I think the conflict in the Middle East is exactly why we do that. There are surcharges that are coming that we were still over being able to overcome. Our operations group is doing everything they can to try and maintain or improve costs in a really challenging environment. I would say it's a little bit of everything, Jim, but there is a mix component that's helping us. Again, I think we've done a really good job over the last -- under FSG and CGI and really focusing on the right products. Then we did divest of the DualCap. That was a very low gross margin product, and that's helping also. Again, we're hyper focused on those CGI goals. As you guys know, gross margin is an important contributor to operating margin, which is why we focus on it so much. James Sidoti: Then inventory was up about $20 million in the quarter. Can you explain that? Raul Parra: Yes. I mean, again, there's acquisitions that have taken place, and we're building out those inventories. I think there are certain areas that we were a little low in. As you guys recall, over the last year in our Endoscopy segment, we dealt with a little bit of supply chain issues. Getting that to a healthy point. Same with our oncology business. I would say same within our cardiac and renal therapies. Those are all areas that had really strong sales that we essentially just getting the safety levels to an area that we feel comfortable with. You're also in an environment right now where you start to look at the supply chain, just making sure that you're covered just given the performance of the company that we expect, and so just making sure our safety stocks are at the right level. James Sidoti: If I can, I'm going to sneak one more in. Can you just tell us what the distribution looks like for the OneMark system prior to the acquisition? How many people will be selling it now that it's a Merit product? Martha Aronson: Well, we don't -- Jim, we don't share exactly how big our sales organizations are. I mean, View Point was certainly a smaller organization. Again, it will fold really nicely into our team, as I said, who's really excited to have their View Point colleagues join them. I'll say this, it's not a major expansion of our sort of commercial footprint, but I would say the energy behind it will certainly make up for that. James Sidoti: The big jump to revenue in 2027, that's not because of increased distribution, you think that should increase product awareness? Martha Aronson: Correct. It's increased product awareness and it's being able to have options as you go into each and every account, and it's some really excellent account planning and targeting that our team is undertaking. Operator: Our next question comes from John Young of Canaccord. John Young: Congratulations on the quarter. Martha, I just wanted to ask, when you came into the seat, just there was an emphasis on OUS growth of your background. Any updates on the progress or changes that you've made there? I know in the script, you spoke about some alignment changes. Has compensation incentives changed at all for the reps? Martha Aronson: No, as we go into 2026, there have not been any significant comp changes for our reps. I mean I will say you heard Raul talk about our gross margin improvement. I would say over the last several years, this organization has done a really nice job making sure our team knows which products to keep focused on, and we really are pushing a bit more emphasis on some of our higher-margin products. There's certainly that. I would just say, in general, I mean, we do have about 40% of our revenue is outside the United States. Again, as you heard, our international teams continue to do a really nice job for us. I'm quite pleased with that. John Young: Then just looking perhaps for any additional color on the Endoscopy segment and any progress that you guys made in the quarter on the integration and training of that sales force. Martha Aronson: Yes. We're really excited about the endoscopy platform. I mean, so we brought in the C2 CryoBalloon acquisition, which is so far doing better than our high-end expectations. We're really pleased about that. Then as you probably saw, we announced a new product, and we mentioned it in the script, The Resilience product, which is this through-the-scope esophageal stent. This is a really nice market for us. It's sub-$100 million size in terms of market. Again, that's in the world of Merit Medical, that's a really nice market sort of space for us. This is a great stent. It's actually because physicians get to put it in through a scope, they feel like they have a lot more control and accurate placement. Most importantly, what the feedback we've gotten initially is that it's not moving once it's there. Migration has really been an issue with the number of the stents that are out there in that market. Again, we're just -- we're really excited about the opportunity for Resilience and frankly, the endoscopy business in general. In fact, next week, I'll be at Digestive Diseases Week with the team, which is one of their big shows more on the GERD side of things. Again, all across endoscopy, we're very pleased. Raul Parra: Maybe I'll add a little color. As hopefully, you guys saw last year, I think our endoscopy team just got better every quarter as they integrated and learned how to sell kind of both bags essentially. Q1 was mid-teen growth. Really strong performance by them, and they're excited about what they're doing, which makes us excited about the potential that they have. Operator: Our next question comes from Jason Bedford of Raymond James. Zachary Gold: It's Zach Gold on for Jason Bedford here. You guys have talked about being open to deals that are somewhat larger than historical tuck-ins. Of course, we saw the View Point deal. As you look at the pipeline, can you remind us what those key areas are for the next deal? Then kind of in terms of sizing, would you say View Point is a good proxy for deal characteristics and size in terms of just helping us level set expectations on acquisitions? Martha Aronson: Yes. Thanks. Appreciate the question. Look, I mean, I think doing deals is not something where you get to say, I want to do something of exactly this size at this time to add precisely to this particular platform. That would be great. That would be a lovely world in which to live. Unfortunately, that's not reality. We're not going to put sort of a number around size of deal, if you will. As I said, we're looking at a lot of things. This company has grown a lot through acquisition. We plan to continue to do that. Again, I think it's really important to think of it in terms of tuck-ins or bolt-ons, nothing transformational. Every deal has to have a lot of strategic fit. As we're talking about, when we look at these platforms, part of what's exciting about this platform structure that we're using is I am looking to each platform to have a lot of conviction around any proposed deal, because they're going to own it. That's the way we're building up these various business lines. It's really critical that they believe in it and they have done the work and the analysis. We do a lot of that here kind of at corporate as well, but that's the way we're really thinking about acquisitions going forward. It's got to be strategic, and then it's got to fit certain financial metrics that we've got in place as well. Certainly being margin accretive would be one of them. Zachary Gold: Then if I can ask a second one here. Just curious on that Medtronic distribution deal you guys did during the quarter. Is there any stocking tied to that? Yes, is there stocking tied to that and then sort of a material impact for you guys on growth that comes from this agreement? Raul Parra: Obviously, they're going to gear up, and we're not going to give details. I mean this is -- it's not our practice to talk about our customers, what they're going to do and how they're going to launch. I would just say that we're really excited for our OEM division. I think they've done a good job of working with our OEM partners and customers on finding opportunity, and this happens to be one of them. It is built into our guidance for the year, which again gives us a high level of confidence in that mid-single-digit growth that we expect out of OEM. I think we're excited for them. I know there's been a lot of comments around OEM. I can tell you that, again, we have a high level of confidence in their performance for the rest of the year. Martha Aronson: Yes. I think this is -- I mean, it's actually -- it's just a really good example. I mean this is -- when we say OEM is lumpy, this is kind of a good example of it. As you saw, and Medtronic put out a press release on it. I mean we have a relationship with them. They've been an OEM customer as they shared in their press release. These things, they ebb and flow a little bit. I think as Raul said, though, we're very excited, and this definitely is a factor in us and are gaining confidence on our OEM platform for this fiscal year. Operator: Our next question comes from Mike Matson of Needham & Company. Michael Matson: I just want to ask one on capital allocation. I mean, I understand you're focused on M&A, and that's kind of been the priority. The stock is pretty beaten up, pretty cheap here. Would you consider doing a share repurchase at all? Raul Parra: Look, I think, obviously, that's a Board-level decision. I don't want to speak on their behalf. I think for now, with our net leverage ratio of 1.6, a lot of opportunity out there from an M&A perspective. We continue to, I think, conserve cash. We continue to generate strong free cash flow, as you guys saw, almost approximately $25 million for the first quarter, which was a really strong increase over prior Q1 of 2025. For now, we're just focused on CGI. We're focused on our free cash flow goals, and we are focused on delivering long-term sustainable growth. Operator: This concludes our question-and-answer session. I'd like to turn it back to Martha Aronson for closing remarks. Martha Aronson: Well, look, I just want to say thanks, everybody. Appreciate you dialing in today. As I said, pleased with our strong start to 2026. As I said, feel good about tracking nicely to our CGI goals. Most importantly, I do want to thank our team who's so committed to helping patients all around the world. Again, thanks, everybody, for joining us today. Operator: This concludes our conference call for today. Thank you for your participation.
Jim Chapman: Good morning, everyone. Welcome to Exxon Mobil Corporation's earnings call. Today’s call is being recorded. We appreciate you joining us. I am Jim Chapman, and I am joined by Darren Woods, chairman and chief executive officer, and Neil Hansen, senior vice president and chief financial officer. This quarter’s presentation and prerecorded remarks are available on the Investors section of our website. They are meant to accompany this quarter’s earnings release, which is posted in the same location. During today’s presentation, we will make forward-looking remarks, including comments on our long-term plans, which are subject to risks and uncertainties; please read our cautionary statement on slide two. You can find more information on the risks and uncertainties that apply to any forward-looking statements in our SEC filings on our website. We also provide supplemental information at the end of our earnings slides, which are also posted on our website. I will now turn the call over to Darren Woods for opening remarks. Good morning, and thank you for joining us. Darren Woods: Let me begin by recognizing the impact of the conflict in The Middle East on our colleagues and partners in the region. We have been in close contact with our regional partners, as well as with companies and countries we have worked with for many years. We are proud to stand beside them during these very difficult times. While the financial impact in the region is real, what is even more real is the daily threat our colleagues and partners have been living under. We remain committed to supporting them as we work to restore operations and repair assets, with a clear focus on safety and disciplined risk management. The Middle East is, and will continue to be, an advantaged and meaningful component of our global portfolio. The disruption to the broader economy we are seeing underscores the critical role our company plays in providing the affordable, reliable energy and products the world depends on. What we produce remains essential to development and progress, sustaining and improving living standards around the world. In this environment, scale, integration, and execution excellence matter. Those advantages, combined with the deep experience and capability of our employees, give us the ability to respond quickly and manage effectively through disruptions. Our competitive advantages are on display in this quarter’s results. We delivered strong operational performance in a challenging environment, maintained rigorous safety and reliability standards, and continued advancing key priorities across the portfolio, supporting long-term value creation for our shareholders. We saw those advantages in our response to supply disruptions, leveraging our global portfolio to support customers. We delivered on our plans to increase Permian production year over year, achieved record levels of production in Guyana, achieved first LNG at Golden Pass, optimized logistics and crude/product flows, and safely maximized refinery throughput where possible. In fact, in March, refinery throughput increased by approximately 200 thousand barrels per day versus February—the equivalent of a midsized refinery—as we brought back refineries from turnaround and deferred maintenance activities where we could, without impacting safety or long-term reliability. Our global supply chain organization rapidly executed alternate routings from the US Gulf Coast to Asia to sustain critical supplies for our customers. Despite the unprecedented impacts in the global energy system, we maintained deliveries to our customers globally through coordinated planning and real-time vessel visibility. Financially, excluding identified items and estimated timing effects, our first-quarter earnings per share were up versus 2025, reflecting the strength and resiliency of the underlying business. Stronger portfolio mix, structural cost reductions, and execution excellence continue to drive improving performance. Those same factors leave us better positioned to manage uncertainty versus several years ago. The strength of that advantaged portfolio is clear in the work we are doing today. We are expanding our LNG footprint. Our newest facility, Golden Pass LNG, a joint venture with Cutter Energy, is increasing US export capacity at an important moment for global supply. Train one of the facility achieved first LNG in March and will deliver an increase of about 5% relative to 2025 US exports. By the time the third train is online, we will increase the country’s current LNG exports by roughly 15%. At the same time, we continue to progress toward final investment decisions on LNG projects in Papua New Guinea and Mozambique, both expected later this year. Elsewhere in the Upstream, Guyana continues to set the standard for execution, development pace, and value creation. We delivered record production, continued strong reliability, and have Oahu, Whiptail, and Hammerhead projects under construction, with Oahu expecting first oil late this year. Consistent with our broader approach to support long-term economic development in countries where we operate, we have committed a $100 million investment over ten years to support national STEM education in Guyana, strengthening our bond with the people of Guyana and establishing a foundation for long-term prosperity. In the Permian, we continue to show how scale and proprietary technologies improve efficiency, recovery, and long-term value creation. We remain on track to grow full-year Permian production to 1.8 million oil-equivalent barrels in 2026, with that growth grounded in value, not volume. We are also progressing our Permian net-zero ambition, with continuous methane monitoring implemented across all key assets in New Mexico. In Product Solutions, performance remained strong, driven by higher-value products and technology-led differentiation. The Beaumont refinery expansion completed in 2023 fully recovered its initial investment ahead of expectation and is contributing to stronger margins and cash flow. This underscores how disciplined investments, grounded in long-term market fundamentals and rigorously executed, generate durable returns independent of price cycles. In parallel, we continue to progress our journey to build a reliable domestic supply of advanced synthetic graphite. We recently held a ribbon-cutting ceremony at the pilot production plant in Kentucky, which represents a critical milestone between lab-scale development and full commercial deployment. In Low Carbon Solutions, we began transporting and storing captured CO2 from the New Generation Gas Gathering Project, our second startup in less than a year. Through this year and next, we plan to start facilities with the capacity to capture an additional 4 million tons per year of CO2. Importantly, with our advantages, these projects deliver attractive returns that compete with the investments in our base business. Technology as a core competitive advantage remains central to our strategy. It is one of the ways we improve structural competitiveness, strengthen returns, and create new earnings opportunity. In Guyana, we achieved the first deepwater fully autonomous well section using rig automation and automated downhole steering tools, improving both safety and efficiency. Additionally, we are on track to leverage our approximate technology in subsea applications with Hammerhead and future FPSOs, further demonstrating the material’s performance in demanding offshore environments. Across the company, we are making further progress to simplify how we run the business through effective application of technology. Our enterprise-wide process and data platform transformation—the largest ever undertaken in the industry—reached an important milestone with a successful launch of a new modern workforce enablement system. This significantly simplifies the work processes that underpin our talent management approach and streamlines our payroll processes in more than 50 countries. It provides a single, consistent data foundation on which future system deployments will be built. We delivered this with no business disruption, demonstrating the strength of our centralized core capabilities, fully leveraging our scale advantage. This is the first step of many to make our processes more efficient and effective, ultimately enhancing the experience of our global workforce. This will allow our people to focus their efforts on high-value work, further reinforcing our competitive advantages. Without the changes we made over the last decade and the focus we have put on leveraging our core advantages, this game-changing enterprise system would not be possible. It is establishing a truly differentiating foundation for long-term competitive advantage. With recent events, the world has been reminded of the critical role and long-term need for reliable, affordable energy products. Today, more people recognize that demand for oil and natural gas remains substantial and will continue to play an important role in global economic growth far into the future. This fundamental and the competitive advantages we bring underpin our strategy, our capital allocation decisions, and the long-term success of our company. We are confident in our advantages, the importance of scale and integration, the critical role of technology and execution excellence, and the power of talented people. We are confident in our continuing transformation and the critical role our company will play in any future scenario. And we are confident in our plan to build long-term, sustainable earnings and cash flow growth—the basis for long-term growth and shareholder value. Thank you. Jim Chapman: Thank you, Darren. Before we move to Q&A, I want to highlight that we plan to publish our 2026 Advancing Climate Solutions report this month, detailing all of our progress on solving the “and” equation—meeting demand and reducing emissions—as well as our latest sustainability report. All these documents can be found on the Investors section of our website. We really encourage you to take a look. We will now open the call for questions. Please note that we ask each analyst to limit themselves to one question as a courtesy to others. Operator, please open the line for our first question. Thank you. Operator: Question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star. The first question comes from Devin McDermott of Morgan Stanley. Devin McDermott: Good morning. Thanks for taking my question. Darren, I wanted to try to unpack some of your views on the near- and longer-term impacts from the situation in The Middle East. On the near-term side, I was hoping you could talk through your view on the timeline for operations in the region, including your own, to return to normal once the Strait reopens. And then, shifting to the medium and longer term, I would love to hear your perspective on how lasting you expect the market impacts to be across upstream, refining, chemicals, and whether you are seeing anything that structurally changes your view of normalized or mid-cycle prices and margins. Darren Woods: Sure. Thank you, Devin. Maybe to start, let me just provide some context around how we are looking at what has been playing out here in the market, which will form the foundation for how we see it continuing to play out. I think it is obvious to most that if you look at the unprecedented disruption in the world supply of oil and natural gas, the market has not seen the full impact of that yet. You only have to look at the ranges that oil prices have moved at, which are very consistent with the last ten years in the history, versus this historically unprecedented disruption. So there is more to come if the Strait remains closed. Why have we not seen those impacts manifest themselves fully in the market yet? Well, there was a lot of oil in transit on the water, a lot of inventory on the water, that has been deployed in the first month of conflict. Strategic petroleum reserves have been released. Commercial inventories have been drawn down. We have seen that play itself off and mitigate the impact as we moved through March and then here through April. As you get to the minimum working levels of inventory on the commercial side, you are going to lose one of these sources of supply, and we anticipate, as that happens and the Strait remains closed, that we will continue to see increased prices in the marketplace. Once the Strait opens back up again, it will take some time to get back to a stable flow rate that was consistent with what we have historically seen. Ships have to reposition themselves. We have to work through the backlog. Then there is obviously the transit time to get the product to market. We are thinking there is going to be a one- to two-month time lag between the Strait opening up and the market seeing normal flow. Depending on how long this goes and how far strategic petroleum reserves are drawn and how low commercial inventories go, there will be a period of time where players, markets, governments, and countries try to refill and replenish those inventories. That is going to bring an additional level of demand into the marketplace, which we think will put upward pressure on prices. I would also add that many countries around the world will look at, if they do not have strategic petroleum reserves, whether they need those. That may bring some additional demand into the marketplace. People are going to reassess their energy security and how they ensure that, going forward, they do not have the same exposure that many of them have realized here in the short term. All those things are difficult to predict exactly, but I do think they will have an impact on prices, basically manifesting as maybe higher demand than we anticipated at the beginning of this year. The final point I would make with respect to longer-term implications is that it depends on where Iran ends up, and how comfortable the world is—what assurances they have—that the flows will remain uninterrupted. Whether or not a risk premium is put into the market is a question that is yet to be answered. With respect to our own facilities, we were, first and foremost, as this conflict erupted, very focused on protecting our people and making sure that we kept them safe, which I am very pleased with how our organization responded to. As the conflict has gone on and we have done our risk assessments, we have allowed more folks to return to help with our partners and assess the damage. I think once the Strait opens back up again, a large part of the capacity that is offline today will come back on in a relatively short period of time. We will have to cool down the LNG trains to get that moving again. That will take a few weeks, but I think we will see that supply ramp up fairly quickly. Ultimately, we will have to work with Cutter Energy on the two trains that were damaged. That will be a much longer time horizon with respect to repair. That will be about 3% of our global production, and Cutter Energy came out very early on and said the repair time will be anywhere between three and five years. Obviously, we are working to be on the low end of that range, but we have more work to do to fully assess the damage and understand what options we have for repair. Neil, anything to add to that? Kathy Mikells: Yes. Hey, Devin. Maybe another perspective on the near term. Obviously, we have been focused on the external impacts to our Upstream production—certainly what we have seen in The Middle East—but we also had some other external impacts in the quarter: some impacts in Kazakhstan from drone attacks, and it seems like it has been a while, but there was also a fairly significant impact from the winter storm in the Permian back in January. If you exclude all those external impacts, it really highlights the benefit and the value of having a global, diverse portfolio. If we take those impacts out, year over year our Upstream production was up 8%. That 8% again comes from advantaged assets in the Permian and in Guyana—organic advantaged assets. It just highlights that, yes, there is a lot of disruption, but having those advantaged assets and that global, diverse portfolio allows us to continue to deliver long-term shareholder value. Devin McDermott: Appreciate all the thoughts. Thanks, guys. Operator: The next question is from Bob Brackett of Bernstein Research. Bob Brackett: Good morning. I am drawn to your exhibit five where you show March 2026 refining margins. Obviously, it is not a full quarter; it is a single month. Can you talk to that opportunity, maybe inform us how April turned out, and then talk about how you can help balance that market and what are the opportunities for you in the downstream this year? Going forward. Darren Woods: Thank you, Bob. Good morning. I would just start by saying one of the advantages we find here in this market, with the pressure on supply and the resulting increase in refining margins, is we are very satisfied that we never lost focus on making sure that we were building a very robust and advantaged refining network. You will recall, we started up a very large expansion at our Beaumont refinery in 2023. When we first announced that investment in refining, there were a lot of questions about whether that was going to play itself out and be a profitable investment. We have now paid that investment off completely. That is an example of how we never doubted that having an advantaged footprint in refining, one that has a diversified product slate, is going to be critical as we move forward to meet the world’s demand. We feel really good about where we are. We have had several investments in high-grading the production of refining, and today we have a very strong circuit to meet the demand that is in the marketplace today. If you look at our Gulf Coast refineries, which is the largest footprint we have, they ran in the first quarter at record utilization rates. We have been very focused on reliability and making sure that the facilities we have are running at peak production. We emphasized that as we moved into March and saw this disruption coming. We worked it through the refining circuit for units that were in turnarounds; the organization expedited that maintenance work to get it back online sooner. For units that we were planning to take down for additional maintenance, we did assessments to see if we could safely defer those. We really worked hard to try to respond to the demand that was out there, and from February to March, we increased refining production by 200 thousand barrels per day. That is just an example of how we were leaning on the organization to meet the moment. On top of that, our supply organization has done a tremendous job at moving barrels all around the world to rebalance the supply we have with the demand shortages that we see developing across the world. All that continues, and I think that is going to play out very well for us as we move through April and into the second quarter. I am extremely pleased that the work we have historically done over the last ten years to reshape the organization—this was a real test of the changes that we have made—has proven itself to be extremely effective with respect to our ability to bring the most critical resources and our best talent on some of the hardest problems. Thankfully, we had built our trading organization up to help facilitate these movements, and all that in combination has led to what was a very successful month of March, not just from an earnings standpoint, but from the ability to meet the moment and meet the demand. That is going to continue to play itself out. Kathy Mikells: And Bob, just to give some context, we had some temporary, transient impacts in our financial results this quarter with the timing impacts that we disclosed in the identified items. But if you set those aside and look at the Energy Products segment, we made $2.8 billion in the quarter, up $2 billion compared to last year, and a few hundred million dollars compared to the fourth quarter. For all the reasons that Darren talked about—leveraging those world-class assets that we brought online last year and leveraging our trading capability—we have been able to deliver to the bottom line in the market environment that we saw in March. Bob Brackett: Very clear. Thanks. Jim Chapman: Thank you, Bob. Operator: The next question is from Arun Jayaram of JPMorgan. Arun Jayaram: Good morning. Thanks for taking my question. I wanted to see if you could elaborate on how you view some of the resource expansion opportunities in Guyana, as well as your initial assessment of the situation in Venezuela. Darren Woods: Yes, sure. Thanks for the question. I will start with the latter. If you look at Venezuela, obviously Venezuela is a huge resource that is now opened up more freely to the world. There is continuing work going on with the industry, with the Trump administration, and with the government of Venezuela to get the context of that opportunity shaped so that it represents attractive investment opportunities for the industry and generates the necessary returns to make the investments in Venezuela. The oil in Venezuela is very heavy and therefore requires a lot of effort to get production up and get it onto the market. Doing that in a way that is low cost is going to be absolutely critical for Venezuelan oil to fully contribute to the world balances and to meet the demand that is out there. I would tell you the work that we have been doing, really anchored in our resource up in Canada and the work on heavy oil technology developments we have been making, I think positions us uniquely in terms of low-cost production of the Venezuela resources when that opportunity, when the context is right, and the investment and the returns look promising. I feel positive about what is happening there. There is more work to do, but I think we will be uniquely positioned and play an important role in bringing those barrels to market. More broadly, looking at the resource opportunity, Guyana continues—we continue—to demonstrate outstanding progress. We were again at record production and, given the investment basis that we had as we brought those projects online, I would say it is a testament to the innovation and ingenuity of the team working that resource and their motivation to continue to find ways to improve and get better. That mentality applies broadly across the team. The team is very engaged in developing the resources across the block, very focused on developing projects that generate the returns across the entire resource base. I think we are going to continue to see projects come online and opportunities present themselves as we continue to develop that resource. There is still a lot of acreage left to be assessed, and I think the opportunity there is significant. As we look at the area as a whole, beyond Venezuela, you have the work that we are doing with Trinidad and Tobago, and I think we are going to see some opportunities there as well with time. Thank you. Jim Chapman: The next question is from Neil Mehta of Goldman Sachs. Neil Mehta: Thank you, Darren and team. I would love your perspective on the Permian. You have been very clear about this being a growth engine—guiding to 1.8 million barrels a day and eventually getting to 2.5 million barrels a day. In light of the higher commodity price and the need for US barrels, do you expect the Permian to have an activity response from an industry perspective? Does this change the way that you are prosecuting the basin in any way? And then I know you have had a lot of conversations with the administration. We are getting a lot of questions about the crude export ban and any risks around that. Do you feel comfortable around that policy? Thank you. Darren Woods: Yes. Thank you, Neil. First, with respect to what we have been doing in the Permian, I think you all know we have had pedal to the metal from the very beginning. We recognize the importance of that resource in meeting world demand and, in particular, in establishing the US as the preeminent player and supplier in this market. We have been very focused on that from the very beginning. You can see that in the growth rate that we have achieved in that resource, obviously focused on doing it in a very capital-efficient way and ensuring a very low cost of supply. The work that we have been doing on the technology portfolio is showing a lot of promise. It is hard to see in the data today because we are in the early stages of deployment, but I would say we remain very optimistic that we are going to continue to see capital-efficiency opportunities and recovery opportunities manifest themselves through the deployment of technology. We are going to continue on the pace that we have been at. We are running pretty full speed, unlike many of our competitors who have predicted the plateauing of the resource and the opportunities out there. We have never seen that, and we do not see it today. Whether views in the industry change, I cannot comment on whether they intend to run through their inventory more quickly. Ultimately, the opportunity here is to do things in a more effective way to maximize the recovery of the barrels, and that is what we are very focused on. With respect to crude export bans, I have been very encouraged by the comments made by Secretary Wright and the recognition that something like that would be hugely detrimental to the industry and the supply. It is important for politicians to understand that countries and companies export product when they do not have the demand domestically. Your most profitable barrels are the barrels that you supply to your local market because transportation cost is the lowest. Everyone looks to that tier first. It is only when you have satisfied the demand of your local markets that you start sending your product and barrels farther afield and incurring the transportation cost. That is what is driving the exports. The world is in price parity, and the market and the prices around the world all reflect a consistent price basis. It really comes down to what are your local opportunities, and when you run through those, you export. If you shut in exports, you shut in production. It is particularly impactful in the US that if you shut that production in, you shut in the associated gas that comes with it. A huge benefit to the US economy to date has been low-cost, low-price natural gas, which feeds our industrial complex and manufacturing complex. It leads to the economic growth we have been enjoying in the country, leads to job creation and expansions. There are a lot of negative implications if we see that happen. I am extremely pleased that the administration recognizes that and is not looking to that as a lever to pull, unlike other countries as you move around the world that have started talking and looking at things like that. They are going to cause a bigger problem for themselves in pursuing what feels like populist action in the short term that has very negative long-term consequences. Neil Mehta: Thanks. Darren Woods: You bet. Operator: Next question is from Betty Jiang of Barclays. Betty Jiang: I want to ask about LNG. Starting with whether today’s disruptions have changed your long-term view on the LNG macro and, given the tightening supply today, whether there is any flexibility to lean in on Golden Pass with the first train that is currently on—whether there is ability to increase that utilization and maybe accelerate the timing of future trains. Maybe just an update on the timing on the next two LNG projects as well. Darren Woods: Thank you for the question, Betty, and good morning. If I reflect on the discussions I have had with all of you over the last year or so, there has been this prediction out there that the LNG market is going long. A lot of our LNG is tied to crude contracts, and so the supply-demand balances and the impact on pricing in the LNG market are a little different than what we have in the crude markets. We were always constructive on LNG going forward. What we see now, with the impacts from what has come offline and some of the damaged facilities, is that the length people were talking about over the last year has gone away, and I think we are going to see a tighter market here, certainly in the short to medium term. That is helpful in the short term, but as you know, we do not make investment decisions based on calling a specific supply-demand balance and price environment. We tend instead to focus on making sure that the capacity we bring on is advantaged—it is low cost and will be successful irrespective of the price environment. Golden Pass is obviously one of those assets; Mozambique and Papua New Guinea are as well. All those are projects that we are developing with a long-term view and have been progressing as expeditiously as we can, consistent with capital discipline and efficient project development. We will look for opportunities in the short term and with our production to see if there is more that we can bring on, but I do not see a needle-moving opportunity simply because, in the base case, we were pushing hard to do it in an efficient and expeditious manner as possible. With respect to Golden Pass, as you know, we have Train one on and getting product to market. Train two we expect to be mechanically complete by the end of this year, and Train three should be mechanically complete as we head into the second quarter of next year. Betty Jiang: Great. Thank you. Operator: Next question is from Doug Leggate of Wolfe Research. Doug Leggate: Good morning, everyone. Thank you for taking my question. Darren, I wonder if I could come back—maybe it is for Neil—back to Qatar. You have quantified the volumetric impact, the LNG impact. But my question is, your participation in the repairs comes up against, I believe, limited remaining contract length in the two trains you are involved in. How does force majeure impact that decision? Do you get the contract extended? Maybe you could walk us through the implications of that. Thanks. Darren Woods: Thanks, Doug. I would just say that the long history we have in Cutter and the partnership we have with Cutter Energy is extremely strong and as strong as it has ever been. We are extremely committed to working with Cutter Energy and helping restore the supply to the marketplace. Having said that, we will do that in a construct that ensures that we generate return on the capital and the money that we put back into that business. I am not going to get into the specifics of how that will play out, but Cutter Energy has always recognized that successful partnerships require win-win solutions and opportunities. That has been a real strength of Cutter Energy and the work that they have done in the industry. It underpins the work that we do with them. They understand and respect the value and the contribution that we can bring in our partnership, and they recognize the importance of being rewarded for those contributions. I know in the discussions I will have with Saad and the rest of the leadership of Cutter Energy that will continue to be respected. We will find a way to do that in a way that is good for Cutter Energy, good for Exxon Mobil Corporation, and frankly good for the world in terms of bringing that low-cost supply back into the marketplace. Doug Leggate: That is very clear. Thanks, Darren. Appreciate it. Operator: The next question is from Biraj Borkhataria of RBC Capital. Biraj Borkhataria: Hi. Thanks for taking my question. It is a follow-up on your LNG portfolio. You talked at the start of the call about countries thinking about their level of exposure to the region, and when I look at the rest of your business, it is fairly diversified. But I look at your LNG portfolio relative to peers and it is obviously much more concentrated, with Qatar being such a big part of that. Do recent events make you think about wanting to diversify much more rapidly? I know you are doing a few things outside of that now, but how are you thinking about it over the longer term? Thank you. Darren Woods: Thank you, Biraj. I would just tell you that we have always believed, and I think you all will recognize, that we have consistently viewed LNG as a business that is going to be critical for meeting the long-term energy demands of the world far into the future. We have always been bullish on the natural gas and LNG markets. What has dictated what we pursue and the investments we go after is the quality of the opportunities and the returns that we can generate. It has not been constrained by anything other than that. This disruption does not change the opportunity set that we have been working on or the emphasis that we have had in that area. If you look at the things in the pipeline that we are pursuing—Mozambique and Papua New Guinea and continuing to bring on the rest of Golden Pass—those are all growing our LNG portfolio, which has been a strategic objective. It is also diversified with respect to sources of supply, which I think was important in establishing a global network of supply points. That is playing itself out as we speak today. If additional opportunities develop in the short term that we feel we can bring advantage to and generate an advantaged project with advantaged returns—with low cost of supply, competitively positioned in the world supply portfolio—we will pursue those. But my going-in assumption is that those opportunities were already out there and we have been actively pursuing them. I do not think that will change with what we have seen, certainly in the short term; we will see what happens longer term. Our emphasis remains constant here. Biraj Borkhataria: Okay. Understood. Thank you. Operator: The next question is from Jason Gabelman of TD Cowen. Jason Gabelman: I just wanted to first clarify one point, going back to Doug’s question. Are you self-insured in Qatar like you are on most of your assets, or do you have insurance on that? And then I was hoping you could talk about the opportunity that is potentially available in the UAE if they were to ramp up production towards that 5 million barrels per day when the Strait of Hormuz reopens. You obviously have a very large footprint in that country, and I am wondering if there is spare capacity on your assets. Thanks. Darren Woods: Thanks for the question. I will not get into the specifics of our insurance. You are right that we have a position where we use a large portion of self-insurance. We also look at third-party insurance where we think it makes economic sense. We take a portfolio approach there. We feel pretty good about the coverage across that portfolio and, frankly, do not see any material impacts with respect to Cutter and the insurance portfolio and the damage we have seen there. With respect to the UAE, the UAE is a strategic partner for us as well. We have a very long relationship there. We have worked very productively with ADNOC in establishing an opportunity set to take some of our capability sets and advantages and bring them to bear in terms of unlocking additional capacity in the UAE, and we are working towards that ambition. We have a very good relationship with them, very good commercial arrangements, and we are actively working to help the UAE grow its immediate ambitions of growing production. We will be a part of that, I am sure of it. We already are, and we are obviously looking for opportunities to do more. Jason Gabelman: Thanks. Operator: The next question is from Manav Gupta of UBS. Manav Gupta: Thank you for taking my question. You are an expert in developing heavy oil—obviously you talked about Venezuela. One area where you kind of stopped growing is Canada. Given everything that is going on in the world and the short supplies, is there a way you and your partner can move that proprietary technology at a faster pace and bring back Aspen or future phases of Canada? When you delayed those projects, there was an egress issue and other issues. Those issues are resolved, so I am wondering if you can restart growth in Canada also. Darren Woods: Thank you. I think you touched on a really important part of the portfolio and the advantages that we have in heavy oil. The emphasis that we have had over the last several years, working with IOL, is to really drive performance improvement in our Kearl assets and make sure that, as you look at the global supply curve and the cost in the portfolio around the world that meets that supply, our Kearl resource is attractively positioned in that supply curve. The team through IOL and the work in that venture have driven improvement to the point where we see that as being a very competitive source of supply in the world market. That is a function of a lot of things we have been working on. Technology is certainly a huge piece of that, but also the practices that we bring through our operations organization and the work we have done to bring things we have learned through our manufacturing assets into that upstream-dominated environment. We have seen huge benefits and a lot lower cost. Today, it is a very productive resource, and we continue to make investments. We see that being a long-term profitable part of our portfolio. Likewise, in the in-situ Cold Lake, we have technical opportunities there and we are progressing those. That is recognized with the technology work that we have done: we have lowered the cost of supply to the point that we think it represents a very attractive opportunity and a low cost of supply. We are continuing to progress that. That is what anchored my comments with respect to Venezuela. I think we are uniquely positioned in terms of the global footprint that we have and the ability to go into Venezuela with the right set of circumstances to apply that technology and produce those barrels at a much lower cost of supply than many of our competitors would be capable of doing. We look forward to exploring that opportunity and seeing if we can flush that out to a point where it becomes a win-win-win opportunity: a win for Exxon Mobil Corporation with respect to the returns for the capital and the assurances we would have with those returns, a win for the government of Venezuela, and a win for the Venezuelan people with the economic activity that would obviously come with that. Manav Gupta: Thank you. Operator: The next question is from Alastair Syme of Citi. Alastair Syme: Good morning. I wonder if I can come back to that slide five. You obviously had chemical margins squeezed in March, but I am wondering if there has been any recovery in April back to those ten-year averages, and how you see your feedstock availability. I think you referenced potential for the Product Solutions business to have 3% lower utilization this quarter, but I am wondering how specifically that shakes out for the chemical products piece. Thank you. Darren Woods: Sure. Thank you. The first point I would make on that slide five is we are representing margins there to help you understand what the macro environment is with respect to the quarter and the circumstances that we were operating in. It does not reflect our footprint specifically. I would say that we are advantaged versus where the general market is, primarily because of all the work that we have been doing to grow performance products and to improve the efficiency and lower the cost of our manufacturing facilities. On top of that, we have a very large base here in the US. As crude prices have risen—and our US footprint is primarily gas crackers—what you see is the world price being set on liquid crackers, and we have a big feed advantage. The expectation, if oil prices remain elevated, is that chemical margins for a large part of our footprint will be advantaged simply because we have a feed advantage coming out of the US. Kathy Mikells: I would just highlight that the North American advantage extends to our refining footprint as well. Again, the slide is a view of a global footprint, but we are more heavily weighted to North America and again benefit from that low-cost energy supply we have here in North America. Alastair Syme: Thank you. Appreciate it. Operator: The next question is from Jean Ann Salisbury of Bank of America. Jean Ann Salisbury: Hi, good morning. For the damaged trains in Qatar, can you give any more color about what drives the three- versus five-year timing to get those back online? I have read that there is a two- to three-year lead time for new cold boxes. Is that right—that that is the primary factor? And are there options to speed that up? Darren Woods: Thank you, Jean Ann. The range is a function of where we are at in the process of working with Cutter Energy and assessing the damage, then working out a plan to address the damage, recognizing the conflict is ongoing. We have been very aligned, and I would say Cutter Energy has been a real leader in making sure that we are very judicious in the steps we are taking and the deployment of people to make sure that we maintain a level of protection and the safety of our people working there. Part of the challenge in the early numbers is the unknown variables we are working through with Cutter Energy around what exactly our options are and what we can do. It is a function of where we are at and the maturity of the work we have done to date in terms of assessing what we can do. On your point around the cold box being a critical path—thinking of it in those terms is accurate. I would just say I have not accepted any specific schedule because we have not been able to do all the work we need to do to challenge ourselves and see what is possible here. What I would say is I have a lot of confidence that the partnership and the work that we do with Cutter Energy, and the capability we bring to this repair, will be unmatched. Whatever we end up doing here and whatever timeline we set, I do not think there would be anybody else who could beat it. I feel very confident in the capability set that we are bringing to bear, and we have to work through the details to see what the ultimate answer is, but whatever it is, I think it will be the best that could be done by anybody in the industry. Jean Ann Salisbury: Very clear. Thank you. Operator: The next question is from Sam Margolin of Wells Fargo. Sam Margolin: Hi, good morning. Thanks so much. This question might be for Neil. It is related to the timing effects. I know it is a short-term issue, but your long-term targets have been very consistent, so maybe that is where the focus is for right now. They encompass a lot of different aspects of the business, and when they reverse, it also involves a lot of different moving parts. Insofar as some of the reversal of the timing effects is related to execution wins within the business—and there are prospects for volatility events to continue throughout this period of uncertainty—were there any learnings or changes in your operating practices made as an adjustment to this event that would help you reverse the timing effects faster, or do you expect it to just pass as they have done in the past? Thank you. Darren Woods: Let me start with that and then hand it over to Neil. I just want to make sure the basis of the timing or the underlying activity of the timing is understood, because what this basically is—you all remember that we have set up this trading organization and have been growing it over the years, with the primary objective to take advantage of our large footprint, the fact that we are an integrated business and involved in many parts of the value chain, and to make sure that we see trading as a channel to optimize that footprint that we think is a real advantage versus anybody else that is out there trading. We have done that in a very methodical way and in a way that we feel manages the exposure and the risk, and I am extremely proud.
Operator: Greetings. Welcome to the Columbia Sportswear First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matt Tucker. You may begin. Matt Tucker: Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's first quarter results. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary and financial review presentation explaining our results. This document is also available on our Investor Relations website, investor.columbia.com. With me today on the call are Chairman and Chief Executive Officer, Tim Boyle; Co-Presidents, Joe Boyle and Peter Bragdon; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President, Chief Administrative Officer and General Counsel, Richelle Luther. This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations. I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review. Following our prepared remarks, we will host a Q&A period, during which we will limit each caller to 2 questions so we can get to everyone by the end of the hour. Now I'll turn the call over to Tim. Timothy Boyle: Thanks, Matt, and good afternoon. In the first quarter, we're pleased to have again delivered net sales and profitability exceeding our quarterly guidance, driven by early spring 2026 wholesale shipments and better-than-expected demand in Europe and the U.S. as well as disciplined expense management. Our international business, which represents over 40% of our sales, continued to lead our growth, up 16% year-over-year. While our U.S. business remained challenged this quarter and declined 10%, the decrease was largely anticipated based on the decline in our advanced Spring '26 wholesale orders. This also reflected our decision last year to reduce the supply of certain winter products as a precautionary measure in response to U.S. tariff announcements. Cleaner inventories also drove less clearance sales. That said, I'm encouraged by signs of growing momentum in the U.S., including an increased fall '26 order book, which we expect to enable the wholesale business to return to growth in the second half. It's increasingly clear to me that the Columbia ACCELERATE Growth Strategy is resonating with consumers. A major highlight for the Columbia brand in Q1 was the Winter Olympics, where the U.S. Curling team thrilled fans at home and around the world, capturing a historic silver medal in mixed doubles, all while competing in distinctive and iconic Columbia kits. This generated billions of views around the world for one of the most watched Olympic events, along with more than 25 million views of Columbia's U.S. Curling jerseys on social media. Additionally, longtime Columbia and Team USA Freestyle skiing athlete, Alex Ferreira, reached the pinnacle of his sport claiming the gold medal in the men's halfpipe. Alex's performance and victory further demonstrate that Columbia's products meet the highest standards of elite winter athletes. And he has continued to inspire fans and drive energy for the Columbia brand since returning home. He's been celebrating at events such as the recent U.S. ski and snowboard nationals in Aspen, Colorado. The Columbia brand also garnered outsized attention at another sporting event of major importance in Q1 crashing the tailgate party at the big game in Santa Clara with Nature Calls, the only beer that uses bear scat in the brewing process. Columbia sent 2 bear ambassadors to the game, and they made their presence known, appearing 4 times on the stadium's Jumbotron and even making it on the live TV broadcast. This impact was enhanced by influencer partnerships with sports personalities around the event. Social media content from the game itself, generating over 9 million views on social media alongside hundreds of news articles. We're excited that the return to our irreverent roots also continues to see recognition from the media and outdoor community. The Engineered for Whatever campaign was recently awarded a Gold Clio Award, one of the most respected international awards in advertising, marketing and communication for the launch of our Expedition Impossible Challenge that we spoke to you about last quarter, which has generated over 10 million organic views on social media. Congrats to the team and stay tuned for more exciting things ahead. Our engineering excellence was also reinforced in Q1 with several product awards from multiple media outlets. Among many examples, a highlight included our women's Arcadia II jacket and our men's Watertight II jacket, both being featured in the New York Times Wirecutter Guide for Best Everyday rain jackets, a testament to the durability, performance and value we build into every design. Our newer product collections and marketing activations launched under the ACCELERATE Growth Strategy and Engineered for Whatever campaign are increasingly resonating with consumers. This is evidenced by improvements in organic search interest, direct site traffic and customer acquisition rate for the first quarter. Another first quarter highlight for the Columbia brand is the momentum we see building in PFG, performance fishing gear. As a reminder, we have a long and deep heritage with PFG as pioneers of the fishing apparel and footwear category. As a brand known for high performance, authenticity and fun, PFG is inspiring the next generation of anglers, supported by investments in sales and marketing, including an always-on social media strategy, a refreshing ground game and the addition of new fishing athletes and ambassadors to the PFG roster. A key product highlight in the quarter was the Bahama shirt, long known for keeping anglers cool and comfortable and also widely known as the unofficial uniform of country music superstar, Luke Combs. This year, we're celebrating the Bahama's 30th anniversary and expect sales of the Bahama to grow by double-digit percent for the spring '26 season. The celebration will continue beyond Q1 with additional marketing investments and collaborations with authentic artists and influencers to drive energy for this iconic style. Another PFG highlight on the footwear side is the Dry Tortuga Boot, which saw sales more than triple in Q1. We believe it's the most rugged, durable and comfortable fishing boot on the market and delivers attractive styling that's a standout in the fishing category. Looking ahead, we're excited about the potential for PFG to build on this recent momentum and take share in this growing market, particularly with younger consumers who are increasingly adopting the sport and lifestyle of fishing. Now I'll provide an update on our Fall '26 order book, which is another indicator of the traction we're gaining with our ACCELERATE Strategy. Since our last update, the order book continued to trend positively, reinforcing our expectations for mid-single-digit percent wholesale growth globally in the second half. While the overall growth is encouraging, the dimensions of that growth provide further signals of progress under the ACCELERATE Strategy. As a reminder, we launched ACCELERATE roughly 2 years ago. And given product development time lines, we're now increasingly seeing the new products created under this strategy hit the market, driving growth in the order book and representing an increasing share of Columbia brand sales. In addition to U.S. growth in the Fall '26 order book, we're excited to see double-digit percent sales growth in Columbia's women's business and in footwear. At a product level on a global basis, we're seeing outsized growth in our most premium and innovative products and platforms, including double-digit percent growth or better in our titanium product and our Omni-Heat Arctic technology as well as meaningfully scaling of our new MTR fleece. Our 2 major product launches from fall '25, the Amaze and ROC lines will continue to scale with orders up more than double versus the prior year. We're also thrilled to have Amaze featured in triple the number of DICK'S Sporting Goods location this fall as compared to last year. Turning to the current operating environment. While we remain focused on execution and what we can control, the operating environment remains highly dynamic with major external events affecting our business since we last spoke 3 months ago, particularly involving tariffs in the U.S. and the conflict in the Middle East. First, let me address the tariff situation. Following the U.S. Supreme Court's tariff ruling in late February, the U.S. administration implemented a 10% universal tariff under Section 122, which is set to expire in July. Our prior full year outlook, which was issued prior to the court's ruling, included unmitigated incremental tariff impacts of approximately 300 basis points on our gross margin. We are now expecting a slight improvement based on the 10% universal tariffs extending through July and the assumption that the U.S. administration will implement new tariffs at or near IEEPA tariff rates following the expiration of the Section 122 rates. We now expect an approximate 200 basis point unmitigated headwind from tariffs to our full year gross margin outlook. As a reminder, we made the decision last year to absorb nearly all of the fall '25 impact of incremental tariffs and not raise prices. The court's ruling also required the refund of IEEPA tariffs already paid. As of the date they were terminated, we have paid a total of approximately $80 million in IEEPA tariffs. Approximately $55 million of which has been recognized through cost of sales with the remainder residing in inventory on our balance sheet as of the end of the first quarter. We have already taken action by submitting our refund claims, and we fully intend to pursue every avenue available to secure the refunds that we are owed. We have not yet recognized any benefit of refunds in our financial statements nor have we updated our financial outlook for such refunds. Turning now to the ongoing conflict in the Middle East, which broke out in late February. First, my thoughts go out to any of our customers, employees, business partners and their loved ones who may be directly impacted by this conflict. Their safety and security is always our first and primary concern. As far as our business is concerned, this conflict has already triggered order cancellations and forecasted order reductions for certain Middle East distributor markets. While these impacts have not meaningfully changed our full year financial outlook to date, the prolonged nature of the conflict poses further risks. Macroeconomic and supply chain risks are among the areas that could have a more profound effect. These risks, including the potential softening of consumer demand, driven by the ongoing surge in energy prices and the resulting inflationary pressures on consumers' wallets. Increased oil prices are expected to put pressure on our product input costs with the exposure we're getting in our spring '27 season. Further, the conflicts impact on global supply chains could result in late arriving inventory, increased freight and logistics costs and potential order cancellations. Due to the high degree of uncertainty associated with the ongoing conflict and resulting impact on the global economy and supply chains, we are not able to incorporate these risks into our updated 2026 financial outlook. Despite these external factors, I am confident in our ability to navigate these risks given our highly experienced leadership team, flexible and resilient global supply chain, fortress balance sheet and high-quality products that provide a strong value proposition for the consumer. Turning back to our first quarter financial performance. Net sales were roughly flat year-over-year at $779 million, reflecting a balanced performance across channels with both DTC and wholesale coming in flat to the prior year. Gross margin contracted 20 basis points to 50.7%, driven by 310 basis points in incremental unmitigated tariff costs, partly offset by mitigation actions, including targeted price increases. SG&A expenses increased nearly 1%, reflecting higher DTC expenses, partially offset by lower enterprise technology and supply chain personnel expenses, reflecting cost reductions actions which were taken last year. This overall performance resulted in diluted earnings per share above our guidance range. Inventories remain healthy and are relatively flat versus the prior year in dollar terms with units down approximately 11% year-over-year. We remain steadfast in our commitment to driving shareholder value, returning meaningful cash to shareholders, including $150 million in share repurchases during the first quarter, which resulted in the retirement of 2.5 million shares and opportunistic acceleration of activity related -- relative to recent periods. We continue to maintain our fortress balance sheet, exiting the quarter with $535 million in cash and short-term investments and no debt. Looking at net sales by geography. U.S. net sales decreased 10%, but performed better than planned. The decline in sales resulted from a lower spring '26 order book, constrained supply of winter season product, which limited our ability to fulfill consumer demand and lower clearance sales on lean inventory. The U.S. wholesale business was down low teens percent. The U.S. DTC net sales declined high single-digit percent in the quarter. Brick-and-mortar was down mid-single-digit percent, partially reflective of clean inventories and inclusive of the impact of less temporary clearance stores compared to last year. E-commerce was down low teens percent, driven by the shortage of winter product and lower conversion of consumer traffic. We're encouraged with the early spring 2026 selling, led by key categories, including footwear, outerwear, women's sportswear and PFG. We continue to see momentum building through our elevated home page, personalized and digital marketing efforts, including improvements in engagement and customer acquisition. For my review of first quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market. LAAP net sales increased 3%. China net sales increased mid-single-digit percent driven by growth in wholesale from increased spring '26 orders, which benefited from earlier wholesale shipment timing. Highlights from the quarter included a successful airport campaign featuring our Titanium Dry technology and Tellurix performance hiking shoe in China's top 3 airports during the Chinese New Year season, which drove strong full price sell-through for those product lines. We also launched the Columbia Fishing Club to deepen connections with anglers across China following the success we've had with similar club events and activations based on hiking. We can see the impact that activities like these are having for our brand in China, including strong year-over-year growth in new member acquisition and active purchasers as well as market share gains with younger consumers and women. Japan net sales declined mid-single-digit percent, reflecting headwinds from softer international tourism as well as later shipment of spring '26 wholesale orders. While it was a challenging start to the year, we are encouraged by recent trends with a notable improvement in business momentum following the recent launch of Spring '26 product. Korea net sales increased high single-digit percent with growth across all channels, driven by the execution of marketplace initiatives. The Korea team continued to do a great job of leveraging the Engineered for Whatever campaign in Q1 and amplifying consistent high-impact brand visibility across consumer channels, driving strong sell-through for key products such as the Tellurix. I'm also pleased with how the team continues to elevate the marketplace and consumer experience, driving improved productivity in targeted doors. I want to take a moment to thank Jeff McPike for his strong leadership of the Korean business. This summer, Jeff will be returning to the U.S. to assume the critical role of Vice President, North America Retail. In this role, Jeff will be responsible for leading all aspects of our North America brick-and-mortar business. I'm confident in the ability of the Korea team to continue building on the momentum established under Jeff's leadership. Our LAAP distributor markets delivered low double-digit percent growth in Q1, reflecting a healthy order book for spring '26. Growth was driven by the Columbia brand in both footwear and apparel, particularly sportswear as our distributor teams continue to do a spectacular job strengthening our brand with active consumers in these diverse global markets. EMEA net sales increased low 20% overall. Europe direct net sales increased high teens percent, fueled by strong DTC performance and healthy wholesale sales, partly reflecting earlier shipments of spring '26 orders. Results across channels reflected robust demand for winter season product, aided by favorable weather early in the quarter and ample inventory availability. We're thrilled with the strong start to the year and anticipate seeing that momentum continue with a strong start to our spring season. Our EMEA distributor business increased low 30%, reflecting earlier shipments of orders and a healthy order book for spring '26. Canada net sales increased low single digits in the quarter, driven by growth in DTC brick-and-mortar, reflecting increased productivity from existing stores and strong winter sell-through. Looking at the first quarter performance by brand. Columbia net sales increased 1% as international growth more than offset expected declines in the U.S. Turning now to our emerging brands, all of which are expected to grow in '26. As a reminder, each of these brands derive a significant majority of their revenue from the U.S. marketplace. SOREL net sales decreased 12% due largely to reduced supply of winter season products in the U.S. as previously discussed, and lower closeout sales leading to declines across all channels and more than offsetting strong momentum in the international markets. Encouragingly, we have seen sales trends improve with the launch of spring '26 styles, including healthy growth in sneakers, a priority category that demonstrates SOREL is becoming viewed as more than just a winter brand. prAna net sales decreased 5%, driven by declines in wholesale, partly offset by solid growth in in-line DTC channels. This included low teens percent growth in e-com, driven partly by a shift in social media strategy that's helping to drive strong brand momentum, including improvement in new customer acquisition, customer retention, revenue per customer and robust growth with younger consumer. Mountain Hardwear net sales were flat year-over-year. Weakness with winter season product amid unfavorable weather in the Western U.S. early in the quarter was eventually offset by strong momentum with spring '26 product, particularly in e-commerce, driven by a surge in organic search demand. U.S. wholesale grew low single-digit percent in the quarter, led by high-quality specialty retail and digital partners with key product categories of equipment and outerwear driving the growth in Q1. Looking ahead, we're excited about the recent launch of the dry spell technology innovation, which sets a new standard for waterproof breathability. Additionally, Mountain Hardwear's new Lightness of Being brand campaign will emphasize innovative equipment and technical apparel for the trail elemental protection from the sun and rain as well as seasonal sportswear styles inspired by consumer insights. We'll now discuss our financial outlook for the second quarter of '26 and for the full year. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures related to those statements. While Q1 results exceeded our expectations, we've noted that part of the outperformance was timing related with some wholesale shipments occurring earlier than planned. The partial and likely temporary reprieve of Section 122 U.S. tariffs also presents some favorability to our initial assumptions as discussed. On the other hand, the impacts associated with supply chain disruptions and inflationary pressure from the ongoing conflict in the Middle East represent key risks that were not contemplated in our initial guidance and that we currently cannot forecast. Based on the information we have today, we are maintaining our full year outlook for net sales growth in the range of 1% to 3%. We now expect gross margins of 50.3% to 50.5% or down 20 basis points to flat versus the prior year. The improved outlook reflects the termination of IEEPA rates by the Supreme Court and our assumption that rates will remain at current levels through July. Before reverting back to tariff rate levels approximate to the IEEPA rates, subject to the uncertainty of future actions by the U.S. administration. We continue to expect that SG&A will represent 43.6% to 44.2% of net sales, increasing slightly year-over-year but at a slower rate than net sales growth. Based on these assumptions, we are raising our operating margin guidance to 6.7% to 7.5% for the year, leading to diluted earnings per share in the range of $3.55 to $4. In addition to stronger gross margins, this range also reflects the benefit of our accelerated first quarter share repurchase activity relative to our prior assumption. For the second quarter, which is our seasonally lowest revenue quarter of the year, -- we anticipate sales in the range of down 1% to up 1% versus the prior year. This will result in slight SG&A deleverage and when combined with our anticipated decline in gross margin, result in a loss per share of $0.46 to $0.37. In closing, while I'm not satisfied with our overall financial performance in Q1, I'm pleased with the continued strength of our international business and our team's ability to execute and start the year off on a positive note by driving upside to our initial plans. Further, I'm encouraged by the additional signs of underlying momentum in our business under the ACCELERATE Strategy, particularly with the Columbia brand in the U.S., our largest market. Although the operating environment remains highly dynamic and uncertain, our fall 2026 order book and positive early indicators of our ACCELERATE Strategy provide us with confidence that we're on the right track. Thanks again to our global workforce who are instrumental in the execution of our strategies and business success. That concludes my prepared remarks. Operator, could you help us facilitate the questions? Operator: [Operator Instructions] Our first question comes from Bob Drbul with BTIG. Robert Drbul: Tim a couple of questions, if I could. I guess on the first part, from the last time you spoke where the order book was to where you are today, were there any surprises around the remaining, I think, 20% that you were booking? And then I guess just geographically around the order book, can you talk about the trends in Europe? And I guess, just any disruption whatsoever? I know Middle East is a risk that you call out. Can you just talk through those 3 things for us? Timothy Boyle: Certainly. Well, as it relates to the order book for fall, we were pleased -- we expected it to come in at a number, and we were pleased that it came in north of that number. So we're excited about the strength there. And again, we're cautioning because there are so many unknowns today about the Middle East conflict and the potential for increased tariffs beyond where we've estimated. Geographically, I think we're in a good place. We had strong reports from many of the markets, including Europe was good despite the fact that they had sort of a tough early winter in Europe as did we here in North America. So it was really quite broad. I might just point to the continued improvement and strength in our international distributor markets, which -- and despite those that are in the middle of the conflict in the Middle East are doing well. Jim Swanson: Bob, I would just add, as we look at that order book and we take our advanced orders combined with our anticipation of in-season business for the second half of this year, we do contemplate growth across all geographies led by international and growth across each of our brands. So we're quite encouraged by the order book that's come in. Robert Drbul: Great. And then if I could just sneak in one more. On the tariffs, in terms of the application for the refunds, I guess if you are successful in getting those refunds, Tim, what would be the plan with that money that you would do for the business? Timothy Boyle: Well yes. Thanks, Bob. As we know, the administration may or may not allow us to get the returns timely. We have filed all of the documents required to get the tariffs back, but we clearly haven't contemplated those in our plans for '26. We certainly hope we'll get them back promptly. As it relates to where -- what we will do with those funds, we have our standard allocation of capital rules that we use, which will follow. Some of our vendors were contributors along the line to helping us sort of in a spirit of partnership, and we want to make sure that those folks are well taken care of. But we're in discussions. We want to make sure that we utilize it correctly, but we're going to be leaning on our historical capital allocation plans. Operator: Next question comes from Peter McGoldrick with Stifel. Peter McGoldrick: I wanted to ask about your engagement efforts to recruit younger consumers. Can you share any KPIs supporting your progress here and how that's -- how growth is trending with that cohort and how that's embedded in your outlook today? Timothy Boyle: Well, at the end of the day, it's really the acid test is a larger order book and a bigger revenue. So that's -- we're pleased to see that coming along nicely. But I guess I would say these activations that we've engaged in with our ad agency, An, which would include the Expedition Impossible flat earth challenge and the hacking of the big game in Santa Clara in January. Those are primarily focused on a younger consumer, and it's great to see the reaction from those people in terms of visits to our website and important connections in that way. So we're going to be leaning on the acid test to make sure we've got growth growing across the business. Peter McGoldrick: Very good. And then I was hoping you could help me think about today's revenue guidance in terms of price and volume. There's an 11 percentage point spread between inventory dollars and units. I'm curious of how to think of that spread flowing through the P&L. Is there anything you could share on like-for-like price increases and mix embedded in the outlook? Jim Swanson: Well, the biggest place where we've taken price increases as we've previously communicated, some targeted price increases for both our spring '26 and fall '26 product lines in the U.S. And those have been a high single-digit percent of increase. And as you look at the comments we've made with regard to our wholesale order book for the fall '26 season, we anticipate the wholesale business being up a low single to mid-single-digit percentage. So certainly implied in that would be that there's less unit volume on that growth. So hopefully that answers your question, Peter. Operator: The next question comes from Jonathan Komp with Baird. Jonathan Komp: I want to follow up on the momentum you're seeing for the Columbia brand in the U.S. specifically. Could you share any more direct feedback you've had from your wholesale partners and the positive developments you mentioned for the Amaze product, especially at DICK'S Sporting Goods. Is there a potential to replicate that across some of your other partners? Timothy Boyle: Yes. So the Amaze product for fall of '25 was quite broadly distributed across our better customers and better areas of distribution. So we're thrilled to see the results there. I mean it's primarily a women's product. So that area has been very good and sold through at very high margins. We've also taken the learnings from Amaze and extended it into our spring '26 product line, where we have a number of products which are following in the amaze learnings, including soft hand on the fabrics, stretch and colors that are very attractive and are complementary to younger females. We intend to, for Fall '26 to extend beyond those categories of merchandise into some rain and some fleece products where we think we can make the entire Amaze family a much bigger part of our business and frankly, a full franchise where we can be very successful and especially with younger consumers. Jonathan Komp: Great. That's very helpful. And then, Jim, if I could follow up, apologies if I missed this, but I think for the full year, you brought down the tariff headwind assumption by 100 basis points. You raised the gross margin by 50 basis points. So could you be a little more specific about the difference between those 2, what you're embedding today? And then as you think about the broader uncertainties not captured in your current guidance, which ones are sort of the biggest swing factors or the biggest incremental risk factors as you sit here today? Jim Swanson: Yes, John, the delta between the 100 basis point benefit that we're picking up from the reprieve of tariffs and the gross margin outlook improvement of 50 basis points. There's no one discrete item that I would necessarily point to that's driving that, that we're seeing in the business. From an overarching standpoint, if you look at the revenue and margin that we achieved in Q1, it was in line or slightly better than where we had anticipated. So it's really just an acknowledgment of the overall macro environment that we're operating in and the potential risks around that. And I think that part of it is in the latter part of your question as well, just in terms of as we think about ultimately delivering on the guidance that we put before you today. And certainly, we've called out the Middle East risk. The main pressure valve there is just going to be how this weighs on the end consumer worldwide as it relates to gas prices and overall inflationary pressures. Operator: The next question comes from Tom Nikic with Needham. Tom Nikic: I want to ask about the U.S. direct-to-consumer channel. You've had, I guess, a bunch of negative quarters in a row. And it seems like there's been a lot of excitement around the new product and great marketing, et cetera. I guess kind of why do we think it's sort of taking so long to get that business back to growth? And I guess, if we kind of think about, I guess, by channel, like should we think that like digital should turn first or brick-and-mortar should turn first? Like how do we kind of think about the progression about getting U.S. direct-to-consumer growing again? Timothy Boyle: Yes. I would think that when we talk about our brick-and-mortar channel, you have to remember that we're comparing it against a much smaller number of stores since the bulk -- we had many, many stores that were temporary in the effort to liquidate inventories from the logistics logjam that we had. Additionally, we had a high percentage of liquidation inventory in those stores, which typically have a lower -- an impact and a lower rate on our gross margins in those stores. And so that's, I think, is the primary way you're seeing the decline in sales in those numbers. we've always considered ourselves to be a wholesale primarily business and retail is used as a steam valve, escape valve for the company to liquidate inventories in the right way. And so that's the primary use on the outlet channels. On the full-price channel, it's a newer category of retail that we use, and we're still learning our way around that. And we expect that digital is going to be the primary way that we expose our brands to consumers in the best possible light. So that will come, we believe, as the ACCELERATE program becomes more fully established. Operator: The next question comes from Laurent Vasilescu with BNP Paribas. Laurent Vasilescu: I wanted to ask, I think you guys called out that there was a shift from 2Q to 1Q. Is it fair, Jim, to assume that it's $20 million shift and should it be just in EMEA? And then second part of the question is really around the call out that there were some cancellations with Middle East distributors. Is it fair to assume that Middle East is low single-digit percentage of sales and therefore, maybe like $70 million and maybe it was half of it was cut? Just trying to understand that. And then I have a follow-up on the oil input cost. Jim Swanson: Yes, you bet, Laurent. So looking at the first quarter from a revenue standpoint, we beat by around $20 million. Roughly half of that was the timing shift that you're referring to. And the majority of that was European based. There's a little bit from a U.S. perspective. And then with regard to the Middle East distributors, you're a bit high in terms of what that represents in revenue, particularly in the Gulf Coast countries, it's going to be in the -- it's going to be the low single-digit percent range of our total business and the cancellation and forecast reductions that we've taken to date, as we've commented, it's relatively insignificant in the grand scheme of our overall outlook, which you can see that we're holding it. So it's not impacting that. Laurent Vasilescu: Very helpful. And then the second part -- second question is really, I think, to Tim's point, about input costs. Most of the products are oil-based derivatives. I think we heard from adidas yesterday calling out that, that could be a potential headwind. We're hearing tonight that it could be an impact for 2027 spring product. Can you help us frame how do we think about this? If oil hypothetically stayed at $100 throughout the balance of the year for structural reasons, how do we think about that as an increase to your cost of goods sold for at least 1H '27? Jim Swanson: I think it'd be a bit premature for us to provide the exact framing on that. We're in the process of finalizing costing and beginning to buy for the spring season. There's no doubt that certain of those -- I should step back for a minute, certain of the raw materials have been already processed and ready in advance of the Middle East. So this is going to bleed in over some period of time. But there's no doubt that come the spring season, we'll begin to see that pressure. And these things don't calm over the coming months here and it increasingly bleeds into the fall season as well. Timothy Boyle: And Laurent, we also have other mitigation efforts, including engineering our products in a different way and changing the componentry. So we're not trapped with a single source like that. Operator: The next question comes from Mauricio Serna with UBS. Mauricio Serna Vega: Just a quick question on the direct-to-consumer business. Could you talk about in the U.S., how that business trended throughout the quarter? Curious to see if you can provide some context of how consumers have reacted to the high single-digit price increases. And on China, I think you mentioned the growth has been -- you noted wholesale as the primary driver of growth in Q1. Could you talk about the direct-to-consumer business there as well? Jim Swanson: Yes. In terms of taking your first question with regard to the DTC business, I presume you're focused on the U.S. side of that. trending in the quarter, as you might imagine, certainly, the January, February was cold, but we did comment on the shortage of inventory that we had. So that certainly held things back increasingly as we got into the spring season and we're well supplied from inventory, and we were pleased overall with what we're seeing from a demand standpoint in that part of our business, both through our direct-to-consumer business and frankly, through our wholesale business, where the sell-through is outpacing the intake from retailers and where overall stock levels are. As it relates to the high single-digit price increase and from a price elasticity standpoint, because I think that's essentially where your question is at, it came in more or less where we would have anticipated it being. I think I touched on earlier from an overall revenue and margin perspective on the quarter, we were at or around where we would expect it to be. Certainly, there's elasticity in our product. I don't think that's any mystery. There are categories of our business where we've got more pricing power, we can pass along more of those price increases and others that less so. And certainly, we're adapting to that on the fly. And then as it relates to the China business, I guess what I would describe there is, yes, we grew 5% in the quarter. We still contemplate healthy growth out of the China business for the full year. We've got double-digit percent growth that's planned there. Our DTC business was down a little bit in the first quarter, nothing -- not down rather, but certainly not growing the way it had. I wouldn't call out there's anything specific there. We still think that's a healthy business. Mauricio Serna Vega: Okay. And then just quickly on the commentary, to follow-up on the shipments. There was some -- it sounds like a lot of the impact on the earlier shipments was in Europe. Maybe just wondering if you provide a bit more context of how would that impact the second quarter, third quarter of that region as we think about how we model the next several quarters for Europe? Jim Swanson: Well, certainly, the rate of growth that we achieved in Europe in the high teens rate in Q1. Given that shift, you're not going to see that rate of growth come in Q2. But that said, we were very pleased with the spring '26 order book that we took for Europe. It's in the double-digit percent level of growth. I don't have the fall '26 in front of me, but we'd anticipate our European business being healthy from an overall growth standpoint throughout the full year. Operator: The next question is from Paul Lejuez with Citigroup. Paul Lejuez: Curious how much you think sales were hurt in the first quarter in the U.S. due to the inability to fulfill first quarter demand and also if that more sales in wholesale, DTC, both any color you can provide there? And curious what you saw at POS across markets. And maybe if you could provide more specific color on the fall order book that you're seeing in the U.S. Jim Swanson: Well, specifically as it relates to the shortage, and again, I wouldn't want to speculate on what revenue would have been had we not had the shortage. What we can share is it was roughly about a $30 million reduction in our planned fall '26 or fall '25 inventory purchases. And from an overarching standpoint, I would describe that, that was probably more impactful for the wholesale business in Q4 '25 as we were continuing to ship in the season. And then the D2C business would have been a bit more impacted in the first quarter. Paul Lejuez: And then the order book U.S. for the fall? Timothy Boyle: Yes. The order book for USA was -- as we said, we're very pleased with it came in slightly north of where we thought it was going to end up. So we're thrilled. Of course, we have these 2 great -- in addition to a solid growth across the business, we have these 2 great categories of merchandise, the amaze and it's new entrants and then the ROC Pant, which is another great product that's doing very well for us. Jim Swanson: I think the only thing I would add to the fall '26 order book is we previously communicated that we had anticipated the order book being up in the low single to mid-single-digit percent range. And as Tim touched on, the order book came in a bit healthier than we had even anticipated. So it's moving more into that mid-single-digit percent range. We're quite happy with how the order book landed. Paul Lejuez: That was overall, though, right? Not U.S.? Jim Swanson: That's U.S. specifically. From an overall from a global standpoint, we're solidly in the mid-single-digit percent range based on the order book we have and what we anticipate the wholesale growth to look like in the second half. And then my comment with regards to the U.S. is initially, our projections were dated back in February that would be up low single to mid-single as we closed out the order book. And I think given the uptake of the ACCELERATE product in particular, that we ended up on the north end of that range. Operator: The next question is from Mitch Kummetz with Seaport Research. Mitchel Kummetz: Just a follow-up on the $10 million timing shift. I'm just wondering if -- is that -- is your outlook for the second quarter, does that contemplate that as just being like a true shift? I would think that with the orders delivering earlier that, that would kind of lengthen the window for reorder potential. And I'm wondering if you factored any maybe stronger reorders into the guidance if that is an opportunity? Jim Swanson: Potentially, Mitch. I mean, any time you ship into the -- and you're able to set the floors a little bit earlier and if sell-throughs holds up and the consumer is healthy, then certainly that would bode some opportunity. That timing shift, just to be clear, though, that's a timing shift relative to what we forecasted and planned for Q1, not necessarily a year-on-year change. I think, by and large, the year-on-year changes in timing shifts are not all that substantial. I mean there's a couple of pockets of it that you're seeing in the European business and so forth. But on the whole for the company, it's not a meaningful driver. Mitchel Kummetz: Okay. And then, Tim, I think on the last earnings call, you talked about how depleted channel inventory was coming out of the winter season on seasonal merchandise. I'm curious to get your thoughts if you feel like your fall order book is in line with kind of where channel inventory stands? Or do you think that maybe retailers have sort of generally under ordered just because they're being conservative? And does that provide more of an at-once opportunity going into the back half of the year? Timothy Boyle: Yes. I think our retailers ended up quite clean, frankly. And so I expect that we'll be going into a season where we have lots of opportunity. The question is whether or not the consumer shows up in the kind of robust way. So that's why even though we've got indications across the business that we've got a better year looking at us than what we guided, we just want to make sure that we've got the appropriate conservatism. And frankly, we don't have a lot of extra inventory even if things go -- get wildly better, we just don't have a lot of inventory on a speculative basis. Operator: We currently have no further questions in the queue. I would now like to turn the floor back to Tim Boyle for closing remarks. Timothy Boyle: Thanks, operator. Thanks, everybody, who's listening in today. I hope that you'll come away with our -- from this discussion today with a better appreciation of the progress that we are seeing and it gives us the confidence that we're on the right path. There is still much work ahead of us to fully realize our strategic vision and unlock the full potential of our brands. Our financial foundation is solid. Our international business remains robust, and we can now see our U.S. business starting to turn the corner with the traction we're gaining under our ACCELERATE Growth Strategy. In dynamic times like these, strong companies emerge stronger, and I'm confident that our strengths and competitive advantage will position us to compete and win. I look forward to seeing you all on our next quarterly review in the next few months. Thank you. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Bio-Rad's First Quarter 2026 Results Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Ruben Argueta, Bio-Rad's Head of Investor Relations. You may begin. Ruben Argueta: Thank you, Regina. Good afternoon, everyone, and thank you for joining us. My name is Ruben Argueta, Bio-Rad's new Head of IR. It's a pleasure to join the team and be with you here. Today, we will review the financial results for the first quarter ended March 31, 2026, and provide an update on key business trends for Bio-Rad. With me on the call today are Norman Schwartz, our Chief Executive Officer; Jonathan DiVincenzo, President and Chief Operating Officer; and Roop Lakkaraju, Executive Vice President and Chief Financial Officer. Before we begin our review, I would like to remind everyone that we will be making forward-looking statements about management's goals, plans and expectations, our future financial performance and other matters. These statements are based on assumptions and expectations of future events that are subject to risks and uncertainties. Our actual results may differ materially from these plans, goals and expectations. You should not place undue reliance on these forward-looking statements, and I encourage you to review our filings with the SEC, where we discuss in detail the risk factors in our business. The company does not intend to update any forward-looking statements made during the call today. Finally, our remarks today will include references to non-GAAP financials, including net income and diluted earnings per share, which are financial measures that are not defined generally -- under generally accepted accounting principles. In addition to excluding certain atypical and nonrecurring items, our non-GAAP financial measures exclude changes in the equity value of our stake in Sartorius AG in order to provide investors with a better understanding of Bio-Rad's underlying operational performance. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in our earnings release. We have also posted a supplemental earnings presentation in the Investor Relations section of our website for your reference. With that, I will now turn the call over to our Chief Operating Officer, John DeVicezo. Jonathan DiVincenzo: Thanks, Ruben, and welcome to the team. Good to have you here, and good afternoon, everyone. Thank you for joining us. In the first quarter, our teams executed within a dynamic operating environment. We reported Q1 results within our revenue guidance as we navigated several external pressures, most notably associated with the ongoing conflict in the Middle East. This region has been one of Bio-Rad's fastest-growing markets for several years. We haven't highlighted this in the past, but in 2025, the region represented over 9% of our Diagnostics segment, primarily driven by our blood typing franchise. The conflict substantially reduced our first quarter 2026 revenues and depending upon the timing of resolution, will be a significant headwind for revenue and margin for full year 2026. Despite the macroeconomic headwinds, our teams remained focused on executing our strategic initiatives, accelerating innovation and driving further efficiencies across the organization to increase competitiveness. In Life Science, reported net sales were flat, reflecting mixed end market conditions. Academic demand remained constrained, particularly in the Americas, where our customers' budgets have been significantly impacted by changes in funding. While NIH funding increased modestly year-over-year, our voice of customer pulse surveys indicate that behind the scenes, there continues to be considerable disruption, and we continue to see a lag between funding approvals and purchasing activity. In biopharma, we are seeing early signs of stabilization. Early-stage biotech remains cautious. However, activity among later-stage companies is more robust, and we expect gradual improvement through the year. On the commercial side, ensuring that we capture our fair share of demand in a constrained market requires our sales organization to work differently. We have sharpened the focus of our commercial teams on segment level prioritization, directing coverage towards customers with active funding, accelerating conversions from our existing installed base and competing aggressively where competitive displacement opportunities exist. Our digital PCR product area continues to be a strategic differentiator. In the quarter, ddPCR instrument revenue grew 24% over prior year. This is an encouraging leading indicator since new customers typically drive consumable pull-through within 6 to 12 months of purchase and installation. The new QX700 platform is driving both competitive wins and conversion from qPCR, supported by an extensive assay menu and expanding publication base. And ahead of schedule, the team now has enabled over 99% of our digital PCR assays to be available on the new QX700 series, which is driving instrument growth. Looking ahead, we continue to expect a measured recovery in Life Science led by biopharma. In Clinical Diagnostics, we delivered modest reported growth of just under 2%. As I mentioned earlier, performance in the culture -- quarter was impacted by geopolitical disruption in the Middle East, which affected both demand and logistics. While this creates near-term challenges, we expect eventual market normalization once the conflict is resolved. Outside of this region, the segment performed as planned. In particular, demand for our quality systems and immunohematology franchises showed signs of strength. From a margin standpoint, Diagnostics was adversely affected by a disproportionate share of supply chain cost pressures. And in light of these continuing supply chain challenges, we understand the need to rationalize manufacturing capacity and network. We are also addressing these challenges through focused actions in procurement and manufacturing. Turning to our operational priorities. We are executing against a clear agenda focused on improving agility, resiliency and efficiency across the company. In our efforts to become more agile, we are increasing flexibility in our manufacturing footprint. During the quarter, we began manufacture of select life science instruments in China for China, improving responsiveness to local market demand and allowing us to feed in tenders while minimizing tariff exposure. This initiative is indicative of how we are using efficient capital deployment to build operational capabilities for long-term business continuity. In R&D, we have reengineered our innovation engine to deliver improved return on investment. Following our portfolio prioritization decisions, we are concentrating investment in areas with the strongest commercial potential. As I mentioned earlier, one example of this prioritization is the fact that 99% of our digital assays are now supported on the new QX700 platform, again, ahead of plan. As we prioritize our projects, we -- our focus areas are expanding into high-growth clinical applications, leveraging our ddPCR technology, advancing our digital PCR portfolio, including our next-gen system and oncology assays and embedding AI capabilities to accelerate development and enhance platform performance. While it is early, this focus allows us to deliver more consistent, higher-quality growth over time. So in closing, we are executing with discipline in a challenging environment. We are making progress on the operational actions within our control, improving supply chain capability, strengthening execution and focusing investment where it matters most. We remain confident these actions will translate into improved financial performance over time. And with that, I'll turn the call over to Roop. Roop Lakkaraju: Thank you, John, and good afternoon. I'd like to start with a review of the first quarter 2026 results. Net sales for the first quarter of 2026 were approximately $592 million, which represents a 1.1% increase on a reported basis versus $585 million in Q1 of 2025. On a currency-neutral basis, this represents a 4.2% year-over-year decrease and was driven by lower sales in both Life Science and Clinical Diagnostics segments. Sales of the Life Science segment in the first quarter of 2026 were $229 million, essentially flat compared to Q1 of 2025 on a reported basis and a 4.3% decrease on a currency-neutral basis, primarily driven by ongoing challenges in the academic research market, particularly in the Americas. Currency-neutral sales decreased in the Americas and EMEA, partially offset by increased sales in Asia Pacific. Our ddPCR portfolio was essentially flat in Q1 due to softer biopharma consumables as customers shift their R&D priorities despite the instrument growth. The year-over-year instrument growth that John noted, we believe is a strong indicator of our market share gains, especially considering the current market conditions. Finally, the Stilla acquisition is on track to be accretive by midyear. More importantly, the QX700 is contributing to both revenue growth and margin expansion. Life Science ex process chromatography revenue increased 1% year-over-year and decreased 3.1% on a currency-neutral basis. Consumables revenue in academic and biopharma research was down 3.9%, reflecting the challenging academic research funding environment. Our process chromatography business, as expected, experienced a year-over-year currency-neutral decline of 13%. Sales of the Clinical Diagnostics segment in the first quarter of 2026 were approximately $364 million compared to $357 million in Q1 of 2025, an increase of 1.9% on a reported basis, a decrease of 4.1% on a currency-neutral basis, primarily driven by revenue declines from our EMEA region as a result of the regional conflicts in the Middle East. The regional conflict affected demand and execution of logistics for our diagnostics products, resulting in an $11 million impact to the business in the quarter. As a result of the ongoing challenges within the Middle East, this will have a continued effect on our business for the remainder of 2026. Consolidated gross margin was 52.3% for both the first quarter of 2026 and 2025. On a non-GAAP basis, first quarter gross margin was 53.1% versus 53.8% in the year ago period. The lower Q1 gross margin was due to several factors, including unfavorable manufacturing absorption as a result of the decreased Middle East revenue, which contributed to margin pressure by 40 basis points, higher instruments versus consumables mix, which adversely affected margin by 30 basis points, higher freight fuel surcharges by 20 basis points and FX by 20 basis points. SG&A expense for the first quarter of 2026 was $212 million or 35.9% of sales compared to $209 million or 35.7% in Q1 of 2025. First quarter non-GAAP SG&A spend was $211 million versus $192 million in the year ago period. The increase in SG&A expense was primarily due to foreign exchange impacting -- impact resulting from a weaker U.S. dollar on our international cost base, partially offset by lower restructuring costs. Research and development expense in the first quarter of 2026 was $63 million or 10.6% of sales compared to $74 million or 12.6% of sales in Q1 of 2025. First quarter non-GAAP R&D spend was $65 million versus $60 million in the year ago period. Q1 operating income was approximately $34 million compared to operating income of approximately $24 million in Q1 of 2025. On a non-GAAP basis, first quarter operating margin was 6.6% compared to 10.8% in Q1 of 2025, reflecting the lower gross margin year-over-year. The change in fair market value of equity security holdings and loan receivable primarily related to the ownership of Sartorius AG shares contributed $562 million to our reported net loss of $527 million or $19.55 per diluted share. Non-GAAP net income, which excludes the impact of the change in equity value of the Sartorius shares was $51 million or $1.89 diluted earnings per share for the first quarter of 2026 versus $71 million or $2.54 diluted earnings per share for Q1 of 2025. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 were $1.565 billion compared to $1.541 billion at the end of 2025. Inventory at the end of Q1 was $771 million, up from $741 million at the end of 2025. For the first quarter of 2026, net cash generated from operating activities was $108 million compared to $130 million for Q1 2025. Net capital expenditures for the first quarter of 2026 were approximately $30 million. Depreciation and amortization for the first quarter was $41 million. Free cash flow for the first quarter was $78 million, which compares to $96 million in Q1 of 2025 and represents a free cash flow to non-GAAP net income conversion ratio of 153% for the first quarter of 2026. During the first quarter of 2026, we repurchased 176,000 shares through our buyback program at a total cost of approximately $48 million. Since Q1 of 2024, we've spent $542 million to repurchase 2.1 million shares at an average price per share of approximately $261. Moving on to our non-GAAP guidance for 2026. We have decided to adjust our 2026 guidance. As John mentioned in his comments, the Middle East, which represented the fastest-growing region for us over the past few years, was again expected to contribute growth in 2026. As a result of the ongoing conflict in the region, we are seeing continued demand softness, challenges getting product to our channel partners and into end customers. Once the conflict resolves, we believe that infrastructure rebuild will be prioritized. And ultimately, when the region is stable, the Middle East will return to a double-digit growth area for us. Our updated guidance is currency-neutral revenue growth for the full year to be between minus 3% and plus 0.5%. The Life Science segment year-over-year currency-neutral revenue growth is expected to be between minus 3% and minus 1% due to continued challenges in academic funding with an adverse impact from the Middle East conflict in the high single-digit millions. We are still modeling a modest biopharma recovery. For the Diagnostics segment, we estimate currency-neutral revenue growth to be between minus 3% and plus 1%. We project mid-single-digit growth for our quality controls business. We are assuming that the remaining Diagnostics portfolio ex quality controls is expected to decline between negative mid- to low single digit. Full year non-GAAP gross margin is projected to be between 53% and 54% due to the lower revenue, which is reducing our fixed cost absorption and higher freight rates. Full year non-GAAP operating margin is projected to be between 10% and 12%. We estimate the non-GAAP full year tax rate to be approximately 22%. As a result of the lower revenue and operating profit, we've updated our 2026 full year free cash flow estimate to be in the range of approximately $290 million to $340 million. Regarding share repurchases, we will continue to be opportunistic. And as of March 31, we have approximately $237 million available for additional buybacks under the current Board authorized program. I'll now turn the call over to Norman. Norman Schwartz: Great. Thank you, Roop. As you've heard from John and Roop, we are operating in a challenged and challenging environment. However, underlying the market noise, I think we continue to make progress on many fronts. In the last 24 months, for example, we've strengthened our management team and how we operate as a company. To me, this is a team with deep operational experience. And I think it is reflected in the rigor, the discipline and consistency in current decision-making and in implementation. We see that in our portfolio decisions where we're focusing investment and making the choices necessary to bring quality products to market more quickly and to improve returns. We see that in our operating model, building capabilities like our In China, For China initiative to improve responsiveness to local demand and allowing us to participate in local tenders in a cost-effective manner. And you see it in our M&A with a focus on disciplined strategic opportunities where we can create value for our customers, the company and shareholders. So we do see M&A as a key lever for us in our longer-term strategy to accelerate top line growth and margin expansion. And I would say here, our focus has shifted from early-stage opportunities to companies with demonstrated revenue and margin profiles, businesses where we can leverage our capabilities and scale to accelerate growth in attractive markets. I think here still is a good example of this approach, strengthening a core platform with a scalable, commercially proven business. In terms of size, today, our target acquisition is companies within the $100 million to $500 million revenue range with complementarity to our current business. We're not, at the moment, focused on anything transformative. In short, I think we see our strategy as disciplined, targeted and accretive. And finally, we always get the question on Sartorius. And so I thought maybe I'd just take a moment to reiterate our position. Fundamentally, we continue to be thoughtful, disciplined stewards of the asset. The Sartorius position is monetizable and provides us with optionality, which we evaluate with the same rigor we apply to every capital decision we make. That said, our focus is really running, growing and positioning Bio-Rad for market leadership and maximizing long-term shareholder value. And every capital allocation decision, including Sartorius, comes from that vantage point. Overall, if I think about where we are today, our end markets in Life Science and Diagnostics, although challenged in the near term, are durable and resilient. And I think we're well positioned as a market leader in a number of segments. In the meantime, we continue building on the operational discipline required to deliver consistent revenue growth and mid-teens operating margin in the near term. So that's all from me. Operator, now I think we'll open up the line for questions. Operator: Our first question will come from the line of Jack Meehan with Nephron Research. Jack Meehan: I wanted to start just to get a little bit more color on the Middle East. This has come up on a few of the earnings that have been reported so far, but it seems like the impact was a little bit more prominent for Bio-Rad. I was wondering if you could just share like why that might be the case either in terms of the exposure to the region or how that might have impacted your logistics? Just color on like exactly how it played out would be helpful. Jonathan DiVincenzo: Yes, Jack, it's John. Thanks for joining us. As we said on the call, the fact that it's been a fast-growing region for us, we've been very successful in our Diagnostics business, winning a number of tenders across the countries in the region in the last number of years. It gets to a scale where it's 9% of the Diagnostics business, mid-single digit for the company and whole. So I think the exposure we had maybe a little different than some of our peers based on our strength and our wins there. And just as things kind of emerged, the channel kind of certainly slowed down. I mean we obviously still had revenue there, but we did not meet the revenue numbers that we had. We expected solid high double-digit growth in that region. So it was just kind of a bit of a break there for us. And I think as we project forward, it'd be great if the conflict was resolved here soon, but it will take some time for the region to recover, and that was kind of the thinking behind the new guide that we've expressed. Jack Meehan: Got it. And yes, obviously, unfortunate situation. I did hear kind of reiterated kind of the ambition to get up to the mid-teens operating margins in the near term. Can you just talk about like the cost actions that you're planning to take to kind of draw a line under earnings and get -- obviously, there's things that are out of your control, but what can you do to protect and grow earnings in this environment? Roop Lakkaraju: Yes. Jack, I appreciate it. This is Roop. I'll maybe start on that question. I think there's a number of things that we have under evaluation. We've already begun to tamp down discretionary spend and these sort of things. But I think more broadly, if this sort of impact continues, then obviously, it's going to be a more meaningful impact, which is reflected in our guide and therefore, more significant actions. I think the other piece of this that Norman mentioned about reaching that mid-teens. Part of what we're evaluating is just overall, considering the continued challenges that seem to be arising, whether that's tariffs last year and now Middle East conflict, which arguably can't be predicted to this magnitude. There are some structural things that maybe we need to be thinking about and how we run the business. And so those are the types of things we're looking at without getting into too many specifics at this time, which I think is a little bit early. But it's kind of all functional areas in how we operate and how we execute, so we can be more efficient and effective and being more nimble in this environment. Jack Meehan: Got it. And maybe one final one is unrelated, but just on the China diagnostics business, there was an update during the quarter from the NHSA around not VBP, but new strategies around cost containment. Any color on how you see that playing out? Any updates on the region there? Roop Lakkaraju: Yes. Maybe I'll start again. And to date, we're not seeing anything impacting us in terms of what our folks on the ground are seeing from China. Obviously, it's something we'll continue to monitor and evaluate, but nothing currently that we're anticipating. Operator: Our next question will come from the line of Brandon Couillard with Wells Fargo. Brandon Couillard: It'd be helpful if you could just maybe share any color on 2Q, 3Q revenue phasing. You do lap a tougher comp in the second quarter. And are you kind of assuming that a fairly normal sequential seasonality for the business off of the 1Q base from here? Roop Lakkaraju: Yes. I appreciate the question, Brandon. So let me talk about the phasing from a Q1 to Q2. Obviously, Q1 is typically our low quarter. That will be the case here in 2026. From a phasing standpoint, we see about a 5% lift from Q1 to Q2, and then it lifts a little bit from there just slightly into Q3, which has not been the case. Q2, Q3 has been relatively flat in the last couple of years that I've been here. And then Q4 is expected to jump up again from that Q4 tending to be our seasonally strongest quarter. In terms of the drivers of those, obviously, the Middle East, we pulled out specific revenue or most of the revenue associated with certain countries that are affected directly by the conflict. Obviously, Middle East is more broad than that in terms of additional countries that we've left unaffected. The other piece of it, though, more specifically to the Q2, Q3, Q4 increase in revenue over time, it's through other areas of our business and other regions. So specifically quality controls based on batch releases are going to be strong in Q3 and Q4 this coming year. Our blood typing business in other regions has some uptick in Q3 and Q4. So there are some very specific drivers that allow us to get to that kind of phased increase of revenue as we get through the year based on other parts of our business. Brandon Couillard: Okay. That's really helpful. One on the ddPCR business. So if I'm doing my math right, were consumables down something like low double digits in the quarter? It wasn't really clear what was driving that. And last quarter, you talked about the QX700 maybe driving some share gain versus your main competitor there. And for qPCR, has there been any acceleration in the cannibalization of qPCR because your main competitor still seems to be growing pretty nicely in that market? Jonathan DiVincenzo: Yes. So Brandon, it's John. We are pretty pleased with the kind of the results of the instrument sales, both for QX700, but also for our legacy 200 systems -- QX200 systems as well. So -- the consumables, which is the majority of overall the business was soft in the quarter, a combination of academic and even some on the biopharma side. So to answer your question, that's just a matter of what projects are going forward and when. We did have pretty strong growth in the first half of last year in consumables and probably just absorbing some of that growth this year. But the equation here is growing our installed base. And we feel like we're growing our installed base, both by taking share within qPCR as well as competitively holding our own as we look at our win-loss analysis, et cetera. So I think if anything, it is the healthiest we've been in our ddPCR portfolio in quite some time, both because of the portfolio itself and the breadth of the offering that we have as well as the increase in both the assays that we're developing and the number of publications, which seems to be on an accelerating trajectory. So we feel really strong that we're certainly holding our own. And in many cases, we are taking share from qPCR. And competitively, I think our team feels pretty good, and our pipeline is larger today than it's been since I've been here. Roop Lakkaraju: I'll just add one additional piece, Brandon, to your specific question on the change, and you're spot on in terms of low double digits. Brandon Couillard: Okay. Great. And last one for Norman. You guys did help but notice, I felt like your comments around M&A priorities there towards the end of your prepared remarks, a little bit more detail than I think you've kind of shared in the past. Should we interpret that is an indication that the pipeline is full and maybe there's something more actionable over the relative near term? Norman Schwartz: No, I think for me, it's just explaining that part of the strategy. I think that the focus is on continuing to develop the business, growing the organic business. And this is another piece of the puzzle, which is M&A. So it's just diving a little bit in on a piece of the strategy. Operator: Our next question comes from the line of Tycho Peterson with Jefferies. Tycho Peterson: Maybe just starting on R&D. You are spending 12%, which is relatively high versus peers. Can you maybe just help us think about -- you've talked about bringing products to market faster, getting better ROI on those dollars. Just talk a little bit about what we can expect from that? Any metrics you can put around that? And is R&D a source of leverage over time as well for you guys? Jonathan DiVincenzo: Certainly is. And if anything, it's kind of a foundational growth opportunity for us. And whether it was through COVID or some pretty large bets we were making in diagnostics side, we've reset the bar on the projects that we're working on. We've kind of redirected some of our resources. But maybe more importantly, Tycho, a disciplined approach to the life cycle of our existing portfolio, looking at ways to really make an impact, as I said, applying AI into some of the imaging and other platforms we have and a couple of bets that are kind of new to the world bets. And I think it's just a comprehensive management and governance of that investment. As you said, it's a pretty high investment. If anything, we have even more in life sciences rather than diagnostics compared to some of our peers, and we need a better return. And I think over time, maybe we've become more efficient and we're not investing at that level. But today, it's kind of all hands on deck to get a very, very robust innovation pipeline going and to really see the fruits of that labor. Tycho Peterson: Okay. Follow-up on 2Q, Roop, I'm hoping you can kind of clarify. I think there's been a little bit of confusion. Are you seeing kind of down mid-single-digit core? Is that what you're implying here given the sequential comments you made? Roop Lakkaraju: I apologize. I missed the first part in what area? Tycho Peterson: I am asking for clarification on your 2Q comments. I think people are getting to kind of down 5%, down 6% organic. Is that the right number? Roop Lakkaraju: Yes, that's not an unreasonable number. We're going to see and revenue will pick up a little bit. Gross margin, we'll see that tick down just a tad in Q2. And quite honestly, it's specific to freight because we had effectively 1 month of freight due to the Middle East conflict. Now we've got 3 months of freight. We've got mitigating actions that we're working through, but not sure that they're going to have the level of impact starting in Q2. It will have some. But in Q3, Q4, we'll see a bit more of that. But Q2 is a revenue increase, slight dip in gross margin and then that flows through. Tycho Peterson: Okay. And then I guess just on the actions, how much of this is a wait and see on the backdrop here if things get better? I mean, overall, you're back to 2018 levels on operating margins. Can you maybe just talk about your commitment to actually driving those higher? And how much of this is timing related watching the backdrop here in the near term? Roop Lakkaraju: Maybe I'll start, and I'll have Norman jump in. I'll just speak to -- obviously, there's near-term actions that we're taking. As Norman talked about more broadly, and I'll turn it over to him. I think we are factoring the Middle East conflict to be transitory, not permanent. I think it's hard to predict exactly when that ends. And so we wanted to give that color from that standpoint, knowing that we then need to evaluate the broader business. Norman Schwartz: Yes. So I think that certainly, we are -- we've been working on making the business more agile in these kinds of environments. And I think that's -- our focus really is we can't control the -- kind of what's going on in these environments that we just have to kind of work on what we can control, which is improving our kind of operations and our capabilities. And when the markets return, I think we'll be in very good shape. Roop Lakkaraju: And maybe the last thing to add, the fact that Norman was explicit in that manner, you can be assured that it's a focus for us in terms of driving that operating margin expansion in the near term, as he said. Operator: Our next question comes from the line of Patrick Donnelly with Citi. Patrick Donnelly: Maybe more on the process chrom business. Can you just talk about performance and visibility there? We've heard some noise from some of that more concentrated vaccine exposure, some customers lowering ordering patterns down the line. Are you seeing any changes in process chrom? What's the right way to think about the pacing of that as we go through this year and the recovery path? Roop Lakkaraju: Yes. So Patrick, from a process chrom standpoint, it's actually played out. Q1 played out as expected. We are mindful of kind of staying close to our customers as part of understanding order patterns, demand patterns, these sort of things. We're not necessarily seeing any change in inflection for the rest of the year at this point in time. But that is something that we're keeping a pulse on, if you will. And I think in the last call, Norman kind of mentioned -- yes, go ahead, John. Jonathan DiVincenzo: Sorry, just the fact that certainly, there is a little bit of concentration today in our revenues. However, we have several hundred projects we're working on from early-stage clinical trials to later stage and preparing for commercialization. So we're projecting forward how do we bring a little more stability by broadening out the revenue sources across. And some of that is with existing customers that have been successful and they have new molecules coming to market and now there are new customers. But there's quite a bit of transparency in where we're building out process method development and participating in molecules that could be pretty exciting in the future. But time will tell. These are things that don't happen in weeks, months or quarters over a period of years, but we feel good that we're bringing some balance and spreading, if you will, out the revenues to various molecules that come to market. Patrick Donnelly: Yes. That's helpful. And then I think it was last quarter, Norman had mentioned the path back to mid-single-digit growth for process chrom maybe next year is still a little subdued in the low single. Is that still the right way to think about it? Just any updated thoughts on the path to recovery there? Roop Lakkaraju: Patrick, really apologize. You're a bit muffled. So would you mind repeating that? Patrick Donnelly: Yes, sure. It was just on the path back to recovery of process chrom. I think last quarter, Norman mentioned maybe it's a low single-digit number next year on the path back to mid-single. Is that still the right way to think about it and just the visibility you guys have? Roop Lakkaraju: I think that's still the right answer. Yes. Patrick Donnelly: Okay. Great. And last one on the PCR, digital PCR side in particular. Are you seeing any changes competitively in the market? Just an updated thoughts on growth outlook for that business would be helpful. Jonathan DiVincenzo: I think as I mentioned earlier, Patrick, we feel really confident. Our commercial team is working quite strongly with our marketing teams. We have a number of new assays that are being built out to our portfolio as we transition to this broader portfolio. I think that the teams have -- they're in a position today where they feel like they have a broad set of solutions, the right solution for the right customers and customers are, I think, receiving the new portfolio very well. So we still have more R&D projects to work on to expand what we have today. And I think that compared to a year ago, we are in a much better position maybe than we were starting 2025. Operator: Our next question will come from the line of Dan Leonard with RBC. Daniel Leonard: I have a follow-up question on the guidance, and I think this -- it touches a thread that we've been speaking to earlier in the call. But the reduction in the margin forecast suggests that the decremental margins on lower revenue are pretty severe. So can you clarify whether there's any offsetting actions you're taking today? Or are any potential offsets something we should stay tuned for in the future? Roop Lakkaraju: Dan, great to have you on the call and chat with us. So we've got near-term actions that we are in process of having put in place and evaluating further. I think in terms of broader evaluation of things, stay tuned for that as we continue to work through the different aspects. Jonathan DiVincenzo: Yes. I think there are things like increased fuel costs and logistics costs, which we've absorbed at this point in time, which you really see the impact. And we have to decide whether there are appropriate surcharges or ways to mitigate some of the additional costs we have. So it's a pretty comprehensive board that we have of things we can do to improve our margins in light of the conflict and overall challenges. Daniel Leonard: Okay. That's helpful. And then my follow-up question. Can you elaborate a bit more on your assumptions for the biopharma end market? It sounded like you were more optimistic in that market. Jonathan DiVincenzo: Yes. Again, we think of biopharma kind of in 3 different segments. Obviously, the large pharmaceutical, biopharmaceutical companies that are, I think, in pretty good shape and our portfolio looks good there. When you get to the smaller biotechs, but they have molecules in Phase III clinical trials, they're doing pretty well. There's still some softness in the early-stage biotechs. I think as we tried to elucidate in our comments that there's still some concern there that even though they may or may not be funded, they're still quite conservative in their spending. So it's -- across that spectrum, there's good strength and other areas where it's softer than we'd like it to be. Operator: And there are no further questions at this time. I will now turn the call back over to Ruben Argueta any closing comments. Ruben Argueta: Thank you for joining today's call. As always, we appreciate your interest and look forward to connecting with you soon. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day and thank you for standing by. Welcome to the Q1 2026 Emergent BioSolutions Earnings Conference 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, Frank Vargo, Vice President, Treasurer. Frank Vargo: Good afternoon, everyone, and thank you for joining us as Emergent discusses its operational and financial results for the first quarter of 2026. As is customary, today's call is open to all participants. It's being recorded and is copyrighted by Emergent BioSolutions. In addition to today's press release, a slide presentation accompanying this webcast is available to all webcast participants. Turning to Slide 2. During today's call, Emergent may make projections and other forward-looking statements related to its business, future events, prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. Any forward-looking statements speak only as of the date of this conference call, and except as required by law, Emergent does not undertake to update any forward-looking statements to reflect new information, events or circumstances. Investors should consider this cautionary statement as well as the risk factors identified in Emergent's periodic reports filed with the SEC when evaluating these forward-looking statements. During today's call, Emergent may also discuss certain non-GAAP financial measures that include adjustments to GAAP figures to provide additional transparency regarding the company's operating performance. Please refer to the tables included in today's press release. Turning to Slide 3. The agenda for today's call includes remarks from Joe Papa, President and Chief Executive Officer, who will provide an update on the company's leadership in public health preparedness, business performance and key highlights. Rich Lindahl, EVP and Chief Financial Officer, will then review the first quarter 2026 financial results and provide an update on full year 2026 guidance. Joe will conclude with a discussion of the company's key catalysts for growth, followed by a question-and-answer session. Finally, for the benefit of those who may be listening to the replay of this webcast, this call was held and recorded on April 30, 2026. Since that time, Emergent may have made announcements related to topics discussed during today's call. With that, I would now like to turn the call over to Joe Poppa. Joe? Joseph Papa: Thank you, Frank, and good afternoon, everyone. Welcome to our first quarter 2026 earnings call. This is Joe Popa, and I'm joined today by Rich Lindahl, our Chief Financial Officer. Let's turn to Slide 5. Our aspiration at Emergent is to be the leader in solving public health threats around the world. Over the last 25 years, we have built what we believe is the most diverse biodefense product portfolio in the world. Our medical countermeasures address anthrax, smallpox, mpox, Ebola, Botulism and complications from smallpox vaccination, alongside the leading branded naloxone franchise with our NARCAN Nasal Spray, which has a decade of trusted brand leadership. We believe in our unique position within the industry to demonstrate just how public-private partnerships are critical to national security. Turning to Slide 6. Since implementing our multiyear transformation plan in 2024, we have stabilized and rightsized the company in order to provide Emergent with a strong foundation for future growth. 2026 marks a pivotal year of our transformation as we invest in high-growth opportunities. I'm pleased to note that this process is now well underway. We are focusing on segment revenue growth and improved operating performance. We are generating strong cash flow for continued investment in internal R&D and quality capabilities. We have identified product acquisition opportunities that address unmet medical needs and have the potential for sustainable long-term revenue growth. Debt reduction will remain a priority for us. In 2025, we reduced our net debt levels by approximately 22%, and we have planned for further improvement on our balance sheet and credit ratings. Collectively, these activities are about putting in place the foundations for creating sustainable long-term value creation. Let's move to Slide 8, we'll take a look at our first quarter highlights. Thanks to the great efforts of our Emergent team our first quarter results are evident in both our top and bottom-line performance. We reported first quarter revenue of $156 million, which exceeded the high end of our guidance range and was ahead of internal expectations. Adjusted EBITDA came in at $36 million, also above our internal expectations, representing a 23% margin. It's driven by continued efforts to deliver a lean and operationally efficient customer-centric business model. For example, net working capital improved by over $100 million since Q1 2025. We improved our cash balance by $11 million versus the prior year to $160 million, and our total liquidity increased to $260 million. Our strong cash position enabled the repayment of $110 million in debt last year. On the capital allocation side, we continue to create value. In April, we announced the refinancing of our prior term loan, which enabled us to secure a more favorable interest rate. We also amended our revolver to $50 million and established a new delayed draw term loan facility for $75 million. We also continued our share repurchase program, buying back $9 million in shares in the first quarter. Since the start of the share repurchase program in 2025, Emergent has repurchased approximately $34 million of shares. Turning to our business performance. Overall, MCM performed very well, reflecting increased global demand and strategic diversification in our international markets, which now represent 37% of our total MCM revenue. We received four contracted product orders in the quarter. With respect to the naloxone business, we continue to maintain the share leadership. We command a competitive pricing strategy and recently launched our newest product offering, the NARCAN Nasal Spray carrying case and a multipack configuration, both of which are already performing very well in the first month of launch. We believe on Slide 9, the world is an increasingly dangerous place and public health preparedness in the face of potential threats is critical. We are proud of our long-standing partnership with the government of Canada. And in Q1, we announced a $140 million multiproduct agreement. We also executed $54 million legal award with ASPR and approximately $21.5 million delivery order to supply BioThrax to the Department of War. Our MCM business represents an important driver of our future growth. And with the added flexibility from our recent financing, we see multiple opportunities to acquire high-growth and complementary products to our MCM portfolio. Our mission on Slide 10 to protect to save lives is answered every day with the work we do to drive access, awareness and availability of life-saving naloxone. We are in lockstep with U.S. public interest customers, the Canadian health officials, retail customers and all the communities in need. We're keeping pulse on the staggering overdose death rates and ensuring our best efforts to help combat the thousands of lives lost each month. We believe over-the-counter access to NARCAN should be more publicly accepted and normalized, just as other life-saving emergency tools are like defibrillators or fire extinguisher for that matter. Just in the news this week, this national intention on opioid settlement funds of over $50 billion, which supports state, local municipalities, tribes and other entities to help turn the tide in the detrimental effects of the opioid crisis. The produced settlement alone released over $5 billion for the state for education and naloxone purchase. There's a tremendous amount of work left to be done to expand access and awareness to naloxone and to ultimately bring the number of overdose deaths down to zero. Federal state programs also continue to support naloxone funding and services through the SOR and substance use block grants. We just announced a new awareness effort with naloxone, NARCAN for professional baseball player, Davis Schneider. Davis Schneider shares his personal story in his late brother's honor. Our goal is to raise the awareness of NARCAN and help save lives from opioid poisoning, so no more families feel the same heartbreak. Additionally, we recently announced a partnership with British Columbia to supply NARCAN Nasal Spray for the province's take-home naloxone program. This order called an additional investment of CAD 18 million by the government of British Columbia. In the U.S., the U.S. public interest channel performed in line with our expectations for the quarter. U.S. FDA approved our NARCAN Nasal Spray carrying case and multi-pack options, delivering on our promise to offer new line extensions to patients and customers. We will continue to engage the public across the country, especially in college campuses with our ready-to-rescue campaign to help drive adoption where young adults made the efforts. Since 2016, Emergent has delivered more than 100 million doses of NARCAN Nasal Spray to people, communities and businesses across the U.S. and Canada to help save lives for opioid poisonings. On Slide 11, we are pleased to share that part of our durable and sustainable footprint we are now expanding our Canton manufacturing site in Massachusetts. Our new strategic partnership with Substipharm Biologics enables us to restart the manufacturing of the Canton facility to support the Japanese encephalitis vaccine. Emergent entered into a U.S. distribution agreement with Substipharm to support the product opportunity with the U.S. government following U.S. FDA approval. This opportunity establishes our new approach to external manufacturing partnerships, moving beyond a fee-for-service CDMO approach to one that allows us to share the product's potential success. In addition, just yesterday, we announced a second strategic manufacturing partnership with SAB Biotherapeutics to advance their type 1 diabetes autoimmune candidate. This work will be led by our Winnipeg team. We're excited for the ability to partner with such a dynamic company. Let's hear from Rich, who will run through our financial results. Rich? Richard Lindahl: Thank you, Joe, and good afternoon, everyone. Thank you for joining our call today. We started fiscal year 2026 with a strong first quarter with revenue exceeding the top end of our guidance. We've also advanced key strategic priorities and improved our cash and liquidity position versus the prior year. Execution of our 2026 turnaround plan is well underway as we work toward our near-term financial and operational goals, building on the stabilization and rightsizing actions completed over the last two years. We also expect the refinancing announced two weeks ago to provide strategically important balance sheet flexibility, lowering interest costs, extending maturities and adding access to incremental capital to support both operational execution and our longer-term growth initiatives. Turning to Slide 13. Our first quarter results were in line with our expectations and reflect continued progress on execution. Total revenue for the first quarter of 2026 was $156 million, which came in above the high end of our prior Q1 revenue guidance of $135 million to $155 million. As a reminder, on our last earnings call, we pointed out that our 2025 results benefited from a large international order that we do not currently expect to repeat in 2026. That order contributed approximately $60 million of revenue and $50 million of adjusted EBITDA to our first quarter 2025 results and significantly influences the year-over-year comparisons of these metrics. Beginning in 2026, we are adding back non-cash stock compensation to our adjusted EBITDA. This is consistent with our peers and provides a more comparable view of profitability on a cash basis. It also aligns with the covenant calculations under our new debt agreement. In the first quarter, adjusted EBITDA and adjusted EBITDA margin were $36 million and 23%, respectively, reflecting the quarterly revenue profile. Adjusted gross margin was 52%, reflecting the fixed -- high fixed cost nature of our operations. We also maintained strong cost discipline. Operating expenses were $57 million in the first quarter of 2026, down $10 million year-over-year, and R&D spend declined by about 1/3 compared to the first quarter of 2025. Total revenue was $156 million, supported by a solid contribution from naloxone as we continue to maintain a market leadership position. The MCM portfolio performed above our expectations, driven by U.S. government order timing and shipments. International MCM revenue was 37% of total MCM revenues in the quarter, representing continued strong demand and diversification beyond the U.S. government. On Slide 16, we highlight the sustained improvements across our quarterly financial metrics. Liquidity and cash both improved by $11 million year-over-year, and we reduced net debt by $122 million or approximately 22% versus the first quarter of 2025. As a result, we continue to see improvement in our net leverage ratio, which was 2.4x adjusted EBITDA at 1Q '26 versus 2.7x at the first quarter of '25. This level gives us meaningful financial flexibility as we evaluate capital allocation priorities to further strengthen our long-term growth profile. This observation provides a good segue to our April 2026 debt refinancing transaction, which is highlighted on Slide 16. Also noted there, we decreased our total term loan debt by $100 million versus the first quarter of 2025. And we increased finance capacity with the addition of a new fully committed delayed draw term loan of $75 million. As Joe noted earlier, the April 2026 debt refinancing was an important milestone for Emergent. First, it strengthens our ability to preserve liquidity to support ongoing operations and advance long-term strategic initiatives. Second, it lowers our interest expense, freeing cash flow that can be redeployed into value-creating investments that support growth. Finally, it meaningfully extends our maturity profile and improves covenant terms. Taken together, these actions help establish a stronger financial foundation to support durable long-term growth. Turning to capital allocation. We have several strategic growth priorities in place for 2026, growing international MCM, internal R&D investments and business development. Continued debt management will remain an important part of our turnaround in 2026. As noted, the April 2026 refinancing provides us with meaningfully greater financial flexibility and supports our long-term strategic growth plan. As a reminder, we have a $50 million share repurchase program through March 31, 2027, and we continue to utilize it, repurchasing 900,000 shares for $9 million during the first quarter of 2026. As of the end of the first quarter, $46.5 million of authorized repurchase capacity remains available under this program. At current valuation levels, we believe disciplined repurchases can be an attractive way to create shareholder value, and they reflect our confidence in Emergent's long-term prospects. One final note on our March 31 balance sheet. We previously disclosed that $50.4 million of contingent consideration could be owed to Ridgeback Bio in the second quarter of this year, assuming continued progress under our contract with BARDA. As we now expect those conditions will be met, we have reported that amount as an accrued acquisition obligation under current liabilities. On Slide 19, we highlight our revenue and profitability guidance. We are maintaining our full year total revenue guidance of $720 million to $760 million. Commercial revenues are expected to be flat to slightly up with volume offsetting anticipated price adjustments, and we expect NARCAN to maintain its leading market share. MCM revenues are consistent with prior guidance of flat to slightly down with a significant contribution from international sales. Adjusted gross margin is expected to be between 45% and 47%, reflecting product mix and expected pricing dynamics. We are updating our adjusted EBITDA guidance to account for the non-cash stock compensation add-back, and we, therefore, expect full year adjusted EBITDA to be in the range of $155 million to $175 million. And for the second quarter, we expect total revenue to be between $170 million and $185 million. In summary, we have fully commenced the turnaround phase of our multiyear plan, and we are executing with focus and urgency. We delivered solid revenue and profitability in the first quarter, in line with our internal expectations. Our term loan refinancing extended maturities out to 2031 and enhanced our financial and operational flexibility. We also returned capital to shareholders through share repurchases during the quarter and $46.5 million of authorized repurchase capacity remained available through March of 2027. And with that, I'd like to turn the call back over to Joe for a 2026 business outlook update and closing remarks before we go into Q&A. Joe? Joseph Papa: Thanks, Rich. Moving to Slide 21. Let me now walk through what we see as the key growth drivers we have, both near term and strategic. We entered 2026 with a stronger cash and liquidity position, further reinforced by the April refinancing. We are well positioned to invest in sustainable long-term growth via four levers: organic growth through internal R&D investments in TEMBEXA, Ebanga, and Raxibacumab; number two, line extensions for NARCAN; number three, growing the MCM business internationally; and number four, accelerating business development opportunities like projects such as KLOXXADO, like now we just announced the Japanese encephalitis vaccine and more for the future. Moving to our pipeline assets on Slide 22. TEMBEXA, Ebanga, and Raxibacumab are all approved with incremental development programs underway. As I previously mentioned, we look forward to serving as the distributor of the Substipharm Biologics Japanese encephalitis vaccine for the U.S. government opportunity following FDA regulatory approval. Finally, we're pleased to share that just this week, ACAM2000 received Singapore Health Sciences Authority expanded approval to include PO. On Slide 23, to close, Q1 2026 has been a steady and successful continuation of the turnaround efforts in these past two years. We believe we have made significant headway and now have the opportunity to pursue growth both organically and inorganically. We have successfully stabilized the business. We have divested non-core assets. We have dramatically reduced our debt while returning capital to shareholders. Today, we are investing for segment revenue growth, investing in promising internal R&D pipeline, expanding our international MCM footprint and pursuing accretive external opportunities all through a position of improved financial strength. All the while, we are committed to patient safety, quality and compliance across the operations. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Jessica Fye with JPMorgan. Jessica Fye: I had a question on your longer-term perspective on the naloxone franchise. I know you talked about that business being like flat to slightly up for 2026. How should we think about it taking like a -- maybe like a several year time horizon? Joseph Papa: Sure. Thanks for the question. The way we're looking at NARCAN is a couple of things that are happening. Number one, we're excited about our ability to launch new innovations with NARCAN. We do have just the launch opportunity that we have with the carrying case. We think that's perfect for college campuses. We also looked at the multipack. We think the multipack will be a more efficient way to deliver the naloxone NARCAN for especially high-volume users. We do think there's still some significant upside internationally, especially in Canada. And we're also looking at the Q2, Q3 as being an upside from where we are in Q1 simply because of the seasonality of our business. We know that like, for example, Q2 is the fiscal year-end for about 70% of the states. So, we think there is some upside there in the near term. And so, there's always going to be a little bit of seasonality. Beyond that, though, clearly, getting to the longer-term part of your question, we do think the market is going to continue to grow because unfortunately, there's still so many deaths that are occurring because of opioid overdoses. So, we do expect to see continued dollar spent there by the federal government. We saw that in 2026 budget for the U.S. government, the SOR grants and the other grants that are coming from the federal government has either increased or at least stayed stable. So, there's continued bipartisan support for this area of overcoming opioid overdoses. So we do expect that. And then on top of that, the other reason we expect the volume to go up is just simply the class action settlements by large pharma companies are about $50 billion all that, we think, especially now that Purdue just settled this week, I guess it was, with about $5 billion of their settlement funds coming in. Those funds are to be directed towards things like educational programs of states and local municipalities and/or the use or purchase of procurement of naloxone. So, we think for those reasons, the market will grow. We expect to hold on to the leading market position. We're going to stay competitive on pricing. So, we can't exactly say where pricing is going to go. But that's the reason why we said for the full year, flat to up slightly, and that's how we're looking at the future. Volume growth, we'll continue to be market leader. And then obviously, we'll have to be competitive on price. And that's really how we've talked about the future. Volume growth, hold market share and expect to be competitively priced, and that's how we're thinking. So thanks for the question. Jessica Fye: Yes. And then maybe switching to the MCM business as you kind of drive the international side there. Can you just remind us how to think about the margin you keep on international MCM sales and kind of how that compares to the U.S. legacy MCM business? Joseph Papa: Sure. Well, I'll start, Rich, you may want to add to it. I guess the first and foremost thing is that one of the things that we've agreed to, especially with the current administration is that we offer a most favored nation pricing type of arrangement to the U.S. government. So, our price has to be by agreement with the U.S. government. We have to give them the lowest price which means by definition, our prices for other countries around the world will be slightly higher, depending on the product, of course. So, we think that, obviously, as we develop more international business will help us as well on the gross margin. As I said, this year, for the first quarter, about 37% of our MCM revenue came from international. So, we think that's a big powerful part of how we're thinking about what's happening on the margin side. But Rich, anything you want to add? Richard Lindahl: Yes. I think logically, Jess, the fact that we're offering the U.S. most favored nation pricing, and therefore, we have higher prices on the international MCM business, that drives higher margins. And so, you should assume that the international sales are above the average for the MCM segment in total. Joseph Papa: Operator, next question. Operator, are there any more questions? Operator: Your next question comes from Raghuram Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Firstly, I wanted to ask about the tie-up with SAB and if we should be thinking about this as an indication of interest in the type 1 diabetes space strategically or if this is really more of a contractual business arrangement and not indicative of a broader strategic shift? Secondly, I was wondering if you could comment on the evolving geopolitical situation generally and how you see that potentially driving international demand for MCM products under the Emergent banner? And lastly, I was wondering if at this juncture, you could comment on the scope and footprint of the manufacturing operations at Emergent and if you feel that those are optimally rightsized for the company going forward? Joseph Papa: Okay. I'm going to try to make sure I get all of them, but please remind me if I'm missing any, Ram. First, on SAB, we're delighted to partner. They're a great company. They have a specific area of focus on the diabetes side. What we're focused on really is our technology and the technology that we have in Winnipeg that is perfectly situated to help them to advance their product. So, we view it as very much an alignment of our capability and what we had in Winnipeg with what they're looking for. And it was really -- it wasn't as much disease category as it was an alignment around our technology, what they are looking for and how we can quickly expedite their operations and their products. So, it was really more of a technology than it was a therapeutic area approach. The second question, I think, is really about the international and what's happening out there and what we refer to as increasingly dangerous world. And you know, you've seen it in your reports. It is a more dangerous world that we live in. And I think the world has very appropriately worried about the risk of nuclear weapons, and we hear about every day in the news. But one of the things that we believe, and I think you might also believe is that while nuclear weapons are absolutely a terrible risk, the risk of bioterror is maybe as risky, if not worse, in the sense that nuclear weapons will be terrible, devastating to a location or whatever could happen. However, bioterrorism once it get started, it's very difficult to stop. So -- and it's perhaps even easier to do a bioterrorist activity in terms of the speed at which you can do it and the cost at which you can do it than it is nuclear weapons. So we believe it's a dangerous world. We believe bioterrorism could -- once it gets started, it can be devastating to society. And that's why we think it's really important to continue to work with the U.S. government and other governments around the world to make sure that everyone is prepared for these types of risks as we think about the future because one bad actor gets their hands on anthrax spores or smallpox and the results can be devastating. So that's really -- we certainly think the world is more dangerous and what we have to be prepared for it. The last question on the manufacturing footprint. We've streamlined our footprint to be clear. However, we still have the ability to source all of our products, our existing products and our ability to ramp up our Canton facility, we think is a great opportunity to bring some additional drug substance capabilities for very difficult products. We have the ability there to work with live virus and Category B live viruses there. So, bring drug substance capability and bring that capability into the U.S. And we look around the country to see who else has that kind of capabilities, not a lot of it. So, we think having some additional capabilities for the U.S. is important. It's important for this particular product, but it's also going to be important for other development candidates and/or products that the U.S. government, BARDA, Strategic National Stockpile are looking for. So we do think expanding the footprint and bringing Canton back online with additional capacity and expansion is an absolutely worthwhile endeavor, and we're delighted to get started with that as we speak. I think I got three -- all three of them, but did I leave anything out, Frank? Okay, I'll take that as we got all of it. Operator, do we have any other questions? Operator: Yes, we do. Your next question comes from the line of Rishi Parekh with JPMorgan. Unknown Analyst: Most of my questions have been asked, but just out of curiosity, as you think about all the international opportunities that you're working on, is there any way to quantify what the backlog of those opportunities look like as they try to or attempt to leverage your technology? And how should we just think about that margin potential as you continue to ramp on that backlog? Joseph Papa: Sure. So do we have ongoing discussions on international opportunities to bring additional products to the market on the MCM product? The answer is absolutely yes. Those are ongoing discussions. It's a little bit harder to answer the backlog question because some of those projects take six months, some two years. I mean there's a process that we get involved with. But there's no doubt there's incremental interest for some of our products. So for example, in Europe, there used to be another manufacturer of an anthrax vaccine. Our knowledge is that, that manufacturer is no longer operating. So anybody who is looking for an anthrax vaccine, in many ways, Emergent is a place to go for it. So we do think there are some developing opportunities. We're working on continuing to reinforce those. And we're doing it not just in Europe, we're doing in the Middle East, we're doing in Asia. We're really trying to make sure that wherever the demand is, wherever countries look at this risk of bioterrorism, biodefense, we're going to be there with our products. And as I said earlier in the presentation, we have the leading portfolio of products, whether it's in smallpox, whether it be a vaccine for smallpox, therapeutic for smallpox, whether you need vaccine for anthrax or a therapeutic for anthrax, whether you need something for botulism, something for Ebola, we've got it. So we're looking to continue to work with all those governments around the world in terms of making sure we have products that we're working through our backlog as we've answered before, anything that we sell outside the U.S., by definition, is going to have a higher price and therefore, a higher margin since the relative cost will be the same. So, we're excited what that means. And the fact that normally, our business on international for MCM historically has been in the mid-teens as a percentage of business. The fact now that we're operating in the first quarter at about 37%. I think last year was about 34% by recollection. You can see that we're making good progress with this international expansion footprint that we put in place in 2024 and 2025. Operator: Your next question comes from the line of Alex Kelsey with Wells Fargo. Alex Kelsey: Rich, I think I missed it when you were talking about the accrued acquisition obligation. Can you just mention again what exactly that's related to? And then maybe more importantly, is that a cash outflow that we should expect in 2026? Richard Lindahl: Yes. Thanks for the question, Alex. That relates to the Ebanga program. And so this is under our acquisition of the rights to Ebanga from Ridgeback Bio. Once we were awarded the BARDA contract back in 2023, we disclosed that part of that arrangement was ultimately a payment to Ridgeback Bio, assuming that we continue to make progress under the contract, and that's going to be a cash outflow in the second quarter. Joseph Papa: Alex, thank you for the question. Operator, any additional questions? Operator: And at this time, I'm showing no further questions. I would now like to turn it back to Joe Papa for closing remarks. Joseph Papa: Thank you, operator. Thank you, everyone, for joining us on the call today. I'd like to thank all of our investors, customers and employees for your strong and continued support of our company, and we look forward to providing further updates throughout the year. Thank you, and have a great day, everyone. Thanks for joining us. Have a great day, everyone. Operator: Yes. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good afternoon, and welcome to Alignment Healthcare's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] Please note that this event is being recorded. Leading today's call are John Kao, Founder and CEO; and Jim Head, Chief Financial Officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factors section on our annual report on Form 10-K for the fiscal year ended December 31, 2025. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and our Form 10-Q for the fiscal quarter ended March 31, 2026. I would now like to hand the conference over to CEO, John Kao. Please go ahead, sir. John Kao: Hello, and thank you for joining us on our first quarter earnings conference call. For first quarter 2026, health plan membership of 284,800 represented year-over-year membership growth of approximately 31% -- this supported total revenue of $1.2 billion, which increased 33% year-over-year. Adjusted gross profit of $146 million represented an adjusted MBR of 88.2%, which improved by 20 basis points year-over-year. Meanwhile, adjusted SG&A of $108 million improved as a percentage of revenue by 60 basis points year-over-year to 8.7%. Our adjusted EBITDA was $38 million, which grew by 88% compared to the prior year. This result exceeded the high end of our guidance range and implies an adjusted EBITDA margin of 3.1%. Our results this quarter reflect strong execution across sales and member retention as well as our clinical operations. Our performance in our SG&A ratio also reflects the early outcomes of investments we've made to scale our infrastructure. Progress we are making across each of these areas is giving us even more confidence today that we are on the right path towards our goal of 1 million members. Growing and scaling a business as rapidly as we are in an industry as complex as Medicare Advantage is not a straight line. That being said, we are progressing very nicely as we continue to scale the company and achieve our near-term growth and margin expansion objectives. Importantly, our operational discipline and unique model gives us swift visibility across the organization. This enables us to identify issues quickly and take actions to manage their near-term impact. We focus deeply on continuously identifying opportunities to improve and deploy solutions to create even greater durability across our company. For example, the CMS rule change impacted our observation determination process and drove inpatient admissions per 1,000 towards the higher end of our expectations in Q1. This process change was resolved by the end of February, but impacted our first quarter inpatient admissions per 1,000, which was in the high 150s this quarter. We absorbed this headwind within our Q1 adjusted EBITDA beat and are well positioned as we enter the second quarter. As we build upon our culture of continuous improvement, this year, we are scrutinizing and revalidating every aspect of our people, process, technology and clinical culture to ensure they are positioned to scale. Through this process, we focused on opportunities to deliver more cost efficiencies through claims automation, improvements to our contract management infrastructure and scalability of our provider data management. For example, just 12 months ago, our claims auto adjudication rate was less than 15%. Now our year-to-date auto adjudication rate is over 60%, and we expect to drive even higher claims automation as we progress throughout this year. Meanwhile, we are also deploying contract management solutions that leverage AI to create a more dynamic contract management platform and taking the next leap forward in our AVA AI risk stratification models to create even greater precision in our clinical engagement efforts. We are also investing in our talent by adding team members who will drive greater scalability within our technology infrastructure. These are just a few of the actions we are taking to support our near-term results and accelerate progress to our long-term growth and margin objectives. Finally, before I turn the floor over to Jim, I'd like to spend a few minutes discussing the 2027 final rate notice, which was announced earlier this month. At a high level, we are encouraged by the administration's continued pursuit of actions that drive sustainability within the MA program. In a continuation of meaningful policy changes like the Wiser pilot program that tackle overspending in traditional Medicare, we also applaud the administration's actions to address overutilization of skin substitute products in fee-for-service. By taking action to create more accountability across every stakeholder in the health care ecosystem, we believe the program will increasingly reward those who deliver true, measurable value to members over the long term. Importantly, these dynamics continue to reinforce a core point, Medicare Advantage is a durable program that is here to stay. In that context, we also believe Alignment is particularly well positioned to succeed regardless of the rate environment. Our clinical-first approach enables us to deliver high-quality outcomes at a low cost and forms the sustainable competitive moat that sets us apart from our competitors. In closing, our first quarter results reinforce the strength and durability of our model. We are executing with discipline, scaling thoughtfully and continuing to translate our clinical approach into consistent financial performance. We're continuing to invest in the scalability of our platform, including automation, AI-enabled workflows and enhancements to our clinical infrastructure, all of which position us to drive further efficiency and growth over time. With a path toward 1 million members and unique opportunity to take share and grow profitably across all of our markets, we believe we are well positioned for the years ahead. With that, I'll turn the call over to Jim to further discuss our financial results and outlook. Jim? James Head: Thanks, John. I'll dive straight into our first quarter results. For the quarter ended March 2026, health plan membership of 284,800 increased 31% year-over-year, driven by strong execution on sales and retention. Increase in membership supported revenue of $1.2 billion in the quarter, representing 33% growth year-over-year. First quarter adjusted gross profit of $146 million represented an MBR of 88.2%, which reflects an improvement of approximately 20 basis points year-over-year. Our adjusted gross profit performance this quarter was underpinned by strong engagement from our clinical teams. Their disciplined execution held inpatient admissions per 1,000 within our range of expectations despite the temporary disruption to our utilization management process that John previously discussed. Meanwhile, the remainder of our medical costs were in line with supplemental benefit costs and Part D running modestly favorable through the first 3 months of the year. Moving on to operating expenses. Our SG&A discipline and scalability initiatives such as back-office automation supported outperformance in our operating cost ratio. For the first quarter, GAAP SG&A was $121 million. Our adjusted SG&A was $108 million, an increase of 24% year-over-year. Adjusted SG&A as a percentage of revenue declined from 9.4% in the first quarter of '25 to 8.7% in the first quarter of 2026. This represents approximately 60 basis points of improvement year-over-year and outperformed the midpoint of our implied guidance range by 50 basis points even as we continue to make focused investments. Taken together, first quarter adjusted EBITDA of $38 million produced an adjusted EBITDA margin of 3.1%, which represents 90 basis points of margin expansion year-over-year. Turning to our balance sheet. We generated strong operating cash flow in the quarter and concluded with $726 million in cash, cash equivalents and short-term investments. Our liquidity profile remains strong with ample cash available to the parent company. The funded leverage ratio at the end of Q1 improved to 2.6x trailing 12-month EBITDA. Turning to our guidance. For the full year 2026, we expect health plan membership to be between 294,000 and 299,000 members. Revenue to be in the range of $5.16 billion to $5.21 billion. Adjusted gross profit to be between $620 million and $650 million and adjusted EBITDA to be in the range of $138 million to $163 million. For the second quarter, we expect health plan membership to be between 288,000 and 290,000 members, revenue to be in the range of $1.30 billion to $1.32 billion, adjusted gross profit to be between $167 million and $177 million and adjusted EBITDA to be in the range of $50 million to $60 million. As it pertains to our full year guidance, we are increasing our membership growth expectation given continued strength within our sales operations and outperformance in member retention through the open enrollment period. We believe our disciplined approach to sales growth and focus on retention is serving us well this year, particularly as we absorb the impact of the third and final phase-in of V28. In conjunction with the increase in our membership outlook, we are also raising our full year revenue guidance to approximately $5.2 billion at the midpoint, which reflects 31% growth year-over-year. With respect to our profitability metrics, we are raising the low end of each of our adjusted gross profit and adjusted EBITDA guidance ranges by $5 million to reflect confidence in our full year objectives following the strong start to the year. Within our outlook expectations, we continue to assume that inpatient admissions per 1,000 will run higher year-over-year. As a reminder, this is primarily due to changes in our mix of membership. In 2026, we intentionally focused on growth amongst high acuity populations, whom we believe will benefit most from our clinical model. Consistent with past years, we also do not incorporate any assumption for final suite pickup from new members into our outlook assumptions. Taken together, our implied first half guidance reflects confidence that the strong performance we delivered in Q1 will continue into Q2. The midpoint of our guidance implies that approximately 60% of our full year EBITDA will be generated in the first half of 2026. This compares to approximately 55% of the full year EBITDA in the first half of 2025, excluding new member final suites. Further, on that same basis, this represents nearly 100 basis points of first half adjusted EBITDA margin expansion year-over-year. In closing, we continue to deliver upon our promises each quarter as we assess, refine and scale our core workflows and processes. Each of the transformational projects we are investing in and deploying today are establishing the foundation upon which we can scale to achieve our ultimate potential. Our meticulous and disciplined execution to date leaves us even more encouraged about the opportunities ahead. With that, let's open the call to questions. Operator? Operator: [Operator Instructions] Our first question will come from the line of Matthew Gillmor with KeyBanc. Matthew Gillmor: Maybe following up on the hospital observation issue. It sounds like this was temporary, but can you just walk us through what changed, how it was resolved and give us some sense for how hospital utilization trended now that it's been resolved? John Kao: Yes. Matt, it's John. Yes, basically, we paid authorizations at full acute rates when we should have paid them at observation rates. It was a workflow problem, and we, of course, corrected it, but it impacted our January numbers, a couple of million dollars, I think it was. And [ 80, 000-wise ], we were a little bit higher by a couple of days. And we wanted to share that with everybody. And it's really part of really how we are kind of looking at every part of our company to just continuously get better. And we'll talk about that a little bit more, I think. But I don't think it's a systemic problem. I think it was a 1-month blip, and we'll have that course correct. We have it course corrected. Matthew Gillmor: Got it. And just to confirm, John, this is an internal thing that you all caught... John Kao: Yes, yes, exactly. It's an internal workflow issue. It's not a utilization issue. Yes, utilization I think decline. And Jim's got the insights. Matthew Gillmor: Yes, okay. James Head: Matt, I'll jump in on the utilization because I think that's important, and there's lots of points of reference out there. But utilization was notwithstanding what John described, which I kind of call a onetime course correction, utilization is tracking very closely to what we expected. And as you're aware, we had admits in the high 150s. Absent that issue that John described, we probably in the mid-150s, and that is pretty much what we thought was going to happen. The flu is one thing that everybody is talking about. It wasn't a big driver, positive or negative in our numbers. We track admits with respiratory problems. We look at our Part D costs, et cetera, and it was pretty much in line. So we've got our eyes on all those categories, and it felt like things were tracking pretty nicely to what we expected, and we see that in April as well. Operator: Our next question comes from the line of John Stansel with JPMorgan Securities. John Stansel: I just want to talk a little bit about 2Q MBR. I mean stripping out sweeps, it seems like it improves by a pretty decent amount and that's even after adjusting for a couple of million of incremental pressure that's not going to recur in 1Q. Can you just talk about what's assumed for year-over-year improvement in the second quarter that is maybe different from the first quarter? John Kao: Yes. John, second quarter is usually our seasonal better quarter. And so there's just a natural decline in the MBR. So that's a good thing and it was expected. But I do want to step back and kind of describe -- we're laying out the actuals for first quarter. We're guiding on second quarter. And it's a pretty strong first half that we're positing. We set a reasonably high bar this year, by the way. But through the first half, we're expecting improvements across all our margins, MBR, SG&A, EBITDA, MBR first half, 40 basis points. SG&A, 40 basis points. EBITDA is 90 basis points to 100 basis points. So really strong first half. And that's apples-to-apples on a pre-suite basis. We mentioned on the call, 60% of our profits are in the first half versus 55%. But all the while, we're making investments in the business to scale. So we're really doing this balancing act of trying to make sure that we're executing very, very well, investing in the future. We're bringing on talented folks across the enterprise. We're making investments in systems and processes. But we have our eyes on continuing to improve our execution clinically and get our margins up. And so this is really a continuation of what we were doing in 2025 and we march into 2026. First half feels very good. John Stansel: Great. And then maybe just taking a step back and thinking about some of the changes in the final rate notice, I'll call it, deferral of a new risk model. How are you thinking about maybe reasons why that didn't make it in? And then as we think about potentially a new risk model in, say, '28 or '29, what we can take away from what was proposed versus what might actually be implemented? John Kao: Yes. John, Yes, I personally think there is going to be some changes. I think there's going to be more normalization, if you will. I don't think there's enough outcomes, feedback that CMS has yet to have initiated it in this past final notice. I think I actually don't know, but I believe that they're going to be working on this as a focus -- a topic of focus in the preliminary notice, the advanced notice coming up, and then we'll see something in the '27 to maybe be implemented by '29, something like that. But I think CMS has been pretty consistent with their message of ensuring that coding is not some form of a gamified competitive advantage for people. And obviously, I think that's a good thing for the industry, and I think it serves us really, really well. And it really puts the purest form of who's got the highest quality at the lowest price point in those organizations should be rewarded to succeed. Does that answer your question, John? Operator: Our next question comes from the line of Scott Fidel with Goldman Sachs. Scott Fidel: Just was hoping to just get a little bit more detail, if you don't mind, just on the inpatient issue that -- just so we can fully understand this. And so what I'm hearing from the call was, I think Jim had talked about there was a CMS rule change. It sounds like internally, you may have needed to make some adjustments to some of your systems as a result of that, and that is where maybe some of this disruption occurred. So I just want to sort of confirm that or if there's another sort of backdrop to that? And then sort of two questions just sort of around that would be in terms of your markets, is this something that -- like it's an internal system that sort of covers all of your markets or just California. So that was one. And then two, if it led to you guys paying full acute as compared to observation, is there an opportunity for you to claw back some of those additional reimbursements that you should not have paid? Or is that not something that you're going to have a resolution to? John Kao: That was my first question, Scott, but the answer is unfortunately no. Yes. No, it's a rule change that requires us to basically make authorizations a little bit more timely basis. And the backdrop of it is we've shared this with you guys in the past, which is we've kind of moved from this world of kind of capitation and delegation. And even in our shared risk businesses, we've had the certain administrative functions that were delegated to the IPAs. And one of the things we've shared with you in the past is we have started dedelegating certain IPAs. That strategy has been phenomenal for us and the IPA. We just have a good process. But there's more and more of the dedelegation of the acute authorization process or we would call that concurrent review process. And it's a competency that we are getting better and better and better at. And it's a competency that we need to make sure that we have the more we scale outside of California. Because I think a lot of the networks that are being constructed are really going to be with the direct providers, practices, et cetera, without having an IPA or an MSO like we have in California. And so I think that's the context. James Head: Yes. And Scott, given -- we put this as an example of corrective action and how we get on stuff fast. So by the end of January, we saw a little bit of an anomaly in our numbers. And then we went and found the root cause. And we knew that we were kind of going through a changeover at the beginning of the year, and we had staffed up and things like that. But by February, we had identified it and already corrected it. But it was a little bit of a drag on our adjusted gross profit. We want to call it out. But this is the kind of maniacal attention to detail that John talks about. And what you have to do to successfully execute. But we've corrected it. 80,000 is back exactly where we thought it was going to be by the time we got to February and March. And we kind of perfected that workflow and now we're ready to move ahead. John Kao: Yes. Last point really is we shared that with you all because we want to signal with you that a lot of the performance we are being able to achieve now was made 2 years ago on operational decisions. The most obvious one is the SG&A percentage being below 9% -- and so we're always continually refining all of our workflows. And it's a lot of focus of our time everywhere in the company. And the message is we are preparing ourselves to really grow and to support that growth in the same way that we have thus far. And that was the one line that I mentioned. It's not going to be a straight line. But I feel really good about this year, guys. I really do. And even for '27, '28 is a little bit far out, but -- and I think if anything, we've proven to you all we've kind of do what we say we're going to do. Scott Fidel: Got it. Got it. And if I could just follow up. And certainly, we appreciate you calling it out certainly as compared to us being in the dark about it. So. And then just to clarify sort of one. So John, it sounds like maybe the skew might have been to some of the outside of California markets in terms of just how this flows through to some of the delegation. And then the other follow-up would be, Jim, I know you mentioned sort of there was a separate dynamic around it sounds more like a mix impact on inpatient from sort of product mix change. Is that sort of D-SNP -- or maybe if you could just sort of clarify or is that sort of the new markets? Just maybe clarify what specific mix change there was that impacted that? John Kao: It's not just an ex California issue. It really was just a corporate function that we're really scaling and growing putting new systems in, putting in new workflows, all of that. It's really limits to that. And it's not just a function of the ex California and then Jim. James Head: Go ahead, Jim. Yes. And as it pertains to 80,000 being slightly higher, that is a mix issue. And it's a growth and a mix issue, Scott. In that instance, there's a lot of growth outside of California, and there's a lot of growth in more acute populations. And so we had planned for that as we came in. If you remember on our fourth quarter call, we talked about 80,000 is going to be inpatient admissions per 1,000 or 80,000 is going to be a little bit higher this year. It's going to tick up a little bit because we were making an investment in that population that we know has a lot of embedded gross margin. We're willing to make that investment. All of that is baked into our guidance at the beginning of the year and our outlook in the first half. So this is -- we're kind of tracking as to what we thought was going to happen. Scott Fidel: Okay. So it's new member sort of mix and then it's sort of some of the new markets and then sort of both of the product sets in terms of sort of traditional HMO and then DFI or sort of skewed just towards one of those? James Head: No, it's the -- we talked about a lot of our AEP growth being in the C-SNP, [indiscernible] population, like about 50% growth. That's what we're talking about in terms of... Scott Fidel: Yes, that's what I was trying to clarify. James Head: All of that is exactly tracking is how we expected. So that's -- the good news is we knew this -- we absolutely embraced going after that population because we think we can be very successful. Scott Fidel: Yes. So when you were saying more acute population, you were referring to the SNP not that the traditional HMOs new members were more acute. It was more the... That's what I was just trying to confirm. Operator: [Operator Instructions] Our next question will come from the line of Whit Mayo with Leerink. Benjamin Mayo: Maybe just a follow-up on that. How you're feeling about risk adjustment versus expectations given this focus on the more medically complex members this year? James Head: I think we're -- I'll break it into two pieces, our loyal population, which we really have a good line of sight. We're very good at predicting that and tracking it. And as it pertains to risk adjustment on the new members, we call them the newbies, that's where we're very cautious. So we book to the paid MMR, which means what CMS pays us will record as revenues. Now what that does is provides opportunity for upside in the second quarter when we get the final suites. So I think that you'll get more information when we get more information in the second quarter on that. But we are probably a little bit different than others in that we take a cautious stance on our new vision until CMS is giving us paid files that recognize that upside. Benjamin Mayo: Okay. And maybe just my follow-up. I don't think we've talked about RADV in a while. I just wanted to give your take, John, on the 2020 audit methodology that was issued a few weeks ago. Just what's different you see about the 2020 audits versus maybe the 2018 and '19? John Kao: Well, the big one is the kind of the ongoing litigation around the extrapolation methodology, which is a huge deal with respect to potential financial exposure. And for those of you that don't know, that part of the extrapolation methodology is no longer in the 2020 audits. Not to say that they won't come back down sometime in the future. And we feel very good about that entire process. We've scrubbed that area very tightly, and I'm not worried about that. Operator: [Operator Instructions] And our next question is going to come from the line of Michael Ha with Baird. Michael Ha: So it sounds like this inpatient admit issue is fully resolved, but it sounds like you realized anomalies in end of January. So would you say you knew about it by the time you reported earnings? And then secondly, I just wanted to ask about the LIS SNP members, it sounds like they were in line this quarter. But I was wondering if you could actually talk more about like higher mix of these members, how it might impact your cohort maturation into '27? Because if I'm thinking about it correctly, right, year 1 year to year 2 generally larger step-up in MLR improvement. Is it more pronounced next year given higher LIS SNP member mix, meaning if you're getting, say, like a 30 bps, 40 bps headwind in MLR this year, does that turn around into a larger tailwind next year? John Kao: Yes. I can take this, and Jim can provide color commentary. I think we have to wait a little bit in terms of getting the sweep data in. It's kind of linked to the prior question. We got to get the sweep data in on the newbies. I think from an MLR point of view, it's kind of consistent depending upon market, it's kind of in the high 80s, low 90s on the newbies that we got, inclusive of the numbers. So I don't think it's like ramping. But your point on the opportunity for we to improve embedded earnings once we have more time with these newbie members, particularly the SNP members, I think, is a good call out. And the way I'm looking at this is when you look at the overall consolidated MLR, we are then kind of looking at, well, how much of the MLR is supplemental benefits. And we've kind of shared in the past, it's in that 5% to 6% range. And so your medical MLR is kind of 82%, 83% that's the way we think about it. And then you say, okay, of that, how much is newbie versus how much is loyal? And to your point, the bigger proportion of our membership that becomes bigger and bigger that becomes loyal, that embedded earnings is going to get stronger and stronger. And then when you add on top of that, some of these people, process and technology changes that we're making that impact both MLR and SG&A, that's kind of where we're striving to get to, where we just are so good at all this, there's nobody that can compete with us with respect to bids. And then we start taking this thing out and expanding aggressively. That's kind of how I'm thinking about it. James Head: Michael, you asked about kind of were we aware of when we -- I guess, when we did earnings at the end of the fourth quarter earnings call in February, were we aware of what was going on? The answer is yes. When you turn the page every year, there's always a little bit of ambiguity in January in terms of how you're predicting the rest of the year. And so when we did our guidance, et cetera, we understood the issue and incorporated that into our guidance. And I think corrective action is the right way to describe it. We fixed it fast. It didn't take months. It took 30 days to fix it. And I think you're seeing in our first half guide that we feel pretty good that we've got line of sight on the first 6 months of the year, and things are performing quite well. Michael Ha: Great. And just a quick clarification. A -- what would MLR have been if you did not have that issue in January? And then on DCPs... James Head: Yes, I would say it's probably maybe 30 basis points higher or something like -- 30 basis points lower, something like that. Michael Ha: Got it. And if I could ask just one on DCPs. They're up a lot again this quarter. I think like 10 days year-to-year. Last quarter it was up 6 days, which I love to see that. Also noticing [indiscernible] is tracking well, down year-to-year. But I know last quarter, there were some, I think, timing dynamics around claims payment. So I was just wondering, were there any unique dynamics this quarter that might explain the large increase? And just would love to get your thoughts on the level of conservatism in your reserve methodology recently because it feels like there's a nice cushion. James Head: Yes. And Michael, I think I'm tracking DCPs, reserve build, stuff like that. I'll just say, generally speaking, our reserve methodology is exactly the same. We're conservative and consistent. We haven't really changed our processes or our stance. It's not like we were conservative last year, we're less conservative this year. We're growing fast. But that's all part of it. The DCP did pick up a little bit. There is some Part D components in there, call it CMS Part D type stuff, which makes it a little bit anomalous. But generally speaking, the classic IBNR days claims payable has been moving upwards. Over the last three or four quarters, we're just 3 quarters. We've just -- there's been a little bit of volatility in the pace, but we're working through that. But I wouldn't read into building conservatism, but I would certainly not say that we're -- that we've changed anything and we're less conservative at this point. So it feels like it's a good quality of earnings, so to speak, this quarter on that. Operator: [Operator Instructions] Our next question will come from the line of Jessica Tassan with Piper Sandler. Jessica Tassan: I'm curious to know how you're thinking about supporting the bridge model for GLP-1s that launches this summer. I know the economics are separate from Part D, but just in terms of getting people who can benefit on the drug and adherent, retaining them into '27 and possibly capturing some trend benefit. Just interested to know how you're thinking about that launch this summer? John Kao: The kind of voluntary pilot is what you're asking about? Jessica Tassan: Yes. John Kao: Yes. We actually said we would participate with certain conditions. I think you guys know that they didn't get the 80% that they wanted. And so they're kind of extending that time period. And that kind of gets into a little bit of our product strategy for the '27 bids, which I'd like to not discuss at this point. is kind of how I'm thinking about it. I'm not sure. Jessica Tassan: It's all right. I can come back in a few months. Maybe then just on '27, to the extent that you guys are willing to comment, it sounds like the message for '26 is we're really happy with the growth for '27 sustained growth. So can you just update us on new market plans for '27 post rate announcement? Are you still planning to add at market? And then just whether you guys consider the '27 rates adequate? And if not, should we just expect kind of marginal benefit cuts to offset whatever the delta might be? John Kao: Yes. The other kinds of questions we're getting are, gee, with only 2.48% net, are you guys going to just like grow like crazy again like you did in '25, basically? And again, I don't want to comment on any bid tactics I will say -- just for competitive reasons. I will say that we will be expanding into new markets, some large markets next year. I'm not going to comment yet where and/or if we're getting new states. But I think -- again, we think about all of this as a portfolio of assets. And I think it's fair to say for we to expand where we have risk-based capital in a capital-efficient way is probably still the best way for we to grow, whether that be California, Texas, North Carolina, Vegas, it's doing great, et cetera. I think the other part of what's driving our decisioning is, again, this discussion around the operational framework and can it support the level of growth in the new markets? And I think the answer is yes, given our performance. But I probably want to see another year of outcomes. And I think we can continue getting the growth. I think you'll see us getting good margin expansion. And I think you'll start seeing that in some of the discussions around '27. And we'll talk about that in the fall. So after the bids are in. Operator: [Operator Instructions] Our next question will come from the line of Ryan Langston with TD Cowen. Ryan Langston: Just on the G&A, I appreciate the comments on the benefits from investments and some automation. But was there any impact from timing in the first quarter that might sort of reverse out in the rest of the year? Should we maybe expect that level of performance to kind of carry through the back half of the year? James Head: I think there is always a little bit of timing in the first quarter where you want to make sure that you've got cushion -- for hiring spending, things like that. But I think it was -- there's just a lot of good performance across all the categories even beyond labor, for instance. Now as it pertains to whether we're going to pass that along, it's early in the year. And this -- as John and I have been talking about, we're really making investments in the business. So I suspect that we're not going to just turn that into a beat on the year just yet. But on the other hand, it gives us a little bit of comfort that we can continue to make investments in the business. And obviously, we're monitoring this holistically from a margin perspective, percentage of revenues and whether we're going to meet our commitments. So obviously, it's nice to have an early good start, but that doesn't mean we're ready to give it all back and put it into the margin. Ryan Langston: Okay. And then can you just maybe talk a little bit about capital expenditures for 2026 and beyond? I mean, is there sort of an opportunity or maybe even a desire to push that up a little bit just given where the free cash flow generation is now? James Head: Yes. Our capital expenditures are largely software development. And we do have a little bit of hardware. And we've got kind of a road map set up where we -- this year, we're probably in the $40 million spend range. It's a little bit -- we're coming out of the block a little bit softer than that, but that will accelerate. And it's well within our means. Now on the other hand, the ability to -- if we have the dollars, we also need to make sure that we're -- we've got the right project, the right bandwidth, and we're getting the right returns out of it. So that is a little bit more of the constraint versus the quality and returns versus whether we have the capital for it. So we feel pretty good about 40%. My guess is that could tick up a little bit, but it's going to -- as we accelerate our revenues, it's certainly going to come down as a percentage of revenues over time. John Kao: Yes. And just to add to that, I mean, we have not shared with you all, and we won't on this call, we will likely have more transparency on the next call around how we're deploying AI. And just -- I think the opportunities for us in terms of our clinical operations, our provider data, our stars, our MR, like every part of the company can benefit from that and we will continue to drive down the SG&A in particular and the MLR, I think. And so what we've had to do to maximize the benefit of AI and the tools that are available to us, which I think are just amazing is make sure we understand and validate all of the data. I think we have the best data in the industry, and we're going to get that even better. And I think our workflows, our end-to-end provider workflows, our end-to-end member workflows, our end-to-end Stars workflows, all of that is getting documented molecularly now so that we can apply the AI tools on top of that. And that's where the CapEx is going towards. Operator: [Operator Instructions] And our next question will come from the line of Justin Lake with Wolfe Research. Unknown Analyst: This is Dylan on for Justin. From a trend perspective, some of your peers have talked about a moderation beyond weather and flu. Have you seen any early signs there? And then also curious on the churn rate you're seeing early in 2026 compared to 2025? James Head: This is Jim. I'll take the second question first. Churn meaning retention, we're actually tracking really nicely on retention. That's been one of the helpful components of our membership growth year-to-date, OEP, et cetera. So we feel pretty good about that. As it pertains to trends, I mentioned earlier on the -- in the Q&A, flu and other trends are -- we track them, and they're not jumping out as anything anomalous per se. Now that's our book of business and how we think about things. But I will say that we look across the major categories of medical spend and the trends seem very consistent for us. And obviously, the rate environment, as you guys know pretty well, it's low single digits. What we haven't talked about on the call here is Part D, which is tracking very nicely this year. We had a little bit of outperformance in Q1 in the margins. That was a good thing. We're not ready to kind of turn that into a full year expectation increase. But Part D is doing really, really nice. And that's -- over the last couple of years, that's been a big watch out. So we feel pretty good about that. But trend-wise, we just have a different kind of rhythm than some of the other commercially focused or some of the other MCOs. And I don't think it's just because it's our footprint. I think it's because we are -- it's the way we set up our utilization management. I think the way we work with our providers. And there's some capitation in there that cushions us along the way, not necessarily full, but some of the capitation is absorbing some of those flu season trends, et cetera. Operator: [Operator Instructions] Our next question will come from the line of Andrew Mok with Barclays. Andrew Mok: Alignment is predominantly an HMO business, but you leaned a little bit more into the PPO product this year. Can you walk us through the rationale behind that decision? And how are you thinking about the relative attractiveness of the PPO product given some of the recent plan exits across the market? And do you expect PPO to become a larger driver of your growth over time? James Head: Andrew, John. Part of the reason we were willing and able to do it last year and for this year is over half of the business is globally capitated. And so that factored into the way we think about things. I think that the logic around stratifying members, caring for the members through our Care Anywhere program, kind of positioning that part of the, call it, the clinical part of the business is something that should and could work for us as we think about extending the product, particularly outside of California. I don't think we have figured out the secret sauce yet, frankly. And I think that I think the only way to deal with that is probably going to be with higher member premiums going in the future. We are not going to be, I don't think, talking about, again, 27 bids. But I think long term from an industry perspective, that whole part of the world was supported by high RAS scores. And I just don't think that's going to happen going forward. And I think the unit economics are going to be pretty tough for people. If anybody can do it, it should be us. But candidly, I don't think we've cracked that code quite yet. Operator: [Operator Instructions] Our next question comes from the line of Jonathan Yong with UBS. Jonathan Yong: I recall last quarter, we talked about you still had some provider engagement negotiations outstanding in some states that you were thinking about entering. Has that progressed any further? And does the final rate update make any difference in terms of those negotiations? So you were negotiating when the advance came out and then obviously, the fines out. Does that change that negotiation process? John Kao: No, Yes. I know exactly what you're talking about. I wouldn't characterize it as negotiation. I think the negotiations part was fine. It was more around the engagement, the provider engagement model. And in some markets, the answer is yes. And we'll share with you where we're expanding to. In some markets, the answer is no. And I think that will also have -- would kind of dictate where we expand into certain markets or new states. I think the negotiations part is really interesting is -- the delivery system, and I can get on a whole thing on delivery systems, if you guys want. But they really need an alternative. They want an alternative to a payer that's willing to move market share to them without the kind of high denial rates some of the larger folks have. And that's not to say that we're not good at it. It's just we're actually -- the model is very different. And so that though requires a high degree of engagement with the clinically integrated networks that are typically owned by these integrated delivery networks, these large monoliths now they are becoming somewhat monopolistic, but that's a whole different topic. And so it's really important that we find the right doctors and practices we can work with. And we're leaning into that significantly as we think about more scale outside of California. Jonathan Yong: Great. And just a follow-up just on the denial portion of it. Given the MCOs, broadly speaking, are reducing the amount of prior auths, et cetera, and presumably denials, does this make it harder to contract within that context? John Kao: No, it's going to be really interesting. I think it's where is the emphasis. And I think a lot of the AHIP discussions and what CMS is pushing the large plans is really around commercial. I think there's a little bit also that the exchanges in [ Caid ] and care are dragged into that as well. But our denial rates are like less than 2% -- and I won't name names, but some of the larger ones are 13% to 15%. And some of the data we pulled that Harrison pulled and shared with us just a few weeks ago was really interesting, and I'd encourage you all to get that. It's all publicly available. I do think we need to, as an industry, talk about, and I think you guys need to understand this part is when I get every single health system CEO and CFO say that Medicare Advantage pays them 85% or 86% of traditional Medicare. The inference is the plans are denying care or kind of playing insurance games. When in fact, I would pause it that we think about that statement differently, meaning from our experience, we are paying the health systems 100% of what they deserve to be paid. And so when we talk about the same degree of program integrity that was applied to MA as it relates to coding for the insurers, we got to start looking at program integrity on hospital billing practices in the context of this affordability discussion. And if 100% of the claims and authorizations we get from hospitals and systems is acute as opposed to observations, because ask the question, how are we going to make sure that everybody is aligned on the accuracy of those billings that are submitted to the plans. And so you got to look at the denominator also. The denominator is traditional Medicare. Well, traditional Medicare isn't editing any of their submissions, I would pause it. And so we got to just kind of deal with that issue. And that is -- that's going to be a policy issue. And if you heard the hospital CEOs in front of Congress the other -- I think it was earlier this week, it's all the plans. Everything is bad about the plans. And I would just reject that. We're paying -- we are paying hospitals 100% contractually what they show, and our denial rates are very, very low. So that's kind of my soapbox on that. Operator: [Operator Instructions] Our next question will come from the line of Craig Jones with Bank of America. Craig Jones: So I want to follow up on the final rate notice. Chris Klump was out with some comments after the final rate notice is published that you happy with that 2.5% number as it is roughly in line with where general inflation comes in and thought that, that should be a target for just health care spend increases going forward. So do you think that 2% to 3% is where we will continue to see these rate notices going forward? And if that's the case, what kind of -- what level of unmanaged trend, I guess, could you manage without having to cut benefits if that's where the rate notice comes in? John Kao: It's a pretty insightful question there. I think overall trend nationally as an industry is way higher than 2.48%. And I think the default scenario for a lot of the plans is going to modulate the delta through kind of either tougher unit economics with the providers or, to your point, benefit reductions. I think for us, you got to look at the specific geographic impact of some of this information. And so I think it's public out there that when you look at the data region by region, for example, L.A. County's rate increases are closer to 6% okay? So obviously, that stands to benefit us significantly. And so those are the kind of factors we're considering now, and I've shared this with you in the past that we're doing our business plans now market by market in preparation for the bids. So I feel pretty good about where we're positioned for '27 bids. But no way trend is going to be at 2.48%. There's just no way. I mean that's -- I love Chris. I have a lot of respect for him, but the trend is a lot higher, which gets to and speaks to affordability, which gets back to hospital billing. Operator: [Operator Instructions] Our last question will come from the line of Ryan Daniels with William Blair. Ryan Daniels: John, you talked a little bit about ancillary benefits and the impact on MLR. And Jim, you've talked about capital deployment. Let's tie those two together and get your latest thoughts on maybe deploying some capital to bring some of that in-house, especially as you approach that 300,000 member number and think about going into new markets. Is that another strategy along with AI to kind of help the cost profile of the organization? John Kao: Yes, absolutely, Ryan. The supplemental benefits, if you kind of look at the larger we get and a lot of our larger competitors have those captives, we could call them, whether it be a behavioral health HMO, dental PPO vision PPO, transportation, all that stuff right now, we pay external vendors. And so it's an opportunity for us to lower MLR by bringing some of that in-house. And I've kind of alluded to that in the past where if we focus kind of M&A dollars, it could be in those areas, which are relatively low risk, low capital, high return. And so whether it's a dental PPO or a dental HMO even, those are some of the decisions we're weighing right now, you'd see that company. If we bought something or if we started something, you'd see it with 300,000 customers. That's a pretty good win for everybody. Obviously, that is not something we're embedding into any of our thinking for the first half guidance, that would be an additional upside for us in the future. Operator: Thank you. This will conclude today's question-and-answer session. Ladies and gentlemen, this will also conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day. John Kao: Thank you.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Atmus Filtration Technologies Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. To ask a question, simply press star then the number one on your telephone keypad. And if you would like to withdraw that question, again, star one. Thank you. I would now like to turn the conference over to Todd Chirillo, Executive Director of Investor Relations. Todd, please go ahead. Thank you, Krista. Todd Chirillo: Good morning, everyone, and welcome to the Atmus Filtration Technologies Inc. First Quarter 2026 Earnings Call. On the call today, we have Stephanie Disher, Chief Executive Officer, and Jack Kienzler, Chief Financial Officer. Certain information presented today will be forward looking and involve risks and uncertainties that could materially affect expected results. Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on this call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmos.com. Now I will turn the call over to Stephanie. Stephanie Disher: Thank you, Todd, and good morning, everyone. Today, I will provide an update on our first quarter results and share details of our progress executing our four-pillar growth strategy. I will also provide updates to our outlook for 2026. Jack will then speak to our financial results and segment performance. I want to begin by recognizing Atmusonians for their ability to navigate continued challenging market conditions, all while delivering strong financial results to start the year. Our global team remains focused on solving our filtration challenges and delivering on our four-pillar growth strategy. During the first quarter, we completed the acquisition of Cook Filter, which represents our first step toward advancing our strategy to expand into industrial filtration. This establishes our industrial air filtration platform and expands our portfolio into commercial and industrial HVAC and high-growth end markets including data centers and health care. We have made significant progress integrating Cook Filter into the Atmus Filtration Technologies Inc. organization. We have exited over 50% of the transition services agreement and expect all remaining integration activities to be completed early in the third quarter. The combination of Cook Filter’s deep industry experience with our filtration expertise and footprint, along with a strong cultural alignment, will provide benefits for all stakeholders. With the acquisition, we will report on two business segments in 2026: Power Solutions, which serves global on-highway and off-highway equipment markets, and Industrial Solutions, where the Cook Filter acquisition will be reported. Now let me provide an update on our capital allocation strategy. During the first quarter, we returned $12 million of cash to shareholders, consisting of $7 million of share buybacks and $5 million of dividends. We have $62 million remaining on our share repurchase authorization and expect share repurchases to be $20 million to $40 million in 2026. Behind our strong performance is our people, and I want to take a moment to provide some insight into how the culture at Atmus Filtration Technologies Inc. is driving momentum in the overall business. As I have shared previously, we have developed and embedded the ATLAS Way as a way of working, which incorporates our purpose, our values, our behaviors, and our strategy. As part of the ATLAS Way, we are committed to being learning oriented. Embracing a learning mindset will enable our growth strategy and support the scaling of our operation. During 2026, we continued to invest in building future generations of leadership for Atmus Filtration Technologies Inc. At an executive level, we launched our second cohort of our executive development program. This program is focused on building executive leadership capability over two years. Additionally, we launched our leadership foundations program focused on developing frontline leaders with foundational leadership skills grounded in our Atmus Filtration Technologies Inc. values. We have 200 managers and supervisors currently in the program and anticipate all frontline leaders to complete this by 2027. I am inspired as our leaders around the world participate in these programs and develop both personal and professional skills to lead our organization. Now let us turn to our four-pillar growth strategy. Our first pillar is to grow share in first fit. We continue to win with the winner by growing our long-term partnership with leading global and regional OEMs across a broad range of applications. Recently, we announced the opening of a new state-of-the-art laboratory facility at our Compare Brands location, reinforcing our commitment to advancing filtration technology and reducing testing lead times for our customers. This modernized testing facility strengthens our global laboratory network and allows us to work collaboratively with our customers. Our second pillar is focused on accelerating profitable growth in the aftermarket. We have partnered with leading global and regional OEMs who continue to grow their aftermarket business and expand market share. These OEMs trust our industry-leading products to solve their filtration challenges and protect what is important. Additionally, we are expanding our product coverage in independent channels with new distributors. This allows us to provide our industry-leading Sweetgard and Cook Filter branded products to our customers in their desired service channel. Our third pillar is focused on transforming our supply chain. We have established a strong distribution network that has enabled us to enhance the customer experience. We have raised our delivery and on-shelf availability metrics to all-time highs, ensuring our customers have the right product when and where they need them. Our fourth pillar is to expand into industrial filtration markets. The execution of our first acquisition with Cook Filter enables us to unlock operational, commercial, and growth synergies through the alignment of Cook Filter’s leading industrial air filtration brands and our advanced technology capabilities in filtration media. As we continue to review a robust pipeline of opportunities, we will focus on industrial air to build a platform of scale and create value through targeted bolt-on acquisitions. While our primary focus is industrial air, we will remain opportunistic in evaluating industrial water and liquid filtration assets, with the goal of identifying an anchor investment that can serve as the foundation as we build out our broader industrial platform over time. As demonstrated by the Cook Filter acquisition, we remain focused on executing a disciplined approach to develop opportunities which deliver long-term shareholder value. Now let us discuss our first quarter financial results. Sales were $478 million, compared to $417 million during the same period last year, an increase of 14.6%, largely driven by the acquisition of Cook Filter. Adjusted EBITDA was $95 million, or 19.8%, compared to $82 million, or 19.6%, last year. Adjusted earnings per share was $0.69 in 2026, and adjusted free cash flow was $33 million. Now I will discuss our market outlook for 2026. The conflict in the Middle East introduces uncertainty to the outlook for the year. This includes uncertainties regarding impact on input costs, our ability to sell products in the Middle East, and broader macroeconomic impact. At this stage, we have not incorporated adverse impact into our guidance associated with the Middle East conflict, but it is an ongoing risk factor that we will continue to monitor. Now let us turn to our outlook for the Power Solutions segment. In the aftermarket, overall freight activity remains muted, and we expect the market to continue at current levels and be relatively flat year over year. In our first fit market, customers have indicated strengthening activity as the year progresses, related to cyclical market recovery and prebuy activity ahead of 2027 U.S. regulatory changes. Our outlook for heavy- and medium-duty markets in the U.S. is now expected to be in a range of up 5% to up 15% compared to 2025. In our Industrial Solutions segment, we continue to expect favorable market conditions, and we anticipate the market to contribute 1% to 4% of growth. We expect share gains to deliver an additional 1% to 2% of growth, and overall pricing is expected to provide approximately 1% of revenue growth. As we noted last quarter, some tariff pricing implemented in 2025 will not carry into 2026 due to changes in the status of global trade agreements, implementation of offsets, and the actions we have taken to mitigate tariff impact. Based on tariffs in effect as of April 30, we expect the impact of tariff pricing to be flat relative to 2025 on a full-year basis. We will continue to be nimble and adjust pricing as necessary should the tariff environment change, and we expect to remain price-cost neutral. The U.S. dollar is expected to weaken year over year and provide an approximate 1% revenue tailwind. In summary, our expectations for Power Solutions total revenue will be in a range of $1.79 billion to $1.85 billion, an increase of approximately 3% at the midpoint from the prior year. In Industrial Solutions, we expect revenue to be in the range of $155 million to $165 million, which includes revenue from January. Taken together, we expect total company revenue to be in a range of $1.945 billion to $2.015 billion, an increase of 10% to 14% compared to 2025. We are maintaining our full-year adjusted EBITDA guidance of 19.5% to 20.5%. As noted, the conflict in the Middle East is expected to put pressure on commodity prices throughout our supply chain, most notably in petroleum-based components such as plastics. Should this occur, we would expect to recover these inflationary costs; however, there may be a timing lag for recovery. Lastly, adjusted EPS is expected to be in a range of $2.75 to $3. Before I turn the call over to Jack, I want to thank our team members around the world for delivering a strong quarter and for your continued focus on our customers. Now I will turn the call over to Jack. Jack Kienzler: Thank you, Steph, and good morning, everyone. Our team delivered strong financial performance in 2026 even though we continued to experience uncertain global market conditions. Sales in the first quarter were $478 million compared to $417 million during the same period last year, an increase of 14.6%. Power Solutions delivered sales of $439 million compared to $417 million in the prior year, an increase of 5.4%. The increase was primarily due to favorable foreign exchange of 4% and higher pricing of 2%. Volume was down slightly year over year. Industrial Solutions sales were $38 million, resulting from the acquisition of Cook Filter. Gross margin for the first quarter was $137 million compared to $111 million in 2025. The increase was primarily due to incremental contribution from the acquisition of Cook Filter, increases in pricing, the cessation of one-time separation costs, and the favorable impacts of currency, partially offset by higher logistics and duties costs, higher manufacturing costs, along with lower volume. Selling, administrative, and research expenses for the first quarter were $59 million compared to $55 million in the prior year. The increase was primarily due to people-related expenses and information technology consulting. Joint venture income was $8 million in the first quarter, compared to $9 million in the prior-year quarter. The decrease was primarily due to a $3 million expense in our India joint venture related to a benefit obligation remeasurement driven by recent labor law changes. Other income was an expense of $7 million compared to income of $1 million in 2025. The increased expense was primarily due to the Cook Filter acquisition, consisting of $6 million in transaction costs. Excluded from adjusted results are one-time costs related to the integration of Cook Filter, which for the full year 2026 are expected to be in the range of $3 million to $8 million, along with approximately $6 million of transaction costs. Additionally, we will exclude intangible asset amortization resulting from the Cook Filter acquisition, which is expected to be in a range of $10 million to $15 million. Adjusted EBITDA in the first quarter was $95 million, or 19.8%, compared to $82 million, or 19.6%, in the prior period. Adjusted EBITDA for Power Solutions was $86 million, or 19.6%, compared to $82 million, or 19.6%, last year. Industrial Solutions adjusted EBITDA was $8 million, or 21.9%. Adjusted earnings per share was $0.69 compared to $0.63 last year. Adjusted free cash flow was $33 million this quarter, compared to $20 million in the prior year. Now let us turn to our balance sheet and the operational flexibility it provides to execute on our growth and capital allocation strategy. We ended the quarter with $210 million of cash on hand. Combined with the full availability of our $500 million revolving credit facility, we have $710 million in available liquidity. Our strong liquidity provides us with operational flexibility to effectively manage our business and to execute growth opportunities. Our cash position and continued strong performance, along with inorganic growth from the acquisition of Cook Filter, has resulted in an estimated net debt to adjusted EBITDA ratio of two times for the last twelve months ended March 31. I want to echo Steph and thank Atmusonians around the world for all of their hard work and dedication to deliver a strong start to 2026. Our disciplined execution of our four-pillar growth strategy, underpinned with a strong balance sheet, will allow us to continue to drive growth and create long-term value for all of our stakeholders. We will now open the call for questions. Operator: Thank you. We do ask that you limit yourself to one question and one follow-up. For any additional questions, please requeue. Your first question comes from Quinn Fredrickson with Baird. Please go ahead. Quinn Fredrickson: Yes. Thank you. Just wanted to start off with a question about pricing. It seemed to come in a bit stronger than you were expecting in 1Q, but it sounds like you have not changed your expectation for the full year at 1%. First, can you confirm that is accurate? And if so, can you unpack why that would be the case, given it sounds like input costs are moving up? Jack Kienzler: Absolutely. Thanks, Quinn, for the question. Overall, I would say our pricing expectations for the full year remain 1%. As we highlighted when we initiated our guide on our last call, part of what you are seeing there is the evolution of tariff dynamics. And so as we talk about that pricing figure of 1%, it is holistic, including both base pricing actions that we took in January, for example, as well as tariff pricing. And as we move through the year, that tariff pricing will reflect the evolution of the tariff dynamics. As you compare year on year, you have different puts and takes as tariffs went up and down relative to specific countries. As we had highlighted, we do expect the first quarter from a year-over-year comparison to be our strongest pricing quarter, and then as tariffs change, and as Steph alluded to in her comments, we expect the full-year impact from tariffs to be essentially flat year over year. In terms of input costs, and whether or not we will be taking price actions for that, as we stand here right now, we are keeping a vigilant eye on those costs. As we noted, we will certainly look to recover those costs either through different things we can do in our supply chain or through pricing. As you know, base pricing is generally done at the beginning and the middle of the year. We would not expect necessarily similar dynamics to what we employed for tariffs to counter those input cost headwinds, and so that is the inherent timing lag that may exist should input costs become a dynamic this year. Quinn Fredrickson: Thank you. That was helpful. And then second question would just be on share gains. Any estimate on what that contributed in the quarter? And then any update to the 150 basis points that you are guiding to for the year? Stephanie Disher: Great. Thanks, Quinn. Let me get started on that one. Stepping back, we are really pleased with the performance in the quarter. It was strong growth. We saw 14.6% growth in the quarter. We were very happy with Industrial Solutions, about 6% growth in the quarter, so a very good start to the acquisition of Cook Filter, and a shout out to that team who performed very well. If I look at Power Solutions, 5.4% growth year on year. That was made up of, as Jack just discussed, 4% in FX and 2% in price, with volume overall slightly down. There is a mix in there of market conditions and share and some other one-time impacts that we experienced in the quarter also. We saw the market was down year on year. First fit was 8% down in our numbers, and aftermarket slightly down. If you start to unpack some of the specific one-time impacts we saw, the Middle East impacted our ability to deliver to our customers in the Middle East in the month of March. That impacted us by about $4 million in sales, about 1%. That was because we could not deliver to our customers for a period of time because of restrictions in the supply chain. We have mitigated those impacts and are now able to overcome that. Obviously, the Middle East conflict is an ongoing challenge, and we continue to monitor it and seek to mitigate those impacts, but in the quarter, it was a 1% impact that we are not expecting to continue. We also saw some stocking dynamics across the world, some within Latin America and Southeast Asia, that we expect are timing. Overall, share was about in the middle of that 1% to 2% level, right on top of the guide and where we are seeing it. That gives us confidence to continue to maintain our guide through the year. In addition, we are seeing positive inflection in the first fit market. We have already seen that coming through in our build rates and orders from customers. That gives us confidence in the second half guide underpinned by a recovery in first fit markets. Quinn Fredrickson: Appreciate all those details. Thank you. Operator: Your next question comes from the line of Joseph O'Dea with Wells Fargo. Please go ahead. Joseph O'Dea: Hi, good morning. Can you unpack Middle East uncertainty a little bit more just from both a revenue and cost consideration perspective? Based on what you see on current market prices, how do you think about the potential cost headwinds there? And then also, you talked about a little bit of supply chain disruption in the quarter, but stepping back, what you see as a potential demand response to ongoing conflict and a revenue impact that you consider? And then I have a follow-up on Cook Filter and aftermarket distribution. Stephanie Disher: Good morning, Joe, and thanks for the question. The Middle East is an ongoing uncertainty for all of us. We have been just over sixty days in the conflict now, and I am certainly in no position to predict how long that continues. The way I am thinking about the impact of the Middle East on our business really is in three key areas. The first of those is input cost pressures. We could see increases in costs related to inflationary pressures or supply shortages. We see the biggest impact for us there in plastics, or petroleum-based products. Right now, we are not seeing a lot that is already impacting or is baked into our forecast. We are really monitoring this as a risk at this point, but we expect to see some pressure on cost as the year plays out. Jack spoke to that. We will obviously look to mitigate those, but there may be some lag here in the second half on pricing, depending on how the conflict continues. The second dimension that may have an impact on our business is our sales in the Middle East. For context, our sales in the Middle East were $38 million in 2025, so about 2% of our overall revenue. We did see a $4 million impact in the first quarter. We are not expecting that to continue through the remainder of the year, but, obviously, we are watching to see how the conflict continues to evolve. And then the third piece, which you rightly pointed out, is the broader business confidence impact on global demand. It is very difficult to predict that. Obviously, our aftermarket is heavily weighted towards economic activity and freight activity around the world and particularly in North America. At this stage, we do not see the conflict having an impact on that, but we continue to monitor business confidence and the projection we are getting from our customers as to the outlook. At this stage, we think that the view of a flat outlook on aftermarket markets year over year still holds. Joseph O'Dea: Those are helpful details. Thank you. And then on Cook Filter and with respect to your pillar of accelerating profitable growth in the aftermarket, any color on how different the distribution network is there and some of the work that is underway or opportunities that you have identified in the near term to go after some of that aftermarket opportunity? Stephanie Disher: Great question. As I alluded to, I am really pleased with the start of the acquisition of the Cook Filter business. They had a strong quarter, 6% revenue growth in the quarter, and we are progressing very well with the integration. We expect to wrap up integration early in the third quarter, and I am very pleased with how that is beginning. The team is very focused on share gains in their markets and orienting the focus of their growth towards higher-growth end markets. There are some similarities between the distribution channel strategies. Our overall broad coverage of products across a very broad distribution network holds across both our Power Solutions business and our Industrial Solutions business, and some of our industrial broad-based distributors that we have signed up in recent times do have coverage across both segments. We will look to leverage the synergies across those distribution channels. Right now, we see plenty of opportunity with the Cook Filter business continuing to target its growth strategy and orienting towards higher-growth end markets, and doing the integration well. Joseph O'Dea: Got it. Thank you. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Please go ahead. Tami Zakaria: Hi. Good morning. Thank you so much. I wanted to revisit the volume comments you have made. For Power Solutions, volume was slightly down against a down number last year. Do you expect volumes to turn positive later in the year in any quarter, maybe driven by aftermarket or first fit due to prebuy? How are you thinking about volume in Power Solutions through the rest of the year? And a follow-up on Cook Filter growth versus market. Stephanie Disher: Good morning, Tami, and thanks for the question. Yes, we do expect volume to grow quarter over quarter through this year. The second quarter is a stronger quarter for us, and then we see the first fit dynamics in the third and fourth quarter starting to come in. We talked about the heavy-duty and medium-duty market adjustment to being 5% to 15% up year over year. We expect that to be all second-half loaded. We are starting to see that progress through the second quarter. We have also already seen increases in build rates, and we will start to see that trend up through the second quarter and through the second half. From a share perspective, we see the 1% to 2% share gain as being about the right balance for us throughout this year. We still see a path to how we will deliver that. With the aftermarket, aftermarket was challenged in the first quarter. We continue to see it operating pretty flat year over year, which is the assumption underpinning our guide. Overall, that leads you to a volume growth environment through 2Q and the second half. Tami Zakaria: Understood. That is very helpful color. On Cook Filter, I think I heard you say 6% revenue growth. Is that all organic? If it grew 6% and you are saying the market would grow 1% to 4%, was share gain 200 to 300 basis points in the quarter? And do you expect roughly 6% growth year over year for the rest of the quarters in the year? Stephanie Disher: We have given a pretty wide range on Industrial, and I appreciate that. It is a smaller number, so as we find our way here, you will give us some grace. Our full-year guide is a growth of 1% to 8% with a midpoint of 4%. If I look at the first quarter performance, it is right where I would expect it to be at about 1% price, 2% share, and about 3% market growth. We expect that market growth to be around that level. I would still position it around the midpoint of 4% for now, but that is the range we are suggesting for Industrial. Operator: Thanks, Tami. Your next question comes from the line of Bobby Brooks with Northland Capital Markets. Please go ahead. Bobby Brooks: Hey, good morning, team, and thank you for taking my question. Now that you have had Cook under the hood for a little longer than three months, I would be curious to hear what are the most compelling cross-sell or growth opportunities you see that are directly arising from your ownership, and then, secondly, opportunities on the cost or manufacturing side? Stephanie Disher: Thanks, Bobby. Let me outline how I am seeing the opportunity of Cook Filter, and then I will ask Jack to talk through the integration activity and the supply chain cost opportunities. Firstly, I am really happy with the first quarter performance. When you do due diligence of an acquisition, obviously we were very thorough, but you then get to work out exactly what is under the hood. Here is what I would say is the opportunity. This was really a market step for us and about expanding into new markets. We really want to support fully the Cook Filter business to do what they do well. They have a very clear plan to continue to expand their share at this 1% to 2% rate with their customers. They have strong, favorable market conditions, and we expect continued growth at a higher rate than our Power Solutions business into the future. Strategically, we want to direct the team’s opportunities around products, customers, and channels to higher-growth end markets. That includes data centers and health care, and there is also a very strong and robust set of opportunities across the broader industrial and commercial HVAC. That is how I would describe the growth strategy. Very pleased with how we have started. Jack, can you comment on the cost and synergy perspective? Jack Kienzler: Thanks, Steph, and thanks, Bobby, for the question. First, I would echo Steph’s comment. We continue to be very excited about the acquisition of Cook Filter. We are really pleased to see a strong cultural fit between the two organizations, which makes collaboration all the more possible. First-quarter performance also demonstrates the margin accretion that the business can deliver to our overall portfolio and the overall potential for the business. On integration, we have made significant progress. Fortunately, we gained a lot of experience through our separation from Cummins, and that has really served us well as we now integrate this business and they go through their own separation from the prior parent. We have completed about half of the TSAs and are on track to complete the integration by early in the third quarter. As I shift to synergies, it has been great to see the teams come together and share learnings between the two organizations, not only on the cost synergies that we outlined when we highlighted the $4 million of potential—things like supply chain procurement savings, etc.—but also other potential growth areas that Steph was alluding to, where we can use our media expertise or some of our product know-how, or, likewise, use their product know-how and products to complement sales upside into each other’s end markets. We are excited about the future. As you know, it is early days—close occurred in January—so we are excited about the potential, and we will certainly update you all as those opportunities come to fruition. Bobby Brooks: Absolutely. Really appreciate the color. And then maybe for Jack, any outlook on tariff recoveries or just how to be thinking about that playing out this year, if so? Jack Kienzler: Thanks, Bobby. First, just to reiterate, our overall approach to tariffs remains unchanged. We will continue to pursue all of our available avenues to mitigate tariff exposure, minimize the impact on our customers, and our overall objective remains unchanged to be price-cost neutral. There has been some evolution from a tariff perspective, so let me give some color. As you all know, effective in early April, the Section 232 steel and aluminum tariffs went into effect. I would just say that there is an immaterial number of our products that qualify under that category, really because most of our products are already qualified under the Section 232 tariffs around heavy-duty and medium-duty products. There is not really an incremental change there for us. Because they qualify under the prior heavy-duty and medium-duty Section 232, the USMCA exemption that we have been availing ourselves of is still valid and something we can take advantage of. Overall, from a refund standpoint, as you all know, a refund mechanism has been established using the CAPE system as of mid to late April of this year. Like other companies, we expect refund requests will be fulfilled once the mechanism is fully operational. These refunds, to our understanding, will be provided in phases, and we are following the normal steps with respect to filing our claim based upon their classification and the status of the entries. I would just say that the timing of those refunds and corresponding treatment in the market in terms of how those ultimately flow through is still highly uncertain, but we will certainly keep you updated as we gain more clarity there. Bobby Brooks: Appreciate the color. Operator: Next question comes from the line of Andrew Obin with Bank of America. Please go ahead. Operator: Andrew, I am sorry. We are having a hard time hearing you. David Ridley-Lane: Oh, sorry about that. This is David Ridley-Lane on for Andrew Obin. Question on the potential impact for you from higher diesel prices. As you are thinking about your commodity and freight, if you snap the line today and assume that diesel prices remained constant, what kind of drag or year-over-year headwind would you be facing? And a quick follow-up on aftermarket performance in the quarter. Jack Kienzler: Yes. Overall, I would say, David, from an input cost perspective, we are monitoring it. That is one of many dynamics that flow through not only directly to us in terms of freight costs, etc., but also to end users in our space who are navigating higher input costs and a challenging freight dynamic overall. Right now, in terms of the impact of those costs, again, as Steph said, we are more in the monitor phase and would expect to react to those in terms of pricing or other supply chain maneuvering to offset. Our guide, as stated, really is in more of a watch-and-see mode on those just now, and we will continue to update that as we move through the year. David Ridley-Lane: Got it. The other question I had, just real quickly, was on the aftermarket performance this quarter. I know you quantified the Middle East headwind, so that was a point overall. You also mentioned some destocking in LatAm and Southeast Asia. I just want to better understand: was this a surprisingly light quarter for aftermarket, and any thoughts you have on reasons why or what you have seen maybe in April? Was there a little bit of recovery? Thank you. Stephanie Disher: Thanks, David. The first quarter is always a little challenging for us. There are some dynamics between fourth quarter and first quarter, and we see this in North America a little bit. If you look at published results of our customers, you see this reflected as well—there is some stocking up at the end of the fourth quarter, and then you see some timing impacts of that into the first quarter. So I think there is some impact there in the first quarter. We do see improved volume performance throughout the year. In aftermarket, the second quarter is the strongest quarter for us, and then we see the tailwinds on the first fit side in the second half. Hopefully, that gives you some additional insight. David Ridley-Lane: Thank you very much. Operator: We have no further questions in our queue at this time. I would now like to turn the conference back over to Todd Chirillo for closing comments. Todd Chirillo: Thank you, Krista. That concludes our teleconference for the day. Thank you for participating and for your continued interest. Have a great day. Operator: Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. First Quarter 2026 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would like to remind everyone that this conference call is being recorded on 05/01/2026, 11:00 AM Eastern Time. I would now like to turn the conference over to Candace Brule, Senior Vice President, Capital Markets and Corporate Affairs. Please go ahead. Candace Brule: Thank you, operator. Good morning, and welcome to Hudbay Minerals Inc.'s First Quarter 2026 Results Conference Call. Hudbay's financial results were issued this morning and are available on our site at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor Events section of our website, and we encourage you to refer to it during this call. Our presenter today is Peter Gerald Kukielski, Hudbay's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Eugene Lei, our Chief Financial Officer, and Andre Lauzon, our Chief Operating Officer. Please note that comments made on today's call may contain forward-looking information and this information, by nature, is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR+ and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. I will now pass the call over to Peter Gerald Kukielski. Peter Gerald Kukielski: Thank you, Candace. Good morning, everyone, and thank you for joining us on today's call. We have had a great start to the year, achieving several key operational, financial, and growth milestones. Hudbay Minerals Inc. delivered another quarter of record revenue, record adjusted EBITDA, and record adjusted earnings in the first quarter. This was driven by steady operating performance, our focus on cost control, and the continued benefit from margin expansion with our unique mix of copper and gold exposure. Our leading operating cost performance resulted in record low consolidated cash costs in the first quarter, which contributed to continued strong free cash flow generation. With the strong performance in the quarter, all our operations are on track to achieve 2026 production and cost guidance. Building on our commitment to prudent balance sheet management, we ended the quarter with over $1 billion in cash and cash equivalents, benefiting from $420 million received from Mitsubishi for their initial cash contribution on closing of the Copper World joint venture transaction in January. Our enhanced financial flexibility has positioned us well to continue advancing the development of Copper World, reinvest in high-return opportunities at each of our operations, and de-risk the Cactus project upon completion of the acquisition of Arizona Sonoran to deliver attractive growth and maximize long-term risk-adjusted returns at each of our operations for stakeholders. Slide three provides an overview of our first quarter operational and financial performance. The first quarter demonstrated strong operating performance with higher mill throughput across the three operations compared to the previous quarter, delivering consolidated copper production of 28 thousand tonnes and consolidated gold production of 62 thousand ounces. We achieved record quarterly revenues of $757 million and record adjusted EBITDA of $422 million in the first quarter. Cash generated from operating activities was $211 million, remaining relatively consistent with the fourth quarter as a result of favorable changes in non-cash working capital. First quarter adjusted net earnings were a record of $159 million, or $0.40 per share, reflecting higher realized metal prices and strong cost control across the operations resulting in higher gross profit margins. During the first quarter, we continued to demonstrate industry-leading cost performance, delivering record low consolidated cash costs of negative $1.80 per pound of copper and sustaining cash costs of $0. This incredible cost performance was partially driven by higher gold byproduct credits, reflecting the benefits of Hudbay Minerals Inc.'s unique commodity diversification. Turning to Slide four, Hudbay Minerals Inc. has delivered several quarters of significant free cash flow generation as a result of steady operating performance, expanding margins from strong copper and gold exposure, and our cost control efforts. With our enhanced balance sheet and diversified free cash flow generation, we are well positioned to fund our attractive growth pipeline. Our cost control efforts are focused on navigating emerging external cost pressures such as higher fuel prices and short-term labor challenges. We have not experienced any disruption to fuel availability and have been able to mitigate the cost pressures through initiatives to further improve throughput and enhance operating efficiencies. We are well insulated from external cost pressures due to our diversified platform with significant byproduct credits from gold production and the polymetallic nature of our ore deposits. While most of our revenues continue to be derived from copper, revenue from gold represents a meaningful portion of total revenues, with 39% of gross revenues from gold in the first quarter. After accounting for our sustaining capital investments but before growth investments, we generated $102 million in free cash flow during the quarter, bringing our trailing twelve-month free cash flow generation to $400 million. As mentioned earlier, we ended the first quarter with over $1 billion in cash and cash equivalents, and as of March 31, our total liquidity was $1.4 billion. Our net debt at the end of the quarter was nearly zero, bringing our net debt to EBITDA ratio to its lowest point in more than a decade. Consistent with our prudent balance sheet management and focus on cost of capital, following the quarter, we repaid our outstanding 2026 senior unsecured notes on maturity on April 1. We used a combination of cash on hand and a $272 million draw on our low-cost revolving credit facilities. After giving effect to this repayment, Hudbay Minerals Inc.'s total liquidity decreased by $473 million to $957 million. This continues to provide us with significant financial flexibility as we advance Copper World towards a sanctioning decision later this year. Turning to Slide five, the Peru operations continued to demonstrate steady operating performance with production and costs in line with expectations. The operations produced 21 thousand tonnes of copper, 9 thousand ounces of gold, 530 thousand ounces of silver, and 380 tonnes of molybdenum during the first quarter. Production of copper and gold was lower than the fourth quarter due to the depletion of the higher-grade Pampacancha ore in late 2025. Mill throughput levels averaged approximately 90.7 thousand tonnes per day in 2026, achieving a new quarterly record. The team's efforts to increase mill throughput align with the Peru Ministry of Energy and Mines regulatory change allowing mining companies to operate up to 10% above permitted levels. On March 6, Hudbay Minerals Inc. received a permit approval to increase annual mill throughput capacity to 31.1 million tons (29.9 million tonnes), setting a new base for the 10% permit allowance. We continue to advance the installation of pebble crushers later this year to further increase mill throughput rates in 2026, and we are on track to achieve 2026 production guidance for all metals in Peru. First quarter cash costs in Peru were $0.70 per pound of copper, a 23% increase compared to the fourth quarter due to lower byproduct credits, offset by lower profit sharing, lower power costs, and lower treatment and refining charges. Cash costs in the quarter outperformed the low end of the annual guidance range as a result of strong operating cost performance and temporarily higher gold byproduct sales from Pampacancha despite emerging external cost pressures. We are well positioned to achieve the full-year cost guidance range in Peru. During the quarter, Constancia was recognized as the safest open pit operation in Peru during the National Mining Safety Contest for our performance in 2025. This reflects our company's unwavering commitment to safety and validates Constancia's compliance with the highest operational safety and regulatory standards. Moving to our Manitoba operations, on Slide six. The first quarter demonstrated strong operational agility in mitigating lower equipment and labor availability at the Lalor mine while continuing to prioritize gold ore feed for the New Britannia mill. This strategy successfully maintained strong gold production in the first quarter, supported by higher mill recoveries compared to 2025. Our Manitoba operations produced 48 thousand ounces of gold, 2.5 thousand tonnes of copper, 5 thousand tonnes of zinc, and 213 thousand ounces of silver in the quarter. Production of gold was higher than in the fourth quarter due to higher gold recoveries and higher mill throughput, while all other metals were lower primarily due to lower grades. Production in 2026 is expected to be higher than in 2025 due to grade sequencing and higher ore output from Lalor. With solid operating results in the first quarter, we are on track to achieve 2026 production guidance for all metals in Manitoba. The Lalor mine hoisted an average of 3.9 thousand tonnes of ore per day in the first quarter, strategically prioritizing gold zones to secure optimal feed for the New Britannia mill. Total ore mined was lower than the prior quarter because of lower effective utilization of equipment due to reduced workforce availability. This was offset by successfully onboarding nearly 80 new employees as recruitment and upskilling of employees are underway to increase proficiency of frontline employees. The New Britannia mill averaged approximately 2 thousand tonnes per day in the first quarter and benefited from continuous improvement initiatives to unlock future throughput capacity. Gold recoveries of 90% at the New Britannia mill reflect ongoing optimization efforts. Similarly, the Stall mill achieved improved gold recoveries of 73% in the first quarter, reflecting process optimization and enhanced gold recovery initiatives. The 1901 deposit delivered 11 thousand tonnes of development ore in the first quarter. The team continues to advance haulage and exploration drift to further delineate the ore body and support ongoing infrastructure projects. Looking ahead, we plan to prioritize exploration definition drilling, ore body access, and establish critical infrastructure at 1901 in preparation for full production in 2027. Manitoba gold cash costs in the first quarter were $4.08 per ounce, outperforming the low end of the guidance range. We are well positioned to achieve our 2026 cash cost guidance range. In British Columbia, we continue to focus on advancing our multiyear optimization plans, achieving significant milestones in both mining productivity and project permitting in the first quarter, and remain on track to deliver the benefits of the stripping program and unlock higher-grade ore later this year. As shown on Slide seven, Copper Mountain produced 4.1 thousand tonnes of copper, 5.2 thousand ounces of gold, and 43 thousand ounces of silver in the first quarter, in line with our guidance and planned mine sequencing. Production was supported by a higher mill throughput, offset by lower grades compared to the fourth quarter. We remain on track to achieve our 2026 production guidance expectations for all metals in British Columbia, with higher production expected in the second half of the year as mill improvements take effect. Mining activities reached a record total material movement of over 25 million tonnes in the first quarter driven by an optimized mining sequence in the Main Pit and increased contributions from the North Pit. This ramp up was supported by the successful commissioning of a new production loader in January. To further bolster the equipment fleet and add to this momentum, a new shovel has been recently commissioned. Drilling throughput benefited from the completion of the second SAG mill and the mill optimization initiatives implemented in late 2025, resulting in increased mill throughput in 2026. The second SAG mill achieved increased throughput in the quarter and averaged 10 thousand tonnes per day in March. The primary SAG mill continues to operate under a reduced load and is being rigorously monitored prior to the head replacement scheduled for late June and into July. The mill remains on track to achieve its permitted capacity of 50 thousand tonnes per day in 2026. British Columbia cash costs were lower than the prior quarter, delivering cash costs of $2.41 per pound of copper as a result of higher gold byproduct credits and resolving the unplanned maintenance downtime issues experienced in the prior quarter. First quarter cash costs were within the guidance range and despite emerging external cost pressures, we remain on track to achieve 2026 cash cost guidance in British Columbia. During the quarter, the New Ingerbelle project reached a major milestone in February with the receipt of the Mines Act and the Environmental Management Act amended permits from provincial regulators. The New Ingerbelle project supports continued copper production, increased gold production, and further mine life extensions. The project is designed to access higher-grade mineralization while improving operational efficiency with a stripping ratio approximately three times lower than current mining areas. With these permit approvals, we are advancing critical infrastructure required for the expansion. This includes the construction of an access road, a bridge across the Similkameen River, and the development of an east haul road link to New Ingerbelle with existing operations. A large drill program was initiated during the first quarter at New Ingerbelle to improve resource definition and expansion. We are pleased to receive the news this week that the B.C. government has added the New Ingerbelle project to the province's list of priority resource projects. This list highlights the acceleration of major projects that strengthen economic growth, support resource development, and create jobs and long-term value. Turning to Slide eight, we announced our annual mineral reserve and resource update along with an improved three-year production outlook during the quarter. We extended Snow Lake's mine life by four years to 2041, maintained Constancia's mine life to 2040, and extended Copper Mountain's mine life by two years to 2045. Consolidated copper production is expected to average 147 thousand tonnes per year over the next three years, representing a 24% increase from 2025. This growth is driven by higher expected copper production in British Columbia from the mill throughput ramp up in 2026, higher grades in British Columbia in 2027 from the completion of the accelerated stripping program, and higher expected mill throughput in Peru starting in 2026. Consolidated gold production is expected to average 243 thousand ounces per year over the next three years, reflecting continued strong production in Manitoba and the expected contribution from New Ingerbelle in British Columbia starting in 2028. We have already made significant progress in advancing many of our corporate and strategic objectives so far this year, and we anticipate many more key catalysts to come from our portfolio of long-life assets in Tier 1 jurisdictions, as shown on Slide nine. Our prudent balance sheet management, strong financial flexibility, significant free cash flow generation from strong exposure to higher copper and gold prices, and continued margin expansion has positioned us to be able to advance generational growth investments across the portfolio. In Peru, we will deliver higher mill throughput in the second half of the year as we complete the installation of two pebble crushers, which will grow copper production in 2027 and 2028. We also continue to progress exploration plans in Peru, including at the Maria Reyna and Caballito properties, to provide long-term growth potential at Constancia. In Manitoba, we continue to advance optimization initiatives and exploration efforts to demonstrate an enhanced production profile and expanded mine life. Exploration activities are underway at the 1901 deposit as we advance towards production in 2027, and an expanded exploration program at Talbot is focused on upgrading mineral resources to reserves and expanding the deposit footprint at depth. In British Columbia, we expect to continue to see operational improvements in the second half of the year as we complete our optimization initiatives and advance this operation towards its free cash flow inflection point later this year. Following the receipt of the New Ingerbelle permits earlier this year, we have commenced construction of critical infrastructure for the development of the deposit to access the higher-grade mineralization and drive further cash flow growth starting in 2028. We have also launched the largest exploration program at New Ingerbelle to further increase mine life extension potential. On Slide 10, during the first quarter, we made significant steps towards enhancing our United States copper growth pipeline. At Copper World, as I mentioned earlier, we announced the closing of the Mitsubishi joint venture transaction establishing a long-term strategic relationship with a premier partner. The initial $420 million in cash proceeds will be used to directly fund the remaining pre-sanctioning costs and the initial project development costs following a sanctioning decision later this year. Feasibility activities at Copper World are well underway, with the DFS progressing above 85% completion at March and remaining on track for completion in mid-2026. In March, we announced the acquisition of Arizona Sonoran, establishing a major copper hub in Southern Arizona with the addition of the Cactus project to our existing Arizona business. This transaction further strengthens our position as a premier Americas-focused copper company, enhances our U.S. growth pipeline, and creates significant operational efficiencies and regional synergies with the staged development of Copper World and Cactus. The transaction has received strong shareholder support and is expected to close in 2026. We have also commenced pre-feasibility study activities at our Mason copper project in Nevada. We expect the study to be completed in 2027. While Mason is not expected to come into production until after Copper World and Cactus, its larger production base will position it as the third-largest copper mine in the U.S. As we continue to advance all of these attractive growth initiatives across the portfolio, we remain committed to prudently allocating capital to the highest risk-adjusted return opportunities to deliver significant value for stakeholders. Concluding on Slide 11, our focus on demonstrating continued operational excellence while prudently advancing our many organic growth opportunities will deliver significant copper production growth. Over the next three years, we expect to increase production by 24% through attractive brownfield investments while continuing to advance our attractive U.S. pipeline to meaningfully expand annual copper production levels. By the end of the decade, we expect to increase our annual copper production by more than 70% to approximately 250 thousand tonnes with Copper World. And with the staged development of Cactus and Mason to follow, we have a pathway to 500 thousand tonnes of copper by the middle of the next decade. The most compelling part of this industry-leading copper growth profile is that our growth assets are low risk, low capital intensity projects located in some of the best mining jurisdictions in the world, and we have the team, the balance sheet, and strong financial plan to deliver this pipeline. This is largely driven by a diversified operating platform with significant exposure to complementary gold and our expanding margins. I have no doubt that our continued focus on delivery and execution will continue to drive significant value for all our stakeholders. And with that, we are pleased to take your questions. Thank you. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Our first question is from Ralph Profiti with Stifel Financial. Please go ahead. Ralph Profiti: Thanks, operator, and good morning. Thanks for taking my question. Peter and Eugene, there has been a lot of work being done at Copper World on long-lead items ahead of the definitive feasibility study. Do you have a goal for how much of the revised budget, by the time sanctioning does come, will be locked in, contracted, and committed? I am trying to get a sense of how much work can be done ahead of time to manage inflationary pressures. Peter Gerald Kukielski: Thanks, Ralph. Great question. We certainly will lock in a significant amount of the equipment. For example, we already have pricing on fleet. We have the opportunity to lock in fleet pricing right now. We have pricing from vendors for primary equipment that we are going to procure, and we are ensuring that we have space in the production facilities right now. I would say between the issue of the DFS and FID, we will lock in pricing on all of that equipment. Andre, any comments you might have in addition? Andre Lauzon: Yes, I agree on long-lead and there are also some critical path items that we have been moving along. We started construction of our waterline, taken some initial blasts, and we are pioneering our haul roads as we speak. Those are already in our budget for the year. Like Peter said, the big ones are already in place. Ball mills, SAG mills, all those costing items are coming forth. Eugene Lei: Ralph, if I could just add one more point. You will recall that when we announced the joint venture transaction last August, we increased the 2025 budget for long-lead items. We did not just react to this today. We have been thinking about this for well over a year. We have been placing orders and getting ourselves ready for the FID decision well over a year in advance. Ralph Profiti: Great. That is very helpful. And maybe as a follow-up, a point of clarification, Peter, on the LSIB judicial review. This is a process that is actually tied to the regulatory government process itself and sits outside of Hudbay Minerals Inc.? Are you needing to have a legal strategy around this to preserve the 2028 timeline for New Ingerbelle? Peter Gerald Kukielski: Yes, great question, Ralph. In March, the LSIB submitted an application for review of the regulatory decision to grant the permit amendment. We remain very confident in the integrity and the robustness of that regulatory process that led to the issuance of the permit amendment, and we believe that the court will uphold the decision. At the same time, we remain committed to working with the LSIB in a respectful and constructive manner to try to resolve their concerns through the mechanisms that were agreed to by the parties in the participation agreement. Their issue is not with us, it is with the government, and we have a constructive relationship with them and will continue to ensure that we continue to drive that relationship. Ralph Profiti: Great. Thank you for that clarity and for your answers. Operator: The next question is from George Eadie with UBS. Please go ahead. George Eadie: Yes, hi, thanks for the call today. Following up on that question from Ralph, on the Copper World CapEx, Peter and Eugene, how much can you lock up in the next twelve months or so in terms of dollars? Are we talking 20% to 30% of the CapEx spend you can fix in that period? Is that a reasonable estimate? And we have seen a zinc project nearby this week materially lift CapEx, and while part of that is scope change, how can we get meaningful conviction that in twelve months you can avoid that risk? Eugene Lei: Lots of careful planning. We have had a lot of time to think about this project over the years, and the feasibility study for a similar project was completed a decade ago. We also have a certain amount of equipment already in storage and obviously not subject to cost inflation. In terms of the actual percentage in dollars, we are still working on the final estimate in the DFS. We do not know that number yet. We have been very clear that we expect there to be some cost inflation and escalation related to the final CapEx number from the pre-feasibility number that was released three years ago. As you know, there has been inflation, but that three-years-ago number was post the biggest wave of inflation post-COVID. So we are not expecting a blowout in terms of capital. We are approximately 85% done with the feasibility study. We will release that likely in the third quarter, midyear as expected, with an FID to follow. We do not have any further clarity or any guidance on the actual CapEx number at this moment. Peter Gerald Kukielski: I would add, George, that we are following an integrated project delivery system, which incorporates a number of the contractors and engineers in the overall project management structure. So the development of the estimates that we have will, in no small measure, include their estimates of their own contributions. The constructors and engineers we are using have actually participated in several of the projects that have been developed in the U.S. recently, and they will have deep insight into the evolution of costs over the last couple of years in any case. That will be reflected in the definitive feasibility study. Andre Lauzon: To the original question around percentages, it is tough, like Eugene said, but we do have insights in terms of the fleet. If you recall from the pre-feasibility study, the fleet is 10% to 15% of the overall cost, and the numbers that we are receiving are in line with our estimates. That is a good sign to start. You will recall this project is one of the lowest capital intensity projects in the copper space. It is not subject to some of the larger cost flows we have seen in the sector. It is not at altitude and is about 26 miles from Tucson, so some of the inherent infrastructure challenges that have plagued other builds do not apply to this project as much. We are confident there will be a very robust economic case for this project, as evidenced by Mitsubishi joining at the PFS level a few months ago. George Eadie: Okay, yes, that is helpful, thanks. Pivoting slightly, at Cactus, when will we get an updated PFS with Hudbay Minerals Inc.'s overlay post-transaction closing? Could that be by year-end, or is it still going to be some time next year? And what is the latest on the permit amendments too, please? Andre Lauzon: Sure. I will take that. The vote is still to come in a couple of weeks. We are quite excited about the project and the teams. We are very pleased with the quality of the teams currently working for Cactus and excited for them to be part of ours. The next step, once the vote goes through, is to sit with the teams and regroup. There are lots of synergies with Copper World and our view of the acquisition. Getting their understanding as well will go into next year. It is not a year-end thing. Realistically, it is into 2027 for sure. In terms of permitting, the teams are progressing permitting at site and having discussions locally with the county. The permitting and the revisiting of that is on track and moving forward, and we are supportive. The synergies include looking at fleet; we just completed negotiating a large fleet for Copper World. Once we go through closing, there will be opportunities for Cactus when we look at it altogether. But end of the year would be rushed; it is definitely into next year. George Eadie: Okay. Thanks, guys. All the best. Operator: The next question is from Fahad Tariq with Jefferies. Please go ahead. Fahad Tariq: Maybe just any color on input cost pressures or supply constraints that you are seeing? I do not think I saw anything in the presentation or in the press release. If you could comment on that, that would be helpful. Thanks. Eugene Lei: I can take that. I assume, Fahad, you are referring to current fuel and oil prices and the like. From Hudbay Minerals Inc.'s standpoint, we are fairly well insulated from these emerging cost pressures. As you saw, we held costs very well in the first quarter and, while prices for oil were not yet elevated, our operations are minimally affected. In Peru, about a $10 increase in the price of oil per barrel is about a $0.04 cash cost increase per pound of copper. In B.C., given the heavy stripping that we are doing, that is a little higher, about $0.10 per pound produced. If you think about oil today and, for example, current prices were to hold, oil is about 50% higher than our original budgeted amount for the year, and that would result in about a $45 million hit to cash flow if oil prices were to persist at this level for the whole year. We have a natural hedge of gold in our portfolio that more than insulates that cost. Gold is about 20% higher than what we budgeted for the year, and if these gold prices were to hold for the rest of the year, the impact of that would be close to $200 million. So, in terms of the net effect, what we have with the gold that we produce in the portfolio is a natural hedge against larger cost inputs like oil. We feel very well positioned. Peter Gerald Kukielski: And, Fahad, I would also add that one of our primary cash flowing assets, which is Manitoba, is largely insulated from the effects of oil prices since we use very little oil in Manitoba at all. Most of our underground equipment is electrically driven or battery driven in any case. Fahad Tariq: Okay, great. That is really clear. And then switching gears to the growth profile, can you remind us in terms of the sequencing between Cactus and potentially Copper World Phase 2, how you are thinking about that assuming those permits happen at some point and you are in a beneficial situation of being able to select between the two? Peter Gerald Kukielski: For sure. It makes absolute sense to progress Cactus in sequence with Copper World because there are a lot of synergies between the two projects. As Andre mentioned, we would continue with updating the pre-feasibility study of Cactus, move from that into definitive feasibility, and get all the permits in place so that once Copper World Phase 1 is in production, we would be able to phase the construction of Cactus and bring that online subsequent to Copper World. For Phase 2, we would not want to apply for permits until Phase 1 is in operation because we do not want to get things mixed up. It will take several years to get the permits for Phase 2, so it makes absolute sense to progress Cactus, and then Phase 2 would come in after Cactus. Andre Lauzon: And Cactus is a little different than Copper World. At Copper World, a lot of CapEx is around building a facility and infrastructure. At Cactus, it is more of a stripping exercise leading into building an SX-EW plant. It is very low risk in terms of execution of moving material. It is about purchasing the fleet and executing the plant. So, as Peter said, there is a timing element and it almost naturally fits. Operator: The next question is from Dalton Baretto with Canaccord Genuity. Please go ahead. Dalton Baretto: Thanks. Good morning, guys. Staying on the sequencing theme between Copper World Phase 1 and Cactus, given what has been going on with sulfur and sulfuric acid pricing, demand for U.S.-made cathode, and the timing of the sequencing, has anything changed in your thinking as it relates to the feasibility study around the Albion facility? Peter Gerald Kukielski: Great question. Nothing has really changed. The DFS is a continuation of the PFS, pretty well the same. Andre Lauzon: What we could do is, during the update of the PFS for Cactus, take a look at the sequencing or the timing for the development of the Albion facility. That will be something that we look at as part of the Cactus PFS rather than the work that we are doing on Copper World right now. To build on that, the other project in Manitoba where we are looking at getting the gold out of the Flin Flon tails is progressing quite well with the studies. There is still more to go, but one of the byproducts there is also sulfur—molten sulfur and sulfur products. There is lots of optionality in our portfolio to produce sulfur that would benefit the Cactus project, where ultimately what you are trying to get is acid for the heap leach. Whether it is advancing Albion, as you suggest, or producing a lot more gold in Manitoba and doing the other, we will evaluate all those at the right time. Dalton Baretto: Understood. And then once the feasibility study drops midyear, outside of the financing package, what are some of the other gating items to get you to FID? Peter Gerald Kukielski: Obviously, getting our partner on board. The partner is already on board in many respects, but they have their own internal approval process that we need to respect. There will be some time between the completion of the definitive feasibility study and the final investment decision in respect of what our partner needs. Andre Lauzon: They are actively working with us. We are meeting with them. They absolutely do not want to be a barrier. We are all aligned on rock in the box and hitting that first production. They have been really great to work with, and we do not see any barrier to spending the money. Eugene Lei: The $420 million that they deposited in January at close is being used to advance the feasibility study and will be the first capital spent when we FID this project. Andre Lauzon: We do not see the FID being a barrier to rock in the box and first production. All the allowances we have made and the critical path items we are focusing on are keeping us on track. Dalton Baretto: Great. Thanks. And finally, Peter, can you comment on some of the political developments in Peru right now and whether that is translating into any form of social unrest? Peter Gerald Kukielski: The social landscape has been complicated since the unrest we saw last year. With the federal elections underway right now, there may continue to be periods of heightened social unrest. The general election was held on April 12, and from the initial voting, there is not yet a clear result of who the second candidate is. The first candidate, as everybody knows, is Keiko Fujimori. By mid-month, it probably becomes clear who the second candidate is. Frankly, federal elections do not really impact Hudbay Minerals Inc., as we have seen many different presidents since we started operations ten years ago. What has been constant in those years has been the stable fiscal regime, which we do not expect to change. We have seen left-wing presidents, right-wing presidents, and everyone in between. Peru is a leading copper production nation globally, and the new president will recognize the importance of mining to the country. It will be business as usual for us. We have no concerns with respect to the upcoming election. I do not think it will result in heightened unrest. There may be bouts of it, but we are well positioned to deal with it. Operator: The next question is from Stefan Ioannou with Cormark Securities. Please go ahead. Stefan Ioannou: Hi, can you hear me okay? Maybe following on the Peru theme. In the slide, you mention preparing for Maria Reyna and Caballito exploration. I assume that involves more local social considerations. Is there any update on when we might be able to put a drill rig in the ground there? Peter Gerald Kukielski: There are no changes to the remaining steps in the permitting process, which includes the government’s Previa process with the local community. With the election underway, that process is delayed. There are community elections later in the year. We think once those elections have been held, we will move forward towards getting the permits. Permits are delayed, but we think we are coming to the end of that period of delay as we move past the general election and the community elections, and then we probably see some movement towards the end of the year. Stefan Ioannou: Okay, great. Thanks very much. Operator: The next question is from Matthew Murphy with BMO. Please go ahead. Matthew Murphy: Hi. I wanted to ask about the labor balance at Lalor. You mentioned it a few times. Some challenges in Q1—maybe you can elaborate on what you are seeing and how you are addressing it? Andre Lauzon: Sure. There have been some challenges. They are not new; we have gone through this before. We saw a bit of a peak toward the end of Q1, and we are working through it now. We are bringing more people into the organization, and that takes a little time to train—more of a medium-term fix. In the very short term, the team is looking at the 1901 ore body, which we have been developing ourselves, and we have a lot of skilled employees there. The team is working on contracts with a mining contractor for that isolated area as a nice fit, and then we will redeploy our resources into the shortfalls within the mine. There are several initiatives underway, but those are the main ones. We have this in hand. It is something we have done before. It is just a blip, and we are working through it. Peter Gerald Kukielski: And, Matt, we were straightforward in the results release that we remain on track to achieve the annual production guidance ranges in Manitoba regardless of any labor issues and ups and downs that we might see. The team has it well in hand. Andre Lauzon: We will still be within production and cost guidance, even with those extra costs. Matthew Murphy: Got it. Okay. Thank you. Operator: The next question is from Lawson Winder with Bank of America Securities. Please go ahead. Lawson Winder: Thank you, operator, and good morning, Eugene and Andre. Thank you for today’s update. Could I ask about capital return? In light of the recently revamped capital return framework and the stronger balance sheet, and considering the growth capital needs and the buyback renewal approval, can we consider the probability that Hudbay Minerals Inc. might be more active in the buyback in 2026 as a higher probability than in 2025 when the buyback was not acted upon at all? Eugene Lei: Hi, Lawson. I can take that question. We look at this holistically, and the capital allocation framework was meant to provide us, beyond that 3P plan, the way to advance the company. With the framework, we are able to do three things: fund the development of Copper World, reduce debt with a goal of less than 1x net debt to EBITDA through the life cycle of the build, and fund generational investments in brownfield projects at each of our operating sites. Given the progress we have made on the balance sheet, we are able to consider shareholder returns well ahead of our goal to be a meaningful dividend payer with the development of Copper World. We started thinking about that earlier this year with the capital allocation framework, and the first step was increasing our dividend. It was a nominal increase, but it was the first dividend increase we have had in our history. We would like to ramp into that if we have the opportunity and if these prices were to hold, while making generational investments and providing shareholder returns. The NCIB was put in place as good housekeeping, as a tool to smooth market volatility. It is something we want to be able to access at the right time. We are not committing to any set dollar amount of share buybacks at this time. We do not think that is the right way to set our capital allocation priorities, particularly during the year of sanctioning at Copper World. If we have the opportunity to have excess capital at the end of the year, we can relook at the dividend and see if we can enhance that as part of the whole capital allocation framework. Peter Gerald Kukielski: I would also add that we want to have all options available to us, but right now the most important thing for us is delivery. I am confident that the culture of consistent operational and financial delivery that we are building will ensure we are the gold standard in the copper space, as we referred to in our release. Lawson Winder: Thank you. One other follow-up on capital return: I am not entirely clear on the potential spending at Mason. You are advancing plans to initiate a pre-feasibility study. Can you remind us what you think you are going to spend in 2026 on Mason? Could that change? Is there a range, or is it fixed? Eugene Lei: We are starting that process, and approximately $20 million is allocated to advancing Mason this year. That will be expensed, as it is not yet in reserve. That is essentially a fixed budget number. There is not much we can increase that by in terms of moving ahead. We are starting the pre-feas and that will take the better part of a year or two. Andre Lauzon: It is mostly studies—studies, some drilling, some geotech, hydrology. Lawson Winder: Okay. Fantastic. Thank you all very much. Operator: The next question is from Analyst with Haywood. Please go ahead. Analyst: Thanks. Peter or Andre, following on the discussion with respect to sequencing in Arizona, do you feel comfortable giving a date in terms of production start for Copper World, for Cactus, and for Phase 2, just to give us a broad sense of what this is going to look like over the long term? Peter Gerald Kukielski: Sure. Copper World targeted dates will be released with the DFS, but it is pretty well mid-2029 for rock in the box. Cactus would be sometime after that. As Andre said, Cactus is more an earthmoving effort than anything else. We have to move rock, do some stripping, develop the heap leach piles, and then build an SX-EW plant. There could be concurrent activity on mining between one and the other, but it remains to be seen during the PFS update what that will look like and the actual sequencing. Andre Lauzon: We are not slowing down Cactus studies. We will move those forward as fast as we can. Depending on where we are with Copper World, metal prices, and all that, we could start stripping—things that are very straightforward—while we are doing detailed engineering. We want to keep that optionality open. Analyst: Understood. On overlap, if you start in mid-2029 at Copper World, would you consider a start-up at Cactus within 18 to 24 months of that start-up, or do you need longer lead time? Andre Lauzon: That is possible and reasonable. Pre-feasibility is roughly a year and feasibility is another year. Layer on concurrent permitting updates. One thing we do know is you have to strip rock, and at the right time that costs money. How Copper World is going, where metal prices are, and permits in hand will drive timing. We are not slowing anything with Cactus. We want everything ready as fast as possible. It is optionality for us. In the next five years, we could potentially triple copper production and Cactus is a key part of it. Peter Gerald Kukielski: In terms of Phase 2, we will apply for permits pretty quickly once Phase 1 is up and running. The question is the duration of permitting. It will certainly take longer to permit Phase 2 than to bring Cactus into production. Phase 2 is not a massive effort, and there are nice surprises in Phase 1 that will come out. Analyst: And finally on New Ingerbelle, what are the implications of bringing New Ingerbelle on in 2028 from a production perspective? Peter Gerald Kukielski: For gold, it is basically more gold and mine life. It is roughly double the gold grade of what we are currently producing. Andre Lauzon: There is some stripping that goes along with it, but it is a great cash flow generator for us, particularly at these metal prices, and with about a third of the stripping ratio of current areas. Eugene Lei: The average gold production with New Ingerbelle essentially doubles from about 20 thousand ounces of gold per annum to about 40 thousand ounces per annum. It would be a very nice complement to the consistent copper production, and the mine life of New Ingerbelle on a reserve basis today is ten years. We started drilling at New Ingerbelle and expect to convert a lot of the inferred, so we are likely to see something much closer to double that mine life as we continue to drill and convert that resource. Analyst: Alright. Okay. Thanks. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Candace Brule for any closing remarks. Candace Brule: Thank you, operator, and thank you, everyone, for participating today. If you have any further questions, please feel free to reach out to our Investor Relations team. Thank you and have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Rimini Street Q1 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 30, 2026. I'll now turn the call over to Dean Pohl, Vice President, Treasurer and Head of Investor Relations. Please go ahead. Dean Pohl: Thank you, operator. I'd like to welcome everyone to Rimini Street's Fiscal First Quarter 2026 Earnings Conference Call. On the call with me today is Seth Ravin, our CEO and President; and Michael Perica, our CFO. Today, we issued our earnings press release for the first quarter ending March 31, 2026, a copy of which can be found on our website under the Investor Relations section. A reconciliation of GAAP to non-GAAP financial measures has been provided in the tables following the financial statements in the press release. An explanation of these measures and why we believe they are meaningful is also included in the press release and our website under the heading About Non-GAAP Financial Measures and Certain Key Metrics. As a reminder, today's discussion will include forward-looking statements about our operations that reflect our current outlook. These forward-looking statements are subject to risks and uncertainties that may cause results to differ materially from statements made today. We encourage you to review our most recent SEC filings, including our Form 10-Q filed today for a discussion of risks that may affect our future results or stock price. Now before taking questions, we will begin with prepared remarks. With that, I'd like to turn the call over to Seth. Seth Ravin: Thank you, Dean, and thank you, everyone, for joining us. First quarter results. Our first quarter results reflect continued growth and accelerating momentum. A growing number of organizations are leveraging Rimini support and our proven Rimini Smart Path to execute their global ERP and operational transaction processes faster, better and cheaper with more agility and speed to value, all within existing budgets. Rimini Street can help just about any organization lower its total operating costs and improve competitive advantage or improve return for government constituents using technology. We delivered strong growth in adjusted calculated billings and adjusted ARR and expanded remaining performance obligations year-over-year, adjusted for the Oracle PeopleSoft support and services wind down and which includes new logo and renewal subscription sales. We also continue to make additional strategic investments in our next-generation Rimini Agentic AI ERP solutions that can be quickly deployed over existing ERP software without the cost and risk of unnecessary upgrades, migrations or re-platforming. During the quarter, we closed 11 new client transactions with over $1 million in TCV and totaling $33 million compared to 5 transactions totaling $5.6 million during the same period last year. We added 50 new logos that included household global and regional brand wins. The combined strength of the second half of 2025 and first quarter 2026 results give us continued confidence in delivering growth in fiscal 2026, positioning the company for increased growth and profitability. We are continuing our evolution beyond our position as the premier third-party enterprise software support provider to a leader in also helping clients modernize their existing business transaction systems in the AI era. We are now the software support and Agentic AI ERP company. Today, more than 1,900 Rimini Street employees in 22 countries are helping organizations avoid unnecessary, costly and risky ERP and other enterprise software upgrades, migrations and re-platformings that often deliver low ROI and offer little competitive advantage. Instead, Organizations can invest in modernization of their existing systems, leveraging next-generation Rimini Agentic AI ERP solutions that can be quickly and economically deployed over their current ERP and other enterprise software and deliver real competitive advantage. We believe we can help organizations achieve significant IT operating cost savings, improve profitability, enhance competitive advantage and accelerate growth. Our clients have already realized over $10 billion in operational savings. Rimini Street leads an Agentic AI ERP. We are helping clients set a new vision, technical and functional path forward from their current vendor ERP software release. A path does not require any return to the vendor for a future upgrade or migration to their current ERP software release in order to achieve innovation and modernization. The client can innovate and modernize their existing ERP software and other enterprise software using Agentic AI ERP solutions deployed easily, economically right over the top of their existing software releases. The Rimini Smart Path is our proprietary proven 3-step methodology that clients can use to self-fund and accelerate innovation, especially AI and automation without undergoing costly, risky or unnecessary ERP upgrades or rip and replace migrations by leveraging and modernizing existing IT environments, all without operational disruption. Rimini Agentic UX is our AI-driven experience and automation layer that is deployed right over existing client ERP software and turns their ERP software from a static system of record into an autonomous system of action, delivering innovation and modernization in weeks, not years, and at a fraction of the cost of a major upgrade migration or re-platforming project. Client success stories. Rimini Street is helping clients across many industries, geographies and software, protect and optimize their core ERP systems while funding innovation and modernization, including fixing broken processes, automating workflows and functions and using AI to solve specific business challenges without disruptive, costly or risky ERP software upgrade migrations or re-platforming. Here are a few examples of how Rimini Street solutions for SAP, Oracle and VMware software are enabling innovation, transforming an improved competitive advantage for clients. Cubic Corporation, a U.S. defense and transportation technology company, so that partnering with Rimini Street allowed them to gain full control of their SAP road map, avoid a costly S/4HANA upgrade and reallocate savings and internal capacity towards automation, AI and broader modernization initiatives. Flexitech, a French automotive products company, said that they chose Rimini Support to help reduce risk and operational disruption in its SAP environment, strengthening cybersecurity posture and accelerating compliance readiness while enabling the reallocation of savings towards R&D and modernization programs. Cleanera, a South Korean paper and hygiene products company, said they were able to cut SAP and Oracle vendor maintenance costs by approximately 50% with Rimini Street, stabilizing their core ERP environment and freeing budget and talent to accelerate AI, analytics, cloud expansion and IoT-driven operational improvements. Elmort, a Brazilian industrial company, said that unifying support across VMware and SAP with Rimini Street created the opportunity to increase operational stability and security while redirecting budget internal resources from maintenance to sustainability and growth initiatives. Partners, alliances and channels. We continued strengthening and maturing our indirect sales ecosystem, including adding new partner managers for strategic technology, services and channel relationships. During the quarter, we closed accretive sales transactions globally that we do not believe we would have otherwise closed without partners. These partnerships extend our reach, bring complementary expertise and help clients execute modernization strategies that combine Rimini Street support with world-class platforms, cloud services and AI tooling. The ecosystem is becoming a strategic multiplier for us, accelerating adoption, expanding influence and enabling shared go-to-market opportunities. Summary. We are focused on accelerating growth, improving profitability and delivering shareholder return. We plan to leverage Rimini Street's proprietary unique and proven Smart Path methodology, service portfolio and capabilities to help a growing list of clients take back control of their technology road map and spending and successfully navigate business and technical complexity in the age of AI. Now over to you, Michael. Michael Perica: Thank you, Seth, and thank you for joining us, everyone. Q1 results. Our first quarter results reflect solid execution and continued sign of momentum, highlighted by remaining performance obligations, RPO, and billings growth, along with a return to top line growth despite the headwinds from the wind-down of support and services for Oracle's PeopleSoft software. Our strong operating cash flow and cash position enabled us to comfortably make $10 million of additional voluntary principal prepayments that reduced our debt balance to $58.4 million and increased our net cash position to $73.8 million at the end of the quarter. Revenue for the first quarter was $105.5 million, a year-over-year increase of 1.2%. Excluding support services for PeopleSoft products, revenue increased by 5.2% year-over-year. FX movements impacted first quarter revenue negatively by 0.5%. Annualized recurring revenue was $400.8 million for the first quarter, a year-over-year increase of 1.2%. Our revenue retention rate for service subscriptions, which makes up 95% of our revenue, was 88%, with approximately 81% of subscription revenue noncancelable for at least 12 months. Billings for the first quarter were $95.3 million, an increase of 19.9% year-over-year. When excluding billings associated with support services for PeopleSoft products, the year-over-year increase was 22.9%. Gross margin was 59.0% of revenue for the first quarter compared to 61.0% of revenue for the prior year first quarter. On a non-GAAP basis, which excludes stock-based compensation expense, gross margin was 59.5% of revenue for the first quarter compared to 61.5% of revenue for the prior year first quarter. Our gross margin in the period was negatively impacted by investments pulled forward in the year to take advantage of market opportunities and select non-subscription engagements that had large, front-loaded start-up costs. Nonetheless, as noted during our Investor Day presentation last December, our use of innovation and other analytics deployed on top of our existing systems of record provides us with confidence in our ability to build from this current gross margin level and achieve the targets we outlined. Operating expenses. Reorganization charges associated with optimization costs for the first quarter were $407,000. Also, we have carved out our R&D expenditures of $571,000 in the quarter in a separate line item that reflects our ongoing and increasing research and development activity for our proprietary historical offerings as well as our burgeoning Agentic AI ERP and UX solutions. Sales and marketing expense as a percentage of revenue was 36.6% for the first quarter compared to 32.9% of revenue for the prior year first quarter. On a non-GAAP basis, which excludes stock-based compensation expense, sales and marketing expense as a percentage of revenue was 35.8% for the first quarter compared to 32% of revenue for the prior year first quarter. Our sales and marketing costs in the period was negatively impacted by investments pulled forward in the year to take advantage of market opportunities. General and administrative expenses as a percentage of revenue was 16.9% of revenue for the first quarter compared to 16.8% of revenue for the prior year first quarter. On a non-GAAP basis, which excludes stock-based compensation expense, G&A was 15.7% of revenue for the first quarter compared to 15.6% of revenue for the prior year first quarter. As we stated in our most recent earnings call, we do not expect litigation expenses to be material on a going-forward basis and are now including any residual legal costs in the G&A line item in our income statement. Net income attributable to shareholders for the first quarter was $1.4 million or $0.01 per diluted share compared to the prior year first quarter of $0.04 per diluted share. On a non-GAAP basis, net income for the first quarter was $4 million or $0.04 per diluted share compared to the first quarter of the prior year of $0.10 per diluted share. Adjusted EBITDA, as defined in our earnings release and now excludes unrealized FX translation adjustments was $8.9 million for the first quarter or 8.4% of revenue compared to the prior year's first quarter of $15.7 million or 15.1% of revenue. Balance sheet. We ended the first quarter of 2026 with a cash balance of $132.2 million compared to $122.6 million of cash for the prior year first quarter. On a cash flow basis, first quarter operating cash flow increased $24.5 million compared to the prior year's first quarter increase of $33.7 million. Deferred revenue as of March 31, 2026, was $277.3 million compared to deferred revenue of $256.4 million for the prior year first quarter. Remaining performance obligations, RPO, which includes the sum of billed deferred revenue, contract assets and noncancelable future revenue was $643.6 million as of March 31, 2026, compared to $553.1 million for the prior year first quarter, an increase of 16.4%. When excluding RPO relating to support services for PeopleSoft products, the year-end balance increased 18.2%, reflecting our building momentum with both new bookings growth and longer duration commitments. PeopleSoft support wind-down update. As we discussed during previous quarter's earnings conference calls, our July 2025 settlement agreement with Oracle provides amongst other obligations and terms between the parties that the company will complete its previously announced wind-down of its support and services for Oracle's PeopleSoft software no later than July 31, 2028. We have made progress in reducing both the number of PeopleSoft's software support clients and related revenues since announcing the wind down. Revenue from PeopleSoft software support services was 3% of revenue for the first quarter compared to approximately 7% for the previous year first quarter and down from 8% of revenue when we began the wind-down process during the second half of 2024. Business outlook. The company is providing second quarter 2026 revenue guidance to be in the range of $106 million to $108 million and reiterating the full year 2026 guidance provided at our Investor Day in December 2025 of revenue growth in the 4% to 6% range and adjusted EBITDA margins in the 12.5% to 15.5% range, combined to achieve Rule of 20. For additional information, please see the disclosures in our Form 10-Q filed today, April 30, 2026, with the U.S. Securities and Exchange Commission. This concludes our prepared remarks. Operator, we'll now take questions. Operator: [Operator Instructions] Our first question comes from the line of Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: You talked about stronger bookings trends that have started since the second half of '25. Can you provide any quantifiable context maybe year-over-year comparisons? Are there booking totals you can provide or a book-to-bill? And then lastly, maybe from a qualitative standpoint, discuss domestic versus international. Seth Ravin: Sure, Brian. Seth here. As we said starting mid-last year, we started to see an uptick, and we've shown it, of course, in the billings and bookings numbers. The compares, I think, have already been in each of the releases. So, the team will be happy to get you those at a later date. But I think we're seeing continued growing demand. We're seeing continued growing pipelines. And those are now converting as you're seeing into larger contracts. We're seeing longer-term contracts. Just look at the number of deals with TCV over $1 million, even in North America, where we had 0 of those deals in Q1 of last year, 60% of those deals were in North America this year. So, we're seeing all different indicators of continued growing demand and our ability to execute continues to get better and better. So, we're pleased with what we saw happening in Q1 and how it sets us up even for the full year. Brian Kinstlinger: And then a follow-up on that. You mentioned in your prepared remarks and just now as well about the longer duration. I think traditionally, you've had 1-year contracts, correct me if I'm wrong, whereas the renewable for every year. What's happening now? What are you seeing in terms of duration? Or maybe dig a little deeper into what you're describing as longer duration? Seth Ravin: Well, I think our average contract length before used to be something short of 3 years, about 2.5, 2.6 years for a new contract. And we're seeing longer-term contracts being signed. And I think the indication of that is we're watching customers think about a much longer term for this next phase of technology transition. And they're looking at their existing systems. They're looking at the amount of change that's coming their way or being pushed their way, realizing a lot of it isn't going to generate the kind of return on investment or the competitive advantage they need. And they're looking to us for longer-term solutions. And I think that's what you're seeing play out in the contracts. Brian Kinstlinger: Okay. My last question is, last quarter, you highlighted 26 customers that were testing their Argentic AI solutions. Maybe you can update us on that number, share what feedback you're getting from them and timelines to production? And then lastly, how would you want to be measured over the next 18 months on your progress of that new solution? Is it improving organic growth rates? Are you going to discuss the revenue contribution? Just how should investors think about that? Seth Ravin: Well, I think how we should think about it is exactly based on the guidance. It's about growth. The fact that we're returning to growth against the headwinds of the PeopleSoft wind down is certainly a nice indicator. And I think the fact that we would return to growth with a mid-single digit this year, as we said, a Rule of 20 is what we're aiming for between the top line and a bottom line, want to give ourselves a little range and flexibility between the top line and bottom line. And then look to us to get to that Rule of 40 that we want to get to, which, of course, requires us to see a double-digit growth on the top line and a double-digit return on the bottom. So, I think those are very, very key. The other part is, obviously, we have investors who want to see shareholder return. We believe that we sit on surplus cash. We believe that, that should be returned to shareholders in one way or another. Whether that's through stock buybacks, whether that's through paying down debt, but increasing shareholder value is a key component. So, I think those are the measures that we're looking at in terms of growing the business. Now when it comes to the world of Agentic AI and Agentic AI ERP, there's 2 things you need to remember. There's one, there's the fact that we create a path and we create a vision that customers can follow that doesn't require any future return to the vendor. That's very, very key. That is a big change from prior years where customers often thought of us as more of a temporary detour for some number of years and then a return to the vendor to get their next level of innovation. That's no longer the case. And that's why you're watching us win bigger and bigger contracts because customers are liking what we put on the table as a path and a strategy that does not lead them back to the software vendor in a future year. And that is changing the game dramatically for us on the ground. Operator: Your next question comes from the line of Jeff Van Rhee from Craig-Hallum. Jeff Van Rhee: Some great underlying metrics here. It looks like some good momentum and good to see some ARR growth year-over-year. Seth, you were just touching on leverage, and I want to revisit that. Gross margins, this is on the lower end of anything I've seen in quite a while. And Michael, I think you referenced there were some pull forwards for some, I guess, what I would characterize as sounds like unexpected business opportunities. I think you -- S&M is up from 34% to 37% year-over-year, but revenue is generally flat. And so, given that, I'm just trying to understand around the -- number one, what is this near-term opportunity that you're seeing that you've got to invest in right now, given that you're not raising the overall outlook? Maybe we could just start there and understand those. Seth Ravin: Sure, Jeff. So, first, yes, we made a decision to pull forward some expense from future quarters. But we, of course, reiterated guidance being on target with what we provided in the Investor Day in December. And the things we're seeing, for example, we're investing in our U.S. federal team, brand-new team. We see a lot of opportunity in the federal government space with our new GSA contract, our partners that we're putting in place. And so, there's a lot going on in that part of the world. But there's also a significant amount of work for us to do with PE firms. And we've got our first Vice President of PE sales on board because today, we service accounts that have over 20 different major PE firms represented, and we're going to go in and try and work with these firms to work on their bigger portfolios in general. So that, again, is another expansion area for us to build on. And so those investments were being made. We also, of course, are investing in our Agentic AI ERP solutions. And you saw the first time we have an R&D line item because we're making some investments at the product level. So those are also taking place. We also expanded our sales team. We're over 80 sellers now. And so, we've moved our numbers back up from the mid-70s when we last had our last call for end of year. And so, we're continuing to expand and invest in sales and marketing as well. So, you saw temporarily the expenses went up as a percent of revenue, but we expect those will normalize throughout the year. Jeff Van Rhee: And so then just to follow on to that, given all of those incremental revenue opportunities and in light of the revenue outperformance in the quarter relative to the guide, you didn't flow it through to the annual guide. So just help me understand what was in play there. Seth Ravin: Well, I think we want to just take it very carefully. As you know, we didn't grow for a while there, and we're back and feeling very positive and very confident in our growth for the year and hence, the mid-single-digit growth targets that we set out there. But we want to just get another quarter under the belt and think about that before we talk about any kind of raise in the guidance. Jeff Van Rhee: Okay. And then maybe just last, Seth, on customer retention. I know it's a focus and the Agentic UX and some other things probably have some opportunities to help there. But how should we think about churn over the next several quarters? This retention number has been at 88% here for at least a few quarters. Just any big churn events coming up here? And how do you think about retention next several quarters? Seth Ravin: Well, the 88%, remember, is a TTM, rearview view of the total number. We feel very good. And as I noted in the prepared remarks, we beat our internal numbers on the retention number. It's just going to take a while to show up in the TTM number. I think when you look at the RPO, some of those are even related to renewals. So, we're seeing good, strong renewals out of the first quarter and feeling good about where we're looking to the year. Our goal is, of course, to see that TTM return to over a 90% number. And we feel that we should start to see it show up in the metrics starting in the next quarter or so. Operator: Your next question comes from the line of Alex Fuhrman from Lucid Capital Markets. Alex Fuhrman: Congratulations on the return to growth here in Q1. It looks like here in the first quarter, you added about 30 active clients relative to where you ended 2025. The last 3 years, give or take, Q1 has been about flat in terms of customer acquisition. Is this just more of the same what we've been kind of talking about, increased demand for your AI solutions? Or are we maybe starting to see more of a year-round sales and adoption process as your clients are starting to implement more AI? Seth Ravin: Sure. And thanks. We absolutely are seeing improvements in everything from the number of leads coming in to lead conversion to opportunity, opportunity to closes. So higher quality pipeline, higher quality execution, but the demand environment is absolutely growing as well. There is no doubt that the world of AI has changed the dynamics from a technological standpoint. You're also watching, as Rimini Street had predicted many years ago, the breakup of these big ERP monolithic systems into smaller pieces, we call it composable ERP, those pieces are breaking down further. And what this means is that businesses and government organizations are now able to buy pieces, a la carte, let's say, versus having to buy them all in one big package. And we're well positioned, maybe the best position to help customers through all these technological transitions, including the thoughtful implementation of AI where it's appropriate. And because our #1 objective is driving down the total cost of operations and improving profitability or improving share return for government organizations, we think we are well-positioned to help customers for the long term, and we're talking 5, 10, 15, 20 years through this next phase of transition. So, I think all of that coming together is what we're watching it showing up in the numbers. Alex Fuhrman: Okay. That's really helpful. Thanks for all that color. And then I see you have a new line item here, research and development. It sounds like that's going to be more of a focus for the company going forward. How much should we expect to see there -- going forward there this year and in the future? Michael Perica: Well, I think this -- I'm sorry. No, go ahead. Seth Ravin: I was just going to say that we expect to continue to make investments in this space because we've been a services company. We've always had products, but the opportunity for us to develop more in the product and the licensing arena for subscription licenses has increased. And so, we're going to make those investments. But keep in mind, we're staying within our guidance limits. We're not talking about changing guidance even with the R&D line item. And I'm sorry, Michael, you want to add there? Michael Perica: Yes. I just want to augment the point that Seth made, Alex, at the end that this was incorporated overall in our guidance. We do expect it to creep up throughout the year and can exit the year about 1% or so. That's how we're looking at it to augment these key technological investments, both with what we have existing and these new offerings that we're talking about. Operator: Your next question comes from the line of Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: I just wanted to confirm that today, the revenue from the Agentic AI solution is quite modest, but that we'll begin to see that contribution pick up maybe in the second half of the year into next year? And then my second part of my question is, will there eventually be a report or some kind of metric that helps investors frame how much revenue is coming from that new solution? Seth Ravin: Sure, Brian. Of course, it's not what we call a material amount yet from the Agentic AI ERP solutions themselves. But 2 ways to think about this, there is the actual revenue that's accretive that comes from solutions and sales and licensing and subscriptions in the Agentic bucket. That's a new set of products and services. There's a second more important one, which is already at work here. And that is the fact that we have created a vision and we have a path and we have a solution going forward for customers that leads them away from having to do vendor upgrades and migrations in the future and allows them to drive their existing systems with modernization on that platform, that alone is what's driving, we believe, underneath a lot of the extra demand we're seeing because that is creating new demand that we did not have before, and it's bringing customers back to the table who have now come back to us to join Rimini Street who before had turned us down, proposals that they didn't move forward with. We're now able to show them a path forward with an Agentic capability that says, okay, we'll go ahead and move forward at this time. So don't underestimate the very fact that we have this path and this vision and technology, that alone is driving increased sales. Operator: There are no further questions at this time. I will now turn the call over to Seth Ravin, CEO. Please continue. Seth Ravin: Great. Well, thank you very much, and thanks, everyone, for joining us, and we will see you on the next earnings call. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories conference call discussing second quarter fiscal year 2026 results. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to Mr. Peter Goldmacher, Vice President of Investor Relations. Peter, please go ahead. Peter Goldmacher: Good afternoon. Welcome to Dolby Laboratories Second Quarter Fiscal Year 2026 Earnings Conference Call. Joining me today are Kevin Yeaman, Dolby Laboratories CEO; and Robert Park, our CFO. As a reminder, today's discussion will include forward-looking statements, including our fiscal 2026 third quarter and full year outlook and our assumptions underlying that outlook. These statements are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today, including, among other things, the impact of macroeconomic events, supply chain issues, inflation rates, changes in consumer spending and geopolitical instability on our business. A discussion of these and additional risks and uncertainties can be found in the earnings press release that we issued today under the section captioned Forward-Looking Statements as well as in the Risk Factors section of our most recent annual report on Form 10-Q. Dolby assumes no obligation and does not intend to update any forward-looking statements made during this call as a result of new information or future events. During today's call, we will discuss non-GAAP financial measures. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings press release and in the Interactive Analyst Center on the Investor Relations section of our website. With that, I'd like to turn the call over to Kevin. Kevin Yeaman: Thanks, Peter, and thanks to everyone joining us on the call today. Revenue and non-GAAP earnings for the quarter came in consistent with the expectations we provided on the call last quarter, and we are maintaining our full year guidance. Robert will share more details on the financials in a few minutes. Dolby occupies a unique position across the creator content platform device ecosystem. We continue to strengthen our position, creating growth opportunities across existing and new business areas. Over the last few quarters, we have made great progress, bringing more Dolby content to more content platforms. Top-tier social media companies are increasingly recognizing the value of streaming content in Dolby Vision. Meta has adopted Dolby Vision for content streamed on iOS for both Instagram and Facebook, and Douyin in China has enabled Dolby Vision for content on both iOS and Android. In music, over 90% of the artists featured on Billboard's Year-End Top 100 artists for the last 3 years are creating music in Dolby Atmos. At the Grammys, Dolby Atmos was well represented in all major categories, including all nominees for best new artists. In sports, more and more content is available in Dolby. Just this quarter, the Super Bowl and the Winter Olympics were available in Dolby Vision and Dolby Atmos. The T20 Cricket World Cup in India and the 2026 Formula 1 season streaming on Apple are available in Dolby Vision. HBO Max is streaming a wide variety of sports content in Dolby Atmos and Dolby Vision. And while not exactly sports, they also stream NASA's Artemis II mission in Dolby Vision. And Peacock is also streaming sports in Dolby Atmos with plans to begin streaming in Dolby Vision. We also continue to expand further into mass market TV. Amazon recently announced that it has added support for Dolby Vision to its ad-supported tier. And TV Azteca, the second largest mass media company in Mexico, announced that it will bring Dolby Atmos to free-to-air broadcast. And finally, in the cinema, all of the top 30 grossing films domestically for calendar 2025 were in Dolby Atmos and Dolby Vision. And all major category winners at the Academy Awards in March and the BAFTAs in February were in Dolby Atmos and Dolby Vision, including F1, the movie, Sinners and One Battle After Another. All of this is simply to say high-quality content matters and more content in Dolby means more reasons to adopt Dolby Atmos and Dolby Vision across end markets and devices. And it was another big quarter for automotive. At the Beijing Auto Show last week, BMW announced Dolby Atmos support in the 7 Series globally and the iX3 in China. Just 2 weeks before that at the Paris Auto Show, BYD launched its Denza line with Dolby Atmos, BYD's first car with Dolby Atmos in the European market. Also this quarter, Lexus announced their first Dolby Atmos-enabled cars and NIO expanded its Dolby Atmos adoption to the Firefly, a compact EV sub-brand for Singapore and Thailand. There is a broader shift across the automotive industry where the vehicle is now a place for high-quality entertainment, and we continue to benefit from this trend. Turning to mobile. The progress we are making in music and with social media platforms continues to strengthen our value proposition across mobile devices. Dolby Vision capture and playback and Dolby Atmos are included across Apple's lineup, including the 17E, their latest iPhone starting at $599 that was launched this quarter. Xiaomi announced its flagship Redmi Note 15 Pro series with Dolby Vision, Dolby Vision capture and Dolby Atmos. Vivo released the X300 Ultra with Dolby Vision as well as their iQOO 15 Ultra, a gaming-focused sub-brand that has both Dolby Atmos and Dolby Vision. We continue to perform well in high-end phones, and we're excited that Douyin is now fully supporting Dolby Vision on Android, which should help us continue to work our way further into mid-range Android phones. Moving on to the living room. As I mentioned earlier, our momentum in sports content is an important driver for new TV sales. In addition, we're excited about the first Dolby Vision 2 TVs coming to market by the end of this fiscal year. Hisense, TCL and Philips have announced plans to release a wide range of Dolby Vision 2-enabled TVs globally with Peacock and Canal+ committed to delivering content. We expect Dolby Vision 2 to increase ASPs and drive deeper adoption into TV lineups. In addition to driving growth from the adoption of more Dolby technology on more devices, we are beginning to generate revenue from content platforms as content platforms are increasingly competing on experience, not just access to content. The video distribution program, the patent pool that licenses imaging patents to content streamers continues to bring on additional licensors, including this quarter, Sharp and SK Planet, bringing the total to 40. These new licensors bring important patents and validation to the pool, which generates incremental momentum. The licensee pipeline is strong. With Dolby OptiView, we are bringing value to sports content platforms that are seeking to increase fan engagement with real-time personalized experiences. Our wins this quarter include Genius Sports, a leading data technology and broadcast partner that serves the global sports betting and media ecosystem. This win reinforces Dolby OptiView's positioning in the sports ecosystem where partners prioritize fan engagement and real-time experiences. In the U.K., William Hill is now using Dolby OptiView to deliver horse racing, providing consistent low-latency content across its online platforms in time-sensitive live workflows. At the NAB Show in Las Vegas this month, our vision for the future of live sports experiences resonated strongly with many of our key customer prospects. We are excited about the potential for Dolby OptiView. Wrapping up, we continue to strengthen our position across the entertainment ecosystem. We have momentum across our key growth drivers for Dolby Atmos and Dolby Vision. We're excited about our opportunity to drive growth beyond devices with the video distribution program and Dolby OptiView. All of this gives us confidence in our opportunity to drive long-term growth. And with that, I'll turn it over to Robert to cover the financials. Robert Park: Thank you, Kevin, and thanks to everyone joining us on the call today. Revenue for the quarter came in at $396 million, which was within the guidance we shared last quarter. Non-GAAP earnings per share was $1.37, also within the range of guidance. Licensing revenue was $372 million and products and services revenue was $23 million. We generated approximately $93 million in operating cash flow, repurchased $65 million of common stock and have approximately $142 million remaining on our share repurchase authorization. We declared a $0.36 dividend, up 9% from our dividend a year ago and ended the quarter with cash and investments of approximately $675 million. GAAP operating expenses in Q2 include a $2 million restructuring charge related to actions initiated last year. Detailed licensing performance by end market can be found on our IR website. As a reminder, end market growth rates are typically smoother on an annual basis as the timing of recoveries, minimum volume commitments and true-ups can drive quarterly volatility. In terms of end market performance for the quarter, it's worth noting that Broadcast was up 26% year-over-year due to the large recovery we mentioned on the last call, and mobile was down 6% year-over-year due to timing of deals. We still expect both broadcast and mobile to be up mid-single digits for the full year. Turning to guidance. We are maintaining our full year guidance. Overall, we are pleased with our performance to date, and things are generally tracking as expected. We expect fiscal '26 total revenue to range from $1.4 billion to $1.45 billion. Within that, licensing revenue is expected to be between $1.295 billion and $1.345 billion. We are targeting non-GAAP operating expenses between $780 million and $800 million. This guidance implies operating margin improvement of between 50 and 100 basis points on a non-GAAP basis. We continue to expect non-GAAP earnings per share to be between $4.30 and $4.45. Our expectations for foundational and Dolby Atmos, Dolby Vision and imaging patents full year growth rates are unchanged from what we communicated last quarter, with Dolby Atmos, Dolby Vision and imaging patents growing roughly 15% and comprising nearly half of our licensing revenue. We continue to expect foundational revenue to be down slightly. We also expect end market growth rates for the full year to be similar to what we communicated last quarter, with growth in other primarily driven by Dolby Atmos adoption in auto, the video distribution program and Dolby Cinema, partially offset by lower gaming. Growth in mobile and broadcast is driven by adoption of Dolby Atmos and Dolby Vision, growth in imaging patent programs and higher recoveries. We expect CE to be roughly flat and declines in PC primarily due to lower unit sales. Now turning to Q3. For Q3 fiscal '26, we expect revenue to be between $295 million and $325 million. Within that, we expect licensing revenue to be between $270 million and $300 million. Gross margins should be approximately 88% on a non-GAAP basis, and we expect non-GAAP operating expenses to be between $200 million and $210 million. Non-GAAP earnings per share is expected to be between $0.56 and $0.71. In summary, the business remains healthy, and we are encouraged by the progress we're making across our key growth initiatives. Our financials remain solid with organic revenue growth, high gross margins, expanding operating margins, healthy cash flows and a strong balance sheet. With that, we'll open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Vikram Kesavabhotla of Baird. John Rigatti: This is John Rigatti on for Vikram Kesavabhotla. I guess, first, if you could just talk about your consumption-based revenue streams that you've referenced over the last couple of quarters. I think you noted those should get to about 10% of revenue in the next 3 years. What should the shape of that ramp look like? Should we think about that kind of equal parts over the next 3 years? Or is that more back-end weighted? And then I have a follow-up. Kevin Yeaman: Yes. Thank you. Well, we're really pleased with the progress with both Dolby OptiView and the video distribution program. As you know, Dolby OptiView, we're focused on creating live sports experiences that are tailored to the fan, where unlike broadcast where everyone sees the same thing, streaming technology enables us to customize what each viewer sees. And that's the promise of streaming, and we're yet to -- the world is yet to get there in sports. And at NAB, we were previewing our sports intelligence platform, and that platform uses AI to analyze viewer preferences, match them to what's happening in the action. It enables you to create a story that really resonates for each viewer. And so we were demonstrating this across motor, racing, football and other sports. We also showed how we can use AI to generate highlights, reformat content to fit any screen size, shape and deliver it to whatever device a viewer happens to be watching on. And of course, it's Dolby OptiView. So all this is done -- it's essential that this is done at very low delay and synchronized at the same time for all the users. So these were resonating really strongly. We've got a growing roster of customers, NFL, NASCAR, sports information, solutions or services rather. And this quarter, we're excited to add Genius Sports. So each of them are really in the early stages of rolling out what we have for Dolby OptiView today, but they're also really engaged in where we're going with the future, and they're looking for a company like Dolby who has decades of experience that they can trust to really move into this future. And the video distribution program, we've seen a lot of these pools come together, and we're really pleased with the way this one is coming together. We announced it at the beginning of this year. We brought on 40 licensors. That's what brings together the value proposition. We brought on half a dozen licensees, and we expect that to continue to grow through the year. John Rigatti: Great. And I guess just the second one on memory pricing. I mean those dynamics have been pretty well documented. I think last quarter, you said kind of PC and mobile were the two end markets that were maybe most exposed to some of those dynamics. I guess just an update on what you're seeing on the memory pricing front, if you're seeing -- kind of what you're seeing as far as any impact on demand there, how that's factored into the guidance? And then outside of maybe mobile and PC, are there any other end markets where that's a particularly notable driver? Kevin Yeaman: Yes. Of course, we're watching that very closely as we are all the macro factors, memory pricing, volatility in oil prices and how that might affect supply chain, consumer sentiment readings, all of which we're watching very closely. And yes, memory pricing where we see from an end market point of view, where customers are most -- seeing the most impact on that is in mobile and PC, less so in areas like TV, where memory isn't as much of the BOM. And like a lot of companies, like many of the banks said in their earnings, we're seeing all these macro factors on the one hand. But on the other hand, we've not seen a significant impact to our business to date. We, of course, update all of our guidance to reflect what we're learning from our customers, what we're seeing from industry analysts. We do have a diverse set of end markets, and we're diversifying our revenue streams. So where we saw minor adjustments in some areas, we had other areas that we're doing well to offset that. And so we feel good about our guidance for the year. Operator: Your next question comes from the line of Patrick Sholl of Barrington Research. Patrick Sholl: Maybe just following up on that last question. Like just in your discussions with customers, has there been any indication in terms of like SKUs that they're prioritizing within some of their devices on those that might be impacted on the memory prices? Kevin Yeaman: Yes. So yes, thank you. If we focus on mobile, again, we do see a trend towards them wanting to, first and foremost, take care of the high end. And that benefits us as it relates to Dolby Atmos and Dolby Vision. But -- and this really varies by customer in terms of how they're approaching this, whether they are planning to raise prices, how that affects device volumes. But again, we haven't seen a significant impact to date. And remember that most of our mobile business is through minimum volume commitments, and we're just over halfway through the year. So we have pretty good visibility. And so that moderates the impact of kind of where they're going. And -- so to date, no adjustments worth noting to the extent we have minor changes, it's offset by strength in other areas. Patrick Sholl: Okay. And then on auto, can you provide any greater detail on, I guess, like market penetration in some of the early adoption markets, I guess, maybe specifically like in China? And I guess, maybe percentage of like the new car market in there that you're a part of and how you expect that to maybe roll out across other markets? Kevin Yeaman: Yes. It was a big quarter for automotive, as I said in my remarks, we are getting pretty high penetration of having brought on board a lot of the premium lines. We still have a long way to go in getting those to market and the revenue growth that's going to come from that. We also have begun to see good progress kind of moving deeper into lineups. One that I didn't mention in my remarks is that in China, the Hyundai IONIQ was launched with Dolby Atmos, and that's significant because that's a 4-channel, 8-speaker implementation. So that's a hardware footprint that would be quite normal for a mass market car. So we're really pleased to see that. So we're continuing to bring on new customers, BMW, Lexus. We have very high -- a lot of penetration in China, and we're increasing progress outside of China with the wins we announced this quarter. And we're also seeing progress with the Chinese companies expanding outside of China. So one of the things I mentioned is that at the Paris Auto Show, BYD launched its Denza line with Dolby Atmos. And so BYD has been a customer of ours, but that's the first car of theirs for the -- outside of China with Dolby Atmos. Operator: [Operator Instructions] Your next question comes from the line of Ralph Schackart of William Blair. Ralph Schackart: Kevin, I think you just mentioned that Hyundai had a 4-channel Atmos implementation in China. Can you just remind us when that product was launched? And then maybe kind of building on that, what are the implications for Hyundai or other kind of mass market vehicles to expand outside of China with a similar implementation of the Atmos. Kevin Yeaman: Yes. So that was announced very recently. I don't have the exact date, Ralph, I can get back to you on that, but that was very recent. I think it was announced at the Beijing Auto Show, which is just a couple of weeks ago. So we were at CES demoing the 4-channel implementation, which was really looking to show manufacturers the difference we could make at the mass market level. So we're excited to see this first launch. Obviously, we will work with each of our partners then to expand into different lines and different geographies. And we feel good about the pipeline and that we can continue to drive Dolby Atmos further into these lineups. Ralph Schackart: Great. And then I think on the call, you had mentioned in the prepared remarks, Douyin is adopting Dolby Vision. And then maybe kind of more broadly with that announcement and then your previous announcement with Meta also adopting Vision with all its properties or across some of its properties, maybe sort of an update how that might be steering some of the conversations with prospective mobile OEMs. Kevin Yeaman: Yes. Thank you. So China is where, as you know, we have -- is really where we began with Dolby Vision and -- well, started with Apple. And then on social media platforms, we've had enormous success in China. And the significance of what I said about Douyin is they started a couple of quarters ago with iOS, and they've now completed rolling out Dolby Vision content across all of Android. And I also talked about a few of the wins we had in China with Xiaomi, with Vivo. So we continue to bring on new partners. And with Instagram and Facebook adopting here in the U.S., we do see that increasing the pipeline for Dolby Vision and Dolby Vision capture across mobile devices. And it also gives us an opportunity as we form these relationships to really earn their trust that we can help them achieve what their priorities are as it relates to audio-video experiences, and that feeds our innovation pipeline and creates new opportunities to -- new growth opportunities in the future. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Healthcare Realty First Quarter 2026 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Ron Hubbard, Vice President of Investor Relations. You may begin. Ronald Hubbard: Thank you for joining us today for Healthcare Realty's first quarter 2026 earnings conference call. A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. This company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC. Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended March 31, 2026. The company's earnings press release and earnings supplemental information are available on the company's website. I'd now like to turn the call over to our President and CEO, Pete Scott. Peter Scott: Thanks, Ron. Joining me on the call today are Rob Hull, our COO; and Dan Gabbay, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO. It has been just over a year since I assumed the CEO role, and we have made significant progress in that short period of time. In many ways, we entered 2026 as an entirely new company. We added industry expertise to our revamped and more financially rigorous operating platform, we refined our portfolio, and we rightsized our balance sheet. All of this was in preparation to meet or exceed our 3-year earnings forecast. I am pleased to report the hard work and immense preparation is manifesting into better results. While 1 quarter does not guarantee a 3-year earnings forecast, it does create a solid foundation for outperformance while sustaining the winning mentality we have worked hard to instill at Healthcare Realty 2.0. Now let's turn to our results for the first quarter. Every day we are executing with purpose and intensity. We signed over 2 million square feet of leases an all-time high. We reported same-store NOI growth of nearly 7%, also an all-time high. We accretively bought back more stock. We completed our first joint venture acquisition. We continue to stabilize our redevelopment portfolio. And our capital markets plan is beginning to take shape. The net impact of all this, our first quarter results were far better than expectations. We are raising both FFO and same-store guidance early in the year. And there is more to come on the horizon with a strong leasing pipeline. I wanted to elaborate more on the earnings growth framework for Healthcare Realty 2.0. Earnings growth has unequivocally become the dominant metric that determines a premium multiple in the REIT industry. If you go into any AI platform and search medical office characteristics, you will note the typical catchphrases that have become synonymous with sector: stable cash flow, recession-resistant, Steady Eddie, and 2% to 3% growth. In a low interest rate environment, like we experienced from 2010 to 2020 when the 10-year treasury averaged low 2%, this all sounded great. Investors were able to generate alpha in medical office with very little risk. However, with the 10-year treasury at 4.3% today and our stock trading at an 11x FFO multiple, this simply won't cut it anymore. We see 2 challenges in front of us: put up better numbers, which we are doing, and break down these historical stereotypes. As the only public REIT focused exclusively on outpatient medical, we will be the trailblazer and redefine what success means in our sector. So let me walk you through the main pillars of organic growth. First, occupancy. Sector-wide occupancy is approaching 93% because of strong demand and limited supply growth. We see multiple years of sustained tailwinds in front of us driven by the rapid growth of the 65-plus population and the unabated shift in care to outpatient settings. At HR 2.0, our same-store occupancy improved this quarter to 92.3%, a year-over-year increase of 110 basis points. Total occupancy has improved to 90.5% and is a significant near-term earnings growth driver as we stabilize our lease-up and redevelopment portfolio. Second, annual escalators. Under the new asset management platform, our average annual escalator on signed leases is 3% plus. I cannot overemphasize the importance of the annual escalator on earnings growth. With our portfolio NOI at approximately $650 million, escalators will be the primary driver of core earnings growth going forward. Third, retention rate. Often overlooked, retention rate is a critical driver of earnings growth. Downtime and capital expenditures, which are the silent killer of earnings growth, are significantly lower for renewal lease deals compared to new lease deals. Therefore, the higher the retention rate, the less capital we have to commit, the higher the lease IRR, the more profitable the deal is to us. During the first quarter, our retention rate was 93.5%. Fourth, cash leasing spreads. With our portfolio optimization complete and our concentration of assets in higher growth markets, including the Sunbelt market, I would anticipate our cash leasing spreads improving. In the first quarter, our cash leasing spread was 4.2%. Importantly, 1 out of every 4 leases we signed had a cash leasing spread greater than 5%. When you add all this up, occupancy growth, annual escalators, higher retention and improved cash leasing spreads, we expect to generate materially higher earnings growth going forward. Our same-store results this quarter are a good indicator that we are heading in the right direction. And as a reminder, our core earnings growth in 2026 is tracking above 5% excluding the impact from the necessary portfolio optimization and deleveraging. I wanted to spend a moment on external growth and capital allocation, which are incremental to our organic pillars of growth. As we recently disclosed, our capital allocation approach will remain incredibly disciplined. During the first quarter, we did exactly what we said we would do. We bought back $100 million of stock, we completed in excess of $20 million of acquisitions and we invested $25 million in our redevelopment portfolio. Let me provide a little more context behind our priorities. First, stock buybacks. If we experience dislocation in our stock price, we will not hesitate to acquire shares. This provides us with significant and immediate accretion. We have $400 million of stock buyback capacity remaining under our current authorization. Second, acquisition. All external acquisitions will be done in joint ventures. Joint ventures currently encompass 5% of our total NOI, so there is ample room for this to grow. We would expect initial cash yields of greater than 7%, which exceeds our implied cap rate. In terms of magnitude, I could see us accretively allocating $50 million to $100 million of capital into our KKR joint venture in 2026. Third, redevelopment, which currently consists of 23 properties that are 64% pre-leased. Redevelopments are the primary source of the $50 million of NOI upside in our 3-year forecast, and we continue to track ahead of schedule. I would expect the number of assets in redevelopment to modestly tick up in the coming quarters as we front-load our spend into the earlier part of our 3-year plan. This will allow us to maximize the NOI upside opportunity sooner. As a reminder, our average cash-on-cash yield for the redevelopment portfolio is 10% and comes through a combination of increased occupancy and/or increased rental rate. Importantly, none of these priorities, buybacks, joint venture acquisitions and redevelopments, are mutually exclusive. In addition, while not part of our guidance, we are open to selling more assets, including core assets, and accretively recycling the proceeds into any one of our priorities to further improve earnings growth. Finishing now with a quick note on our Board. As part of our ongoing Board refreshment initiatives, longtime Director, Jay Leupp announced he will retire after our upcoming annual meeting. I would like to provide a sincere thanks to Jay for his contributions to the organization over the years. Upon Jay's departure, the average tenure of our remaining directors is less than 2 years. We plan to add a new director later this year, to more prioritize that person's experience and diversity. With that, let me turn the call over to Rob. Robert Hull: Thanks, Pete. The first quarter was the company's strongest ever for leasing. Our team executed over 290 leases, representing more than 2 million square feet. Lease economics across both new and renewal leases continued to improve. Annual escalators averaged 3.1% and the weighted average lease term was nearly 8 years, bolstering the portfolio's long-term growth profile. Tenant retention was 93.5%, driven by a number of early renewals across the portfolio. Included are 8 single tenant renewals totaling nearly 740,000 square feet, for an average extension of approximately 10 years. This meaningfully reduces our lease maturities through the end of 2027. And cash leasing spreads were strong, averaging 4.2%. Demand for medical outpatient buildings remains robust. We continue to see favorable sector fundamentals as absorption outstripped completions during the quarter and rental rates continued to climb. Health systems are seeing steady operating trends and investing in higher-margin outpatient services. These favorable industry fundamentals are translating into better performance for our portfolio. Health system relationships remain a key area of focus as their demand for space continues to grow, improving the credit profile of our portfolio. This quarter, we saw a substantial health system activity, including, in Atlanta, 176,000 square feet of new and renewal leases with Wellstar across 6 on-campus buildings, including a 59,000 square foot cancer center. The renewals carry an average term of 5 years with a blended cash leasing spread of approximately 4%. Wellstar is a leading health system in the Atlanta MSA with an A+ credit rating. In Charlotte, 6 renewal leases totaling 154,000 square feet with Advocate Health. The average term was more than 7 years with a blended cash leasing spread over 5%. Advocate Health is the leading health system in Charlotte with well over 50% market share and carries a AA credit rating. In Upstate New York, we leased 64,000 square feet of clinical and surgery center space to Trinity Health St. Peter's Hospital. The leases have an average term of nearly 6.5 years and annual escalators of 3%. Trinity Health is a top 10 health system nationally with a AA- credit rating. And in Charleston, 3 lease renewals for 55,000 square feet with MUSC Health, maintaining 100% occupancy across 2 buildings. The leases have an average term of 9 years with an average cash leasing spread of nearly 14%. MUSC is South Carolina's only comprehensive academic health system with 16 hospitals and regional medical centers. Looking ahead, occupancy gains over the remainder of the year will be driven by a robust new leasing pipeline of approximately 1.4 million square feet, strong tenant retention and our 490,000 square foot Signed Not Occupied or SNO pipeline. Turning to redevelopment. We saw a gain of 900 basis points sequentially in the lease percentage of our redevelopment portfolio. This quarter, we added 2 new projects, including a $25 million redevelopment of a 155,000 square foot MOB connected to Tufts Medical Center in Boston. The building is 100% pre-leased with a 10-year term and 3% annual escalators. We also completed a $35 million 2 MOB project located in Charlotte, adjacent to Novant Health Huntersville Medical Center. The redevelopment is 98% leased with a stabilized yield within our targeted range of 9% to 12%. The 2 buildings will move into same store once a full calendar year has passed since completion. Our results this quarter demonstrate the team's ability to drive accretive lease economics and strengthen our health system relationships. We are well positioned to build on this momentum through the balance of the year and deliver strong NOI growth to our shareholders. Now I will turn it over to Dan to discuss our financial results. Daniel Gabbay: Thanks, Rob. 2026 is off to a great start. We reported normalized FFO per share of $0.41, up sequentially from $0.40, and we achieved same-store cash NOI growth of 6.9%. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 75%. Our outperformance this quarter was driven by 110 basis points of year-over-year same-store occupancy gains, 4.2% cash leasing spreads and our improved balance sheet. Q1 same-store occupancy finished at 92.3% and same-store margins expanded 60 basis points year-over-year. Notably, 95% of our total NOI is included in our same-store pool. Turning to capital allocation. As Pete mentioned, Q1 was active across all our strategic priorities. In March, we opportunistically repurchased an additional $50 million of shares as global conflicts pushed the stock market into correction territory. This brings our total repurchases year-to-date to $100 million or 5.7 million shares at a weighted average price of $17.38. And at quarter-end, we closed on a JV acquisition for $18 million at our pro rata share, and commenced 2 new redevelopments with an expected cost of $31 million. We remain confident in our ability to continue allocating capital towards accretive redevelopments and selective external growth while maintaining our year-end leverage target in the mid-5x area. I would like to call out a couple of items related to our balance sheet. First, we are putting in place a new $400 million unsecured delayed draw term loan. Our strong bank partnerships allowed us to move quickly during a period of heightened volatility. The facility is fully committed and expected to close in May. Drawn pricing is at SOFR plus 90 basis points and all-in pricing inclusive of transaction costs is approximately 4.8%. This is inside our 5% cost of debt assumption for 2026. We plan to draw the term loan in late July to repay our $600 million bond maturity, with the balance funded on our line of credit. Factoring in this transaction, we would still have $1 billion of remaining liquidity on our line which provides meaningful flexibility as we consider all of our future capital markets alternatives. As discussed last quarter, we also launched our commercial paper program. We currently have roughly $250 million outstanding, which is fully backstopped by our line of credit. Borrowing costs today are approximately 40 to 50 basis points lower than our line. Finally, during the quarter, we also extended the maturities on $400 million of swaps associated with our existing unsecured term loans, locking in SOFR at 3.3% through debt maturity in 2029. These levels remain attractive as expectations for Fed cuts diminished during the quarter. Turning to 2026 guidance, which you can find on Page 11 of our Q1 supplemental report, we increased full year normalized FFO per share guidance by $0.01 to $1.59 to $1.65 per share or $1.62 at the midpoint. And we increased same-store cash NOI growth by 25 basis points to a revised range of 3.75% to 4.75%. These results are driven by strong leasing outcomes and 4% plus cash re-leasing spreads in our same-store portfolio. Uses of capital increased $75 million for the year to reflect the incremental share repurchases and acquisitions in Q1 that we discussed earlier. Our guidance does not include any additional acquisitions, redevelopments or incremental share repurchases for the remainder of the year. Funding sources increased by $75 million to match the capital allocation activity in the quarter. One last item before we go to Q&A. You probably noticed that we published a revised supplemental reporting package and updated investor presentation last night. We are pleased to provide cleaner, simpler disclosure going forward in our supp on the total portfolio while also maintaining key information and performance metrics that we have previously provided. The materials commence with our portfolio-level information across top markets and tenants followed by our same-store redevelopment and ancillary financial information. To recap, we are very excited about our Q1 results and upside for the year. Our core earnings growth model that Pete described is working across the board, and absent the dilution from our 2025 dispositions, we are already delivering mid-single-digit growth. We, therefore, remain confident and laser-focused as we target the upper end of our revised FFO per share and same-store NOI guidance. With that, operator, let's open up the call for Q&A. Operator: Our first question comes from the line of John Kilichowski with Wells Fargo. William John Kilichowski: Maybe first, if we could just start with the same-store guide we appreciate the bump here, but the 6.9% certainly stands out in 1Q. How do we think about that conservatism there? What drove the 6.9%? Was it comps? Was it just a great quarter? And is there an ability to repeat something a little bit closer to that going forward? Peter Scott: John, it's Pete here. I think as you pointed out, we had a great first quarter, posting same-store of nearly 7%. And the main pieces of that were we did see a pretty significant ramp-up in occupancy year-over-year and also some margin improvements. And that's something, if you go all the way back to our strategic deck, we said those were 2 important metrics that we wanted to improve, and we have. And we also had some strong leasing in the first quarter. I think to your comments about deceleration implied in our same-store guidance, and I think you touched on this just a bit in your note last night, I don't really think about it necessarily as deceleration. I mean I think about it as an opportunity to raise guidance a few more times as the year progresses. So I like to look at it as the glass is half-full, not necessarily the glass is half-empty. I will say we had an easier comp in the first quarter. I think that was pretty well known. If you looked at our results last quarter -- or excuse me, last year, we had a tough first quarter and it ramped up significantly in quarters 2 through 4. I still expect our growth to be quite strong and much longer than historical norms for the balance of the year. But we might not see something all the way at that like near 7% level, but I would expect it to continue to be strong. William John Kilichowski: Got it. That's very helpful. And then the second one, Pete, you gave some very helpful color in the opening remarks on the capital allocation opportunities and the buyback and doing what's best. I'm curious how you feel about the push and pull of doing what's most accretive but also managing leverage. You put a ton of effort into getting the balance sheet into a good place. And now you've kind of done that, you take up leverage ever so slightly, like it's still in a good spot. But what's that point at which you're like, okay, the buyback is now off the table, we can't lever up past this and the incremental proceeds need to go towards, like you said, the JVs or the redev versus that? Peter Scott: Yes. It's a good question and I'm glad you brought it up because I did want to spend a lot of time on it in the prepared remarks and on this call. In the first quarter, we did all 3. I think it was a nice mix of buyback, we did a JV acquisition, and we allocated capital to redevelopments. All 3 are accretive to our earnings growth. So we're pleased about that, especially since we can utilize balance sheet capacity for it. So I think it's the right mix to continue to focus on all 3. I will highlight the word disciplined, right? I have seen, and I'll again repeat the O word pop up from time to time, and I would not characterize it as that. I would characterize this as a very, very disciplined capital allocation approach. And to your point about leverage, I would also point out that we will not shy away from selling more assets, including core assets, right? So not selling lower quality. That was a lot of what we did last year to get the portfolio to where we wanted it to be today. Our focus could be on selling more core assets and accretively recycling that back into the 3 priorities. We just think it's good to have a good mix of different options available to us, and we think it's the right mix right now. Operator: Your next question comes from the line of Nick Yulico with Scotiabank. Nicholas Yulico: I wanted to first ask on total occupancy. I know you have that 92% to 93% target. You said you're at 90.5% in the first quarter. I think sort of twofold here, one is just latest thoughts on sort of the time frame for achieving that target. And then I think a component of that is leasing up development, redevelopment, where there is just some pure vacancy today. And I think, Rob, you gave some stats on like a Sign Not Occupied pipeline, but I'm wondering if you had any of that time Signed Not Occupied specifically you could cite for that development/redevelopment pool? Peter Scott: Yes. Nick, it's Pete here. I'll start and maybe I'll have Rob jump in on the backside. We do see redevelopments as a great way to invest capital and get a nice cash-on-cash return. It's the 10% cash-on-cash return that we are targeting on average. And as we think about that portfolio, we did improve our disclosures a couple of quarters ago to track the percent pre-leased within that bucket. That's actually where a lot of our SNO sits right now. So our 90.5% of occupancy today does not get the benefit of a lot of that pre-leasing that we've been able to do in the redevelopments. But we will continue to disclose that. And as you saw, there's 900 basis points effectively of sequential occupancy gains within that -- or I'd say leased gains within that portfolio. It hasn't turned into occupancy yet. So I don't know, Rob, if you want to give any more color behind that. Robert Hull: Yes, I'll just add to that, this is a substantial -- in our SNO pipeline, 90,000 square feet, nearly half of that in that kind of lease-up redevelopment bucket. So a substantial amount, which is where we see a lot of the opportunity to drive occupancy over the course of this year. I would also say that our pipeline remains strong at the 1.4 million square feet. That's a good leading indicator of where we're headed. Tenant retention is still a major source of occupancy gains. And we expect all 3 of those to contribute meaningfully this year. Nicholas Yulico: Okay. Great. That's really helpful, guys. Second question. Pete, I want to go back to the commentary about you're open to selling core assets. And I guess -- and then also going back to your point about earnings growth and that being a focus. Is this an opportunity -- is this more than just a sort of opportunity to sell at a strong cap rate and sort of arbitrage that on the investing side, which is maybe like a onetime earnings benefit? Or are you also open to selling core assets because in some ways you're going to get a low cap rate and they're also structurally slower growth assets for every reason, maybe they're safer profile of the lease, whatever it is, that if you're actually selling core assets, you could be improving sort of a long-term growth profile? Peter Scott: Yes. I would go back to my comment in the prepared remarks about 5% of our portfolio, the NOI being in joint ventures right now. And we get some pretty nice advantageous fees. So any going-in cap rate for like a core-plus asset is an enhanced yield to us with regards to our initial cash yield. I think that's one of the beauties of JVs and that's why a lot of REITs employ JVs as an important part of their business model. I think 5% is low. I think 5% could grow. I won't give a number as to where it could grow, but I think it could grow well beyond 5%. And I think I'll look at selling core assets and recycling that capital back into potentially JVs as a use of proceeds could be done accretively and I think would be a good thing for our portfolio as well as for shareholders. Operator: Your next question comes from the line of Seth Bergey with Citi. Seth Bergey: Just want to kind of go back to the JV comments. How are partners thinking about how many partners are you kind of in discussions with that are interested in investing in outpatient medical? And can you just talk about kind of the overall depth of the transaction market and interest in the outpatient medical space? Peter Scott: Yes. Maybe I'll start with that and Ryan can talk briefly about the transaction market. As you think about our JV exposures, we do have a few different JVs, but there's really just one at the moment that is what I would call more a growth JV. And that's with our partner at KKR that was set up a couple of years ago. There was a pool of assets that was contributed by the company into that joint venture. But the hope was that, that joint venture would grow over time by acquiring third-party assets or, I'd say, external growth. It's another good way to characterize that. Nothing happened over the last couple of years, really because there was no capital or balance sheet capacity here for any desire at Healthcare Realty to grow, even though our partner had a desire to grow. So I would say what we're focused on right now is growing with that 1 partner. I don't know that I want to get into any additional JVs that we could potentially look to set up over time. The other JVs that we do have, they're more discrete assets. Those were set up many years ago prior to that KKR joint venture, and I would not look at those necessarily as growth ventures. Our growth is really going to be focused with that 1 partner right now. And then Ryan, do you want to talk about the transaction market briefly? Ryan Crowley: Sure, Pete. I'll say that the momentum that built from the transaction market last year has certainly carried into 2026. If anything, the strength of that private bid has only increased and financing remains really available. There's plenty of demand and liquidity out there. If you want me to talk about cap rates, I'd say that core assets are pricing today in the 5.5% to 6% range. And frankly, core-plus isn't much above those levels. Seth Bergey: Great. And then just coming back to some of the -- your opening comments about retention and escalators. Just given that occupancy for outpatient medical is kind of in that low 90s places, where do you think those metrics could ultimately go in terms of just new lease economics? Peter Scott: Yes. Good question, Seth. I mean what I would say is we completely revamped our approach to leasing about the middle of last year and we've become just much more financially rigorous as we underwrite deals. And I think what you're starting to see is the benefits of that change is starting to work its way into both the amount of leases we're getting done as well as the output of those. So retention, as you point out, at 93.5% is really strong. We did get the benefit of doing a couple of very, very large leases in our single tenant bucket that were pushed out quite a way. So if you look at our weighted average lease term, it actually almost went up about a year this quarter, which is a pretty big change in 1 quarter. I would say from a retention perspective, I don't know that I would model 93.5% going forward. But if it used to be 75% to 80%, I'd like to think that it could be more like 80% to 85% going forward. And then on the cash leasing spreads, we did put up a good quarter this quarter. It was over 4%. I'll point out 1 out of every 4 lease deals that we did was greater than 5%. And we are focusing heavily on that, to try and push as much as we can on that metric. I'd like to think it can even improve upon 4%, but this will take perhaps a little bit of time to continue to work into the system. But we are optimistic and we'll continue pushing. Operator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: Pete, I wanted to circle back on those early renewals that you're able to execute during the quarter. I mean what drove those decisions? Is that something that you approached the tenant about? Or did they approach you about it? And given that those assets now have much longer term, is that something that you sell now or could potentially sell just given that you have about 10 years on some of those leases? Peter Scott: Yes. I mean we certainly could. I don't know that I can go into each one of those. It would take too long on this call to go through all the different assets within that bucket. But certainly, if it's a single tenant expiration and it's got less term on it, I mean you guys can go talk to the folks in the triple-net world, but when there's not a lot of term on a single-tenant asset, it's really not worth anything. So we've certainly unlocked some value in extending those. But I won't really comment at the moment on what our lands are for those in particular. I will say extending the weighted average lease term was actually quite important. We got a question on that a couple of quarters ago. And I felt confident we were going to do it. I would say many of these discussions on those lease deals took multiple quarters to get done. So I think you're seeing multiple quarters of work in our results that we put out in the first quarter. Robert Hull: I would just add to that, Pete, that, to your question about the systems approach us, in some cases, they did. And I would say that it's kind of an indication of the environment that we're in. Vacancy is getting lower. It's more expensive to build new products. And so we're seeing an uptick in discussions with health systems, and I think that's where you're seeing us able to drive lease economics. Michael Carroll: That's helpful. And then on the investment side, I know [ like in prior calls ], I mean there's been a lot of discussions on how attractive some of those opportunities are, it does look like, given the stuff that you've done year-to-date, you're kind of approaching the top end of the guidance range provided. I mean how do we kind of compare those 2? So you're seeing good opportunities, but it's not reflected in guidance. Is that just you trying to be cautious, not wanting to over-extend yourself without having some type of source of funds coming in? Or how do we explain those 2 differences? Peter Scott: Yes. I mean one thing and then I'll turn it to Dan. I mean, look, Mike, it is early in the year. Obviously, we put up some good results and we're able to raise guidance in the first quarter. So I feel quite pleased with that. But there's more quarters to go, more for us to do, and I think there's more upside for us to go capture as well as we execute with purpose. But maybe I'll have Dan talk about balance sheet capacity. Daniel Gabbay: Yes. And Mike, as we started talking about at the beginning of the year, we have balance sheet capacity. We've always talked about having upwards of $100 million to $200 million, sort of in that range, of balance sheet capacity as we entered the year. We've used some of that. We continue to have capacity. And as Pete mentioned, we have the ability, if there's the right assets to sell and harvest at great valuations, we can recycle more capital into external growth. As it relates to our guidance specifically, we're taking the approach with guidance that what you see in sources and uses is what we've announced to date and we don't include any future acquisitions or share repurchases in our guidance going forward. And we've given folks our outlook on -- for the year of dispositions as well, which is tracking nicely. And we're already including this $45 million loan repayment we talked about in our press release being repaid, actually it's this week. And so we are halfway on our dispositions already towards the midpoint of our target. So feeling good about those sources and uses. And as we have more activity, we'll continue to update those ranges and update you and the market as those transpire. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: I'm here with Justin Haasbeek. Maybe first, your same-store occupancy was up 110 basis points to 92.3% in the quarter. So really the question is how high can occupancy go in the same-store portfolio? Or maybe asked another way, how should we think about frictional vacancy for your portfolio in outpatient medical? Peter Scott: Yes. Michael, it's Pete. And thanks for picking up coverage. We appreciate it. I mean, look, we're in the low 92% area. If you go back to our strategy deck, we said we'd like to get to 92% to 93%. I think as we've improved our portfolio, I'd like to think we can get closer to the 93%. We've said actually that we believe there is some absorption as the year progresses as well, which is a positive for us, and that certainly will help our same-store. As to your question around just like frictional vacancy, I mean, I think that's probably about right, like mid to high single digits. I mean we just don't have a very, very large triple-net, single-tenant portfolio, which typically when you see other REITs that own assets like we do, will have higher occupancy levels because of that. We have a big multi-tenant portfolio, which is actually, we think, a positive in an environment where you've got more demand and less supply right now. So I think you'll always have a little bit of vacancy as doctors retire and things like that. But I feel like we're getting close to it. We're very focused on getting the total occupancy in the portfolio, the 90.5%, I mean getting that up to 92% to 93%, I mean that's going to be the big opportunity for us as we think about exceeding our 3-year forecast over the next few years. Michael Goldsmith: Got it. And then just as a follow-up, when you annualize your first quarter normalized FFO, you get pretty close to the high end of the guidance range. So just wondering if there's some conservatism baked in or another drag outside of the August debt maturity that we should be aware of? Or just how we should think about it? Peter Scott: I think you're thinking about it the right way. The only drag, I would point out is what's going to happen with that bond that does come due in August. But we did put out that delayed draw term loan, the announcement on that. So I feel like we've been able to significantly derisk that. And frankly, we've got plenty of runway now with that term loan where -- I'm a big believer in the capital markets. You can never time them perfectly, but you can certainly access those markets at times when you can become a price maker and not a price taker. I felt like we were in the price taker bucket without putting that term loan in place. And with that bullet maturity coming up in August, and with the dislocation in the markets the last couple of weeks, we pivoted very, very quickly. And I credit Dan and his team for putting that together and I thank our banking partners for that. Because I think the all-in cost on that is in the mid-4s. When you compare that to bond pricing today, we'd probably be 50 to 75 basis points wider. So that's a really good financing for us to put in place. Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Pete, I appreciate you highlighting some of the various items that you're targeting to improve the growth profile and just returns associated with medical office. If 2% to 3% internal growth doesn't cut it for the reasons you highlighted, I guess, what's the right growth level you think is achievable? And just the time line it takes to reset that internal growth based on the lease maturity schedule. Peter Scott: Yes. Good question. I mean yes, I agree, 2% to 3% NOI growth just, as much as I'd like to say it works, it just won't work anymore. So I don't know that 7% is the right number for us to anchor ourselves to right now, for the reasons I mentioned in a question before. But probably something right in between. And then I will go back and focus you on a comment I said in my prepared remarks. And I get this is us working around some magic numbers behind the scenes. But if you back out the dilution from the portfolio optimization and the deleveraging from last year and you look at our actual organic growth this year, it's actually above 5%. So I'd probably start anchoring around a number like that. I mean obviously, we have other things we have to factor in as well with regards to our balance sheet and our refinancings over the next couple of years. But I think from a pure organic growth perspective, that's probably the best number I can anchor you to. Austin Wurschmidt: That's helpful. And then switching gears, Ryan or Pete, as a follow-up to some comments earlier, you flagged the cap rates are in the 5.5%, 6% range for core assets, core-plus isn't much above that. I mean is that what we should be thinking about on future dispositions? And what gives you the confidence then that you can source deals at going-in yields in excess of 7%? And I think you said in the prepared remarks, especially if these are lease-up opportunities with higher growth potential. Peter Scott: Yes. Well, I'd point you to the deal we just did in Birmingham. It's a $90 million deal, a core asset, 100% occupied, newly developed, 12-year weighted average lease term. The going-in cap rate on that was a 6% and our going-in yield was in the low 7s from a cash perspective. I'd say from a GAAP perspective, which we don't really talk about a lot, you're actually north of an 8% on that. So as we think about stock buybacks and the FFO yield versus putting capital to work in investments, we do have to look at GAAP yields from time to time. So that's a core-plus asset that we feel quite good about the accretion on that because the going-in yield is actually wider than or above our implied cap rate, and that's an important metric that we would look at. I'd say if we were looking to sell core assets, I would expect to be getting pricing even inside of that. That would be our take. Not every asset we're going to sell is going to be core. I think we will look to do just some typical core-plus pruning as well. But to the extent we looked at selling core assets, and we've got a lot of them, I would expect us to do quite well if we decided to transact. Operator: Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Richard Anderson: So perhaps a cynical question first. You said at the top, and you just kind of got -- went through the growth number, Steady Eddie growth isn't going to cut it in this market, and you're saying maybe somewhere between 3% and 7% will cut it. I recognize you can't be very precise there. I wonder if that will sway the conversation around the growth profile of MOBs, we'll see. But I guess the question I have is if you're solving for a growth level and then sort of work backwards to achieve it, there have been dangers in the past of people doing unnatural things to sort of break the status quo. So how do you avoid sort of the complications around that? How do you avoid sort of losing reputational capital if the rest of the MOB market isn't sort of buying into this new paradigm shift? I'm just curious how do you manage all of those sort of moving parts as you reassess the growth of the business. Peter Scott: Rich, good question, and thanks for your cynicism. But let me just spend a second on the value creation opportunity and maybe expand on my premium multiple comments that were in the prepared remarks. If you think about our current valuation, in my opinion, that implies basically minimal to no growth going forward, right? I mean I'm biased, I think it's way too low. But I think it implies very, very, very little growth when you look at how we stack up within the entire REIT industry. And I think it's very much backwards-looking. But I respect that, that's where we are right now, and we're still only a year into putting out our -- less than a year to putting out our strategic plan. So as I said, we have a challenge in front of us. One, we have to put up better numbers. I think this quarter, and actually if you look at the last couple of quarters, they've been much better than they've been historically. And we obviously have to redefine what we think success is in our sector. I would say success for us is not going from an 11x FFO multiple to a 30x FFO multiple. I mean I tip my cap to those companies that trade at those stratospheric levels, and then they're doing a fantastic job keeping the market excited and it's great for them. Success for us is not going all the way to those stratospheric levels. It is taking our multiple from 11x to something commensurate with where I think other similar growth characteristics or other REIT sectors that grow at a similar level to where we can grow are. And they're not at 11x. They are better than 11x. I think they are about 3 to 4 turns better than where we trade right now. I'll let you guys do the math, but that's pretty significant value creation from where we trade today. So I'm not looking to all of a sudden persuade everybody and say, oh my God, these guys are now going to grow at such an amazing level that they deserve this stratospheric level type multiple. We're very, very much rooted in realism here and what we think the right total return profile is. But it's a lot better, we think, from an earnings growth perspective than the old Steady Eddie model. Richard Anderson: Okay. Perfectly fair. And second question, on selling core assets, I know it's a little bit of a conversation piece today. What governors do you have on yourself to limit how much of that you're willing to do? Because you don't want to be guilty of throwing the baby out with the bath water. I recognize that there is sort of an accretive transfer of capital. But you -- someone just brought up core numbers -- core cap rates for core assets, I should say, are 5.5% to 6%, and not so core are just a little bit above that. So I just wonder what the real risk-reward benefit is of being overly aggressive with the core to asset sales. Peter Scott: Yes. I will go back to the word disciplined, Rich, like we're going to be disciplined, and I said we are open to selling core assets and recycling that capital accretively. And if you go back and take a look at all the numbers I've been discussing in here, they are all very modest type figures. So I would not look at this as we're just going and liquidating the highest-quality stuff. And you know this even better than we do, there's a limit from a tax gain capacity from how much we can do as well. But I think in moderation, we will certainly look to dispose of or potentially contribute some core assets into ventures as well where we still retain a stake in those. So like I said, we're looking at all options. I know we get questions on balance sheet capacity and our ability to recycle capital into our capital allocation priorities. And I felt like just pointing out we're not just going to utilize the balance sheet for this and lever up. We will certainly look at taking advantage of our portfolio to allow us to continue to further that. Operator: Our next question comes from the line of Daniella de Armas Rosales from JPMorgan. Daniella de Armas Rosales: Your spreads in the quarter were strong with 4% average. But can you give us some color on the 13% of renewals that had negative spreads? And do you think those roll-downs are largely behind you? Peter Scott: Yes. We tend to focus on the blended number of over 4% and actually achieving a lot higher on the upside. I would say that selectively, if we feel like, and I would go back to my comment earlier, if we feel like the better play for us is to retain a tenant as opposed to seeing them walk from a building, we will add time selectively look at modest roll-downs because we will look at the whole financial package as we look at this. What's it going to cost to re-lease that? What's the downtime? What's the CapEx? So I don't know that I would say, going forward, we're always going to have every lease 5% or above. We'll certainly strive to do something like that. But at times, we may selectively make a decision to allow a tenant to stay for a variety of reasons. But at the end of the day, we would make that decision because the IRR for that lease is much better than the alternative. Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Michael Stroyeck: Maybe going back to same-store NOI growth, are there any known tenant move-outs or any other moving pieces that you expect to weigh on NOI growth during the rest of the year outside of just tougher year-over-year comps? Peter Scott: No. I mean if I look at the remaining lease expiration for 2026, I mean, that number, if you go back and look last quarter versus this quarter, has come down significantly. I gave you some thoughts on retention before in the 80% to 85% area. I'd expect the remaining lease expirations for this year to kind of track within that range. We'll retain the vast, vast majority of those tenants. So there's nothing that jumps out to me. I would just point out that we had a bit of an easier comp this quarter that we won't have in the next couple of quarters. But I would still look at the blended midpoint of 4.25% today. And as we've said, we think there is probably a little bit of upside as the year progresses on that, or at least that's what we would hope if we execute. And that's still really strong growth. So I would focus -- while we are focusing on the strong number this quarter, 1 quarter you got to average out over the entire year. But I think for the year, it's still quite strong growth relative to historical norms. Michael Stroyeck: Got it. That's helpful. And then maybe following up on an earlier acquisition yield discussion. You outlined the 6% yield going to 7% on that recent Alabama deal. So just clarifying, is that 7%-plus yields that you're underwriting, is that more of a stabilized yield or is that actually expected year 1 you expect to see? Peter Scott: That's year 1. That's not a stabilized yield. That's what we're going in at. Robert Hull: Mike, I'd just point out that when we talk about the JVs, that's inclusive of the advantageous fee arrangements that we have with our partners, that we've talked about so far this year. Operator: Your final question comes from the line of Juan Sanabria with BMO Capital Markets. Robin Haneland: This is Robin Haneland sitting in for Juan. Just curious on the strategic 3-year plan, if there's any updates compared to initial expectations, and whether you could share with us the next low-hanging fruits? Peter Scott: Yes. Look, I think what I would say on that is that we're tracking ahead of schedule at this point in time. And frankly, we're 1 quarter into a 12-quarter forecast. And to be tracking ahead of schedule, I think, is a testament to the hard work that the entire organization has put into preparing for kicking off this 3-year forecast, and also for the financial rigor that we're improving in this organization. I hate to continue to repeat that word, but I think if you guys were in here every day, you would see it and be quite impressed. The other thing I would just point out with regards to this year, I mean, this year was expected to be a flat year from an FFO perspective. And I think 1 quarter into the year and we're already exceeding from that perspective, and we'd like to continue to have an opportunity if we execute to increase guidance for the balance of the year as we go along. Obviously, we have to continue to execute with the intensity that we have been. So as I would say, I feel like we're tracking ahead of schedule. Not ready to say much more than that at this point in time being 1 quarter in, but it's good to be saying that at least that early on. Robin Haneland: And I was just also curious on if there are any signs of supply picking up and I'd be curious to know how far rents are off from being able to pencil. Peter Scott: I want to talk about supply, Ryan, because it really hasn't picked up? Ryan Crowley: We've seen new completions drop in recent quarters and new starts have remained fairly flat. They're actually tracking well below historical industry average of, call it, 1.5% to 2%, in what is a 1% of inventory range. So no, not much on that front. . Operator: And with no further questions in queue, I will now turn the call back over to the company for closing remarks. Peter Scott: Great. Well, thanks, everyone, for joining the call. We have a couple of industry conferences coming up later this month. We look forward to seeing you there. And then if we don't see you there, we'll see you at NAREIT. Thanks very much. Operator: Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Perella Weinberg First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to turn the call over to Taylor Reinhardt, Head of Communications and Marketing. Taylor Reinhardt: Thank you, operator, and welcome all. Joining me today are Andrew Bednar, Chief Executive Officer; and Alex Gottschalk, Chief Financial Officer and Chief Operating Officer. Before we begin, I'd like to note that this call may contain forward-looking statements, including Perella Weinberg's expectations of future financial and business performance and conditions and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those discussed in the forward-looking statements and are not guarantees of future events or performance. Please refer to Perella Weinberg's most recent SEC filings for a discussion of certain of these risks and uncertainties. The forward-looking statements are based on our current beliefs and expectations, and the firm undertakes no obligation to update any forward-looking statements. During the call, there will also be a discussion of some metrics, which are non-GAAP financial measures, which management believes are relevant in assessing the financial performance of the business. Perella Weinberg has reconciled these items to the most comparable GAAP measures in the press release filed with today's Form 8-K, which can be found on the company's website. I will now turn the call over to Andrew Bednar to discuss our results. Andrew Bednar: Thank you, Taylor, and good morning. Today, we reported first quarter revenues of $149 million, down 30% from our record first quarter last year. These results don't align with the current state of our business. Client dialogue is very strong. Our announced and pending backlog at quarter end was at a 2-year quarterly high, and our overall pipeline continues to grow. Furthermore, we continue to build scale with the recently announced acquisition of Gleacher Shacklock. The M&A market is active and overall volumes are strong, but the activity is concentrated and driven by a record number of mega cap transactions. We were involved in 2 of the 12 transactions in the quarter valued at $15 billion or above. Everything we do is taking more time. We advise on larger and more complex situations, and it's taking longer to get the mandate, longer to announce and longer to close. The environment, whether it's macro, geopolitical, sector-specific, is all making clients deliberate more, and this is natural and it's healthy. Clients are not walking away from transactions, but they are being careful, and that is adding to the time to completion. Restructuring and liability management remained active in Q1, though revenue contribution softened coming off a record 2025 that saw a number of large deals completed in the period. We are rebuilding the pipeline, but the ramp from initial mandate to revenue recognition does take time. We have to be there for our clients in every market through thick and thin. We are not changing our view on our opportunity. The relationships and the revenue potential are there. It is just a question of time to conversion. Based on where our transactions sit today, we expect our revenue to be meaningfully back half weighted this year. Now let me spend a minute on our recently announced acquisition of Gleacher Shacklock. Europe has always been a meaningful part of our business, and the U.K. is the largest advisory market in Europe. But historically, we have not had the presence there that matched our brand. Gleacher Shacklock changes that overnight. They are one of the most respected independent advisory firms in the U.K. with 20-plus years of trusted relationships with FTSE 250 corporates, sovereign wealth funds, pension funds and sponsors. They bring us five partners, two of whom are still in ramp mode. And with access to our global platform, we expect their productivity to multiply once we combine. Importantly, Gleacher Shacklock operates with the same values as we do, trust, integrity and teamwork. And like us, they put clients first. The Gleacher Shacklock team has built something very special, mirroring what we have built, a firm known for deftly guiding clients through complexity and one where repeat clients are a significant part of the business. I look forward to welcoming the entire team to our firm later this year. In the last 12 months, we have added exceptional talent across the firm, launched our private funds advisory business through the Devon Park acquisition and now have further invested in our European business with Gleacher Shacklock. We continue to build a platform that can perform across cycles and one that today is broader geographically and by industry and product than it has ever been, and we are attracting world-class clients and exceptional bankers to our platform. We do expect that our results will be more variable as we continue to build scale, but our direction is clear, and I'm very confident in our future. Before I turn the call over to Alex to review our financial results and capital management in more detail, I want to take a moment to congratulate Alex on her expanded role, which now includes serving as Chief Operating Officer of the firm. Since becoming CFO in 2024, Alex has had tremendous impact on our firm and helped keep us focused on our mission. I have no doubt that in this combined role, she will help drive more growth, greater discipline and better results. So congratulations, Alex. This is a very well-deserved promotion. Alexandra Gottschalk: Thank you, Andrew, for your kind words and confidence in me and our team. I'm excited for this new chapter. Now turning back to earnings. Our first quarter revenues of $149 million included just over $10 million related to closings that occurred within the first few days of the second quarter, which in accordance with relevant accounting principles were recorded in the first quarter. Our adjusted compensation margin was 79% of revenues for the quarter, above the intended 67% indicated on our fourth quarter call. The 79% reflects the impact of a lower revenue denominator against a higher non-bonus compensation base compounded by the timing of RSU vesting's from prior stock-based compensation awards, which was concentrated in the first quarter. Excluding the bonus decrease in the current period, compensation expense increased year-over-year due to higher cash compensation and equity amortization from investments in new hires and higher headcount. As revenues build through the year, we expect the comp margin to moderate and come in line with our historical target range by year-end. This is the same dynamic we experienced in the first quarter of 2024. Our adjusted non-compensation expense was $37 million in the quarter, down 24% versus a year ago, a direct result of prudent cost management, which we expect to sustain through the year. Our prior guidance of a single-digit percent decrease in full year non-comp expense versus 2025 remains our best estimate at this time. Turning to capital management. In the first quarter, we returned nearly $64 million to equity holders through dividends and RSU settlements. At the end of the first quarter, we had 71 million shares of Class A common stock and 22 million partnership units outstanding. We ended the quarter with $78 million in cash and no debt. This morning, we declared a quarterly dividend of $0.07 per share. With that, operator, please open the line for questions. Operator: [Operator Instructions] We'll take our first question from Alex Bond with KBW. Alexander Bond: Just wanted to start maybe specifically on what you're seeing in the large-cap strategic backdrop on the M&A side at the moment. It seems, for the most part, like large corporates have been willing to look through geopolitical concerns and AI fears. And even in the case of AI, maybe that's potentially spurring some further activity in that area. It would just be great to get your thoughts around that space more broadly, especially in light of your commentary around the extended deal time lines. Andrew Bednar: Yes. Sure, Alex. Thanks for the question. We're seeing great activity in that segment of the market. And I think that's evident in the number of announcements broadly in the market. We're tracking broadly ahead of last year. There were about 72 transactions last year above $10 billion. I think we're on pace for 80-plus this year. That part of the market is very strong. Strategics are looking through war and other sort of aspects of geopolitical mapping that's changing and other issues that may be starting to affect the consumer. I think these long-term large transactions are still very much in vogue. Part of it is also a very accommodative administration. And so I think that's also putting some pressure on people to transact on a little faster time line versus historical norms. So we feel very good about that market. We'd like to be in more of those deals always, and that's what we aspire to, but that part of the market is very, very healthy, Alex. Thanks for the question. Alexander Bond: Great. That's helpful color. And maybe as a follow-up, just on the revenue expectations for the full year. I think back half weighted certainly makes sense given what we can see in the pipeline and some of your commentary in the prepared remarks. But I wanted to ask specifically around the second quarter. Maybe any color you could share just some of the near-term pipeline and if we should expect that the second quarter to look relatively similar to the first quarter from a revenue standpoint. Andrew Bednar: Yes. As you know, Alex, we don't provide revenue guidance for the year for any specific quarter. I don't think, though, that as we look at our particular mix of transactions, the announcements and the time lines to close, we don't see a lot of closing risk in our pipeline, which is always good, but we do see the timing issues are very prevalent. So I think this will be a progression through the year. I don't see a quick reversal coming in the next period, but we see a really good progression through the year and similar to what we were facing when we look at our 2024 results, we had our lowest quarter in Q1 '24 as a company, and then we ended up having a record full year. But trying to predict when those things happen during the course of the year is always very hard. But we do believe it will be very back-end weighted just given the nature of the pipeline that we have and what you guys are seeing also in Dealogic, you can track that as well. Operator: Our next question will come from Brendan O'Brien with Wolfe Research. Brendan O'Brien: To start, I just wanted to touch on Europe. There's some interesting dynamics playing out in that market at the moment. On the one hand, obviously, more exposed to energy shock driven by the conflict in the Middle East. But on the other, there's clearly a push towards deregulation that's more favorable to large-cap M&A. Just want to get a sense as to what you're hearing and seeing in the region at the moment and whether you see potential for this fee pool to outpace that in the U.S. Andrew Bednar: Yes, Brendan, I think you've described the situation on the ground very well. I think that the impact of this war is very uneven. And I think it's been widely reported that Europe is particularly vulnerable to the energy price shock that's occurred. And I think they have to grapple with that and likely have some impact and long-term implications for the consumer through Europe. But there's something else going on, which is a reimagining of Europe's position in the world, and that has started back now 1.5 years ago. And that has led to a very significant change in defense budgets, for example, and rethinking regulation across border within Europe, which has paved the way for some larger scale transactions and things that historically once may have been unimaginable that are now becoming in the frame as a possibility. So those are good dynamics for our business. Generally, when we have more accommodative regulators, that's a good thing. And when we have a change to the circumstance and sort of reimagining of a region, that's also positive. So we are seeing an increase in dialogue, an increase in the art of the possible there. I think that's good for our industry. We are optimistic about our investment in the U.K. Obviously, we feel very good about that. Otherwise, we wouldn't have done that. That's a very large market around -- if you look at the other European markets, the U.K. fee pool is the largest. I don't think it will outpace the United States. The United States is the largest M&A market. It's the largest fee payer market. I don't see Europe catching up to that. But for the better part of the last decade as European contribution to overall M&A fee pool and M&A activity has been historically low. We've all talked about not just me, but others in the industry, how that is an anomaly and should catch up. It hasn't, but it certainly has the opportunity now with the changes that are afoot to catch up to its historic contribution. Brendan O'Brien: That's helpful color. And then for my follow-up, I guess, on the energy side of the equation, you guys obviously have a really strong business in the oil and gas space or energy space broadly. I just want to get a sense as to how the increase in oil and gas prices has impacted the willingness of energy companies to transact and whether that's driving increased activity levels or pipeline? Andrew Bednar: Historically, when you have oil prices above $90, it makes the transaction dynamics quite challenging for M&A. So usually, we see a cessation of activity, which we have seen. I think there's only been eight transactions in energy announced all year. And I think there's only three above $1 billion, which kind of be in our sweet spot. So it's a very, very, very limited market right now. I mean we are in the midst of the war. We are in the midst of what many have described as the most significant oil shock to our world. And so it's not, I think, surprising that the activity now is lower in M&A and many of these companies are very, very focused on operations. Now we've had some exceptions to that with Shell's acquisition earlier this week. Now that's in natural gas, which largely has been flat to even somewhat down since the beginning of this war on February 28. So that's a quite different market. Generally, the discussions are very, very active about what happens when the fog of war lifts. I don't think the cessation of activity is indicative of long term. I think it will be temporary. I think there will be quite a bit of consolidation when we get some of the fog lifted and prices sort of settle back down to what people can then plan for a long-term mid-cycle price deck in terms of transacting. But that fog of war definitely has an impact on everyone's energy business. I think everybody is down, and we're seeing the same thing. Operator: Our next question will come from Devin Ryan with Citizens Bank. Devin Ryan: I want to come back to the advisory outlook. Obviously, you cited the remark announced and pending backlog at a 2-year high. It'd be good if we get some maybe quantification or even characterization on how some of the other kind of early forward-looking indicators are tracking, whether that's mandates or even customer engagement metrics and whether those are also growing, or those at 2-year highs or how you would kind of frame the leading indicator for business? Andrew Bednar: Yes. Look, the things that -- I know investors and analysts have to look at the quarterly results, and those are important, but they don't really tell us a lot about the future of the business. That's what I'm focused on and what my teams are focused on. So I look at the client engagement level in M&A is up, I look at our overall pipeline, it is up. Importantly, within that overall pipeline, the amount of pipeline that's actually engaged. So there's a signed engagement letter that is also up. I mentioned announced and pending in my upfront remarks that we're sitting at an 8-quarter high. So that's, I think, encouraging as well. And I think importantly, we'll have another period of time here where we just have phenomenal repeat clients. Our repeat clients are paying some of our highest fees. I mean that is true and, I think, a time-honored strength -- indication of the strength of our franchise. And so I like all of that. That all looks very, very good. I think where we have some challenges is just on scale. When you look at 150 or so fee events, you have a couple of things at the top of that list that shift, and that's going to affect the quarterly results, which, again, I always find hard to predict. And I just look at the strength of the overall business, which I like what I see. We've got 23 partners that are still ramping. We've got to always look carefully at our investments. We're constantly assessing our partnership and how we think about covering clients. We're continuing to be very deliberate there. But generally, all those KPIs, Devin, are quite strong and in some cases, have never been stronger in our history. Devin Ryan: And then kind of interrelated on the comp ratio, I know the first quarter is a bit of just a math equation. And obviously, the revenues in the year are going to be more back half weighted, which we can see. How should we take kind of signal in the first quarter accrual? Is there anything to read there? Or is that just primarily the math of the fixed cost? And then just talk more broadly about timing to get back to more of a normal range? Like what type of environment do we need to be in to get there? Andrew Bednar: Yes. I think as you said correctly, it is math, #1. As Alex said, there are a couple of seasonal items that don't repeat around RSU vesting and around some of the investments and the timing of prior investments and when those payments get made. So we have things that just don't appear as we move through the year. And then we build revenue, and that's when we build the bonus pool. So -- we've seen this before, again. We've seen it in 2024, where we had a comp margin in Q1, which was obviously not our target, and we ended up in around target. We're going to end up in around target, and we're not going to depart from what we've historically said. We'll get back to on target for a 67% accrual as we get through the year. It's not going to reverse, as I said to Brendan's question earlier, maybe it was Alex, but we won't reverse it entirely as we go to Q2. It's just a progression through the year. And the most important thing is that we're building the ANP. And as long as we're building the ANP, we're in good shape for the future. But the short answer is it's not saying anything about -- there is no return to any environment. That's not the issue. It's just timing. We'll stay on target for the comp ratio. Devin Ryan: Great. Okay. I guess just the quote the last line. On the -- if I can just squeeze one more in here on Gleacher Shacklock, obviously, we follow them over time. I know it's not a huge acquisition, but I think a well-known brand and really kind of presence in the U.K. where PWP has always had a strong European platform, but U.K. has been a little bit light. So -- at least relative to other parts of Europe. So can you maybe talk about adding these 5 partners, how you think about kind of the contribution potential partner productivity relative to Perella today, how that potential could evolve over time, just having more capabilities with a more scaled platform? Andrew Bednar: Sure. Yes. As I said in my upfront remarks, I mean we're really excited about this transaction. We're adding terrific partners. They think like us, they operate like us. They focus on clients the way we do. We're really kindred spirits, and we feel like this is plug and play. They have a lot of limitations on revenue because they do only one thing. And while we don't do 100 things like a money center bank, we do more than one. And so we think adding our restructuring capabilities, our debt advisory capabilities and shareholder activism capability as well as continuation vehicles will allow the Gleacher team to now provide more service to their clients. In addition, they are very, very focused on the U.K. takeover market, but also across Europe, but having our capabilities across Europe as well as into North America also gives them a greater dialogue with clients. So while today, they may have a bit -- they may be a bit under our targets for partner productivity, we're very confident that they'll reach and exceed them as we get this combination completed. Operator: Our next question comes from James Yaro with Goldman Sachs. Divyam Harlalka: Divyam here. I'm speaking on behalf of James. Could you please speak to the impact of a steeper yield curve and fewer rate cuts on sponsor M&A? And when do you expect the long-awaited sponsor recovery to take off? Andrew Bednar: Yes, not seeing a big change to the sponsor activity level. It's roughly been about one-third of our business. I think the long-awaited return may take a little bit longer. It's a little bit rate driven, but also when you really do some subsurface work on the S&P 500, you go below the top 7 and anything around AI, multiples are actually quite a lot lower in many, many industries than where they were in '21 and 2022 when a lot of these transactions by sponsors were affected. And so it's still not the ripest of conditions for a lot of sell-side activity. And now you have the circumstances around AI and SaaS that just has a lot of people on sort of pause and doing more work to figure out the investments they're making, whether they are AI-proof or whether they are part of the AI story rather than part of the AI demolition story, which obviously is not where you want to be as an investor. So I think we saw, as I said in the last 2 calls, we've seen a very significant increase in our pitch activity with sponsors. Sponsors seem to be lining up a number of assets. We continue to see sponsors wanting to talk about potentially monetizing some of their holdings. On the buy side, it's been a bit slower, but there are pockets of activity. But I think this is just a pretty steady market right now, and I'm not seeing like a floodgate type dynamic with sponsors. I just see a very steady market. They've got a lot of capital deploy. They will deploy it. They have assets that they will sell for their constituents and their -- in particular, their LPs. We'll see that continue. I think it's a fine market where we are with rates with where they are. And I don't think they need to see rate cuts to continue to be active. Divyam Harlalka: That was helpful. Just one follow-up from my side. Could you contextualize the outlook for restructuring ahead and any potential upside risks from private credit and software over here? Andrew Bednar: Yes. So I think the cyclical moves in restructuring have largely abated, like the amplitude is much, much lower than historically it has been in restructuring. It's just a steady business now. And I think it's growing as clients see the value of bringing on an adviser to manage through debt maturities and maturity walls and amend and extend and covenant reworks, things like that and liability management exercises. So I think those trends are quite good for the industry, and we feel very good about that. I think bankruptcies have gotten very, very expensive. I think there's a movement to try to avoid bankruptcies. There's some sort of pre-wiring in credit agreements that's designed to avoid that process. So I wouldn't expect that we're going to have a huge wave of bankruptcy going forward, but you don't really need that to continue to serve clients, continue to address their needs and along the way, generate revenue for our firm. So we feel good about that opportunity. As I said, our pipeline is -- we're in build mode on that pipeline after coming off a record year. And I think the software complex will absolutely see increased activity. Again, I don't think you see bankruptcies overnight. Software companies are still performing quite well. And so they have the revenue and cash flow. The issue is going to be refinancing and then new issuance in connection with transactions, which has been a bit more quiet in the current period. But again, that will change because you do have maturities and you will have capital to deploy, and there will be transactions in and around software as you start to see these valuations reset. Operator: This concludes the Q&A portion of today's call. I would now like to turn the call back over to Andrew Bednar for any additional or closing remarks. Andrew Bednar: Okay. Thank you, operator, and thank you, everyone, for joining today. Thank you for your continued support as we build our business and looking forward to seeing everyone on the next call. And I also want to thank all of our Perella Weinberg teammates around the world that are continuing to work every day and very, very focused on our clients. And so I wanted to make sure that they hear my expression of gratitude for that. And again, look forward to seeing everyone on our call in a couple of months. Thank you. Bye-bye. Operator: This concludes the Perella Weinberg First Quarter 2026 Earnings Call and Webcast. You may disconnect your line at this time and have a wonderful day.
Operator: Greetings, and welcome to the Nutex Health 2026 First Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Rodriguez, Investor Relations Manager. Thank you. You may begin. Jennifer Rodriguez: Good morning, everyone, and welcome to Nutex Health Inc First Quarter 2026 Earnings Call. My name is Jennifer Rodriguez, and I'm happy to serve as your moderator today. We're truly grateful for your participation and your continued interest in our company as we share the highlights of another exceptional quarter. Please note that this call is being recorded for future reference. Joining me this morning are some of the key leaders driving Nutex Health forward. Our Chairman and CEO, Dr. Tom Vo, our Chief Financial Officer, Jon Bates; our President, Dr. Warren Hosseinion; and our Chief Operating Officer, Wes Bamburg. Together, it will provide prepared remarks to give you a comprehensive view of our performance, strategies and vision, after which we'll open the floor for your questions. Before I turn things over to Dr. Vo, I'd like to take a moment to address a few important points. Today's discussion may include forward-looking statements, which reflect management's current expectations about our future performance. These statements are based on what we know today, but they're subject to risks, uncertainties and other factors that could cause our actual results to differ from what we'll share. For a deeper dive into these forward-looking statements and the factors that might influence them, I encourage you to review the press release and Form 10-Q filed earlier this week as well as our various SEC filings. You'll find all the details there. Additionally, we may reference non-GAAP financial measures such as adjusted EBITDA during the call. For those interested in how these metrics reconcile to GAAP standards, please refer to the press release and Form 10-Q where we've included that information. With those housekeeping items out of the way, it's my pleasure to hand the call over to Dr. Tom Vo, our Founder and Chief Executive Officer. Dr. Vo, the floor is yours. Thomas Vo: Thank you, Jen, and good morning, everyone. It's a pleasure to be with you as to review Nutex Health's First quarter 2026 results. This first quarter has been 1 of renewed energy and vigor as we continue our mission of delivering high-quality concierge level accessible health care to the communities we serve. Let's first discuss the first quarter 2026 financial and operational performance. Total revenue reached $216.5 million, a 2% increase from $211.8 million in Q1 2025. Net income increased to $46.8 million compared to $21.2 million in Q1 2025. Adjusted EBITDA dropped to $57.6 million, down 21% from $72.8 million in the prior period. John can discuss more but this has to do with the timing of recognition for IDR expenses in the first quarter of 2025 compared to the same period in 2026. On the volume side, our hospital recorded 49,700 total patient visits, up 3.1% from 48,300 patients in Q1 2025. 6% of that growth came from same hospitals, demonstrating their resilience and continued relevance in their markets. Please note that this year's flu season was much milder compared to 2025 flu season. On the balance sheet, net long-term debt decreased from $29.2 million at December 31, 2025, to $24.3 million at the end of Q1 2026. The very low relative to our revenue and expansion pace. Net cash from operating activities was $75.5 million for Q1 2026 compared to $51 million in 2025, a 48% increase. Cash on hand grew to $207.3 million as of March 31, 2026, up from $185.6 million at year-end 2025. In the first quarter of 2026, we completed our inaugural $25 million share repurchase program, retiring approximately 119,000 shares. We also initiated a second $25 million share repurchase program during the quarter, reflecting our continued confidence in the intrinsic value of Nutex Health. Our share repurchase activity underscores management's strong conviction and the long-term intrinsic value of Nutex Health and our disciplined approach to capital allocation. Operationally, we continue to invest in infrastructure that will support sustained growth in both emergency room and inpatient volumes. These investments are focused on scalability, efficiency and long-term operating leverage. We are also strengthening our leadership team with targeted additions in business development, IT, AI to support our next phase of growth. On the business development side, our focus is increasing community awareness and engagement, ensuring patients and physicians clearly understand the differentiated and unique care delivered at Nutex hospitals. From a technology standpoint, we are investing in both AI and IT to enhance patient care, streamlined clinical workflows and enable innovation within our micro hospital model, while preserving the personalized concierge level experience that defines Nutex. Technology is advancing at an unprecedented pace, and we believe Nutex is exceptionally well positioned to harness these innovations to meaningfully improve patient outcomes while driving sustainable patient volume growth across our platform. As a smaller, more agile organization, we are able to adapt quickly and deploy new technologies far more efficiently than larger, more bureaucratic health care systems. In parallel, we continue to develop and grow new service lines, including medical detach programs, behavior health sciences, outpatient imaging, outpatient procedures, personal injury services, worse will add more on his operational report. With respect to our de novo pipeline, a significant development this quarter was the Board's approval for Nutex to begin directly investing in the development and construction of new hospital facilities. Historically, Real estate development was undertaken by third-party developers alongside local physician partners. By internalizing this capability, Nutex can build a more secure, cost-efficient and scalable development pipeline. -- while reducing reliance on external credit markets and alleviating the financial historically placed at physician partners. Nutex does not intend to hold these real estate assets on a longer-term basis. Our strategy is to invest capital upfront to develop and construct the facilities. And once a hospital is completed or has reached operational stabilization we expect to monetize the asset through a sale-leaseback transaction with a third-party owner such as a real estate investment trust or a REIT. And while a specific REIT partner has not yet been identified, Proceeds from these transactions are expected to be recycled into future developments, allowing us to efficiently redeploy capital and continue to expand our footprint in a disciplined and capital-efficient manner. On the IPA front, we are expanding internal resources to bring additional management functions in-house, further reducing our dependence on third-party service providers and improving operational control and efficiency. Warren will discuss more on this later. From a payer strategy perspective, we continue to carefully evaluate all in-network contract opportunities. Each proposal is assessed against our existing reimbursement outcome under the IDR process. Our objective remains consistent. We are not seeking to collect more than pure hospitals offering similar services. We simply aim to receive comparable reimbursement for comparable care. Our goal is not to increase cost to insurers, but to ensure fair and equitable payments. On the legislative front, we continue to closely monitor development related to the Murphy Bill, formerly known as the -- no Surprises Act Enforcement Act and we will adjust our strategy as appropriate as that process evolves. More broadly, we are actively monitoring legislative and legal developments nationwide that could impact our business. We have seen several recent core decisions in states such as California, Florida and Pennsylvania, but may be constructive for providers like Nutex. While these matters remain fluid, we believe these developments reinforce the importance of stay engaged in the regulatory and legal escape, and we will continue to evaluate their potential implications for the company. Today, Nutex Health operate 27 hospital facilities across 12 states. In 2026, we remain on track to open 3 additional hospitals in the third and fourth quarter located in San Antonio, Texas, Jacksonville, Florida and West Little Rock, Arkansas. Demand for the Nutex's health model remains strong. Physicians and community leaders across the country continue to approach us weekly, with request to bring new, new tax facilities to their markets. So with that, I'll turn it over to Jon Bates, our CFO, to walk through the financials in more detail. Jon? Jon Bates: Thanks, Tom, and good morning, everyone. I'm going to provide a little more color on the financials for Nutex Health's first quarter of 2026, another strong quarter where we are continuing to grow the business and improve our micro hospital model while we build the infrastructure to handle that growth each year-over-year. Tom's given you a little bit of the big picture, and I'm going to attempt to provide a little more detail. Going forward, when we do talk about comparisons between periods for metrics like visits and revenue, I wanted to bring your attention, we're going to begin using the term same hospital and our analytics, which basically means that the hospital data being compared period-to-period will have been fully opened in both periods presented. So in this case, hospitals in each period being compared under the same hospital definition were fully opened by December 31, 2024. Starting with revenues. Total revenue for Q1 of 2026 increased by 2.2% or $4.7 million to $216.5 million versus $211.8 million for the first quarter of 2025 with the Hospital division revenue being $207.6 million in 2026. Of the total revenue increase, Hospital division revenue grew 1.8% to $207.6 million from $203.9 million while same hospitals increase their revenue by 0.2% for the first quarter of 2026 compared to the same period in '25. Hospital division visits increased by 3.1% and 1,473 visits to 49,742 visits in the quarter 1 of '26 versus 48,269 visits in the same period in '25, with same hospital visits growing at 0.6% over the same period. With regard to the Population Health division, it had revenue growth of approximately 14% to $8.9 million for the quarter 1 of 2026 versus $7.8 million for the same period in 2025. Now in addition to the revenue and visit growth noted above, facility and operating level costs also showed an improvement for the first quarter of 26% compared to the same period in '25. Total facility level operating costs and expenses increased $31.3 million during the period, representing 57.6% or $124.8 million of the total revenue for Q1 of 2026 versus 44.1% or $93.5 million for the same period in 2025. Now of the $31.3 million increase for the period, 19.8 of it related to arbitration costs for the arbitration -- additional arbitration revenue recorded during the period. An increase in these costs is primarily due to less settlement in open negotiations in the prior period as the company was increasing its IDR submissions beginning in the first quarter of 2025. And regarding arbitration level revenue, we've continued to submit between 50% to 60% of our claims through the IDR process. And when an award determination is made, we currently prevail in over 85% of those determinations and we currently have an average collection rate of over 80% of those determination wins. Now regarding arbitration costs, we do anticipate we ultimately will finalize around 24% to 26% of the overall revenue realized. But as a reminder, we currently are reporting 100% of the anticipated cost of the arbitration effort but only recording revenue based upon our current 80-plus percent collection rate. But during the current period, these costs approximated a higher percentage of 35% of the arbitration-related revenue, which we anticipate moving back to our lower averages in future periods. Total stock compensation expense for the 3 months ended March of 2026 was a $3.9 million gain compared to a $27.6 million expense for the same period in 2025, which was a $31.6 million increase in Q1 of 2026. We did finalize 1 hospital earnout at March 31, 2026, and have 2 more facilities currently in their measurement periods with both of them completing their measurement period in the fourth quarter of 2026. Gross profit for the 3 months ended March 31, 2026 was $91.7 million or 42.4% of total revenue as compared to $118.3 million or 55.9% of total revenue in the same period in 2025 a 13.5% increase -- decrease for the 3 months ended March of '26 versus 2025. From a corporate and other cost perspective, the general and administrative expenses as a percentage of total revenue for the 3 months ended March of 2026, increased to 6.6% or $14.4 million from 4.7% or $10 million for the same period in 2025. Operating income for the 3 months ended March of 2026 was $81.3 million compared to $80.7 million for the same period in 2025, an increase of $0.6 million. Net income attributable to Nutex, Inc. was $46.8 million for 2026 compared to net income of $21.2 million for the period in 2025, which was an increase of $25.6 million. Adjusted EBITDA attributable to Nutex increased -- decreased $15.3 million or 21% from $72.8 million in Q1 of 2025 to $57.6 million in Q1 of '26. Looking at our balance sheet, it remains very strong with cash and cash equivalents at March 31, '26 of $207.3 million, up $21.8 million or 11.7% from the $185.6 million we had at the end of December of 2025. Additionally, accounts receivable increased by $20.2 million to $339.6 million at March 31, 2026 from $319.4 million at December 31, 2025. We had another strong collection quarter, which provides us continued confidence in this increase. Regarding cash flow. Net cash from operating activities increased by $24.6 million for the 3 months ended March 31, '26 to $75.5 million as compared to $51 million for the same period in 2025. And as Tom had mentioned earlier on the liability side, our total bank equity type debt decreased by $2.1 million to $41.3 million at March 31, '26 from $43.5 million at December 31 of 2025. But the majority of that debt, as we've talked about before, relating to equipment loans at our hospitals for [indiscernible] as our MRIs, x-rays, ultrasound and CT machines. With all that said, our balance sheet remains very solid, and we have provided our company the flexibility to execute on our growth plan in 2026 and beyond. Now with that, on to Warren Hosseinion, our President for population health update. Warren? Warren Hosseinion: Thank you, Jon, and good morning, everyone. It's great to be with you today to discuss how Nutex Health is advancing population health management. In the first quarter of 2026, we continue to make strides in this area. This morning, I would like to again focus on our strategy and our upcoming goals. Let's start with where we are today. Our population health management division now oversees a diverse group of almost 40,000 patients across our platform including a mix of Medicare Advantage, commercial and Medicaid managed care members. Revenue for the division was $8.9 million in Q1, up from $7.8 million in Q1 2025. Our strategy revolves around physician networks, our IPAs or independent practice associations are comprised of networks of contracted and credentialed primary care physicians and specialists located around our facilities, building strong partnerships with local doctors is critical. By forming these IPAs, we are building awareness of our hospitals among the local community doctors and their patients. Why do physicians join our IPA. We offer these physicians ownership in our IPA entities they can also participate in the Board and committees of the IPA. We offer them to get on the staff of our hospitals so they can admit and follow their own patients if they choose to. We also incentivize the physicians to achieve high-quality metrics. We believe that over time, these relationships will not only increase the volume of both IPA and non-IPA patients to our hospitals, but also create a web of care that's seamless for patients. Our vision is that our hospitals and IPAs will work hand-in-hand to amplify our reach and effectiveness. We are fostering collaboration, sharing best practices and ensuring every provider is aligned with our patient-first culture. We're growing our IPA strategically focusing on areas near our hospitals to leverage existing relationships and infrastructure. Going forward, our growth strategy focuses on 3 areas: One provider network expansion by partnering with primary care physicians and specialists. Second, value-based contract growth by increasing the number of covered lives under management; and three, technology scaling by enhancing our analytics and care management platform. With that, I'll turn it over to Wes Bamburg, our Chief Operating Officer. Wesley Bamburg: Thank you, Warren. I'll focus my remarks on the operational drivers behind our first quarter performance and how we continue to balance growth, efficiency and execution as we scale the platform. Operationally, overall hospital visits increased year-over-year, reflected continued demand across our markets and steady contributions from both newer and more established facilities. More importantly, we continue to improve patient acuity and drive a higher mix of observation in inpatient patients. On the care delivery side, we continue to strengthen coordination across clinical and care management teams. These actions are improving patient retention, supporting stronger clinical outcomes and reinforcing the operating leverage built into our model. From a cost management perspective, operating expenses increased during the quarter, driven primarily by higher patient volumes, increasing acuity and intentional staffing investments. Labor cost increased to $41.4 million for the quarter, representing approximately 19.1% of net revenue. This reflects deliberate staffing decisions tied directly to demand, including expanded clinical coverage and support resources required to manage higher acuity observation and inpatient services. As in prior periods, our focus remains on aligning staffing models with real-time volume rather than fixed assumptions, supported by centralized analytics, scheduling discipline and cross-training. Medical supply costs increased modestly to approximately $4 million or 5% during the quarter, reflecting higher utilization rather than pricing pressure. Over the past year, we have continued to benefit from vendor standardization and group purchasing initiatives, which have created a more stable and controlled supply cost foundation. As facilities continue to develop and utilization patterns normalize, we expect these efforts to continue supporting operating leverage and margin stability. In parallel, we remain focused on targeted technology investments that enhance operational efficiency and scalability. These include tools designed to improve patient access, documentation efficiency, coding accuracy and workforce productivity. So what does this all mean for the patient. During the quarter, we received over 2,400 patient reviews, delivering an average Google rating of 4.8 out of 5. This feedback underscores the distinct experience we deliver, 1 defined by minimal to no emergency room wait times, high-touch service and personalized care. These patient-centric principles remain core to our mission and a key differentiator for Nutex. In summary, the first quarter reflects continued progress in executing on our operating strategy and reinforcing the scalability of the micro hospital model. We remain focused on reliability, standardization and consistent execution, ensuring that every new text facility delivers high-quality patient-centered care that supports long-term value creation. Thank you for your time. Back to you, Jen. Jennifer Rodriguez: Thank you, Wes and team for those updates. I will now turn it over to our operator, who will begin the Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from the line of Bill Sutherland with the Benchmark Company. William Sutherland: Exciting news, Tom, about taking on the hospital development internally. When will that probably initiate? And what -- how should we think about the balance sheet impact as you get into that? Thomas Vo: Bill, thanks for asking, and great to have you on the call. So yes, the process has already started with 3 new projects in Florida. And typically, these project takes roughly 18 to 24 months to develop and open. So in other words, even if we start today, we may not open these for another 2 years. So once the facility opens at that time, we will then flip it to a REIT like I mentioned or some kind of a long-term real estate vehicle. Now as far as the balance sheet change, John could probably chime in, but each of these projects cost roughly $20 million to $30 million to build. Our thought is to have Nutex invest the down payments, get a financing vehicle of some type. And then once we flip it, get all that reimbursed [indiscernible] Jon, any further thoughts on the balance sheet question? Jon Bates: Yes. I mean I think -- it's a great question, Bill. The -- I mean, obviously, when you have the asset on the books at the point you have it on the books, you're going to have the land and the building, and you'll have a mortgage of some kind or whatever cost to potentially finance it. So outside of that, then we'll decide to move on to the REIT concept, and there will be some slight changes there, but the main point at the start is going to be your asset and, of course, the mortgage. William Sutherland: So Tom thanks for that. And so the current state of development, obviously, there can and externally. The ones for planned for '27, would that include Florida. No. That would be too soon, right? Thomas Vo: Yes. For the ones that are opening this year in '26, those all have been financed externally. You're correct. In 2027, we have roughly 4 to 5 new projects, and I would say half of those were financed externally, and we're still working on 1 or 2 that will be financed by Nutex. Okay. And some of the 2027 projects have been in development for roughly 6 to 12 months now. And so we're getting to a point of starting construction. And so the project in 2027 is essentially started construction now, and we have a pure window so that Nutex could start investing in those. William Sutherland: Got it. The court cases, et cetera, I'm not sure what the status is of the Murphy bill is. But it seems like insurance -- the payer side is not getting any wins basically. And I'm just curious if there's a change in -- as you guys approach negotiating process prior to arbitration or even just discussions outside of that. Any change in you feel like how they want to approach this whole process and maybe even being more realistic about what [ network ] should look like for you? Thomas Vo: Yes. The answer is that we are constantly and always looking at new contracts that are submitted by payers. And we are always trying to get in their work, if possible. And you are correct that recently, we've had 3 very positive court cases that are Pro providers in California, Florida, and Pennsylvania. So those are all fantastic news for us. However, it is a long war, so to speak. So we just won a few battles -- but this will be a continuing process as insurance company are always going to fight back. And this is consistent with our experience with the insurance company for the past 15 years. That's always been the case. So that will not change anytime soon. Having said that, however, the good news is that we are looking -- we are seeing more and, I would say, better offer from the insurance company, and we are looking at all of them. William Sutherland: Okay. One housekeeping question, if I might, on the stock-based comp. Just trying to understand how that -- what's in that number? You probably discussed it in the Q, but I just haven't gotten there yet. Bill, so your question is what -- how is the makeup of that number for the quarter? Yes, it's a negative number. And 4Q was as well. I'm trying to... Thomas Vo: Yes. Yes. So if you recall, yes, the details in the queue were happy to talk more about it. But effectively, what we do is remember, we do the math on along the way. what the earnings in the last 12 months is of each of those facilities that are in an earn-out. And then we multiplier on that based on the share price at the time and the value of their business. And so it can go up or down based on whether EBITDA is and/or the price at the time. And then -- so that -- we accrue that along the way. And then like in this case in March, we actually had one that finalized. So it actually then gets resolved to exactly what the number is. And then whatever that changes could be up or down. runs through the stock-based comp and ultimately through equity. And so that's what that is just so happens, it just went down slightly cumulatively based on those factors and push through in the current period. So does that answer your question? Operator: 9 Yes, yes, it does. And then how should we think about the effective tax rate for the rest of the year, investment. Thomas Vo: Yes. Actually, it's a great question. I think as you look at the first quarter, -- to me, it's probably more in line with what I would expect. There's some ups and downs in that. But generally, I think this first quarter is probably more representative of what we would see. So somewhere in that high teens to 20% from an effective rate, and then we'll watch it as we go. But some of the variables that sort of swung it from previous year's higher numbers. There were some permanent differences not getting too much detail, but the way it works in taxing. But primary difference is that we're making that a little bit higher. And now those have resolved themselves a lot -- a big piece of that was actually impacting the stock comp expense kind of now finalizing and and becoming much less of an impact as we move forward. So I think where we're at is not a bad way to start somewhere in that high teens to 20%. Operator: Our next question comes from the line of Thomas McGovern with Maxim. Thomas McGovern: So first, on the arbitration costs, right, increased to 35%. And historically, it's been that mid-20% range. Jon, you indicated that you expected to return to that 24% to 26% range. Just curious what gives you confidence in that returning back down to lower levels? Do you have an internal time line on when you expect these figures to return back to stable levels? And also, if you could talk about what drove the increase in the quarter, that would be appreciated. Thomas Vo: Yes, sure. No problem. I mean, so it's just one slice and time on that piece. And as we talk about in my earlier discussions, and we talked about before, revenues on accrual base based on collection basis, our costs because of the way we're laid out are we record 100%. So technically, when that calculation comes out at being slightly higher in our financials. When the realization happens, cash ultimately goes out, will only be going out at the point at which there's a win. But right now, we're anticipating 100% of every single win on the cost side, but only whatever our average collection rate is on the revenue side. So that inherently brings that percentage up. So I think if you look back over the last 4 or 5 quarters, -- it actually -- it's averaging in that mid- to high 20%, which is where I think it will ultimately land when the dust settles on realization. So that's -- that's kind of the technical as the answer. And I do think over the second, third and fourth quarter, you'll see it will start probably working its way back into that area we were talking about, but I think just for this 1 period, just with the math on where the costs are just getting everything kind of in line and reported in the quarter relative to revenue is slightly higher, but that's not the -- I don't anticipate that being the case as we move forward. But another quarter or 2, and we'll look at it over the last 3, 4 quarters, I think you're going to see that it's going to resolve itself back into that lower number, but great question, Thomas. Thomas McGovern: Understood. Appreciate that. I also want to take a look at revenue for business declined again this quarter slightly, but just still notable -- is that just a function of the IDR award dynamics? Or are we seeing something payer mix, patient acuity. And just if we look forward to 2026, how do you expect this metric to trend over time? I know you guys had some initiatives to hopefully drive this, but just kind of curious if you could get an update on that front. Will the new service offerings play a role? Or are you mostly just looking to increase the inpatient visit rate. Thomas Vo: Yes. No, good question, [indiscernible] and we talked about this before. Remember, 2025 had more of an aggregation of the beginning of the IDR process end of '24 was kind of the first piece. And as you know, collection percentages increased throughout each period, which is what we're using to accrue revenue in 2025. It's gotten to a pretty solid rate. Now -- but so there was a lot more if you look at just pure revenue per visit in 2025, which makes that piece look a little bit higher when probably some of that, if you look back and say, okay, if you were to collect it -- if you would add the higher percentage collection rate at the end of 2024, which ultimately resolved itself, then we would have had more revenue back then, which would have shifted some of the kind of net revenue per visit in those periods. And even this out a little bit more. So I think we talked about at year-end that if you looked at the rate per visit from when we really started the arbitration process back in July of '24, it it was averaging right around in that -- between 4,000, 4,200 range. And so that's -- I think that's where the normalization really is on a steady state. I know we're working in a lot of areas on acuity and improving in those areas and the [indiscernible] mentioned earlier about the observation and inpatient piece. That's happening. So I think the rate that we're seeing even look back the 6 quarters prior to December of '25 and then add this 1 in another seventh quarter, I think you're looking at kind of where we're at on the steady state assuming the same types of visits walk in the door day yesterday, they did do tomorrow. So I think the rate is probably in a pretty good spot there, and we're going to continue to work in the efforts that were mentioned earlier on finding ways to get some higher acuity and improving also on the realization side as we work hard with the payers, whether it's through the IDR process or just in normal negotiations, so making sure we're getting paid fairly, which I think things are improving in that area. And as we move through this year, I do think some positive things will happen and reimbursement should continue to stay pretty strong. Thomas McGovern: Got it. Appreciate that response. Final question for me. It's going to be on the selective self-development of some of these de novo facilities. Just curious, do you guys have an internal target for the mix of how many of these facilities will be invested in by new tech versus having the real estate partner and does this impact how you guys look at long-term expansion strategies? This opened the door for more rapid expansion, more selective expansion in particular markets or anything on that front? Thomas Vo: Yes, Thomas a great question. By the way, thank you for joining the call. But the answer is that, yes, we are looking at each location selectively on a one-by-one case-by-case basis. And so we're going to essentially develop based on what we think will bring the most value to our shareholders. Having said that, there will be an option for all the developers to come in and invest with us. And so all that is still open at this point. But the whole reason we're doing this, once again, is to, number one, ensure a steady pipeline as well as decreased costs and ensure that the pipeline remains robust, so that we consistently could still do 3 to 5 per year. Operator: Our next question comes from the line of Gene Mannheimer with Freedom Capital Markets. Eugene Mannheimer: Congrats on a good start to the quarter and year. I wanted to ask a little bit about patient volumes. The 3% growth year-on-year seems a little modest to me considering that you opened 3 hospitals last year. And I'm just wondering was it that the openings were skewed toward year-end, which is why we didn't see more throughput there on the volume side? Thomas Vo: Yes. Gene, thanks for joining us. So the answer is multifold, but yes, you're correct in the sense that the 3 openings were earlier this year, and in fact, 2 of them open, I would say, in late December of 2025, and the last 1 opened in January. So they are [indiscernible] development. They are growing. They are in essence, growing as projected, but they are fairly new. And so I think that was one of the reasons why [indiscernible] has been a little bit flattish. The second reason is last year, we had a very robust and I would say, a very heavy flu season compared to this year. And so the flu season isn't just didn't hit as hard as we thought it would be. And so hence, leading to a slightly flatter volume. But having said that, it's still growing. We're still developing internal processes. So that we could accommodate more patients. So it's a never-ending job to increase volume and increase security. Eugene Mannheimer: Yes. No, that makes a lot of sense, Tom. And I wanted to ask, I guess, the prior question a different way on the IDR process, do you -- or can you still quantify the revenue from IDR in the quarter? And how about that pivot towards higher acuity is that manifesting in the numbers today. Jon, do you want to add? Jon Bates: Yes. I can talk to some of that. I mean, so we talk about we're submitting 50% to 60% of our claims going through there. So I think that's a general -- a pretty good idea of of the piece of it. I mean, we look at this as part of our overall business now. So we don't break it out as much as we used to because of the day-to-day. And to your point of, yes, it's certainly in the acuity certainly in our numbers when it comes to the revenue side of it. And as you can see in the reimbursement rate, it stayed relatively consistent with kind of where we looked at from almost inception of July of '24 all the way through even December '25 kind of reimbursement rate pretty close to what it is now when you go into the first quarter of this year. So I think that will continue. And I think there's opportunity for that to improve based on some of the initiatives that we have. Eugene Mannheimer: Great. Great. And I have 1 last one, if I could. I don't want to exclude Warren from the discussion. So growth in the Population Health segment, I mean, Q1 was strong at 14% and year-on-year, but revenues have been very lumpy there. And it seems like that your most profitable IPA, like L.A. does not even have a hospital around it. So I'm just wondering how do we think about this population segment longer term in terms of growth of both lives and contracted physicians. Warren Hosseinion: Gene, thanks for that question. So actually, in 2025, each of our IPA so in Southern California, in Houston and in Southern Florida, they generated cash on a stand-alone basis. So I just want to start with that. Our goal, again, is to build these networks of physicians around our facilities. And it's not just bring IPA volume. But once these doctors join our IPAs, they're aware of our facilities, our services -- some of them become owners in the IPA medical entities. The -- we have seen anecdotally that they send their non-IT PPO/commercial patients to our ERs. So the goal is not to build the largest IPA. It's to just build these networks, build awareness and take really good care of our patients, bring volumes, both IPA non-IT volume to our facilities. So really, that's the goal. Thomas Vo: Yes. And Bill, I want to add that the LA IPA is our most mature and are most established. And so that's one reason why they're more profitable than the others. But Houston and Phoenix are coming along nicely, like warrants said they are profitable. And we do have hospitals around both of those. The Miami location is also slightly profitable, but we do have a hospital opening in the Hallandale area in 2027 that would complement that nicely as well as with Palm Beach hospital that will also complement the South Miami. And so we're also expanding to both Dallas and San Antonio, where we have planned hospitals opening. So strategy is to surround the hospital with a network of primary care and specialist physicians. Operator: We have reached the end of the question-and-answer session. Mr. Rodrigues, I'd like to turn the floor back over to you for closing comments. Jennifer Rodriguez: Thank you all for those valuable questions and answers. For all those joining us today, if you have more questions, please e-mail us at investors@nutexhealth.com, and we'll get back to you promptly. On behalf of the Nutex management team, thank you all for joining us for our first quarter 2026 earnings call. We've covered a lot, growth, strategy, challenges and our vision, and we appreciate your time and interest. A recording of this call will be available on our website for a limited time. So feel free to revisit it there. Take care, everyone, and we look forward to keeping you updated on our journey. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good morning, everyone, and welcome to today's conference call with Portland General Electric Company. Today is Friday, 05/01/2026. This call is being recorded, and all lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this period, press star then the numbers 11 on your telephone keypad. To withdraw your question, please press star 11 again. If you do intend to ask a question, please avoid the use of speakerphones. For opening remarks, I will turn the conference over to Portland General Electric Company’s Senior Manager of Investor Relations. Investor Relations Executive, you may begin. Investor Relations Executive: Thank you, Towanda. Good morning, everyone, and thank you for joining us today. Before we begin, I would like to remind you that we issued a press release this morning and have prepared a presentation to supplement our discussion, which we will be referencing throughout the call. The press release and slides are available on our website at investors.portlandgeneral.com. Referring to Slide 2, some of our remarks this morning will constitute forward-looking statements. We caution you that such statements involve inherent risks and uncertainties, and actual results may differ materially from our expectations. For a description of some of the factors that could cause actual results to differ materially, please refer to our press release and our most recent periodic reports on Forms 10-K and 10-Q, which are available on our website. Turning to Slide 3, leading our discussion today are Maria MacGregor Pope, President and CEO, and Joseph R. Trpik, Senior Vice President of Finance and CFO. Following their prepared remarks, we will open the line for your questions. Now I will turn things over to Maria. Maria MacGregor Pope: Good morning. Thank you, Erin. Thank you all for joining us today. The first quarter delivered another stretch of warm winter weather, 10% year-over-year industrial customer demand growth, and continued maturity of our cost management initiatives. Beginning with Slide 4, I will speak to our financial results and key drivers. For the first quarter, we reported GAAP net income of $45 million, or $0.38 per diluted share, and non-GAAP net income of $68 million, or $0.58 per diluted share. Our non-GAAP results exclude the previously disclosed deferral adjustments related to the January 2024 storm restoration and reliability contingency event, and business transformation, optimization, and acquisition expenses. Our results reflect extremely mild weather, particularly in February and March, and lower seasonal usage from residential and small commercial customers, which Joseph R. Trpik will cover in more detail. We will be engaging with our regulator to explore frameworks to help mitigate weather and other volatility impacting both revenue and power costs. Greater predictability is good for both customers and shareholders, and we recognize that this will be multiyear work. Despite weather and usage impacts, our team delivered a quarter of strong operational execution, including overcoming inflationary pressure and advancing our management program, adapting to power market conditions, positioning our portfolio and generation fleet to deliver optimal value, and executing on our robust capital investment plan to support customer growth, clean energy, and long-term reliability. On recent calls, you have heard us highlight the company-wide work to optimize our cost structure. We are using our operational strength, which we have built over multiple years, to mitigate the impact of recent weather challenges by accelerating our cost management work. Our teams are squarely undertaking the challenge, and we are committed to delivering strong results. As such, we are reiterating our full-year earnings guidance of $3.33 to $3.53 per diluted share and our long-term earnings and dividend growth guidance of 5% to 7%. Turning to Slide 5 for updates on our five key strategic priorities. First, our teams made progress on the Washington acquisition and other key regulatory filings. In late March and early April, we filed applications with the Washington Utilities and Transportation Commission and the Oregon Public Utility Commission for approval of the Washington transaction. We anticipate the regulatory approval process to take about a year and continue to target a mid-2027 close. Portland General Electric Company’s holding company proposal continues to advance. The docket’s procedural schedule has been modestly extended. To prioritize timely resolution of the holding company, we have paused the transmission company. That said, formation of a transmission company remains part of our long-term strategy. We appreciate the ongoing collaboration and expect to engage with parties in the near future. Having just received reply testimony late yesterday, many issues have been resolved with a few key items remaining. The process is on course, with a target final order date probably in August. Second, building upon our 2025 O&M cost management work, we continued driving efficiencies and improving productivity. We are accelerating this work given the very warm winter weather and first quarter results. Importantly, our large load tariff proposal, UM 2377, is in the final stages of review with the OPUC, and we expect an order in the next several weeks. A transparent, predictable tariff for new and existing data centers strengthens protections for existing customers while supporting economic development in our region. Our proposed rate structure under consideration, enabled by Oregon’s recent legislation, includes a 26% increase in data center prices, which will help reduce the costs borne by residential and small business customers. Third, as I noted, industrial demand growth is accelerating in our service area. We foresee robust energy usage from data centers and high-tech customers, with large customer capacity growing by about 10% compounded annually through 2030. This growth forecast is driven by existing customers and contracts already executed with new customers—companies that own property and have civil work underway. Compared to Q1 last year, our data center customer load grew by 10%. Fourth, progress continues toward additional clean energy resource procurement. We filed our 2025 RFP shortlist with the OPUC in February, as we aim to procure approximately 2,500 megawatts. The shortlist is composed of a diverse mix of projects and technologies to support our existing portfolio and growing customer demand. We look forward to working collaboratively with stakeholders to achieve commission acknowledgment in the coming months. And fifth, our year-round, risk-based wildfire mitigation work remains on track as we prepare for the summer months. In parallel, regulators and policymakers are engaged in this critical topic. The OPUC, in coordination with the Oregon Department of Energy, has hired experts on wildfire liability policy options that balance customer needs for essential services, support for wildfire victims, and financial health of utility companies. We expect the study’s findings will help inform policymakers in advance of the 2027 legislative session. In December, we filed our 2026 through 2028 wildfire mitigation plan, which represents a significant evolution, moving from an annual update to a forward-looking, three-year strategic framework. As we progress through 2026, our focus continues to be on executing on our core priorities: solid operational performance, meeting growing energy demands, expanding into Washington State, and advancing customer-driven clean energy investments. With the first quarter behind us, opportunities are significant. We are focused on achieving solid financial results and delivering value for customers, communities, and shareholders. With that, I will turn it over to Joseph R. Trpik. Joseph R. Trpik: Thank you, Maria, and good morning, everyone. Turning to Slide 6, our Q1 results reflect strong energy demand from our industrial customers and ongoing system investments. Total Q1 2026 loads were flat as compared to Q1 2025, and changes in demand between our customer classes were largely offsetting. Industrial demand increased 10% on a nominal and weather-adjusted basis. The industrial customer class is expected to continue growing at a strong pace, highlighting the strength of our large customer pipeline and the attractiveness of our service area to data centers and high-tech customers. Commercial load decreased 2.9%, or 2.3% weather-adjusted, and residential load decreased 6.2%, or 4.6% weather-adjusted. Portland General Electric Company has seen seasonal shifts in residential and small commercial average usage in recent years with rooftop solar adoption and energy efficiency growth. While not considered in our 2026 plan, deviations of this magnitude are not unprecedented, and we are adapting to manage through this. Historically, demand has been winter peaking, but our region has been transitioning to a dual peaking profile with customers increasing their cooling demand as air conditioning becomes more widespread in our region. After considering the recent trends in customer usage, we now anticipate weather-adjusted load growth of 1.5% to 2.5% this year. In the last twelve months, our organization has evolved tremendously in the ability to adapt through cost management. We have a well-defined plan in place for the balance of the year to solve for the load impacts experienced this quarter, which I will discuss shortly. Now I will cover our quarter-over-quarter earnings drivers. We experienced a $0.07 increase in retail revenues, including a $0.09 increase from additional cost recovery, largely from the inclusion of our Seaside battery asset in customer rates beginning in November 2025; a $0.09 increase driven by higher industrial demand, offset by $0.11 due to lower residential demand; a decrease from power costs of $0.15 driven by $0.09 from power cost performance in 2025 that reverses for this comparison, and $0.06 from current-year power cost performance driven by less favorable wholesale and environmental credit market conditions; a $0.16 decrease from capital and financing costs in support of our ongoing rate base investments, made up of $0.10 of higher depreciation and amortization, $0.05 of dilution, and $0.01 of additional interest cost; a $0.09 decrease from other items, primarily the timing of tax credits and O&M costs; $0.10 from deferral reductions related to the January 2024 storm and reliability contingency event reflecting the outcome of the final OPUC order received in March; and a $0.10 decrease from business transformation, optimization expenses, and acquisition costs. This brings us to our GAAP EPS of $0.38 per diluted share. After adjusting for the 2024 regulatory disallowance and our business transformation expense, we reach our Q1 2026 non-GAAP EPS of $0.58 per diluted share. On to Slide 7 for our five-year capital forecast, which includes 2026 and 2027 spend for the incoming 2023 RFP projects. I will note this view does not contemplate CapEx from the ongoing 2025 RFP. For the Washington utility business, given our ongoing investment in critical systems and assets serving our customers and other policy priorities, we remain engaged with stakeholders as we consider our next regulatory steps. We will keep you informed as this progresses in line with our usual practice. On to Slide 8 for liquidity and financing summary. Total liquidity at the end of the quarter was $954 million. Our investment-grade credit ratings remain unchanged. We will continue to maintain strong cash flow metrics with an estimated 2026 CFO-to-debt metric above 19%. In the first quarter, we executed a $550 million equity forward to address our 2026 base equity needs and fund the 2023 RFP projects. This quarter, we also entered into two unsecured credit agreements: a $350 million term loan facility maturing in March 2028 to fund capital expenditures, including those related to our 2023 RFP, and general corporate needs; and a $680 million delayed-draw term loan intended to finance the Washington acquisition-related cost. The loan is available until specific milestones tied to the acquisition are achieved and matures 364 days after funding. Lastly, in April, the board of directors declared a quarterly common stock dividend of $0.55125 per share, representing an increase of 5% on an annualized basis. We remain committed to paying a competitive dividend in line with our 60% to 70% payout target while balancing overall financing needs. Our plan focuses on maintaining strong operating cash flows while supporting continued investments in customer-focused capital projects, all while advancing us towards our authorized capital structure. As Maria and I have mentioned, our teams remain focused on advancing key priorities for the balance of the year. Most notable is our deployment of incremental cost management measures to offset load impacts on 2026 earnings to date. Relative to our plan, Q1 was $0.25 below our expectations. While $0.09 is driven by timing, we will address the remainder through refining our capital and maintenance work streams, optimizing our team, equipment, and facilities management, and positioning our power portfolio and generation fleet to deliver optimal value. We are confident that these cost savings measures are achievable, especially when considering the $25 million we saved last year, our existing momentum built into our 2026 plan, and the opportunity to accelerate what was planned for 2027 into this year. As such, we are reaffirming our long-term earnings and dividend growth guidance of 5% to 7% and our full-year adjusted earnings guidance of $3.33 to $3.53 per diluted share. We remain focused on safe, reliable, and efficient operations, advancing our strategic priorities, and achieving our commitments to deliver value to our customers, communities, and shareholders. And now, Operator, we are ready for questions. Operator: We will now open the call for questions. As a reminder, to ask a question, press star then 11, then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Julien Dumoulin-Smith with Jefferies. Good morning, Julien. Julien Dumoulin-Smith: Hey, good morning, Maria. Thanks, Operator. Thanks, everyone. It is nice to chat. If we can start off here a little bit more on the negotiations and conversations on the holdco side. What are the key areas of contention that prevented a settlement here? And particularly now that you have removed the transco from the filing, how do you think about prospects from here given how perhaps the two became at times a little overly intertwined? Maria MacGregor Pope: Sure. Well, first of all, thanks, Julien. With regards to the holding company, we are really encouraged that parties have been meeting together to align thinking to further the process. We just received testimony yesterday, and we have agreed upon some funds and general provisions around ring-fencing, including commission oversight and access to books and records, and other things. Obviously, we still remain pretty far apart with regards to credit, the use of leverage, and other such things, and we look forward to engaging with stakeholders as well as commission staff. This is all part of the process, and as you can see, there are a lot of different concepts and history brought up in the filing that was just published yesterday. Julien Dumoulin-Smith: And then if I can follow up real quickly here just around the year itself. Obviously there have been some gyrations here, especially with starting the year. Can you talk about the levers a little bit more—in the context of the remainder of the year and the offsets, if you will, against the full-year number? I know the load number was moving to start the year with Q1. You reaffirmed 2026, but can you speak a little bit to the levers going into that? Joseph R. Trpik: Sure. Good morning as well. Our cost management program has always been designed as a multiyear plan. We achieved and slightly exceeded our goals last year, which gave us a foundation to build off to have levers, tools, and items in place to react to situations like this. Part of the plan overall was to mature the organization to give us flexibility when situations like this occur. One of the things we are doing is taking advantage of the fact this is a multiyear plan. This plan was intended to extend beyond 2026, so we had already been working and identifying levers and benefits for this year, but also items for next year. We have had the ability to look into our toolkit of actions. In addition, we are realigning based on what we are now seeing as the pattern of performance to set the portfolio up to really optimize itself. We have the ability on both sides—how we plan and adapt our energy portfolio, and how we plan and adapt our costs, working throughout the whole management team and organization. This process has already been in place. We have already been working this because the goal has always been transformation. We feel confident that, as we look to our toolkit and identify the gap, we have the ability to execute things well within our control since this work had already been underway; it is really just steering it a little differently and giving it a little more momentum. Julien Dumoulin-Smith: And, Maria, just to clarify the earlier comment you made—at this point, do you expect any further settlement conversations on either the holdco or transco? I heard your comment about remaining pretty far apart on some of these key issues. Maria MacGregor Pope: No, the process still allows for settlement conversations, and we are engaging with parties and working through the issues. Operator: Thank you. Our next question comes from the line of Shahriar Pourreza with Wells Fargo Securities. Analyst: Hi, Shah. Good morning, team. This is Whitney Motilema on for Shah. Thinking broadly on recovery tools, with the RCE mechanism no longer available, how are you thinking about the path to future reliability-related costs in a way that remains timely and investable? Should we assume the fallback is simply broader GRC treatment, or are there other tools you think Oregon could still support for event-driven cost recovery? Maria MacGregor Pope: First of all, an excellent question. Over time, you are absolutely right—we are engaging with regulators to work on removing the volatility and generating more predictability both on the impact to energy usage from weather, as well as other issues. Obviously, the RCE was around significant events, and of course we have more volatility to power costs and exposure. Clearly something that is going to take some time, and it is really important. Analyst: Thank you. And then just as a follow-up, as it relates to multiyear rate planning, obviously Portland General Electric Company is supportive of Oregon’s transition. But staff has been arguing for just the transition framework, and the company finds it restrictive. As Oregon moves into multiyear rate plans, what is the main principle Portland General Electric Company is trying to protect—is it the ability to retain the existing statutory tools during this transition, or the ability to continue using narrower mechanisms for high-priority capital without needing a full rate case? Maria MacGregor Pope: It is a good question. There is no question that we need to work on a common understanding of what is needed for all stakeholders, particularly investors, and tools that will provide for adequate capital recovery and other interim items as we move to the multiyear framework. I think, as we saw from the testimony that was just issued yesterday, we have a lot of work to do around common understanding of how we will attract and retain capital and continue to grow the utility to invest for customers in clean energy, reliability, and customer growth. Joseph R. Trpik: And just to add, there is a collection of new tools that are needed both in the transition and also in the multiyear plan. We have already been adapting to those. You saw those new tools, in all honesty, with the Seaside tracker as well as the DSP that have taken some time to work through. We are all working to evolve from what was a very traditional process to both a multiyear process and how to find your way to that multiyear process. The dialogue with the Commission is really about what type of tools we need, understanding that they are new, which is why this takes a bit of time—to make sure they work well for all parties involved. Operator: Our next question comes from the line of Christopher Ronald Ellinghaus with Siebert Williams Shank. Your line is open. Christopher Ronald Ellinghaus: Good morning, everybody. Maria, can you talk about what you are seeing in the Oregon economy? It has been struggling a little bit—are you seeing some recovery? And as an adjunct to that, customer growth year over year was a little lighter than the first quarter of last year. Is that part of that issue, or are there some other factors at play? Maria MacGregor Pope: Sure. First, we consider customer growth to be quite strong, particularly in the non-downtown areas—slightly under 1%. We continue to see good business formation and new entrants, particularly on the data center side, but also in high-tech and semiconductor manufacturing. We are very encouraged. Our customers are focused, and they continue to invest in many parts of Oregon. Joseph R. Trpik: If I could add on load patterns, we saw a combination of warm months and some unusual flows of weather even within the month. We asked ourselves—similar to you—whether other economic conditions were at play, but what we are really seeing are items reacting to an unusual set of weather patterns. We had one of the warmest winters and it was a little sunnier, so you got a little more solar penetration than you normally would have seen in the winter months. To Maria’s comment, the broad economic factors that guide our view of longer-term load continue to hold and be consistent. Christopher Ronald Ellinghaus: In the reduction to the 2026 load expectations, is that merely a Q1 adjustment, or are there other factors incorporated? Joseph R. Trpik: On an overall basis, we believe we largely realized the main heating-driven part of the load reduction in Q1. We have reshaped the remainder of the year, but the reshaping is movements between the other quarters. From a loads experience, we think we have worked through the unusual part of the year on a cumulative basis and then expect some slightly different flows as we see differing customer reactions to heat and cold. But overall, net should be relatively close to zero rest-of-year. Christopher Ronald Ellinghaus: Maria, you were talking about pursuing a mechanism for volatility. The region is supposed to be on the warmer side for spring and into the summer. Do you think that effect on consumers will inspire intervenors to pursue that mechanism discussion a little more? Maria MacGregor Pope: It is a good question. Last year, we began to see the impacts of significantly higher AC penetration, and we saw higher load growth without as much high temperature as one would have historically needed. So there is definitely more correlation to high temperatures in terms of energy usage, which is a positive going forward for us. We have not factored that into our forecast—we are relying on those things that are actionable. Regarding the Commission and how they might think of this, affordability is a priority and predictability for customers is important. I have had conversations with the Chair regarding these unique patterns we are seeing, and those conversations with the commissioners and staff will be ongoing. Christopher Ronald Ellinghaus: A couple of related questions on the holdco. One, can we infer from the transco retreat that while you did not come up with an official settlement, you have resolved some issues unofficially through that process? And second, references to historical events are not surprising—they were very sensitive about ring-fencing and credit back in the day. The holdco is a different animal than some of those events—does the Commission staff appreciate the significant differences despite bringing them up again? Maria MacGregor Pope: First, with regard to the transmission company, our goal was to prioritize at the request of staff and commissioners. We are trying to be mindful of their workload and make sure we are focused on the highest-priority items. The transmission company remains a topic that we will continue to discuss in the future, but not at this time. The testimony shows we have common ground on a number of items. I would agree with you that some of the written words in the testimony show we have more work to do—collaborate and establish common understanding and the “why” and drivers, as well as utility practices across the country that are pretty standard. The next step is to engage directly and continue the conversation. Operator: Our next question comes from the line of Analyst with JPMorgan. Good morning. Analyst: Good morning. Thanks for the time today. With the applications in Oregon and Washington now underway, could you speak to the initial feedback from stakeholders on the pending acquisition, the upcoming milestones we should watch for, and any sense of what customer benefits you are highlighting for the commissions at this time? Maria MacGregor Pope: We have engaged with a wide variety of stakeholders. We have spoken with all of the commissioners and staff in Oregon and multiple times with the commissioners in Washington, as well as staff and the respective governor’s offices. Importantly, we have spent time in the service territory and are encouraged by the receptivity, the focus on economic development, and the interest in our ability to serve current and new businesses in the Walla Walla, Wallula, and Yakima regions. In terms of discussions on benefits, we are at the very early stages, but I would say, in particular for Washington, it is a constructive, business-focused environment. We look forward to engaging with all stakeholders as we move forward. Analyst: Thanks. On the regulatory front, could you speak to the timing of your next GRC as we get closer to your stay-out expiring this summer? What are the factors that would cause you to file earlier or later? Maria MacGregor Pope: We are spending a lot of time talking about that issue and focusing on our timing. We know that energy bills are incredibly important to all businesses and families, and we are working to keep customer bills as low as possible by delivering reliable services that customers can count on. We have not decided on the next timing of our rate case, but it will probably be sometime in the second half of the year. We are still evaluating the major components. Operator: Our next question comes from the line of Gregg Gillander Orrill with UBS. Your line is open. Gregg Gillander Orrill: When would you be in a position to include the 2025 RFP into the CapEx plan? Joseph R. Trpik: Morning, Greg. As a reminder, we include RFPs in the plan once we have them under contract. We think the earliest we will start to see contracts is the beginning of 2027 if things proceed in the normal course as we work through these projects. We would like to have it aligned with our fourth-quarter update, but as you know, we are working with a collection of counterparties and a series of negotiations that can vary. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Paul Fremont with Ladenburg Thalmann & Company. Your line is open. Morning, Paul. Paul Fremont: Good morning. Thank you very much. First, should we think about the prospects for settlement being best between now and when hearings are scheduled in early June? Maria MacGregor Pope: I hope so—the sooner we can settle, the better. But I want to make sure we give all parties adequate time to establish good understanding and be able to move forward constructively. Paul Fremont: In most states, if it is going to settle, it usually settles before hearings. Is that the case in Oregon, or would you expect prospects to be just as good after hearings? Maria MacGregor Pope: I would not hedge either side. We are going to continue the process just as we have in the past. Hopefully we can come to settlements, and if not, we will go to the hearings and then work towards settlements afterwards. We have plenty of runway to engage ahead of hearings, and we are always hopeful of settling sooner rather than later. Paul Fremont: In the past, you have expressed a high level of confidence in your ability to settle this particular case. Is that unchanged, given your comments earlier that the parties still remain pretty far apart? Maria MacGregor Pope: We still have good expectations of being able to settle, and I would reiterate that we have put a number of issues behind us as we work through the process. Paul Fremont: Have you received the counterproposal referenced in your regulatory filing from intervener parties? It sounds like even if you did receive one, there are still major issues to be resolved. Maria MacGregor Pope: We have not. The parties are working on that, and we are continuing the discussions. Paul Fremont: It looks as if the Washington utility subsidiary of Berkshire may not be earning at levels close to their authorized return levels. Is there something you plan on doing to narrow the gap between what they are earning and what they are authorized to earn? Maria MacGregor Pope: As we move into Washington and look at the opportunities in the state, first, it is a strong operational fit with operations that we know well. We have noted that we expect the transaction to be accretive in the first year and to enhance our long-term EPS growth and dividend growth. Much of that is driven by new investment, particularly clean energy investments supporting CETA compliance obligations. The commissioners have continued to reiterate that. We would expect to drive to a similar return profile in Washington as we have in Oregon—or better. Joseph R. Trpik: The historical gap we have seen has been mainly related to power costs. One attribute of this transaction is much more specific and transparent direction of costs for Washington customers. Having a clearer Washington utility with a more specific, instead of allocated, set of assets and costs will drive to more effective recovery over time. Paul Fremont: So it is not through merger synergies that you would expect improvement? Joseph R. Trpik: Today, when we speak to the accretive nature of this transaction on the front end and getting better recovery, this is about execution of the plan, execution of costs, and operation of the utility. We have not layered in any type of cost synergy. We have layered in effective operations and financing and other benefits. Synergies we will work to, but we are not counting on those to make this accretive. Maria MacGregor Pope: There absolutely will be synergies on the O&M side and on the procurement side. Operator: Our next question comes from the line of Travis Miller with Morningstar. Your line is open. Travis Miller: Good morning. Thank you. Two quick ones and then a follow-up. First, the 26% increase in the data center prices you talked about through the tariff—are those for all existing and prospective customers, or just for prospective data centers? Maria MacGregor Pope: Those are for existing and new customers—all data center customers. We worked very collaboratively with each of those customers, and there are no surprises. Travis Miller: Second quick one, the generation mix—Q1 last year to Q1 this year—some changes there in terms of your own generation versus purchased. Was this weather-driven, or is there something fundamental going on? Joseph R. Trpik: There is no strategic change. It is a combination of events: weather, energy pricing related to running assets, and certain contracts that roll on and off. You will see a contract rolled on under the contracted section. Overall, our strategy on how we manage the portfolio and the mix of owned versus contracted stays the same—these are normal ebbs and flows. Travis Miller: Higher-level question: the E3 report that came out in the last couple of days talked about a 9 gigawatt shortfall by 2030 and a 14 to 18 gigawatt shortfall by 2035, particularly along the Western edge of the region. Were you involved in the report, and are these numbers consistent with what you are seeing and reporting to regulators? Maria MacGregor Pope: The report was commissioned on behalf of industry groups that we participate in and know well across the Pacific Northwest. As you can see through our 2025 RFP and our IRP, we are working to procure more energy than we have in the past, and others in the region are doing the same. The report focused on resource adequacy and how we better manage it as a region. It includes additional focus on transmission. Entering the day-ahead market and building upon our energy imbalance market will improve outcomes for Portland General Electric Company, as well as PacifiCorp, which just went live with the day-ahead market today. We appreciate the information—it has created constructive regional discussions. Operator: Our next question comes from the line of Analyst with Mizuho. Your line is open. Analyst: Hi. Good morning. This is Rugia from Mizuho for Anthony Christopher Crowdell. You have talked about the Washington acquisition as an opportunity to bring a growth-oriented philosophy to a service territory that has historically been more maintenance-focused. Can you walk us through what that looks like in the first 12 to 18 months after you take over? Specifically, what areas would you bring this growth initiative to, and what would be early signs that the shift is taking hold? Joseph R. Trpik: Good morning, Rugia. In the shorter term, this is about supporting and giving the right investment mainly on the distribution side, and a little bit on transmission, to continue building infrastructure at the rate needed to support growth. The longer-term growth will come from RFPs we will be involved in and supporting economic growth and development in a region we believe is primed for it. That is why, if you look to the charts we show related to inclusion of the Washington utility, you will see the growth is a little more back-end focused as we support some industrial growth and RFP needs in the area. Maria MacGregor Pope: We are really encouraged by regional leaders’ interest in accelerating growth in Eastern Washington, and I have had terrific conversations with our existing customers as well as new potential customers. Operator: Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Maria for closing remarks. Maria MacGregor Pope: Thank you very much for joining us today. We appreciate your interest in Portland General Electric Company, and we look forward to seeing you at upcoming conferences. Have a great day. Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings. Welcome to the Federated Hermes Q1 Analyst Call and Webcast. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Ray Hanley, President of Federated Investors Management Company. You may begin. Raymond Hanley: Thank you, and welcome to all. Thank you for joining us. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes; and Tom Donahue, Chief Financial Officer. Joining us for the Q&A are Saker Nusseibeh, CEO of Federated Hermes Limited; and Debbie Cunningham, our Chief Investment Officer for Money Markets. During today's call, we may make forward-looking statements, and we want to note that Federated Hermes' actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris? John Donahue: Thank you, and good morning. I will review Federated Hermes business performance, Tom will comment on the financial results. We ended Q1 with record assets under management of $907 billion led by gains in equity and money market strategies. Equity assets closed Q1 at a record high of $101 billion. During Q1, equity assets increased by $2.9 billion or 3% from year-end driven by $2.2 billion in net sales. Gross equity sales reached a record high of $9.1 billion in Q1. Equity sales results continue to be led by our MDT fundamental quant strategies, MDT equity and market-neutral strategies together had a record $5.8 billion of gross sales and over $3.5 billion in net sales in Q1. For the second quarter through April 24, these MDT strategies had net sales in combined funds and SMAs of $687 million. Now looking at Fund performance rankings as of March 31, 7 of 9 MDT fund strategies are in the performance quartile of their Morningstar categories for trailing 3 years. We also had net sales in 32 equity fund and SMA strategies during first quarter, including, of course, a variety of MDT offerings and the ASX Japan Fund and the strategic value SMA. MDT's offerings were mid-cap growth and large cap growth plus 5 others. Importantly, for our global efforts, the MDT U.S. Equity UCITS fund launched in June of '25 has seen strong demand from clients outside of the U.S. Net sales in this strategy were $177 million in the first quarter, and the fund has grown to about $800 million in assets. Looking at overall equity fund performance at the end of the first quarter and again using Morningstar data for trailing 3 years, 51% of our equity funds were beating peers and 30% we're in the top quartile of their category. For Q2 through April 24, combined equity funds and SMAs had net sales of $606 million. Now turning to fixed income. Assets ended Q1 at just under $100 billion, down $329 million from year-end. Fixed income had Q1 net redemptions of $422 million. However, we had $25 million fixed income funds and SMAs with net sales in the first quarter, led by 3 Ultrashort Funds, Total Return Bond Fund, the collective and the fund combined short-term income and our core ag and core+ SMAs. Regarding performance at the end of the first quarter and using Morningstar data for trailing 3 years, 41% of our fixed income funds were beating peers, 21% were in the top quartile of their category for Q2 through April 24, combined fixed income funds and SMAs had net redemptions of $214 million. In the alternative private markets category, assets decreased slightly in Q1 compared to year-end as the impact of FX rates offset net sales of $82 million. The M2 MDT Market Neutral Fund and recently launched ETF combined for $341 million in net sales. Positive net sales were also achieved in trade finance strategies. We held the final close of our European Direct Lending 3, the third vintage of our European direct lending fund in the first quarter. The fund raised $780 million. For reference, EDL 1 raised $330 million, EDL 2 raised $700 million. We are now in the market with global private equity co-invest fund, the sixth vintage of the PEC series. To date, we've closed on about $300 million. PC 1 to 5 raised approximately 400 to 600 each and PCV raised about $500 million. We are also in the market with the European real estate debt fund a new pooled European debt fund. As previously announced, on April 9, we completed our acquisition of an 80% interest in FCP Fund Manager LP, a privately held U.S. real estate manager. The acquisition added $3.2 billion of managed assets at closing in April. SCP brings U.S. multifamily housing expertise complementing our long-standing U.K.-based real estate capabilities. Across our long-term platform, we began the second quarter with about $1.1 billion in net institutional mandates yet to fund into both funds and separate occurrence. Approximately $1.4 billion on a net basis is expected to come into private market strategies, including direct lending, private equity and trade finance. Fixed income is expected to have net sales of about $1.1 billion with a core plus win of about $1.8 billion partially offset by about $800 million redeeming from a government bond strategy. Equity strategies are expected to have net redemptions of about $1.4 billion with net global equity expected redemptions of $3 billion, which offsets MDT's additions of $1.7 billion. The global equity redemptions are mainly sub-advised assets from an institutional client who notified us of their intention to internalize the management of these assets. We continue to have a strong relationship with this client in the EOS part of our business. The client has made a strategic decision to internalize, not driven by performance, which has generally been ahead of benchmark. Moving on to money markets. We reached another record high at the end of Q1 for total money market assets, which increased by $2 billion to reach $685 billion, reflecting seasonal patterns, money market separate accounts increased by $8 billion. Money market fund assets decreased by $6 billion in Q1 compared to the year-end total. Market conditions remain favorable for cash as an asset class. In addition to the appeal of relative safety and periods of volatility, money market strategies present opportunities to earn attractive yields compared to alternatives like bank deposits and direct investments in T-bills and commercial paper. Our estimate of money market mutual fund market share, including sub-advised funds was about 6.9% at the end of Q1, down from 7.0% at the end of 2025. Now let's have a little discussion on digital assets and what we're doing there. We are focused on this area as an infrastructure evolution, not a speculative asset class. We are working on digital initiatives designed to enhance distribution efficiency settlement speed, transparency, operational automation and global reach while maintaining regulatory fiduciary and governance standards. Importantly, digital structures must enhance access, efficiency and integration into modern treasury portfolio and collateral workflows. They must operate within regulatory frameworks preserve investor protections and provide valuation integrity. Through deep engagement with our operational partners, we are well positioned to properly evaluate governance, ownership representation transfer restrictions and risk management implications of tokenized funds as we build out our digital capabilities. While we are initially prioritizing products aligned with our core strength in liquidity management, we, of course, expect over time to see digital products develop for ETFs or other mutual funds, private market vehicles across many or all market classes. The firm's digital initiatives include the upcoming launch of our money market management digital treasury fund which is expected to support both traditional and on chain distribution. The initial reserve shares class will provide a nontokenized genius compliant structure geared to institutional investors and stablecoin issuers seeking high-quality reserve assets. We are also developing an on chain share class intended to place official books and records on the blockchain infrastructure once a fully digital transfer agency model is available. This dual-track approach offers flexibility between traditional custody and fully on chain models. So we have selectively engaged with regulated digital asset intermediaries focusing on tokenized funds as regulated financial instruments. Initial use cases emphasize cash on chain liquidity solutions with a longer-term view towards supporting additional asset classes as market structures evolve. As we have previously mentioned, we are participating in the launch of a collaborative initiative between BNY and Goldman Sachs that will involve mirror tokenization of money market fund shares to improve transferability collateral utility and real-time ownership tracking of money market fund shares. We are also expanding digital engagement beyond U.S. money markets towards a global strategy. In the U.K. and Europe, we are exploring digital sterling liquidity products and assessing tokenization for broader regulated fund distribution. We are participating in tokenized offerings where Federated Hermes funds are used as the underlying assets rather than being directly tokenized. This includes our alliance with racks, the first FCA-regulated digital Securities Exchange to offer tokenized access to a UCITS money market fund. The platform enables professional investors to hold beneficial ownership tokens across multiple blockchains and excess money market liquidity directly on chain. We are exploring similar partnership opportunities. Finally, looking at recent asset totals as of a few days ago, managed assets were approximately $902 billion including $668 billion in money markets, $107 billion in equities, $101 billion in fixed income, $22 billion in alternatives, private markets and $3 billion in multi-asset. Money market mutual fund assets were $487 million. Tom? Thomas Donahue: Thanks, Chris. For Q1 compared to the prior quarter, total revenue decreased $3.9 million or 1%. Fewer days resulted in $10.5 million of lower revenue. Q4 revenue included $8.2 million of real estate development fees. Higher Q1 money market average assets provided $8.3 million of higher revenue, while higher equity average assets added $5.6 million. Total Q1 carried interest and performance fees were $388,000 compared to $1.6 million in the prior quarter, approximately $283,000 of the Q1 fees were offset by compensation expense. Q1 operating expenses increased by $5.4 million or 2% from the prior quarter, due mainly to seasonally higher compensation and related expenses of $8.5 million higher incentive comp expense of $3.5 million and higher distribution expense of $3.4 million from higher average fund assets. Transaction costs from the FCP acquisition were about $1.5 million in Q1 compared to $1.3 million in Q4, nearly all in the professional service fees category. Now looking ahead to Q2. Additional FCP transaction and related costs incurred in Q2 already include $4.2 million in purchase price treated as compensation and related expense and $4.6 million of primarily FCP lender consent fees recorded in professional service fees. For a total estimated transaction-related EPS impact of $0.11 for Q2. Also for Q2, we expect that FCP will add approximately $12 million in revenue and $11 million in operating expenses including a preliminary estimate of $3.8 million of intangible asset related expense for Q2. Now back to Q1. In the other expense line item, the Q1 decrease was mainly due to [indiscernible] in Q1 compared to Q4. The effective tax rate was 26.1%. We estimate the tax rate to be in the 25% to 28% range for 2026. At the end of Q1, cash and investments were $645 million. Cash and investments, excluding the portion attributable to noncontrolling interest were $607 million. We often talk about our desire to use free cash flow of the business to drive value over time for our shareholders in 3 primary ways: acquisitions, share repurchases and dividends. All 3 of these methods have been utilized in a meaningful way so far in 2026. During Q1, we purchased 1.2 million shares of FHI stock for $66 million. In April, we used $216 million in cash and $23.1 million in FHI Class B stock for the initial purchase price of the SCP controlling interest acquisition. For payment in May, the FDI Board of Directors declared a dividend of $0.38. The quarterly dividend increased $0.04 up nearly 12% from the previous call [indiscernible] our 113th consecutive quarterly dividend. [indiscernible], we would now like to open the call up for questions. Operator: [Operator Instructions] Your first question for today is from Ken Worthington with JPMorgan. Kenneth Worthington: Chris, you spent a lot of time thinking about digital cash. A couple of questions on this. What portion of your existing clients today do you think care about and will utilize digital money market funds versus traditional cash product structures over time. And if you think out about -- think out about a decade what portion of the entire cash market do you think cares about tokenized money market funds versus other forms of tokenized cash? John Donahue: Out 10 years is pretty tough to see. Right now, it's a very low percentage of the clients that are asking for demanding or wanting these tokenized products. And so what you see with us and with others is a grand effort to get ready for tomorrow. If you want to say you're feeling us protecting our franchise, you're right. If you want to say you're feeling us with a little fomo in it, you're right. This is not the usual customer demand. We got to have a type deal. But over time, as you see the digitization of things catching on, we are going to be there. So over 10 years, I think it would be a routine deal but it's really hard for me to say how much it would be. And I would let Debbie offer her get as to 10 years. Deborah Cunningham: Wow, for 10 years, that's a long time. That's visionary, which I'm generally not. And to add to what Chris was saying, I mean, if you build it, they will come, that's sort of the attitude now with that historically as sort of a premise success has followed. So I don't know, maybe probably less than 25% of retail customers. But I think from an institutional customer standpoint, you're looking at something that maybe is in the 25% to 50% utilization. Once all the comfortability is there with the fiduciary aspects of it that Chris was mentioning at the beginning. John Donahue: And I suppose this one more, Ken. And that is that, remember, the basic product is nearly liquidity of [indiscernible] However, all the fancy stuff works. That's [indiscernible]. And the next thing is if they don't have fundamental trust in the whole thing, then it doesn't work. So you got to work on those 2 things. in addition to all of the toys that are being created. Kenneth Worthington: Great. I think what you're doing is great, just whatever my 2 cents. On the $3 billion, Chris, you mentioned on the global equity withdrawal, I don't think you mentioned timing. This is the timing of that? And how do the fees on that mandate compared to, say, like the new MDT audit wins? John Donahue: Okay. That's probably a Q2 departure and the fees on that were lower than the average bear. Is that what you're asking? Kenneth Worthington: Yes. Perfect. Operator: Your next question is from Bill Katz with TD Cowen. Robin Holby: This is Robin Holby on for Bill Katz. Could you remind us of the time line on SCP's next fund launch and the demand for real assets that you're currently seeing from LPs? Thomas Donahue: Yes. Robin, this is Tom. The fund launch, so they're investing in Fund V right now, and I think they're at about 30% invested. So they've got a figure out what's the right timing, what's the best timing in order to continue to invest that and they won't start Fund VII until they're well down the path to finishing Fund VI. So that will be maybe midyear in 2027. And on the STP transaction, I just wanted to correct the number. I said on the purchase price that was treated as compensation, I think I said $4.2 million, it's $6.2 million. That will come in the second quarter. So also on since we closed, we had [indiscernible] here and our team of product marketing and a bunch of other people getting geared up and studying and preparing for the launch of Fund VI and we're pretty excited about it, even though it's some time down in the future. Robin Holby: Great. And then as a follow-up, could you speak to the demand for MT's ETF suite? Are the ETFs attracting a new customer? Or is it much of -- or is month of the demand coming from existing customers that like the ETF wrapper? John Donahue: Well, since we go through intermediaries, we're using a lot of the same intermediaries, but we're expanding that footprint through more RIAs, which are very attentive to the ETF. So it is a combination of old intermediaries, new intermediaries, the underlying clients who are actually the owners, we don't see that much. But what we are seeing is a bigger push for what we call portfolio construction or PCS, where you're seeing our intermediary clients wanting to see how these things fit, how they work and how they make solutions. And so that's another overlay in a more general answer to your question. Operator: Your next question for today is from Patrick Davitt with Autonomous Research. Unknown Analyst: Debbie, last quarter, you suggested that money fund organic growth could be a bit lower this year. It's tough to tell what's going on in money funds the last couple of months, obviously, given the tax loss. So with more signs the Fed could be unfold all year, I'd be curious to get your updated thoughts on the potential more rotation into the asset class from either retail or institutional or both, given that change in outlook? Deborah Cunningham: Sure. Thank you. It hasn't changed much. I mean we've seen double-digit growth in the high teens and then in the lower teens in both 2024 and '25, '26 I, in my opinion, is going to be more in the single-digit growth area. But I do think it's something that a safe haven standpoint and from just a general utilization with yields in the 3 government yields, $3.72 to $3.75-ish area, prime yields, $3.86 to $3.90. With tax-free, taxable equivalent, you're still looking depending upon what -- whether it's state tax free or just federally tax-free, yields in the 4%, 5% and 6% from a taxable equivalent standpoint. So those are real long-term returns in a very, very large product. So I think the growth will continue. I think it probably -- we find new use cases as some of these digital product innovations are rolled out for the funds. And I think that the traditional as well as new clients into the asset class will grow just not as quick as it has in the '24 and '25 time frame. I mean at assets reaching -- it depends on who you're looking at, whether it's Crane, iMoney [indiscernible], but somewhere in the $7.5 to $8.2 trillion range as a peak. I think that continues to grow steadily over the $8 trillion range. But the larger it gets the more -- obviously, the percentage growth, even if it's the same dollar amount, starts to go down. Unknown Analyst: Okay. That's helpful. And then it looks like the money funds had a really strong day yesterday, the last day of the month. So curious if the AUM number you gave would include that or not? Unknown Executive: No. The AUM number we gave would have been as of Wednesday, actually. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to Ray Hanley for closing remarks. Raymond Hanley: That concludes our call, and we thank you for joining us today. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.