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Operator: Welcome to the Invesco Mortgage Capital Inc. First Quarter 2026 Earnings Call. Participants will be in listen-only mode until the question and answer session. At that time, to ask a question, press the star followed by the one on your telephone keypad. As a reminder, this call is being recorded. Now I would like to turn the call over to Greg Seals in Investor Relations. Mr. Seals, you may begin the call. Greg Seals: Thanks, operator. To all of you joining us on Invesco Mortgage Capital Inc.’s first quarter 2026 earnings call, in addition to today’s press release, we have provided a presentation that covers the topics we plan to address today. The press release and the presentation are available on our website, invescomortgagecapital.com. This information can be found by going to the investor relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide 2 of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Mortgage Capital Inc. is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. Again, welcome, and thank you for joining us today. I will now turn the call over to Kevin Collins for his comments. Kevin Collins: Good morning, and welcome to Invesco Mortgage Capital Inc.’s first quarter 2026 earnings call. I will provide a few comments before turning the call over to our Chief Investment Officer, Brian Norris, to discuss our portfolio in more detail. Also joining us on the call this morning for Q&A are our President, David Lyle, and our CFO, Mark Grexson. I am very excited to assume the role of Chief Executive Officer of Invesco Mortgage Capital Inc., and I would like to thank and congratulate our retiring CEO, John Anzalone, for his 17-year tenure with the company. John began his service as our CIO at the time of our IPO back in 2009, and he spent the past nine years as CEO, leading the company through a range of market environments and its transition more recently to an agency-focused strategy. John, please know our entire team is grateful for your leadership. I would also like to congratulate Dave on his recent appointment as President. Dave, Brian, and I have all worked very closely with John since IVR’s inception, and we are looking forward to building on our positive momentum alongside Mark, our CFO. Importantly, we share a commitment to disciplined investment management, consistent performance, strong governance, and expanded investor engagement. We believe our current team, capital structure, and investment portfolio are well positioned for the future. Looking ahead, we are excited to leverage our core competencies in Agency RMBS and Agency CMBS to continue delivering attractive outcomes for our investors. In addition to our team’s long track record and experience managing residential and commercial agency mortgages, we benefit from the insights of the global investment manager, which inform our views on macroeconomic conditions, interest rate dynamics, policy developments, and broader market risks. Our deep counterparty relationships enhance our ability to source, finance, and hedge attractive investment opportunities, and we believe these advantages differentiate us from our peers. Our entire management team remains committed to fully leveraging the resources and capabilities of Invesco. During the first quarter, we operated in a more volatile market environment, following the strong recovery in agency MBS valuations experienced in 2025. Financial conditions tightened as rising geopolitical tensions, higher energy prices, and renewed inflation concerns drove increased interest rate volatility and pushed U.S. Treasury yields higher across the curve. Short-term yields rose more sharply than longer-dated yields, largely reflecting a pullback in expectations for near-term monetary policy easing. At the same time, inflation expectations moved higher, with 2-year TIPS breakevens rising to approximately 3.25% by quarter end, up from about 2.3% at the beginning of the year. These dynamics weighed on risk assets broadly and resulted in higher-coupon RMBS underperformance relative to Treasuries, although our Agency CMBS investments performed well during the quarter. The benefit was outweighed by increased Agency RMBS risk premiums and notable swap spread tightening. Against this backdrop, book value declined by 7.9% to $8.08 at quarter end, which, when combined with our dividends of $0.12 per month, resulted in an economic return of negative 3.2% for the quarter. In the context of evolving market conditions, our economic debt-to-equity ratio increased to 7.5 turns as of quarter end from 7 turns at the beginning of the year, largely reflecting the decline in book value per share and our more constructive outlook on Agency RMBS as we entered the second quarter. At quarter end, our 7.3 billion investment portfolio consisted of 5.2 billion Agency RMBS, 1.2 billion Agency TBA, and 900 million Agency CMBS, and we maintained a sizable balance of unrestricted cash and unencumbered investments totaling 493.1 million. Earnings available for distribution declined modestly from $0.56 in the fourth quarter of last year to $0.55 in the first quarter. As of quarter end, we hedged 96% of our borrowing costs with interest rate swaps and U.S. Treasury futures. Entering the second quarter, agency mortgages have performed well as risk sentiment improved and interest rate volatility moderated. While near-term inflation concerns remain elevated, they have eased somewhat, with 2-year TIPS breakevens now below 3%, suggesting a modest stabilization in inflation expectations. As a result, our book value has improved by approximately 2% since the end of the first quarter. Looking ahead, we believe a further reduction in geopolitical tensions would likely provide additional support for risk assets. From a supply and demand perspective, Agency RMBS net issuance should remain manageable. The GSEs continue to provide steady demand, and bank participation is likely to increase. We have also taken steps to strengthen our capital structure, including actions that reduced our preferreds to approximately 20% of our total equity, which has reduced costs and benefited returns for common stockholders. We have taken steps to deepen alignment with investors, including transitioning this year from quarterly to monthly dividend distribution. We have received positive feedback that our capital structure positions us competitively within the sector and that our monthly dividend approach better aligns the cash flow needs of income investors while providing important monthly touch points regarding our key financial metrics. With that, I will now turn the call over to Brian Norris to discuss the portfolio in more detail. Brian Norris: Thanks, Kevin, and good morning to everyone listening to the call. I would like to begin by congratulating John on his well-deserved retirement, and Kevin and Dave on their newly appointed roles. The four of us have worked closely together for nearly 20 years, including the almost 17 years since IVR’s IPO in June 2009. I am very excited for John as he enters the next phase of his life, and I would like to express my sincere gratitude for his immeasurable contributions to IVR over the past 17 years. These transitions illustrate the advantages of our relationship with Invesco, our external manager, given the vast resources and deep bench from which our team benefits. Kevin and Dave bring a wealth of experience, consistency, and familiarity to their new roles, and I have no doubt that they, along with Mark and I, have all the resources necessary to continue the strong momentum that IVR has enjoyed in recent years. I am extremely excited for the future of IVR as we embark on the next chapter in our company’s leadership. Turning to financial markets on Slide 4, interest rate volatility moved notably higher during the first quarter as expectations for near-term monetary policy shifted amid concerns regarding AI’s impact on employment in February to the inflationary impact of the conflict in the Middle East in March. The 10-year Treasury yield traded in a 50 basis point range, closing at a low of 3.94% on February 27 before closing sharply higher at 4.43% on March 27 and finishing the quarter at 4.32%. As depicted in the chart on the lower left, two cuts to Fed funds were anticipated for 2026 at the beginning of the year. Those expectations were largely priced out in March amid escalating oil prices and a robust economy that showed little sign of impact from the conflict. This led to a flattening of the yield curve as 2-year yields ended the quarter 32 basis points higher while 30-year yields increased just 7 basis points. Positively, as shown in the upper right chart, repo markets for our assets have been remarkably stable despite broader market volatility, with financing readily available and spreads over 1-month SOFR remaining within a tight range. Slide 5 provides more detail on the agency mortgage market. The sector enjoyed a strong start to the quarter as the positive momentum from 2025 carried over into the new year, aided by low interest rate volatility, a steeper yield curve, and supportive supply and demand technicals. Although the GSEs had been adding to their retained portfolios throughout the second half of 2025, the announcement of a 200 billion mortgage purchase program on January 8 ignited a sharp response as investors rushed to get ahead of the program, leading to significantly higher valuations and lower mortgage rates in a matter of days. However, the move tighter in spreads faded the rest of January and into February as further details on the program were scarce, yet the prescribed presence of the GSEs as a buyer in the market was a clear indication that the supportive supply and demand technicals are on even stronger footing in the coming months and quarters. As interest rate volatility increased in February and March, agency mortgage performance continued to wane, but the resulting underperformance was much more orderly than in previous episodes of market stress in recent years. Lower coupons fared best in this environment, outperforming Treasury hedges for the quarter despite the volatility. Meanwhile, higher coupons lagged throughout the period, initially due to investor concerns on prepayment risk given the administration’s focus on mortgage rates, and subsequently because of their elevated sensitivity to interest rate volatility as compared to lower coupons. Positively, pay-ups improved during the quarter, offsetting some of the underperformance of higher coupons relative to lower coupons, given increased investor demand for additional prepayment protection and premium dollar-price bonds. We continue to believe that owning prepayment protection via carefully selected specified pools, particularly in premium-priced holdings, remains an attractive opportunity for mortgage investors and helps mitigate convexity risks inherent in agency mortgage portfolios. In addition to the GSEs, bank and overseas demand also improved in the quarter, providing additional support for the sector, while money managers and mortgage REITs were also steady contributors. The supply and demand technicals improved the economics for the dollar roll market, with most coupons enjoying attractive implied financing rates. Although this dynamic faded for conventional coupons in the latter half of the quarter, dollar rolls on production coupon Ginnie Mae TBA remained quite attractive, with implied financing rates well below 1-month SOFR. Slide 6 details our Agency RMBS investments as of March 31. Our portfolio increased 19% quarter-over-quarter as we invested proceeds from common stock ATM issuances. We sold our modest allocation to 6.5% coupons early in the quarter as efforts to reduce mortgage rates increased prepayment risk in our holdings, while purchases were primarily focused in 4.5% through 5.5% coupons. The decline in our 6% allocation was a result of paydowns and the overall growth in the portfolio, as we had limited trading activity in that coupon during the quarter. Agency TBA securities represented the majority of our purchases in the quarter as we sought to benefit from the attractive environment in the dollar roll market, ultimately increasing our allocation to approximately 17% of the total portfolio. Despite the increase in our TBA allocation, our total portfolio continues to benefit from significant prepayment protection, with over 80% of the portfolio allocated to securities with some form of prepayment protection via over 5 billion of specified pool Agency RMBS and nearly 900 million of Agency CMBS. We continue to favor specified pools with lower loan balances given their superior predictability of future cash flows, while we remain well diversified across collateral stories, with limited changes during the quarter. Leveraged returns on Agency RMBS hedged with swaps remain attractive, with the current coupon spread to a 5- and 10-year SOFR blend ending the quarter near 165 basis points, 25 basis points wider than year end and equating to levered gross returns in the high teens. April’s outperformance has since narrowed the spread by 10 basis points, with levered returns remaining attractive in the mid to upper teens. Slide 7 provides detail on our Agency CMBS portfolio. Risk premiums tightened meaningfully in January, consistent with Agency RMBS spreads, and also proved resilient amid the sharp increase in interest rate volatility in the latter half of the quarter, only modestly widening in February and March. Our Agency CMBS position performed in line with expectations, providing stability in times of stress and outperforming Agency RMBS across the coupon stack for the quarter. Despite the lack of new purchases, we continue to believe Agency CMBS offers many benefits, mainly through its inherent prepayment protection and fixed maturities, which reduce our sensitivity to interest rate volatility. Leveraged gross returns are in the low double digits and remain consistent with lower-coupon Agency RMBS, while financing capacity has been robust as we continue to fund our positions with multiple counterparties at attractive levels. We will continue to monitor the sector for opportunities to increase our allocation to the extent the relative value between Agency CMBS and Agency RMBS is attractive, in order to provide additional stability to the portfolio, recognizing the overall benefits as the sector diversifies risks associated with Agency RMBS. Slide 8 details our funding and hedge book at quarter end. Repurchase agreements collateralized by our Agency RMBS and Agency CMBS investments decreased from 5.6 billion to 5.3 billion, as most of our purchases during the quarter were in Agency TBA, while the total notional of our hedges increased from 4.9 billion to 5.1 billion. Our hedge ratio increased from 87% to 96%, primarily due to the increased allocation to Agency TBA. The composition of our hedges remained weighted toward interest rate swaps, with 81% of our hedges consisting of interest rate swaps on a notional basis and 65% on a dollar-duration basis. Swap spreads tightened during the quarter, creating a modest headwind in performance. Despite the recent tightening, we remain comfortable maintaining the majority of our hedges in interest rate swaps, as we believe swap spreads are relatively tight and offer an attractive hedge profile relative to Treasury futures. To conclude our prepared remarks, the sector experienced a more challenging environment in the first quarter as a supportive trend of moderating financial market volatility reversed amid escalating geopolitical tensions. While higher-coupon agency mortgage valuations recovered a portion of their first-quarter underperformance in April, developments in the Middle East conflict will continue to drive interest rate markets in the near term, leaving the sector somewhat vulnerable to headlines and further bouts of increased volatility. Positively, the supply and demand environment for the sector is at its most supportive in a number of years, with money managers, mortgage REITs, banks, overseas investors, and the GSEs providing more than enough demand to absorb net supply, both organic and runoff from the Fed balance sheet. This supportive environment has resulted in, and should continue to result in, reduced spread volatility from the levels experienced in recent years, reducing the risk of a more significant or more protracted dislocation. Lastly, our liquidity position remains ample, providing substantial cushion to withstand additional market stress while also allowing sufficient capital to deploy into our target assets as the investment environment improves. While we view near-term risks as balanced, we believe agency mortgages are poised to perform well as geopolitical tensions moderate and their impact on the U.S. economy becomes more clear. Thank you for your continued support of Invesco Mortgage Capital Inc. We will now open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1. You will be prompted to record your name. To withdraw your question, you may press 2. Again, press 1 to ask a question. One moment, please, for our first question. Our first question comes from Marissa Lobo with UBS. Your line is open. You may ask your question. Analyst: Thank you, and good morning. On the equity issuance this quarter, can you speak to the timing of those raises and how you are thinking about future ATM activity? Kevin Collins: Yes, sure. We raised nearly 134 million net of issuance costs in Q1 through our ATM. Those were timed pretty steadily throughout the quarter. Our capital structure is now well positioned to support IVR’s long-term success, but we do plan to selectively access the ATM to raise common stock when it provides a clear benefit to our shareholders. We continue to think that the ATM is the most efficient mechanism for raising capital. Lastly, I would emphasize that responsible growth reduces our fixed cost per share and improves liquidity in our stock, all of which we think are beneficial for the company. Analyst: Got it. Thank you. And just on risk management, can you speak to some of the decisions that were made for the portfolio during the volatile period in March, and would you describe upcoming periods of volatility as a trading opportunity or a reduction in your risk-taking? Brian Norris: Good morning, Marissa. The improved environment for agency mortgages that we have seen over the past 10 to 11 months gave us more comfort that the volatility we saw in March would pass and that mortgage valuations or spreads would be much less volatile than, for example, what we saw last April and in previous episodes. We were able to raise ATM throughout the first quarter, which allowed us to absorb some of that volatility as well. We did not sell assets as a result of the increased volatility, and we were able to invest and put money to work at wider levels as that volatility occurred. Operator: Our next question comes from Jason Weaver with JonesTrading. Your line is open. You may ask your question. Jason Weaver: Good morning, and congrats to Kevin and David on the elevations, and thanks to John on his transition after a long tenure. First, I was curious about the plan for the TBA position. Is this a structural, hold part of the portfolio, or more of a placeholder for rolling into specified cash pools over time? Brian Norris: Hey, Jason. Good morning. TBAs certainly have a place in the portfolio structurally. Right now, because they are so attractive, our allocation is at the higher end of what we would be comfortable with. Naturally, our inclination is to own more specified pools, as that is a more durable return profile, but we are very comfortable with where TBA dollar roll markets are, and we think it is quite attractive. At least in the near term, our plan is to keep that allocation where it is. In addition, agency TBAs offer increased liquidity for the portfolio, allowing us to shift leverage as we see fit in a very efficient manner. So structurally, they do have a place in the portfolio as long as they are not punitive from a return perspective. Jason Weaver: Thanks. I see the swap book maturity termed out a bit, particularly in the five-year bucket. Was that largely a function of rolling down from the shorter duration 6.5% into the 5% to 5.5% coupons? Brian Norris: The swap maturities were rolling down the curve themselves. Moving from 6.5s into lower coupons would actually require us to extend hedges, and that was done through a mixture of both Treasury futures and swaps. We tend to own a bit more longer-duration Treasury hedges than we do in swaps, with a lot of our swaps at the front end of the curve. Jason Weaver: One more, if I may. Do you have an updated book value quarter-to-date? Brian Norris: We are up about 2% since the end of the quarter. Operator: Thank you. Our next question comes from Doug Harter with BTIG. Your line is open. You may ask your question. Doug Harter: Thanks. Following up on the risk-reward, how are you thinking about the range we are likely to be in for spreads, and how should we think about the risks that we either break out on the high end or the low end of that range? Brian Norris: Hey, Doug, and welcome back. Mortgage spreads, particularly relative to swaps, are quite attractive. They are not quite as attractive as they were in previous years when volatility was much higher, but in the current environment, they are attractive. We could see a little bit of further spread tightening. That could come from wider swap spreads as opposed to necessarily tighter mortgage spreads versus Treasuries, because from a mortgage-to-Treasury basis, valuations are fair to slightly tight. In the mortgage-to-swap basis, there is some room for compression. Operator: Thank you. Again, if you would like to ask a question, please press 1. Our next question comes from Trevor Cranston. Your line is open. You may ask your question. Trevor Cranston: Thanks. Can you talk about how the GSEs performing as a backstop buyer of MBS impacts your thinking on leverage, and if having a lower level of downside risk equates to being willing to run at a higher leverage level going forward? And then I have a follow-up on hedging. Brian Norris: Sure, Trevor. Good morning. In March, we did see Fannie Mae come in and act as that backstop; they added, I believe, 18 billion in March alone. The GSEs added about 35 billion to their retained portfolios in the first quarter, and they still have about 117 billion left under their current cap. While they are much more opportunistic than the Fed during times of QE, and more selective on coupons and collateral stories, they certainly helped absorb a lot of the volatility in March. That reduces spread volatility and gives us more comfort. We did let leverage drift higher in March without selling assets because we felt more comfortable in this environment, and we will continue to be that way. The outperformance in April has brought leverage back down closer to where we were at the beginning of the year, which is probably a more normal long-term run rate for us, and we feel very comfortable from a liquidity and risk perspective there. Trevor Cranston: On the hedge portfolio, you mentioned that a lot of the longer-tenor hedges are in the Treasury bucket currently. How do you think about the balance between swap spreads being more negative further up the curve and potentially using longer-dated swaps to capture some of the negative swap spreads versus the liquidity of using Treasury hedges on that part of the curve? Brian Norris: Definitely, swap spreads for us, particularly in the 30-year portion of the curve, are quite negative, near negative 80 basis points, whereas in the front end like 5s and 10s they are more like negative 30 to negative 45. Longer-dated swaps are more attractive from a negative spread perspective, but you also get a lot of spread duration out there, so modest changes will add more volatility to the portfolio. Given that mortgage spreads versus swaps across the curve are still very attractive, we are more comfortable reducing swap spread volatility by hedging with swaps at the front end of the curve, call it between zero and ten years, as opposed to going out as far as 30 years. We do own some 30-year swaps, but to the extent that we hedge out there, it is mostly in Treasury futures. Operator: Thank you. I will now turn the call back over to management for closing remarks. Kevin Collins: With no other questions, we appreciate everyone’s interest in Invesco Mortgage Capital Inc., and we look forward to future engagement. Operator: Thank you. That concludes today’s conference. We thank you for your participation. At this time, you may disconnect your line.
Operator: Welcome to the Xerox Holdings Corporation First Quarter 2026 Earnings Release Conference Call. [Operator Instructions] At this time, I would like to turn the meeting over to Mr. Greg Stein, Senior Vice President and Head of Investor Relations. Gregory Stein: Good morning, everyone. I'm Greg Stein, Senior Vice President and Head of Investor Relations at Xerox Holdings Corporation. Welcome to the Xerox Holdings Corporation First Quarter 2026 Earnings Release Conference Call hosted by Louis Pastor, Chief Executive Officer. He is joined by Chuck Butler, Chief Financial Officer. At the request of Xerox Holdings Corporation, today's conference call is being recorded. Other recording and/or rebroadcasting of this call are prohibited without the express permission of Xerox. During this call, Xerox executives will refer to slides that are available on the web at www.xerox.com/investor. We will make comments that contain forward-looking statements, which, by their nature, address matters that are in the future and are uncertain. Actual future financial results may be materially different than those expressed herein. At this time, I'd like to turn the meeting over to Mr. Pastor. Louie Pastor: Good morning, and thank you for joining our Q1 2026 earnings call. Before we get into the numbers, I want to briefly introduce myself in this new capacity and share my thoughts about the role and how I intend to lead Xerox. First, I want to sincerely thank the Board for the confidence they've placed in me. This is not a responsibility I take lightly. As many of you know, I was appointed President and COO last September. And before that, I served in leadership roles spanning operations, transformation, corporate development and legal. I know this business well. I know our people well, and I have been deeply involved in the work underway to improve our performance, much of which is starting to show up in our results. The Board's decision to name me CEO reflects the progress we've made over the past 2 quarters, including structural cost reductions, early signs of momentum growing our revenue funnel, and the execution of key initiatives to strengthen our balance sheet, like the TPG Angelo Gordon joint venture and the warrant distribution. Separately, my decision to eliminate rather than retain and backfill the President and COO role was deliberate. There are no sacred cows here. The role is not needed anymore, and eliminating it reflects exactly the kind of cost discipline, operational efficiency and speed of execution this moment demands. I intend to lead this company with the same operating discipline I brought to every role I've ever held. Sleeves rolled up, deeply embedded in the work and with a clear-eyed focus on what actually moves the needle. We're aware of our stock price. We're aware of our credit ratings. I'm not going to paper over the challenges that Xerox faces. Rather, I have a disciplined, pragmatic approach to tackling them, and I'm focused on actions, not excuses. To our employees, our clients, our partners and our investors, I commit to being transparent and accountable with all of you. We will talk openly about our successes. We will acknowledge our challenges, and we will move quickly to address them. You deserve that. And frankly, it's the only way we'll make real progress. Let me also be clear about this. I am genuinely optimistic about the future of this business. I know what this organization is capable of, and I'm confident that we are closer to an inflection point than the external narrative suggests. Xerox has real assets, real client relationships and a team that has shown it can execute under pressure. Our strategy is not changing. It doesn't need to. What this company needs and what our leadership intends to deliver is relentless, disciplined execution against the strategy we have already laid out. The plan is in place. Now we run it. So with that, let's talk about our results. Q1 showed a continuation of the improving underlying trends we discussed on our Q4 earnings call. Revenue of $1.85 billion increased nearly 27% in actual currency and 24% in constant currency, reflecting the inorganic benefits of the Lexmark acquisition. On a pro forma basis, revenue declined 4%. Even excluding the benefit of some partner-driven pull forward from Q2, which Chuck will discuss in further detail, Q1 performance was a material improvement from the 9% organic revenue decline we saw in Q4. Quarterly adjusted operating margin increased on a year-over-year basis for the first time in 5 quarters. Adjusted operating margin of 3.9% was up 240 basis points year-over-year on a reported basis and was also up on a pro forma basis. This is a turning point in our profit trajectory, and it reflects the cost discipline our team has maintained through a complex integration. Overall market trends have improved from 2025 when demand was materially impacted by DOGE-related spending reductions, tariff uncertainty, and the government shutdown. In the Print segment, we're seeing steady demand in entry, led by better-than-expected performance at legacy Lexmark, continued softness in midrange and strong demand for our new production devices with Proficio, a recently launched device developed in partnership with Fujifilm, tracking well ahead of plan. Our overall print pipeline is now up meaningfully compared to this time last year, and we expect these trends to persist. I also want to highlight a partnership that speaks directly to the momentum we are building in production. Earlier this month, Toshiba Americas announced the addition of Xerox PrimeLink color and monochrome light production printers to their portfolio. This is a powerful validation, a well-respected global player with deep client relationships choosing to sell Xerox-branded devices through their network speaks to both the strength of our brand and the competitiveness of our production portfolio. We will actively seek to expand our distribution reach by pursuing partnerships like this with other OEMs. Our IT Solutions business delivered another solid quarter. Bookings grew 32%, billings grew 21%, and we delivered year-over-year profit growth. Total contract value of new deals continues to rise, and we are winning more managed services contracts, which provide greater visibility and long-term stability in our revenue trajectory. However, there are certain headwinds constraining that momentum. Memory lead times have extended, and in certain cases, higher memory prices have compressed margins as we prioritize establishing new relationships and expanding wallet share. We are also investing in technical talent to support a broader service offering. We believe these investments will lead to larger, more strategic deals over time, but they may create near-term pressure on IT Solutions profit expansion. As we look to the rest of the year, our positive expectations remain intact, though subject to quarterly timing variability, driven by OEM and inventory availability. A few other developments since our prior earnings call are worth noting. February Supreme Court ruling on tariffs is a net positive to Xerox's cost structure, particularly as it relates to our cross-border supply chain. That said, based on current forecast, those benefits will be slightly more than offset by increased memory prices, which are modestly higher than our last update, as well as higher oil prices, which impact toner, plastic and metal prices as well as transportation costs. Importantly, apart from certain international markets with exposure to the Middle East conflict, none of this to date has impacted overall demand. Given our solid start to the year and the momentum we have generated, we are reaffirming our 2026 financial guidance and are increasingly confident in our ability to meet these commitments. Looking ahead, our priorities are straightforward and every stakeholder should understand where we are focused: stabilize revenue, increase profitability, reduce leverage. That's it. First, stabilize revenue. Rightsizing our cost structure will remain a core focus, but we cannot cost cut our way to prosperity. We operate in a $50 billion print market facing secular headwinds, but there are real pockets of growth, particularly in entry and production. We intend to compete aggressively in those markets with better products, reduced manufacturing costs, stronger routes to market, improved service offerings and new partnerships. And over time, we expect growth in IT solutions and digital services cross-sold into our existing client base to offset print declines. Second, increase profitability. We expect to deliver $250 million to $300 million of incremental savings in 2026, including $150 million to $200 million from the integration of Lexmark. But I want to be clear, this is not a 1-year event. It is a multiyear journey. The cost actions we are taking today will continue to benefit us well into 2027 and beyond. We have guided to double-digit operating margins over time, and we intend to get there. Finally, reduce leverage. I want to address this priority directly because I know it is top of mind for many of you, as it is for us. While the $450 million TPG Angelo Gordon joint venture has increased our overall debt in the near term, it has provided meaningful liquidity to invest in and operate the business as well as the flexibility to take advantage of the dislocation in our bond prices. Between continued opportunistic debt repurchases and improving profitability, we expect our leverage ratios to improve as the year progresses. Reducing leverage is not just a stated priority, it is something you will be able to measure us against every quarter. Before I turn the call over to Chuck, let me take a minute to highlight some key operational initiatives that I believe are fundamental to how Xerox executes against the 3 stated priorities that I went through. Our go-to-market is now fundamentally different. We have moved from a fragmented structure with too much overlap and friction to a unified commercial engine with a simpler strategy, take share, cross-sell, upsell and mix shift toward higher-value offerings. On the enterprise side, we have eliminated account overlap and streamlined engagement. For corporate accounts, we have transitioned to a territory-based model with clear ownership, faster decisions and greater accountability. Our print go-to-market coverage is now structured into 3 regional theaters: North America, Western Europe and Rest of World, each designed around distinct client dynamics, routes to market and partner ecosystems. This simpler, more client-centric approach gives us the ability to meet clients where and how they need us, leverage our expanding global partner community and accelerate growth in targeted segments, all with clear rules of engagement and stronger accountability for both clients and partners. On inside sales, an initiative we launched last year to serve our smaller commercial clients with a greater touch, but at lower cost, equipment sales grew 24% year-over-year in Q1. On April 1, we expanded account coverage from 35,000 to 65,000 clients with revenue accountability quadrupling to more than $200 million. We expect to further scale this model over time. We also continue to take greater ownership of our product design and manufacturing, strengthening our control over quality, cost and speed to market. This will start yielding positive benefits to gross margin later this year. Xerox is becoming and in many respects, already is, a designer, developer, manufacturer, seller and servicer of our own technology. That end-to-end control matters enormously. We own the technology roadmap. We control the design costs. We make the decisions. And frankly, it means we control our own destiny. These initiatives, a transformed go-to-market and greater manufacturing control are central to how we stabilize revenue, increase profitability and ultimately reduce leverage. With that, Chuck, over to you. Chuck Butler: Thanks, Louis. Good morning, everyone. Louis just laid out our 3 priorities: stabilize revenue, increase profitability, reduce leverage. I'll walk through Q1 against that same frame. On revenue, trajectory improved versus Q4. On profitability, adjusted operating income more than tripled year-over-year. On leverage, we took deliberate concrete actions to strengthen the capital structure and position us to delever from here. We are reaffirming full year guidance with even more confidence today than when we set it. Before we get into the details, a brief note on tariffs. Our Q1 results and guidance do not reflect any potential refund benefits associated with the recent Supreme Court ruling on IEEPA tariffs. We expect additional clarity during the second quarter, and we'll provide an update on our next earnings call. Q1 revenue of $1.85 billion increased 27% year-over-year on a reported basis and 24% in constant currency, reflecting Lexmark's contribution. On a pro forma basis, revenue declined 4% year-over-year, a material improvement from a 9% decline in Q4. As Louis alluded to, Q1 revenue benefited by approximately 1% from the pull-forward of post-sale revenue, primarily in supplies, partly driven by customer and channel concerns around potential supply disruptions related to the conflict in the Middle East. Even adjusting for this benefit, Q1 revenue would have exceeded consensus expectations by approximately $80 million. As we have discussed on our prior calls, 2025 included meaningful headwinds from the exit of certain production print device sales. While their impact is diminishing, they have not fully dissipated. From this point on, we will no longer call these out separately. Our focus is on the trajectory of the business, not noise in prior period comparisons. On a similar note, as Louis mentioned, we have unified our go-to-market organizations. We will make select references to legacy Xerox and Lexmark on today's call where it adds context. But going forward, we will report and speak about the business as one. Turning to profitability. Adjusted gross margin was 30.3%, up 60 basis points year-over-year, driven by Lexmark's contribution and transformation benefits, partially offset by 100 basis points of increased product costs and declines in high-margin finance-related fees, largely a result of our forward flow arrangements, which shifts certain finance income off balance sheet. Adjusted operating margin was 3.9%, up 240 basis points year-over-year, driven by higher gross margins, integration synergies and lower marketing spend. Non-financing interest expense was $84 million, up $51 million year-over-year due mainly to higher net interest expense associated with Lexmark acquisition financing. GAAP loss per share was $0.84, down $0.09 year-over-year and adjusted loss per share was $0.43, $0.37 lower than a year ago, primarily due to higher interest expense and an unusual tax rate, the latter of which I want to address directly. Our non-GAAP adjusted tax rate of negative 219% looks unusual because we carry a valuation allowance against certain deferred tax assets. The practical effect is that pretax losses in the U.S. and U.K., along with disallowed interest expense do not generate a corresponding tax benefit while we continue to record tax expense on profits in certain jurisdictions. It is a GAAP consequence of where we sit today, not a reflection of operating performance or cash. As our profitability improves, we expect the tax rate to normalize and converge with our cash taxes. To put it in context, if we adjust for the impact of valuation allowances in the U.S. and U.K., EPS would have been negative $0.11, ahead of negative $0.27 consensus. We present non-GAAP taxes based on Q1 results, but we believe this is a more normalized lens to view underlying operating performance. Let me review segment results. Within Print and Other, Q1 equipment revenue was $378 million, up 33% as reported or up 31% in constant currency. On a pro forma basis, equipment revenue declined 2%, well ahead of the 10% decline last quarter, driven by stronger year-over-year trends at both legacy Xerox and Lexmark and fewer onetime headwinds. Legacy Xerox equipment revenue fell 5% compared to a 12% decline in Q4. The sequential improvement was driven by improved demand in entry and production. Legacy Lexmark equipment revenue grew 5% versus a 6% decline in Q4 on a higher demand across the enterprise and channel and a slight reduction in backlog. As we have noted previously, Lexmark's equipment revenue tends to be more variable than legacy Xerox, given Lexmark's higher concentration of large channel and OEM partner transactions. Print post-sales revenue was $1.31 billion, up 30% as reported and up 27% in constant currency. On a pro forma basis, print post-sale revenue declined 4%, mainly due to lower financing income and service rental and other declines within legacy Xerox. Print and Other adjusted gross margin was 31.3%, down 10 basis points year-over-year, as higher product cost, lower managed print volumes and lower high-margin finance-related fees were largely offset by transformation savings and Lexmark's contribution. The Print segment margin was 5.1%, up 190 basis points due to Lexmark's contribution, transformation benefits and integration savings. Turning to IT Solutions. Gross billings grew 21% year-over-year. Total bookings, an indication of future billings increased 32%. Both represent sequential improvements from Q4. GAAP revenue fell 5% in the quarter, but that number understates underlying activity. A growing share of what we sell, third-party service contracts, SaaS and certain fulfillment contracts where we act as an agent is reported on a net basis. The widening difference between GAAP and gross billings reflects accounting treatment, not changes in demand. We expect it will begin normalizing later this year and into 2027, though some revenue cycles could run longer. Going forward, gross billings and segment profit are the most useful lenses on this business. This is where you will see its health and trajectory. On profitability, gross profit was $30 million, with gross margin of 19.5%, up 230 basis points year-over-year, driven by changes in revenue mix and synergies, partially offset by higher memory cost. Segment profit was $6 million with profit margin of 3.9%, up 80 basis points year-over-year as higher gross profit was partially offset by investments in the sales and delivery organization and strategic hires. Cross-selling into our existing Xerox Print client base continues to build, with more than $32 million of new pipeline created in Q1. Moving to our cash flow and capital structure. For the quarter, operating cash was a use of $144 million compared to a use of $89 million last year, reflecting the inclusion of Lexmark, lower proceeds from finance receivable sales and working capital timing. Investing activity was a $24 million use of cash, $21 million from CapEx compared to a source of $6 million in the prior year, which included proceeds from asset sales. Financing activity resulted in a $242 million source of cash, reflecting the JV financing, partially offset by the paydown of the remaining IT savvy notes and partial payment of the 2028 senior unsecured notes. Free cash flow was a use of $165 million for the quarter, down $56 million year-over-year and in line with our internal expectations, as Q1 is typically a seasonal use of cash. Said differently, Q1 is our seasonal trough and the back half of the year is where the bulk of our free cash flow is generated. We expect improvements in adjusted operating income, working capital discipline and additional proceeds from finance receivables to deliver substantial free cash flow over the remainder of the year. We ended Q1 with $637 million of cash and cash equivalents, inclusive of $52 million of restricted cash and total debt of $4.4 billion. Approximately $1.4 billion of the outstanding debt supports our finance assets, with remaining core debt of $3 billion attributable to the nonfinancing business. On a pro forma basis, gross leverage was 7x trailing 12 months EBITDA. Our capital allocation priority remains debt reduction, driven by EBITDA growth and continued debt paydown, and we expect leverage to go down significantly as the year progresses. During the quarter, we announced an IP joint venture with TPG Angelo Gordon. This structure raised more than $400 million of liquidity net of fees against our intellectual property. Following the JV agreement, we repurchased $101 million of face value of our 2028 senior unsecured notes for $45 million, capturing $56 million of discount, reducing future cash interest and capturing real value for our shareholders. The result of these actions is a maturity ladder that has been meaningfully derisked in the near term. We have approximately $300 million of scheduled debt maturities between now and December 2027, inclusive of the $125 million of the 13% senior bridge notes that we will be paying at the end of Q2. That is a manageable window, and we will have multiple tools to address it, organic cash flow, continued open market repurchases, the warrant mechanism and capacity within our existing debt structure. We will continue to be opportunistic when market conditions support it. Importantly, we will continue to pressure test every action against one goal. Does it create sustainable long-term value for shareholders? That is the lens. Now, for guidance. For 2026, we still expect greater than $7.5 billion in revenue and expect adjusted operating income to be in the range of $450 million to $500 million, an increase of more than $200 million versus 2025, driven by $150 million to $200 million of in-year integration synergies and $100 million of in-year transformation savings. We expect free cash flow of approximately $250 million. Compared to 3 months ago, our free cash flow guidance is underpinned by higher interest expense resulting from the JV, offset by reductions in CapEx, improvements in working capital and lower cash taxes. The result of our assumptions remain unchanged. Our free cash flow guidance implies greater than $400 million of free cash flow generation for the balance of 2026. As a result, based on our implied guidance, by year-end 2026, we expect gross and net leverage to drop by approximately 1.5x to 5.6x and 4.5x trailing 12 months EBITDA, respectively. With that, I will now turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] And our first question comes from Ananda Baruah with Loop Capital. Ananda Baruah: A few, if I could. I guess, Louis, what -- you walked through a lot of great detail there in your prepared remarks. What you spoke about is new? And what might be some of the stuff that you'll be focusing on that could be new that may not have been mentioned in what you talked about? And I have a couple of follow-ups. Louie Pastor: Yes. Thanks, Ananda. I appreciate the question. I appreciate you joining the call. To be honest, a lot of what I was trying to emphasize was that the strategy actually is already in place and doesn't need to change. What's new, I would say, is perhaps the level of rigor and focus on solely these 3 priorities that we went through. So stabilizing revenue, expanding profitability and reducing leverage. Everything that we do needs to be framed through that lens. And as we do it, it just -- like I said, it just creates the opportunity to drive even greater focus and better execution. Ananda Baruah: I got it. And a point of clarification, going back to your prepared remarks. You made mention of -- and this is me paraphrasing, focus on entry level and production where you think there's attractive opportunity. What about the midrange? I know you also said midrange remains soft. What's the right way we should, sort of, think about midrange? And when you think about the core, your core enterprise customer, how do they fall across entry and midrange in the way in which you're describing entry and midrange? Louie Pastor: Yes. So the way we think about the strategy commercially is it's very much and we've talked about this in the past, a gain share mix shift strategy. And when we talk about the mix shift, a lot of people think just about the shift of the mix of our revenues from print in greater amounts into IT solutions and digital services. But there is also a mix shift within print. And that mix shift within print is actually part of the gain share component of the strategy. And that's the barbells that we were just talking about with entry and production. So we are responding to and following the trends in the market, which is why our investments are going into those 2 spaces in entry. Obviously, Lexmark historically has been a leader in the space. Now we're a fully vertically integrated player, controlling design, development, delivery, manufacturing end-to-end in that space, which allows us to compete far more effectively. And on production, we're so well positioned with respect to sales, distribution and service. And with new partnerships, we're bringing new hardware to market, but we're wrapping it around an end-to-end solution. And so part of how we grow and get back to a stable revenue stream in print is through the execution of that barbell strategy. Now the midrange is the most challenged part of the market. We've historically been a leader there. It's still highly profitable for us, and it's still a core component when we do an end-to-end managed print services offering at the enterprise. It's part of the mix of what is ultimately being purchased and delivered and serviced. But ultimately, our focus is going to be on the areas of growth and ensuring that the midrange plays a role where it's relevant and part of a holistic solution. And we'll continue to be in the space, but the focus strategically is going to be far more on entry and production. Ananda Baruah: That's helpful context. I got one more. You mentioned memory lead times have extended and that may have some sort of profit impact. And I think this is regard to IT savvy specifically. So correct me if that's not accurate. What I -- what we've seen is, some of the distribution folks, distribution vendors have been able to pass the memory cost through, without seeing impact to elasticity yet. So could you just give us a little more context around what it is you're seeing? Are you passing costs through? Are you able to pass costs through to some extent? Are you hitting elasticity points? Is it really a timing -- is it really a timing mechanism? Or to what degree is timing playing a role there as well? Just [ flip ] that for us, that would be great. And that's it for me. Chuck Butler: Louis, let me start and then maybe you jump in if I missed something here. Memory, it operates in both of our segments, both in the IT Solutions and in the print side of things, but impacts on both a little differently. On IT Solutions, what you'll find is that memory will slow down the buying patterns of some of our customers that we work with. We generally try to get in there and shape their demand to see what they want to spend their available budget on, make sure we keep equal wallet share in those customer bases because we have a broad product portfolio. And sometimes we work with them to say, look, you can extend the life of these hardware products that contain the memory and wait for the prices to come back down. So we try to help them shape that demand going forward. If they want to go ahead and buy, we largely pass that along to the end customer in the IT solutions space. On the print side of things, it can be a significant cost increase on some of the product line. The higher up you move the stack, the more price -- the more cost increase it has. What I will tell you is in our current forecast, we factored in the current macro environment for exactly where it is today, where we think it is today. So all the memory cost increases, what's happening with the fuel offset by the change in the tariff is all factored into our reaffirmation of the 2026 guidance. Operator: Our next question comes from Samik Chatterjee with JPMorgan. Unknown Analyst: This is Mark on for Samik. I guess my first question is kind of a follow-up to one of the previous ones for Louis. I guess with regards to some of the initiatives and new strategies that he's going to be -- or approaches that he's taking, I guess, anything to elaborate on in terms of how the approaches might differ from the prior management? Louie Pastor: No, I don't think we need to go into sort of granular detail around kind of what's changing from the prior leadership to my leadership other than to just emphasize once again kind of the 3 priorities that drive all of our decision-making. So stabilizing revenue, expanding profitability and reducing leverage. So ultimately, everything that we do is framed through that lens. We've talked about the strategy and where we're focused in what segments and how we execute the mix shift. And really, it's just continuing to make sure that everybody at this company is focused and empowered and accountable for delivering those results. Unknown Analyst: Got it. Chuck Butler: And if I could just add a little bit. I'll tell you from my seat, one thing you noticed and Louis touched on it there, it's every decision that we make right now is put through the lens of does it stabilize revenue? Does it expand margins? And does it delever this company as quickly as possible? And it's staying incredibly focused on those 3 points. Unknown Analyst: Got it. I guess on the margin side, there was some improvement in print profit margins quarter-to-quarter. I guess what are some of the drivers in the quarter-to-quarter improvement? And like how much of that would you consider structural versus like onetime benefits? Chuck Butler: Yes, the benefits that you're seeing as we continue to expand margin are largely related to the acquisition and synergy costs as we continue to realize those. Unknown Analyst: Got it. And then I guess the last question on top of that would be looking at the path of operating margins from around 4% this quarter to the midpoint of the guidance. I guess, what do you think about in terms of the quarterly cadence? What would be driving the step function changes? Any changes with regards to timing of how you envisioned it earlier this year? Chuck Butler: Yes, Louis, let me start and feel free to jump in. If you think about the seasonality of how we'll realize the synergy savings, it will expand each quarter-on-quarter successively and then peaking in the fourth quarter. Some of that's really seasonality because the scale of your business increases throughout the year, fourth quarter being the larger quarter in the space for us. And some of it is just the realization of another quarter, realizing full benefits from actions that you've taken. So you'll continue to see it expand each quarter on top of the other. Operator: Our next question comes from Asiya Merchant with Citigroup. Asiya Merchant: My question is also related a little bit to seasonality. And if you could just talk a little bit about the 2 segments. How envision sort of revenues seasonality between the 2 segments as you kind of look forward to your -- above $7.5 billion revenues for the year? And if you can also peel a little bit on cash flow here, free cash -- operating cash flow and free cash flow kind of seasonality. I think you guys are obviously expecting a lot more of it in the back half. What's driving that aside from operating income? How should we think about whether it's receivables flowing through or working capital as you progress throughout the year? Chuck Butler: Yes, I'll start here again. When you look at the seasonality of our revenue, even legacy Lexmark and legacy Xerox acted a little bit differently, but similar. Some of them depend on school cycles, government cycles, some of them depend on your geographic mix and where you operate in. Typically, what you would have seen for Lexmark and Xerox, though broadly, is one is light, two and three are in the middle and four is the biggest revenue month. IT Solutions appears to get its biggest traction in the third quarter. And it's largely driven by schools coming back in session and different buying cycles in the spaces that they play. Operating cash flow in the print space, working capital is a drag in the first quarter typically. And the first quarter tends to be -- it's your lower revenue month, so you don't get as much scale, and it tends to be the most compressed in those spaces. It was the same thing at legacy Lexmark. It was the same thing at legacy Xerox historically. And then the fourth quarter tends to be the best working capital and the highest revenue, so you generate the most cash flow accordingly. And you'll see that in the space. If you look back in '25, more than all the cash flow was driven in the back half of the year. And that's generally what we're going to see here in '26. We'd like to see that a little flatter, and we'll try to find ways to normalize it, so the impacts aren't so pronounced. But it is industry that drives a large piece of that. In addition to that, because of the expanding margins and the trajectory on realizing more synergy savings quarter-on-quarter, that will drive incremental cash flow throughout the year as well. Did I answer your question? Asiya Merchant: Yes, that's helpful. In terms of your billings and bookings, I know you're reporting pretty strong billings and bookings here in IT solutions. You're also talking about talent hires. Just help me understand like how we should think about those billings and bookings translate into revenues into that segment for the year? Louie Pastor: Yes. I'll start and then, Chuck, if you want to build on top of it. The way we run this business is with a focus on bookings and billings and then ultimately, how much of that actually pulls through to profit. So revenue is somewhat of a derivative of and a mid-level sort of gauge between those 2. But what we're really focused on is are we growing with our clients? Are we selling more to our clients? And ultimately, of what we sell, are we realizing a profit based on that? And so the trends overall that we're looking at bookings, billings and the flow-through on profit, we continue to see improvement in growth and the pipeline, albeit there are some macro headwinds there around memory and availability. But ultimately, it continues to benefit from secular tailwinds. Chuck Butler: Yes. The only thing I think I would add to that, a lot of times, gross billings doesn't always translate into revenue recognition on the face of your P&L. That's done based on the mix of customers and the mix of products that you take into that customer base, whether you treat it like an agent relationship or not. But the higher the gross billings go, you have a mind share and a wallet share in those customer bases that's meaningful. And the growth of that is operationally how you judge the health of that business. So we're excited about the growth we're seeing in the gross billing side of things. In terms of hiring talent, yes, we continue to invest in the space because that's the top line of the 3 priorities that Louis mentioned, stabilizing revenue. And we're going to invest in that to make sure it becomes the engine that allows us to achieve that. Operator: I would now like to turn the call back over to Mr. Pastor for any closing remarks. Louie Pastor: Thank you. Q1 gave us early proof points that the work we're doing is taking hold, an improving revenue trajectory, expanding margins and a growing pipeline across both print and IT solutions. We have more work to do, and we know it, but the business is moving in the right direction. In the coming months, Chuck and I plan to actively engage with our employees, clients, partners and investors. We will listen, answer questions and take feedback while keeping everyone focused on our 3 priorities: stabilize revenue, increase profitability and reduce leverage. Thank you for your time and for your continued support. We look forward to speaking with many of you in the weeks ahead. Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the California Water Service Group First Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the conference over to James Lynch, Senior Vice President. You may begin. James Lynch: Thank you, Dani. Welcome, everyone, to our first quarter 2026 results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO, and Greg Milleman, our Vice President of Rates and Regulatory Affairs. Replay dial-in information for the call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until June 29, 2026. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website at www.calwatergroup.com. Before looking at our first quarter 2026 results, I'd like to cover forward-looking statements. During our call, we may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the company's current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. And now I'll turn the call over to Marty. Martin Kropelnicki: Thanks, Jim. Good morning, everyone, and thank you for joining us this morning to review our first quarter 2026. There are really 6 primary areas that we want to talk about today. The first one being, obviously, the quarter, and I would say Q1 results were in line with our expectations, given the fact that we had a delayed 2024 general rate case. And to remind everyone, in March, we did get a proposed decision, and there's a comment period that follows that proposed decision, which is 30 days. Our comments were filed. And then yesterday, we received what's called a revised proposed decision that I've asked Greg to talk about a little bit more in detail later on in our discussion today. I will generally say that the revised proposed decision we're very happy with, and we are on the docket today for approval at the California Public Utilities Commission. In terms of the quarter, again, given the light of the rate case, there was stuff we could not book because of the delay. But given where we are in line with expectations, I think the highlight of the quarter is the fact that our infrastructure investment for the first quarter was up 17%, and we continue to make good progress on our PFAS treatment and cost recovery from the polluters who put in the grounds and the waters that we treat. On the business development side, there are really 2 areas. Obviously, we remain focused on the NEXUS acquisition deal, and we have filed our change in control applications in Texas to advance our purchase of the minority interest in BVRT, which is the Texas partnership that we've been involved in for the last 5 years. Yesterday, at our Board of Directors meeting, our Board declared our 325th consecutive quarterly dividend, and that follows, of course, the 59th annual dividend increase that we had in January. Additionally, as I mentioned on our year-end earnings call, we have officially kicked off our centennial year of operations, which means we've been going out to the regions that we operate, doing employee and customer celebrations, which have gotten off to a very, very good start. I'll talk a little bit more about that later on today. Before getting into some of the details in these 6 subject areas, I'm going to turn it over to Jim to actually go through the financial results for the quarter. Jim, I'm going to hand it off to you, please. James Lynch: All right. Thanks, Marty. As Marty mentioned, the proposed decision on our California 2024 general rate case is expected later this afternoon. And having said that, our first quarter results do not include the impact of the revenue requirement or any of the other provisions included in the revised proposed decision. Recall that the company does have an interim rates memorandum account, and that does authorize us to retroactively apply the decision back to January 1 once it's finalized. So we're not losing out on any of the potential benefit from the rate case for the time that the decision has been delayed. In Q1 of 2026, revenue was $214.6 million compared to $204 million in the first quarter of 2025. Net income for the quarter was $4 million or $0.07 per diluted share, compared to the prior year's first quarter of $13.3 million or $0.22 per diluted share. Moving to Slide 6. You can see the impact of activity during the quarter. The primary earnings drivers were rate increases, which added $0.11 per diluted share, and accrued and unbilled revenue, which added $0.06 per diluted share. The accrued and unbilled revenue increase was due primarily to warm and dry weather during the last month of the quarter. The revenue increases were partially offset by an overall decrease in consumption for the quarter, increased depreciation and interest expense related to new capital investments, and an increase in the effective income tax rate due to a reduction in tax credits, which, when combined with other items, reduced EPS by about $0.32 per diluted share. Turning to Slide 7. We continue to make significant investments in our water infrastructure to ensure the delivery of safe and reliable water. As Marty mentioned, our capital investments for the quarter were up 17.6% to $129.5 million. Our total planned capital investments for 2026 are $627 million, and this reflects the amounts included in the revised proposed 2024 California rate case decision. It also includes our estimated expenditures in the other states. The constructive impact our capital investment program is having on our regulated rate base is presented on Slide 8. If approved as requested, the 2024 California GRC and Infrastructure Improvement plan, coupled with planned PFAS investments and capital investments in our utilities in the other states, would result in a compounded annual rate base growth of over 11%. Moving to Slide 9. We continue to maintain a strong liquidity profile to execute our capital plan, and we continue to pursue tuck-in M&A opportunities as we progress on the acquisitions of Nevada, Oregon, and BVRT. As of March 31, 2026, we had $58.1 million in unrestricted cash and $45.6 million in restricted cash, along with approximately $470 million available on our bank lines of credit. We maintained credit facilities totaling $600 million that are expandable to $800 million with maturities that extend into March of 2028. We also have over $340 million remaining on the shelf registration we filed in connection with our ATM program after completing approximately $6.1 million of program sales during the first quarter. Importantly, both group and Cal Water maintained strong credit ratings of A+ stable from S&P Global, underscoring the strength of our balance sheet. Turning to Slide 10. We just declared our 325th consecutive quarterly dividend of $0.335 per share. We also announced our 2026 annual dividend of $1.34 per share. This is our 59th consecutive annual increase and is 8.1% higher than 2025. And with that, I'll now turn the call over to Greg to discuss the revised proposed decision on our rate case. Greg Milleman: Thanks, Jim. As Marty mentioned earlier, we received a revised proposed decision on our 24 California general rate case yesterday, and a final decision is expected later today or shortly thereafter. The revised proposed decision provides clear visibility into revenue growth, including approximately $91 million in 2026, followed by $43 million in 2027 and $49 million in 2028. Importantly, it continues key regulatory mechanisms like the Monterrey-style RAM and authorizes cost-balancing accounts such as our pension cost-balancing accounts, health care cost-balancing account, and a new general insurance liability balancing account, which helps stabilize earnings despite variability in customer usage and certain operating costs. While decoupling was not included, the decision introduces a new sales reconciliation mechanism and an updated rate design that better support this fixed cost recovery. Overall, we view the revised proposed decision as constructive and supportive of continued infrastructure investment and long-term earnings stability. And now Marty will take us through the remainder of the deck. Martin Kropelnicki: Thanks, Greg. And just echoing what I said earlier, I'm very happy with the PD that's going to the commission today for approval. And obviously, when it's approved, we will issue an appropriate press release and related 8-K with more of the details of what's included in that final decision. But I think it's fair to say from Greg's perspective, managing our rates department, and Jim's perspective as being our CFO, I think we're very happy with the outcome and look forward to getting the rate case wrapped up and moving on with our plans for 2026. Moving on to Slide 12, just a quick update on where we are with our NEXUS project. As you may recall, we announced that we reached an agreement with NEXUS to acquire their Nevada and Oregon operations. We have continued to progress very well, working with NEXUS. They're a great company to work with. We filed our change of control applications with both the state of Oregon and the State of Nevada. The state of Nevada has a 6-month statutory decision timeline. Oregon does not. We're hoping the 2 will try to stay on track around the same time, and we could drive to close these transactions as early as the end of the year. In the interim, the subject matter experts continue to work very, very well together, and we are mapping their processes into our systems. I've also had the pleasure of visiting all the sites in Oregon and Nevada. And very happy to say I was very pleased with all the employees that I met with. They are very, very professional and very, very sound operators, as well as an outstanding management team. In addition, since we last talked, I have had meetings with all the commissioners in the state of Oregon, as well as the commissioners in the state of Nevada and their staff. Those meetings have all gone very well as well. When we conclude this acquisition of the NEXUS assets, essentially, it will give us almost 100,000 connections outside of the state of California in total, which is about 20% of our total connections. So again, diversifying out of California, expanding our footprint on the West Coast. In addition, I think this is significant and something we don't talk a whole lot about. But for those of you who have been with us for a long time, if you remember, in 2008 and 2009, we started talking more about water and the wastewater business and recycled water. And back then, we really had the 2 wastewater treatment plants that we operate. When we get this deal closed with NEXUS, as well as the BBRT final buyout of the minority interest, we'll have over 24 wastewater plants that we'll be operating in the western half of the U.S. And I think, again, that just goes to show our diversification out of California into wastewater and then also recycled water, which I believe is going to play a very important role for water in the western half of the United States. Looking at Slide 13, on the DBRT slide, we filed the change of control application with the Texas Commission, which is on file with them. In addition, we added another 210 connections to our existing system. So we are waiting for the Texas Commission there as well, and then we will close on the minority interest that still remains in DBRT, and then that will become a wholly owned subsidiary of Texas Water Service Company. Moving on to Slide 14. We have started officially celebrating our centennial anniversary. I'd encourage everyone to take a look at our annual report. Our corporate communications team, headed by Shannon Dean, did an outstanding job going through kind of then now and next, which is the theme of the annual report. I'm also very happy that we've had over 41,000 people visit our Centennial website, which has a lot of information about the company, the rich history of the company, and how we grew from the idea that started with 3 World War I veterans to being the multibillion-dollar company that we are today. If you're interested in that site, I encourage you to look at it. You can visit it, and the URL is 100years.talwatergroup.com. In celebrating our 100-year anniversary, we have scheduled a number of events throughout the state of California. That includes both employees and local officials. We held our first one in Bakersfield. That was a big success, and we'll have another one here in Southern California in June. The overall goal of the program in celebrating this at a regional level is to allow us to increase awareness of the company's track record among our local communities and our public officials that we are allowed to serve. In addition to getting people together to celebrate our success, we are also getting a lot of reclamations and resolutions from, for example, the speaker of the California State Assembly, the City of Icealia, the City of Chico, Chamber of Commerce, the Central Valley Aging Chamber of Commerce, and the San Joaquin Hispanic Chamber of Commerce, and there's more to come. So it's actually fun to be out there talking about 100 years of service and reflecting on where we started to where we are today. With that, Dani, let's open it up for our Q&A, please, for the guests on the call. Operator: [Operator Instructions] Your first question comes from the line of Davis Sunderland with Baird. Davis Sunderland: Two questions for me. Maybe a PFAS question and then a balance sheet question. I guess I'll just start. I know the EPA has been talking recently about microplastics and potentially regulating some other substances outside the initial PFAS guidelines. Just wondering if you guys have any early thoughts on this, and specifically if these might be treatable within your current plans, or if this would require further capital investment beyond what you've already laid out? Martin Kropelnicki: Yes. Good question, Davis. And some of you have heard me talk about UCMR, which is really the unregulated contaminant list that the EPA publishes, and they update that list every so many years. If you really want to see what's coming down the pipe, no pun intended, on water regulation, you really want to monitor that UCMR list, and microplastics have shown up, and it has evolved on that list. And so it is certainly something that is a hotter topic at the EPA right now, and it is something that's in the water supply. And it's something that you will likely see regulations establishing MCL to make sure there are no microplastics in the water. So there's more to come from the EPA on that. Obviously, they go through a scientific process, and they come up with standards. Those standards get handed off to the states, and the State Department of Health is responsible for implementing those standards at the state level. So do I believe you ultimately have a standard that will come up on microplastics? Yes, I do. And I think as a society, we've gotten a lot better at not putting microplastics into the ground or into the ocean. So I think that part of it is actually improving. But I do think at some point, we will actually have a standard that will evolve that we'll have to treat for. And as part of that process, the EPA will also talk about what the appropriate methods and techniques are to treat the water that has microplastics in it. James Lynch: Yes. I think it's uncertain or unclear right now whether or not our current treatment that we're putting in place for PFAS will be effective for the microplastics, and that will depend largely on the EPA. Davis Sunderland: Maybe then just turning Jim, to the balance sheet. I appreciate all the comments on liquidity and available credit. But maybe if you could just talk a bit about how you're thinking about equity issuance and capital needs more broadly throughout the balance of the year, that would be super helpful. James Lynch: Yes. I think we're going to knock on wood, we feel very confident that we'll be successful in closing both BVRT and the Nexus acquisitions in Nevada and Oregon. And so that will be incremental to our normal cadence of debt and equity issuances. We'll take a look in terms of the timing on when we anticipate that's going to occur, and rightsize or determine the most efficient way that we can actually approach the capital markets to fund those transactions when the time comes. I think that there are some pretty interesting instruments out there relative to forwards that will allow us to time it a little closer to where we can minimize any sort of dilution that could occur in terms of the difference between the time we raise the equity and the time we actually close the transactions. And so we'll be looking into that. We believe when the transaction is closed, it would likely occur towards the end of the year, and that's when I would take a look at when we would look to raising the capital for those. Otherwise, we would continue to rely on our ATM and our normal lines of credit taken out by longer-term debt as we work through our capital programs and fund our other capital needs. Martin Kropelnicki: Yes. If you don't mind me jumping in. Davis, it's probably worth mentioning too, as you recall, we have our PFAS program, which is fairly substantial, and we have a separate application before the commission that we're waiting to hear on because that will add further pressure on Jim on the capital side. But the flip side of that is we've been very successful on the litigation side. And just last week, we received another $6.5 million gross from the polluter's trust that has been set up. So we have recovered about $66.5 million in gross receipts in our recovery process, going after polluters, which in essence just about $50 million. That $50 million will be a direct offset to our PFAS program and help keep those costs lower for our customers. So we're approaching 20%, 25% of those estimated PFAS costs being covered through our legal efforts. And our legal team continues to do a very, very good job at leading our industry efforts and getting recovery on that. So that will help a little bit. James Lynch: And for some perspective on that, we initially anticipated 2 basically segments of the program, one is treatment, and one is well replacement, with our objective to get the treatment in by the end of 2028. And then the well replacements will take a longer time. Of the total amount we plan to spend on PFAS, about $60 million of that is for the wells, and the remainder is for treatment. Operator: [Operator Instructions] There are no further questions at this time. I will turn the call back over to Martin Kropelnicki, CEO, for closing remarks. Martin Kropelnicki: Thank you, Dani. Thanks, everyone, for joining us today. Obviously, I think the big thing to watch for moving forward is really what happens at the commission today. We're hoping for approval. And again, I think we're very happy with the revised proposed decision that's on the docket for today. As we move into the second quarter, what are we going to be focused on? Obviously, we have to implement the results of the rate case. And while that sounds like an easy task, there's a lot involved in doing that. Obviously, there's a retroactive piece that goes back to January 1, which Jim and his team will have to work on, and we'll give a lot of clarity around that as we wrap up the quarter and have the appropriate disclosures in our financials for our second quarter 10-Q. In addition, there are thousands of table changes that have to take place on the billing cycle with the new tariffs. And so the rates team, working with our customer service team, the accounting team, and the IT team, will be making those tariff changes and doing the appropriate testing to make sure our tariffs are accurately being built. We are assuming an approval today, and we'd anticipate starting billing the new tariffs on July 1 of this year. And then in addition to that, obviously, we're staying very focused on our M&A side and really the Nexus transaction and the BVRT transaction, answering the commission's questions on the change of control applications as well as doing all the integration work and being ready to do a quick close and integrating those assets onto our platform once approved by the appropriate commission. So it's going to be a busy, busy second quarter, and then throw in the 100-year celebrations on top of that. We have a lot going on. But certainly, the team remains laser-focused on the tasks at hand. The last thing I want to do before we hang up is this is Greg's last earnings call with us. And if you know Greg Milleman, he's not a person who wants a lot of hoopla and fanfare, but I couldn't let the morning go without recognizing his contributions to California Water Service Group. We recruited Greg from Valencia Water in 2013, where Greg served as Senior Vice President of Administration. And believe it or not, we're Greg's third job out of college, and started off with Arthur Anderson, and then went to Valencia Water, and then he joined us. So we brought Greg in as a Manager of Special Projects. We were very impressed with him when we met Greg and didn't really have a spot for him, but we thought he was a very quality hire, a senior hire from within the water industry. Within a year, he was promoted to the Director of Operations, helping the operations team focus on deploying capital more quickly and more efficiently, and making sure that the plant is getting into service as quickly as possible. In 2017, he was named the Interim Director of Rates to help lead our rate case efforts. And in 2019, he was named Vice President of Rates for California. And then in 2022, when Paul Townsley retired, he took the helm as our Vice President of Rates and Regulatory Affairs to lead our overall rate strategy for all of our operating companies. Greg has only been with us for 13 years. And from a Cal Water standpoint, that's not a lot of time. We have a lot of employees who are in their 30s and have 40 years of service with the company. But Greg's impact on the company has been nothing short of outstanding. And if you look at our rate cases over the decade that he has been with us, the 13 years he's been with us, we have done the best with our rate cases under his leadership and his management. So I would be remiss if I didn't take this opportunity to tell Greg, thank you, and to wish him and Jim all the best in retirement, and we look forward to keeping in touch as we do with all of our retirees. So Greg, thank you. And with that, Dani, we'll wrap it up, and we'll see everyone next quarter. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Westwood Holdings Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jill Meyer, Director of Fiduciary Services. Please go ahead. Jill Meyer: Thank you, and welcome to our first quarter 2026 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as in our Form 10-Q for the quarter ended March 31, 2026, that will be filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our Chief Executive Officer; and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey. Brian Casey: Good afternoon, and thank you for joining us for Westwood's First Quarter 2026 Earnings Call. I'm pleased to share our results and key developments from the quarter as well as our outlook for the remainder of the year. Before going into the details, I would like to highlight a few points from the first quarter. Our AUM grew to $18.3 billion, up from $17.4 billion at year-end 2025. Our ETF suite of products surpassed $315 million in combined AUM. West II closed at over $300 million and West III fundraising is now underway. Combined institutional and intermediary gross sales were approximately $529 million. And finally, we completed the sale of Vista Bank, generating a net gain of approximately $2 million. I'll start with a brief overview of our assets under management. Firmwide AUM increased from $17.4 billion at December 31, 2025, to $18.3 billion at March 31, 2026. This growth was driven primarily by our energy and real asset strategies, particularly private energy funds and energy-focused ETFs, which more than offset modest declines in U.S. value equity. Private fund AUM was the largest contributor, reflecting new commitments and capital deployment in our energy secondaries and co-investment vehicles. This growth was structural in nature rather than market dependent, which we see as a healthy and durable source of AUM diversification. The first quarter reflected the continuing evolution of our AUM mix. Client allocations are shifting toward income-oriented real asset and private market solutions, driven by macroeconomic forces like energy security concerns, record global infrastructure investments and persistent power demand growth from data centers and AI-linked infrastructure. Traditional U.S. value equity strategies remain under pressure, although the pace of decline moderated during the quarter. Turning to the market environment. After reaching new all-time highs in late January, U.S. equities quickly faced a reversal. Military actions by the United States and Israel against Iran drove oil prices significantly higher in March, amplifying persistent market uncertainties. The S&P 500 fell 4.3% for the quarter, while SmallCap and MidCap stocks posted modestly positive returns. The standout story was energy. S&P 500 energy stocks gained more than 38% over the 3-month period, and market leadership continued to broaden out from mega-cap technology towards sectors like materials, utilities, consumer staples and industrials. The Fed held the funds rate steady in the 3.5% to 3.75% range as fourth quarter annualized GDP growth of 0.7% and lingering inflation kept policymakers on hold. Meanwhile, bond yields edged slightly higher, producing modestly negative returns for the quarter. With that market backdrop, let me turn to our long-term investment performance. Our results across strategy groups reflect the challenging near-term environment for value-oriented equities, along with several areas of genuine long-term strength that we find very encouraging. Within our U.S. value equity strategies, our SMidCap strategy continues to be a standout, ranking in the top quartile of both its eVestment and Morningstar peer groups over the trailing 3 years, a consistent and well-earned result. On a 10-year basis, our LargeCap value strategy has delivered competitive results relative to peers. We recognize that parts of U.S. value strategies remain under pressure, but we are actively focused on delivering improved results and have seen some moderation in outflows. Turning to our Multi-Asset strategies. Our results here are really encouraging. Our Multi-Asset income fund ranks in the top decile of its Morningstar peer category over both the trailing 3- and 5-year periods, a strong and consistent performance. And our income opportunity strategy ranks in the top third of Morningstar peers over the trailing 3-year period. Taken together, half or more of our Multi-Asset strategies are delivering top-tier results over meaningful time horizons. Our Salient Energy and Real Asset strategies delivered solid performance amid a favorable environment for the sector. Our MLP SMA strategy is in the top 1/3 of its eVestment Master Limited Partnership peer group over trailing 3 years and is performing well relative to the Alerian MLP Index on a net of fee basis. MBST and WEEI, the Westwood Salient Enhanced Midstream Income ETF and the Westwood Salient Enhanced Energy Income ETF continue to provide attractive yields to income-focused investors, consistent with their stated objectives. Our Tactical Growth mutual fund also delivered positive results while providing capital preservation during the March correction. Looking ahead, we believe market conditions are evolving in a way that increasingly favors our investment philosophy. The broadening of sector leadership out from mega-cap technology stocks toward energy, industrials, utilities and other value-oriented segments is precisely the environment in which our active quality-focused approach has historically excelled. Geopolitical uncertainty, inflationary pressures from elevated oil prices and potentially slower economic growth all create volatility, but they also create opportunity for disciplined investors like us who prioritize companies with strong cash flow, sound balance sheets and reasonable valuations. Over the long term and across market cycles, we have consistently demonstrated that quality and value are durable sources of outperformance, and we are well positioned to capitalize on that dynamic as the environment continues to evolve. Turning to distribution. Our institutional channel reported gross sales of $322 million for the first quarter with net inflows of $32 million. One major highlight was successfully onboarding our first institutional managed investment solutions client, accounting for over $200 million in gross sales, an important validation of the MIS capability we've been building. Our pipeline remains robust across both value and energy strategies with many new opportunities added during the quarter. We are also initiating SMidCap due diligence with 2 of the largest national consultants, which reflects the attraction of SMidCap's quality and competitiveness. We expect to see continued momentum in SMidCap Value for defined contribution plans, and we anticipate that our private capital platform will attract increasing institutional interest following significant enhancements we have made to our personnel and organizational structure. In our intermediary channel, gross sales reached $207 million, led by Energy and Real Assets with net outflows of $34 million. MBST gained approval from its first major wirehouse, a very important distribution milestone, and it continues to receive approvals from major national platforms. YLDW, our Enhanced Income Opportunity ETF, is approaching the $25 million threshold typically required for platform onboarding. Our Broadmark strategies are gaining traction as investor demand for risk mitigation has increased in the current elevated market volatility environment. And finally, momentum from our West II capital raise is underpinning West III as it attracts early interest from RIAs, family offices and independent advisers. Moving to our Wealth Management business. We entered 2026 with solid momentum as we continue to strengthen our multifamily office platform. Client engagement remained elevated throughout the quarter, reflecting ongoing market uncertainty and continued demand for proactive planning and thoughtful portfolio oversight. Our advisers maintained a disciplined long-term approach to asset allocation, which helped reinforce client confidence during periods of volatility. Client conversations are increasingly focused on holistic planning, particularly around tax positioning, liquidity management and coordination with trust structures, areas where our integrated model is optimal. From an operational standpoint, we continue to make progress on process standardization and cross-functional alignment across our advisory, client service and trustee. Our efforts are improving scalability while enhancing the overall client experience. Business activity remained steady during the quarter, including several notable large inflows from our multifamily office approach. We continue to prioritize high-quality client relationships with significant long-term potential. Looking ahead, our focus remains on refining internal processes, enhancing reporting and communication and strengthening collaboration across the platform to support sustainable growth. Beyond core business results, I'd like to highlight significant events and milestones achieved during the quarter. Our Enhanced Income Series ETFs achieved an important milestone as MBST, our Enhanced Midstream Income ETF crossed the $200 million AUM threshold in February, a landmark for a fund that has been in the market for less than 2 years. Together with WEEI and YLDW, our 3 Enhanced Income Series ETFs have now surpassed $320 million in combined assets. YLDW, the Westwood Enhanced Income ETF we launched last December, represents an important extension of our income ETF platform, being the first of our Multi-Asset strategies to be marketed as an ETF. YLDW combines a disciplined Multi-Asset allocation approach with a strategic covered call overlay, providing investors with a consistent and diversified source of current income plus potential capital appreciation. It is approaching $25 million in assets. MBST continues to maintain an annualized distribution rate of approximately 10%, consistent with its income generation objective and its recent wirehouse approval is a truly meaningful step in expanding our distribution reach. We will continue to look for opportunities to expand our ETF lineup with innovative strategies that address investor demands. Our Energy Secondaries business reached an important milestone as Westwood Energy Secondaries Fund II closed with over $300 million in capital commitments, more than double our initial $150 million target. Since launching our first Energy Secondaries fund in 2023, we have raised nearly $350 million and deployed over $250 million across 2 flagship funds and 3 co-investment vehicles. During the first quarter, we also received commitments for a new co-investment fund focused on an operated upstream platform. We have commenced fundraising for Westwood Energy Secondaries Fund III and its related co-investment fund, which we expect to market through early 2027, and it's generating substantial early interest. To support this growing platform, we have added team members to our private capital operations team and implemented a new AI-driven technology tool to streamline key operational processes. We completed the sale of our interest in Vista Bank during the quarter, receiving both cash and a stock consideration that enabled us to recognize a gain of approximately $2 million. In March, we celebrated the 25th anniversary of the Westwood Real Estate Income Fund, marking a quarter century of disciplined investing, durable income generation and a successful active management of publicly traded real estate securities. Since inception in 2001, the fund has navigated real estate and economic cycles while maintaining a philosophy grounded in fundamental analysis, valuation discipline and rigorous risk management. We're proud of the team that has delivered consistent results for our clients over such a long investment horizon. Finally, on April 1, 2026, Westwood celebrated its 43rd year in business, a testament to our commitment to clients, our culture of continuous innovation and the dedication of our entire team. We are proud to be one of the very few asset management firms with this depth of history, and we remain committed as always to the principles that have guided us since our founding. Looking back on the first quarter of 2026, we are encouraged by the strategic progress we have made across our business. Our ETF platform has scaled meaningfully. Our private capital strategy is gaining significant institutional and intermediary traction, and our distribution channels continue to build a healthy pipeline. The evolving market environment characterized by broader sector leadership, elevated energy prices and a renewed interest in quality and value is one in which we believe Westwood is well positioned to deliver for our clients and shareholders. With 43 years of experience, a diversified and growing product platform and demonstrated long-term performance in our core strategies, we are confident in our ability to capitalize on the opportunities ahead. Thank you for your continued support and confidence in Westwood. I will now turn the call over to our CFO, Terry Forbes. Terry Forbes: Thanks, Brian, and good afternoon, everyone. Today, we reported total revenues of $25 million for the first quarter of 2026 compared to $27.1 million in the fourth quarter and $23.3 million in the prior year's first quarter. First quarter revenues were lower than the fourth quarter due to lower average AUM as well as fourth quarter recognition of performance fees for the prior year. First quarter revenues were higher than last year's first quarter due to the solid growth in our business reflected in higher average AUM and growth from our ETFs and private energy secondaries funds. Our first quarter income of $0.8 million or $0.09 per share compared with $1.9 million or $0.21 per share in the fourth quarter on lower revenues and higher compensation expenses, offset by a gain from the sale of our investment in a private bank and lower income taxes. Non-GAAP economic earnings were $2.8 million or $0.31 per share in the current quarter versus $3.3 million or $0.36 per share in the fourth quarter. Our first quarter income of $0.8 million or $0.09 per share compared favorably to last year's first quarter income of $0.5 million due to 2026's higher revenues and gains from our investment in the private bank, offset by higher compensation expenses. Economic earnings for the quarter were $2.8 million or $0.31 per share compared with $2.5 million or $0.29 per share in the first quarter of 2025. Firmwide assets under management and advisement totaled $18.3 billion at quarter end, consisting of assets under management of $17.3 billion and assets under advisement of $0.9 billion. Assets under management consisted of institutional assets of $9 billion or 52% of the total, wealth management assets of $4.2 billion or 24% of the total and mutual fund and ETF assets of $4.1 billion or 24% of the total. Over the quarter, our assets under management experienced net outflows of $50 million and market appreciation of $0.8 billion, and our assets under advisement experienced market appreciation of $48 million and net outflows of $50 million. Our financial position continues to be solid with cash and liquid investments at quarter end totaling $34.2 million and a debt-free balance sheet. I'm happy to announce that our Board of Directors approved a regular cash dividend of $0.15 per common share payable on July 1, 2026, to stockholders of record on June 1, 2026. That brings our prepared comments to a close. We encourage you to review our investor presentation we have posted on our website, reflecting quarterly highlights as well as a discussion of our business, product development and longer-term trends in revenues and earnings. We thank you for your interest in our company, and we'll open the line to questions. Operator: [Operator Instructions] I am showing no questions at this time. I will now turn it over to Brian Casey for closing remarks. Brian Casey: Great. Well, thank you. And I first want to thank our long-term and our new shareholders for approving our entire slate of directors today and all the other items we have on the agenda. Just in closing, our SMidCap performance has remained strong and our pipeline of opportunities has grown to over $1 billion. Our Managed Investment Solutions pipeline is improving every week, and we're optimistic that we will land our next institutional client in the coming months. We continue to build out our private capital platform, and we're anxious to kick off fundraising for our next fund. And finally, our ETF platform is seeing strong demand with higher trading volumes and growing AUM, and we're excited to see MBST go fully live tomorrow across one of the major wires. So that should be exciting. Thanks so much for your time. We appreciate it. Visit westwoodgroup.com or call Terry or I if you have questions. Thanks so much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Cerus Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference over to Tim Lee, Head of Investor Relations. Please proceed. Timothy Lee: Thank you, and good afternoon. I'd like to thank everyone for joining us today. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at ir.cerus.com. With me on the call are Obi Greenman, Cerus' President and Chief Executive Officer; Vivek Jayaraman, Cerus' Chief Operating Officer and incoming President and Chief Executive Officer; and Kevin Green, Cerus' Chief Financial Officer. Cerus issued a press release today announcing our financial results for the first quarter ended March 31, 2026, the company's recent business highlights and outlook. You can access a copy of this announcement on the company's website at www.cerus.com. I'd like to remind you that some of the statements we'll make on this call relate to future events and performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include those related to our future financial and operating results, including our 2026 product revenue guidance and our expectations for product gross margin, non-GAAP adjusted EBITDA performance, P&L leverage and our government reimbursed R&D expenses and corresponding revenue, expected future growth, the potential for us to achieve GAAP profitability, the availability and related timing of data from clinical trials, our mission to establish INTERCEPT as the global standard of care, anticipated regulatory submissions and milestones, commercial expansion prospects, projected market opportunities for the INTERCEPT Blood System, including for ISC demand expectations with respect to our group purchasing agreement with Blood Centers of America and our multiyear agreement with the French National Blood Service, our potential platelet opportunity in Germany, the anticipated impact of tariffs and ongoing inflationary pressures and related regulatory effects of our business and other statements that are not historical facts. These forward-looking statements involve risks and uncertainties that can cause actual events, performance and results to differ materially. They are identified and described in today's press release and our slide presentation and under Risk Factors in our Form 10-Q for the quarter ended March 31, 2026, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. On today's call, we will also be discussing non-GAAP adjusted EBITDA, which is a non-GAAP financial measure. Non-GAAP adjusted EBITDA should be considered a supplement to and not a replacement for measures presented in accordance with GAAP. For a reconciliation of non-GAAP adjusted EBITDA to net loss attributable to Cerus Corporation, the most comparable GAAP financial measure to the extent reasonably available, please refer to today's press release and the slide presentation available on our website. We will begin today with opening remarks from Vivek, followed by Kevin to review our financial results and lastly, closing remarks from Obi. Now it's my pleasure to introduce Vivek Jayaraman, Cerus' next President and Chief Executive Officer. Vivek Jayaraman: Thank you, Tim, and good afternoon, everyone. We appreciate you joining us today. At Cerus, our mission is clear: to expand access to safe blood for patients around the world. As we enter 2026, we are focused on delivering against that mission while executing on 3 core priorities: driving sustainable double-digit growth, advancing innovation, and strengthening our financial foundation. Our first quarter results reflect disciplined progress across each of these areas and reinforce our confidence in the path ahead. 2026 is off to a great start with strong first quarter results and increasing confidence in our sales outlook for the full-year. In the first quarter, product revenue, which reflects our core commercial business was $53.7 million, up 24% compared to the first quarter of 2025. This performance was driven by continued strength in our global platelet franchise and also accelerating demand in our U.S. IFC business. Based on our better-than-expected start to the year as well as our growing conviction in the underlying demand for INTERCEPT, we are raising our full-year 2026 product revenue guidance to $227 million to $231 million. In addition, we are raising full-year IFC revenue guidance to $22 million to $24 million. This updated guidance represents total year-over-year product revenue growth of 10% to 12% compared to 2025 and approximately 30% to 40% for IFC. From a top line perspective, North America accounted for nearly 70% of first quarter product revenue as our U.S. platelet franchise continues to serve as a foundation of our overall business. We are deeply grateful to our key customer partners, like the American Red Cross, who continue to place their trust in INTERCEPT. First quarter North American platelet volumes and treatable doses increased 6% and 9%, respectively, when compared to the first quarter of 2025. This gain outpaced the overall historical market growth rates. Looking forward, we anticipate further platelet penetration as we continue to expand adoption among blood centers and hospitals. A key enabler of this growth is our group purchasing agreement with Blood Centers of America, whose members represent approximately half of the U.S. blood supply. Since the agreement took effect on January 1, we have been focused on execution, educating members through targeted engagement, supporting implementation and expanding both existing and new customer relationships. We are already seeing early signs of traction, including increased activity at existing Cerus customers and new agreements to adopt PR platelets at BCA members who have yet to utilize INTERCEPT. Internationally, our EMEA business delivered another strong quarter, led by performance in France and Belgium. We continue to view the region as an important contributor to both near and midterm growth. The recently signed multiyear contract with the French Blood Establishment or EFS, enhances visibility into our forward outlook. We are deeply grateful to EFS for their continued trust in INTERCEPT. France was the first country of scale to fully adopt INTERCEPT to safeguard their platelet supply, and this contract renewal is a strong confirmation of the value they see in INTERCEPT. In Germany, progress on the INITIATE study continues to build the clinical and operational foundation for broader adoption over time. While we remain encouraged by the global opportunity, we are also navigating near-term challenges in certain regions. In the Middle East, ongoing conflict has created logistical complexities that may impact shipment timing. That said, we are actively managing the situation and believe that potential disruptions can be mitigated by strength in other parts of the business. Importantly, we remain confident in our long-term growth prospects in that region, and these near-term challenges were considered when deciding to increase our product revenue guidance for the full-year. Innovation remains central to how we expand access to safe blood and drive long-term growth. A key example is the continued successful rollout of our next-generation INT-200 illuminator across international markets, where we are seeing encouraging adoption and operational performance. Domestically, we are on track to submit our PMA for the INT -100 to the U.S. FDA this quarter, which represents an important milestone in bringing this technology to the U.S. market. Innovation is also evident in our U.S. IFC franchise, where demand continues to increase, supported by a growing number of blood centers manufacturing IFC, deeper utilization within hospitals and increasing awareness of its clinical and logistical advantages, particularly the highly valuable combination of immediate availability of fibrinogen alongside 5-day post- shelf life. As with our platelet franchise, we are seeing a marked increase in ISC engagement and adoption from BCA member blood centers under our new agreement. As a result, ISC demand in the first quarter measured by therapeutic dose equivalents increased approximately 120% year-over-year with revenue growth approaching 90%. We are seeing a continued shift towards kit-based sales, which supports both operational efficiency and long-term margin expansion. Taken together, these results reflect a business that is executing with focus, expanding access to safe blood, delivering sustainable double-digit growth, advancing innovation and strengthening our financial profile. While there is much work to be done, we are encouraged by the progress we are making and confident in the opportunities ahead. At the end of the day, the most important point to note is that we were able to meaningfully expand access to safer blood in the first quarter of 2026. Thank you for your continued interest in Cerus. I'll now turn the call over to Kevin to review our financial results in more detail. Kevin Green: Thanks, Vivek. You've just heard Vivek speak to 2 of our 3 pillars: growth and innovation. Today, I'll focus my comments on our third pillar, financial strength. First quarter financial tables are included in today's press release. As such, I'll focus most of my comments on key takeaways and insights. In addition to the 24% product revenue growth that Vivek mentioned, total revenue, which includes government contract revenue, increased 23% compared to the prior year results. By geography, product revenue growth was broad-based with both North America and EMEA reporting year-over-year gains of 20% or more. In EMEA, demand for our platelet product was the primary contributor, driven by both increased kit volumes and pricing discipline. As reported, EMEA revenues grew by 28%. Of that reported growth, favorable foreign currency exchange rates benefited EMEA revenue by approximately 11%. On a consolidated basis, FX provided a benefit of approximately 3% when compared to Q1 2025. In North America, growth was led by higher U.S. IFC sales as well as increased demand for platelet kits in both the U.S. and in Canada. Speaking to IFC, which at this point is exclusively a U.S. product, first quarter revenue was $5.7 million compared to $3 million during the first quarter of 2025. Switching now to government contract revenue. Reimbursement for government-related R&D expenses increased year-over-year. As I noted on our Q4 earnings call, we still expect full-year government-related R&D expenses and the corresponding reimbursement, which we recognize as government contract revenue to taper this year compared to 2025. Turning away from the top line to gross margin. Our first quarter gross margin was 52% compared to 58.8%. We call that first quarter 2025 margin is an unusually tough comp and was artificially high by approximately 2% due to a onetime true-up from the capitalization of inventorable charges and the nonrecurring release of previously accounted for favorable variances. With that said, the factors that we forecast to be headwinds in Q1 have proven to be slightly less impactful than we originally predicted. Nevertheless, these headwinds have been persistent, and we expect that to be the case for the remainder of the year. These referenced headwinds include inflationary pressures with shipping and fuel costs expected to persist, the impact of foreign currency exchange rates and the ongoing tariffs. Given the current trends, we continue to believe 2026 gross margin will be in the low 50s range, although we may see some relief should our assumptions on external factors prove conservative. Moving down the income statement. Operating expenses for the first quarter declined 7% compared to the first quarter of 2025. One of our key areas of focus supporting financial strength is disciplined control of operating expenses while growing revenue. To that end, SG&A expenses were largely consistent with the prior year, reflecting our ongoing focus to drive revenue growth without the need for proportional incremental investments in SG&A. R&D expenses declined year-over-year due in part to lower development costs of the INT-200 as we approach our planned U.S. PMA submission. Importantly, as you can see from this slide, Cerus funded development programs have been trending down as a percentage of total R&D expenses. Similar to SG&A, we've been making a concerted effort to generate leverage by focusing relatively more R&D spend on government-reimbursed initiatives compared to those that Cerus funds. Let's now turn to the bottom line and non-GAAP adjusted EBITDA results. For Q1 2026, GAAP net loss attributable to Cerus continued to show year-over-year improvement to a modest level of $1.6 million. As an organization, we are committed to not just growing non-GAAP adjusted EBITDA, but achieving GAAP profitability. On a non-GAAP basis, adjusted EBITDA for the first quarter totaled $4 million and marked our eighth consecutive quarter of posting positive adjusted EBITDA. We continue to match the strong commercial results with disciplined expense management and deliver the inherent leverage in our business. Looking ahead, for the balance of 2026, we expect to deliver our third consecutive year of positive adjusted EBITDA results. Turning to the balance sheet and associated cash flows. We ended the first quarter with cash and equivalents of $80.4 million compared to $82.9 million at the end of 2025. Cash used from operations was $3 million compared to $800,000 during the same period of the prior year. Cash used during the first quarter was primarily tied to working capital investments, specifically increased inventory levels in support of the expected revenue growth as suggested by our increased guidance. With all of this said, this progress has resulted in a stronger business. Since 2019, product revenue has grown at a compound annual rate of 18%. We've used that growth to expand patient access to INTERCEPT in new geographies and to continue investing in our new wave of innovation, including INTERCEPT fibrinogen complex, the new INT-200 device and INTERCEPT red blood cells. At the same time, we've managed the business with discipline. Since 2019, operating expenses have increased by less than 3% annually, demonstrating the operating leverage in our business as we continue to scale. As a result, net loss has narrowed meaningfully during the period from 2019 to now, and our adjusted EBITDA has consistently grown over the last few years. Accordingly, we have line of sight into GAAP profitability. With that, let me turn it over to Obi for his closing comments. William Greenman: Thank you, Kevin, and good afternoon, everyone. I want to thank all of you for joining us today for what will be my final earnings call as Cerus' President and CEO. As I reflect on 15 years in this role and more than 30 years with the company, I do so with deep gratitude to our shareholders, to our blood center partners, to our employees and to the clinicians and patients who have believed in our mission. The advocacy for our pathogen inactivation technology from our largest and longest-term blood center customers like the French EFS, Canadian Blood Services, the Swiss Red Cross, One Blood and especially the American Red Cross mattered meaningfully over the company's 35-year-old history. From the beginning, our vision has been to make INTERCEPT the global standard of care for transfused blood components and to establish Cerus as a leader in transfusion medicine innovation. When I became CEO 15 years ago, Cerus was still in the early stages of translating that vision into broad clinical and commercial impact. Earlier in 2006, when we took back the global commercial rights to INTERCEPT from Baxter and built our European organization to commercialize the platform in Europe and beyond, the clinical experience with INTERCEPT amounted to fewer than 10,000 platelet units transfused. Today, INTERCEPT is available in more than 40 countries. We have secured 4 FDA PMA approvals in the United States, established INTERCEPT as the standard of care in multiple markets, including the U.S., France and Switzerland and shipped kits equivalent to treating more than 22 million blood components. That is meaningful progress for Cerus and more importantly, it's meaningful progress for patients and healthcare systems around the world. Yet, the underlying need remains as compelling as ever. Safe and available blood is one of the fundamental requirements of modern health care. Patients undergoing cancer treatment, trauma care, complex surgery, childbirth and chronic transfusion support all depend on blood products that are both safe and ready when needed. That is the mission we share with our blood center customers every day. It is also why our work has impact far beyond our company, advances in blood safety and availability strengthen care delivery across the global health care system. Today, Cerus is better positioned than at any point in our history to help meet that need. We have built a global commercial footprint, a maturing INTERCEPT portfolio designed to address all major transfused blood components and an organization with the experience and discipline to execute. While we have made meaningful strides towards making INTERCEPT the global standard of care, I believe the opportunity ahead remains substantial. That is especially true as we advance the INTERCEPT red blood cell program. 2026 is an important year for the RBC program with major regulatory and clinical milestones ahead in the second half. The Phase III RedeS study, which includes the broader chronic transfusion experience required for an FDA PMA has completed enrollment and is expected to read out in the fourth quarter. As a reminder, the RBC program previously met its primary endpoint in the Phase III ReCePI study and the acute transfusion data from that study were included in the CE Mark submission, which is now under French ANSM competent authority review for potential approval in Europe. We believe INTERCEPT red cells remains one of the most important opportunities in blood safety and success there could materially expand both our clinical impact and our long-term growth potential. For those of you who have followed Cerus over the years, you know that transfusion medicine is careful and slow to adopt innovation. One of the defining moments in Cerus' history was the FDA's 2019 guidance on reducing the risk of transfusion-transmitted bacterial infections with an implementation deadline in October 2021. That guidance helps accelerate INTERCEPT adoption in the U.S. and influence many other markets that look to the FDA as an important benchmark. It was a reminder that durable change in the field is possible and that when regulatory standards evolve, the impact on patient care can be significant. We have built a strong foundation that supports an enduring company, a clear mission, differentiated technology, deep customer relationships, global regulatory and commercial capabilities and a pipeline with meaningful growth drivers still ahead. That foundation is what gives me such confidence in Cerus' future. Over the last 3 decades, we have built an exceptional team united by the opportunity to protect the blood supply and help ensure that life-saving transfusions are available for patients when they are needed most. For many of us, this mission has always been personal. We remember the devastating impact that HIV and hepatitis had on the blood supply in the 1980s and 1990s, and we were determined to help create a different future, one in which transfusion-transmitted infections would pose far less risk in the face of new pandemic threats and blood centers and hospitals would be better equipped to serve patients safely and reliably given the positive impact of INTERCEPT on blood donor deferrals. It has been the privilege of my career to help build Cerus into a lasting purpose-driven company, and I am very pleased to pass the baton to Vivek. He is a bold, team-first leader who will build on the strong foundation we have established, continue advancing our patient-first mission and lead Cerus through its next phase of growth, innovation and value creation for all stakeholders. With that, let me turn the call over to the operator for questions. Operator: [Operator Instructions]. The first one comes from the line of Josh Jennings with TD Cowen. Joshua Jennings: Congratulations, Obi, on moving into your next chapter. It's been a long resilient run by you and you're leaving the company in a position of strength here looking at these 1Q results and being on the cusp of some RBC approvals globally. We'll miss you, but congratulations, Vivek, on your new CEO seat. I'd like to start just with -- just asking about guidance. It seems like the uptick is -- or it looks like the uptick is being driven mostly by IFC strength, but also by INTERCEPT platelet strength. Maybe just talk about the outlook for the U.S. INTERCEPT platelet franchise versus OUS INTERCEPT platelet franchise and where you're seeing more upside relative to the outlook at the beginning of the year. William Greenman: Yes. Thanks a lot, Josh, and thanks for the kind comments to start. Vivek, do you want to handle that question? Vivek Jayaraman: Yes, I'd be happy to. Josh, echoing of these statements, thanks for the kind words, very much appreciated and certainly appreciate your continued interest in our story. The thing that's most encouraging to me about Q1 results is that the strength of the performance is really broad-based, both globally and across product category. You're right to point out that IFP performed quite well and was a significant part of our revised upward guidance. As you also correctly pointed out, platelets is a big component of that as well. If you recall, late last year and earlier this calendar year, we pointed to the BCA agreement in the U.S. and the opportunity to have effectively a hunting license in about half of the U.S. market where relatively speaking, PR platelets were underpenetrated. We saw good progress in the first quarter in that section of the market. We also saw strength with platelets internationally as evidenced by what Kevin spoke to in terms of strength in our EMEA organization. Then we also highlighted the renewed contract with the ESS. As we think about the outlook for the balance of the year, we see continued solid platelet growth in both geographies, continued expansion in the U.S. under the umbrella of the BCA agreement as well as continued adoption, both in growth areas internationally, but then also in some of our core markets where we're seeing a recommitment for customers. Really, there's a lot of enthusiasm coming out of first quarter results and the general qualification of demand in the marketplace. Joshua Jennings: Maybe just clearly, the BCA agreement is bearing early fruit here that may get stronger over the course of the year. Just within U.S. IFC and BCA blood centers, I think you commented, Vivek about marked increased demand from BCA blood centers. Any way you could just build out, provide a little bit more detail and whether you're seeing kind of new IFC customers coming on and how that outlook drove the guidance uptick for the IFC franchise. Vivek Jayaraman: Yes, of course. Yes, certainly happy to provide a bit more color there. There are multiple factors at play, Josh, as I'm sure you can appreciate. The first is we're actively in the process of moving our historical production partners under the BCA agreement. As we do that, they're able to take advantage of the resource sharing model that BCA utilizes. Their outlets in terms of potential both blood center customers and ultimately hospital customers continue to grow. In addition to that, we've had BCA members who weren't previously IFC manufacturers reach out to us and initiate the process of beginning IFC manufacturing. Then fundamentally, as we've talked about previously, as we transition from selling the finished therapeutic to the kits to blood centers, that enables us to leverage and partner with the sales and marketing channels up to blood centers, thereby significantly expanding our reach and our ability to engage with more hospitals. All of those factors come together and effectively create an environment where we're just reaching out to more hospitals, engaging a broader number of clinicians about IFC, and that's all occurring while the data we collect and the user experience on the product continues to grow. It's been really encouraging, but still very much early days. I mean we're proud of the Q1 results and the outlook, but I'll remind you that we're still single-digit share in terms of market penetration. There's a tremendous amount of upside in this market. Joshua Jennings: Congrats on a strong start to the year. Operator: Our next question comes from the line of Bill Bonello with Craig-Hallum. William Bonello: I also wanted to say congratulations to Obi and Vivek. In terms of questions, so you gave some timing on the expected regulatory catalysts. I'm wondering if you could maybe give us some sense of the time line from the events that you talked about today until we reach revenue generation and maybe some of the key milestones along that pathway to commercialization. William Greenman: Yes. Thanks for the question, Bill. I presume you're talking about red cells and not the INT-200, which we will be filing for PMA imminently here in the United States. William Bonello: Talking about them both. William Greenman: Well, I'll start with red cells, and I'll let Vivek cover INT-200 because we're also really excited about that. For the near term, the milestones through the remainder of the year, we clearly are very focused on the ANSM review of the red cell program, and we're happy to announce this week, we actually completed our recertification audit with TUV. That's exciting. We have 2 additional milestones for the CE Mark. One is the ANSM review and then ultimately, an audit of the manufacturing facility. Then as far as the pathway to ultimate revenue there, we would -- once we have an anticipated approval of the red cell CE Mark, we move into sort of an early launch of that product with an iteration of the device to ultimately improve the overall scale-up and operational efficiency of processing red cells. That's still a few years out, but the goal right now is to just focus on getting that CE mark so that we can launch the product. Vivek, do you want to cover the INT -200 in the U.S.? Vivek Jayaraman: Sure. I'd be happy to. Thanks for the question, Bill. As we indicated earlier, we're moving towards a submission to the U.S. FDA, PMA submission for the INT -200 device this quarter, in the second quarter of 2026. We would anticipate a launch in the first half of '27. I anticipate similar to what we're experiencing in international markets that there'll be a lot of enthusiasm for that launch. It's clear evidence of our commitment to innovation in this space, which I think differentiates us from a lot of our peers, and it will serve ultimately as the device foundation for the U.S. market. hat is an upcoming catalyst and one that we're very excited about given the positive receptivity to the Illuminator in international markets. William Bonello: Just as a follow-up to that, maybe just give us some thoughts on sort of the implications in terms of business, whether it's penetration or pricing or simply this being an enabler of retention in terms of launching that INT -200. Vivek Jayaraman: There's a significant market in the U.S. with respect to our installed base of illuminators, and that will be an area of focus for us there. Beyond that, as we think about de novo growth opportunities, as I mentioned earlier in response to Josh's question, there are some customers in the U.S. who have yet to begin their journey with us in terms of adoption of the INTERCEPT technology and part of that process will be equipping them with Illuminator that will be the -- most likely the INT-200 device. While we're not providing specific product level guidance in terms of our device placement, what I can say is a significant enabler in terms of serving as the underlying foundation for our business. Beyond that, too, as we think about, as we stated before, the sort of demonstrated investment in innovation and commitment to continuing to advance research and device development in this space, we're positioned very uniquely relative to our industry peers in this area because we continue to invest in R&D research and ultimately bring products to market that meet customer needs and enhance their operational efficiency. We're very much looking forward to introducing that product, and you'll hear more about our plans for U.S. commercialization certainly post-submission of the PMA and then as we approach our launch date. Operator: [Operator Instructions]. Our next question is from Mark Massaro with BTIG. Mark Massaro: Obi, it's been great working with you, and congrats as you transition into the Chairman role and Vivek, congrats on your well-deserved promotion to CEO. All right. Moving into the business, I wanted to get a better sense on the guidance because when I look at the IFC business, you grew 90% in Q1 here. The 2026 guidance for IFC has been raised to approximately 30% to 40%. I'm just trying to get a sense about the seasonality of this business. It looks like in Q3 last year, it was down sequentially. I recognize there's probably lumpiness as you roll this out. Can you just walk us through the assumptions as to just the delta between the really strong growth in the start of this year and your full-year growth outlook for IFC? William Greenman: Yes. Thanks for the question, Mark, and thanks for the comments to start as well. Vivek, do you want to cover that? Vivek Jayaraman: Yes, I'd be happy to. Mark, thank you for the kind words about the org transition, much appreciated. You're right to point out that the business is a little bit lumpy as we're in this early growth stage. I just want to emphasize that our conviction around continued growth and the fact that it's still we're a single-digit market share player and feel that there's a tremendous amount of headroom. I don't want any of that enthusiasm to be lost as we talk about some of the specifics about the current position itself. I'll remind you that a year ago, there were some anomalies in terms of our posted results. If you recall, we deferred from an accounting standpoint, some revenue recognition in the second quarter as we were sort of starting the process of transitioning from a finished therapeutic sale to a kit sale. That transition continues and really, we're driving towards being fully kit sales ideally by the end of this calendar year. That may bleed a little bit into 2027. We've been talking about really unit volume from the standpoint of therapeutic dose equivalents as opposed to the revenue growth. You'll see that current transition -- you'll see that transition accelerate through the balance of 2026. That was part of what's factored into the guidance for the full-year. Obviously, we took it up pretty significantly from original guidance of $20 million to $22 million for the full-year now to $22 million to $24 million. Underlying growth remains strong. There'll probably be some period-to-period idiosyncrasies just given that transition and the nature of our business model. As we think about blood centers manufacturing IFC, hospital starts, some of the things that we're paying attention to, all of those trend lines are pretty strongly positive. Hopefully, that gives you a little bit more color. Certainly happy to answer any more questions about the IFC business as you have them. Mark Massaro: Maybe switching gears to red blood cells. I think I heard you talk about the transition to ANSM, and it seems like we're now getting close. I think you're on the clock. As we put these pieces together, I think you've talked about a readout in Q4 of '26. Would it be reasonable to think that CE Mark could occur shortly after that -- the readout time period? I'm sort of coming in somewhere between either late Q4 or first half of '27, but I just wanted to get your sense on the timing of CE Mark. William Greenman: Yes. Thanks, Mark. I think right now, it's probably safe to assume that it will be in the first half 2027 approval time line, just given that we don't know what questions ANSM will ask and the time line for our responding to those questions. I think that's the timing you should be looking at. I mean I think we'll have a lot more clarity through the year-end. I think specifically as we think about our Q3 earnings call, not only will there be the Phase III RedeS study readout in that time frame, but also some increased clarity around the ANSM timing. That's the way I think you should think about it. Mark Massaro: Then I know probably not core to the thesis or anything, but I figured I would ask if you're still planning to pursue regulatory approval for platelets in China and maybe any update on that process? William Greenman: Yes. Thanks, Mark. Yes, Vivek, do you want to cover that? Vivek Jayaraman: Yes, I'd be happy to. Mark, it's a great question. We absolutely continue to be excited about the opportunity in the China market. In fact, we will be meeting with our joint venture partner, ZBK, at the upcoming ISCT meeting, which is scheduled to take place in Kuala Lumpur in mid-June, and so part of what we're continuing to refine is our strategy to collect in vitro data that's requested in the Chinese market for resubmission to the NMPA. In parallel with our continued channel checks and clinical engagement, it sort of continues to validate the excitement for and the need for pathogen activation in that marketplace. It's probably an opportunity that will realize in terms of revenue generation towards the latter part of this decade, but it's very much a market opportunity that we're working in partnership with ZBK under our joint venture agreement to advance. Operator: Thank you. Ladies and gentlemen, this will conclude our Q&A session and conference for today. Thank you all for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the First Quarter 2026 Brookfield Renewable Partners L.P. earnings results and webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. If your question has been answered and you would like to remove yourself from the queue, simply press star 11 again. As a reminder, today’s program is being recorded. I would now like to introduce your host for today’s program, Connor Teskey. Please go ahead, sir. Connor Teskey: Good morning, everyone, and thank you for joining us for our first quarter 2026 conference call. Before we begin, I would like to remind you that a copy of our news release and investor supplement can be found on our website. We also want to remind you that we may make forward-looking statements on this call. These statements are subject to known and unknown risks, and our future results may differ materially. For more information, you are encouraged to review our regulatory filings available on SEDAR+ and EDGAR, and on our website. On today’s call, we will review our first quarter 2026 performance and discuss what we are seeing today in the broader energy market and what this means for our business. We will then turn the call over to our Chief Investment Officer to discuss our approach to growth through M&A and our recently announced agreement to acquire Boralex. Patrick will then conclude the call with a discussion of our operating results, financial position, and funding activities, along with the potential simplification of our structure to a single listed corporate entity. Following our comments, we look forward to taking your questions. We had a very strong start to the year, delivering record financial results, advancing key strategic initiatives, and further strengthening our balance sheet. We generated FFO of $375 million, up 19% year-over-year, and 15% on a per-unit basis, equating to $0.55 per unit. We deployed or committed $2.2 billion into growth, or $550 million net to BEP, highlighted by the privatization of Boralex, a leading global renewable platform with a significant operating base and a large and de-risked development pipeline. From a development perspective, we brought online 1.8 gigawatts of new capacity in the quarter and contracted 1.7 gigawatts of development projects from our advanced development pipeline. In addition, we continue to scale our capital recycling program, selling assets that will generate nearly $3 billion of proceeds, or over $800 million net to BEP, at returns in line with our targets. This includes the launch of Northview Energy, which represents a new and recurring way we are monetizing our de-risked assets in North America to some of the world’s largest and most sophisticated private investors. We did all of this while continuing to strengthen our balance sheet, opportunistically executing almost $4 billion of financings, and ending the quarter with over $4.7 billion of available liquidity. Now, taking a step back and looking at the global energy market today, this past quarter we saw the disruption with the outbreak of the conflict in the Middle East. First and foremost, the safety and well-being of our employees and our customers in the region remains our highest priority. We are happy to report that our teams are safe, our limited investments in the region today have not been directly impacted, and are all continuing to perform. While some markets are experiencing higher energy prices as a result of the conflict, our business is largely contracted, and therefore we do not expect a material impact on our cash flows in the near term. What the conflict has done is put a renewed spotlight on the importance of energy security. Reliable power is the essential foundation for economic growth and, without a secure, consistent, and affordable supply, corporations and governments cannot confidently commit to large-scale capital investments that underpin broader economic development. This is leading governments and corporates to increasingly prioritize energy security and domestic supply, reinforcing investments in renewables, which are the lowest-cost form of generation to meet demand today and do not rely on an imported fuel, and nuclear, which can meet the growing need for large-scale baseload generation while offering a high degree of energy security with the ability to store significant amounts of fuel on-site. Against this backdrop of accelerating energy demand and an increased focus on energy security, we are bringing on more new renewable generation capacity than ever before. In the last 12 months alone, we commissioned over 9 gigawatts of new capacity, which is nearly double the capacity we delivered just two years ago, and we remain on track to increase our annual commissioning run rate to approximately 10 gigawatts per year in 2027. Another great example of how accelerating energy demand is helping drive growth in our business is our recently announced partnership with the U.S. government to accelerate the build-out of new Westinghouse large-scale nuclear reactors in the United States. During the quarter, we made good progress advancing the development of new utility-scale reactors in the U.S., with a focus on progressing key workstreams including the ordering of long lead-time equipment for Westinghouse’s proprietary AP1000 technology. In summary, the current environment is defined by the convergence of accelerating energy demand—driven by electrification, reindustrialization, and digitalization—and an increased focus on energy security. Together, these dynamics are driving the need for an “any and all” approach to energy supply and creating one of the strongest backdrops we have seen for the sector and, in turn, our business. Those with operating assets and scale development capabilities stand to benefit the most, and we believe we are a leader on both fronts. Importantly, capturing this opportunity also requires significant access to capital, which has always been a key differentiator for our business. In this regard, we believe we are stronger today than at any point in our history. As a result, we remain well-positioned to deliver outsized earnings growth in the near term and, more importantly, we are better positioned than ever to generate significant value for our investors over the long term. With that, I will turn the call over to our Chief Investment Officer to discuss our approach to growth and our recently announced agreement to acquire Boralex. Unknown Speaker: Thank you, Connor, and good morning, everyone. In the current environment characterized by accelerating power demand and an increased focus on energy security, we are seeing some of the most compelling investment opportunities for our franchise to date—both to continue the execution of our 80-gigawatt advanced-stage development pipeline and in M&A. While the option set is better than ever, our proven M&A playbook and approach to investing has not changed. Our competitive advantage from an M&A perspective stems from the fact that we are able to invest at scale globally across both public and private markets, acquire or invest in assets and businesses spanning the development life cycle, and leverage deep commercial and operational know-how to drive value that others cannot—broadening our opportunity set and allowing us to be highly selective in when and where we deploy capital. Our first step in identifying potential opportunities is focusing on scale platforms and businesses in attractive markets with strong and growing demand for power. We look for businesses led by experienced management teams with large portfolios of assets and expertise in mature, proven technologies. Once we have identified a potential investment opportunity, we then evaluate the quality and durability of the business’s cash flows, ensuring highly contracted revenues with high-credit-quality counterparties that can underpin our investment returns. Lastly, we assess how we can enhance the value of the platform by leveraging our access to scale capital and differentiated capabilities through the value chain, with clearly defined initiatives in our business plan to drive sustainable growth and strong long-term returns. Some of the key initiatives we can usually execute on to help drive our returns include leveraging our commercial relationships with the largest buyers of power, including integrating newly acquired platforms into our existing frameworks such as our Microsoft and Google agreements. We are also able to leverage our global supplier relationships to enhance procurement and deliver economies of scale, as well as optimize the capital structure and provide financing for growth—supported by our strong relationships with financial institutions, significant liquidity, and robust funding sources. Taken together, these initiatives and capabilities enable us to accelerate growth across our business and support the delivery of stronger returns than others can deliver over the long term. Our recently announced privatization of Boralex alongside la Caisse is a great example of our disciplined, repeatable, and consistent approach to value creation through M&A. Similar to our recent successful acquisitions—our Nouyen in France and Australia; OnPath in the UK; and acquisitions in the U.S. of Geronimo, Dereva, Scout, and Urban Grid—where we were able to acquire excellent businesses that meet our investment criteria and execute on our value-enhancing initiatives, we are now adding a leading Canadian-based platform where we can execute our proven playbook. Boralex’s strong base in its core markets, including Canada, complements our current business and gives us an opportunity to do more in this highly attractive and growing market. Under the terms of the transaction, la Caisse will increase its ownership from 15% to 30%, while BEP, alongside institutional partners, will acquire the remaining 70% of the business at an implied enterprise value of $6.5 billion. The transaction is subject to shareholder and normal-course regulatory approvals and is expected to close later this year. The acquisition of Boralex is expected to contribute positively to our results on close, and we see significant opportunity to enhance value over time by accelerating growth and executing our business plan to deliver outsized returns. We expect to add value following acquisition by leveraging our access to capital and commercial and supplier relationships to accelerate development across the platform. We also see an opportunity to enhance Boralex’s leading position in its core markets by expanding its capabilities across technologies and delivering differentiated energy solutions, including incorporating battery storage. We expect to drive efficiencies within Boralex through the sharing of best practices across Brookfield’s global businesses and create value by establishing an asset recycling program within the platform—drawing on Brookfield’s experience to scale asset recycling alongside development, supporting a growth model of recycling capital into higher-returning opportunities at the business. Boralex has a strong and experienced management team, and we are looking forward to supporting them with the additional resources and flexibility that come from being part of Brookfield Renewable Partners L.P. as we work together to grow and enhance the value of the business. Going forward, we will continue to employ our disciplined approach to capital deployment in a market where we are seeing more attractive opportunities than ever for players such as ourselves. We have the capabilities and capital to unlock value through M&A and execute development of our large project pipeline. With that, I will pass it on to Patrick to discuss our operating results in more detail, our financial position and funding activities, and the potential simplification of our structure to a single listed corporate entity. Patrick Taylor: Thanks, and good morning to everyone on the call. We delivered record financial results this quarter, generating FFO of $375 million, or $0.55 per unit, up 19%—or 15% per unit—year-over-year. In the last 12 months, we delivered $1.394 billion of FFO, or $2.08 per unit, up 13%—or 12% on a per-unit basis—compared to the prior-year period. Our results reflect the strength of our diversified global platform and the continued execution of our strategy. Our hydroelectric segment generated $210 million of FFO, up almost 30% year-over-year, supported by strong generation across our Canadian and Colombian fleets and a realized gain on the sale of our 25% interest in the non-core hydro portfolio in the U.S., all of which offset weaker hydrology in our U.S. operations. Our wind and solar segments delivered a combined $245 million of FFO, up over 60% year-over-year, benefiting from contributions from development, acquisitions, and accretive capital recycling across several of our platforms. Lastly, our distributed energy, storage, and sustainable solutions businesses contributed $58 million of FFO, reflecting strong development activity and continued growth at Westinghouse, driven by new reactor design and engineering work and organic growth within its core fuel and maintenance services business. Turning to our balance sheet, we continue to strengthen our financial position, completing almost $4 billion of financings across the platform in the first three months of the year alone—extending maturities and optimizing our capital structure while ending the quarter with over $4.7 billion of available liquidity. The quarter was highlighted by the issuance of C$500 million of 30-year notes, priced at the tightest spread we have ever achieved. With this issuance, we now have an average maturity on our corporate-level debt of approximately 14 years, representing the longest average corporate maturity in our history. Put simply, during a period of significant growth and value creation, our business has the most durable and stable capital structure in its history. In addition to recent successful financings, we are also progressing recontracting initiatives on a scale portfolio of hydro assets in Ontario, which, once signed, will support significant up-financings that we plan to execute over the course of the year, providing additional capital to deploy into growth. We also had a very strong start to the year from a capital recycling perspective, closing or agreeing to sell assets expected to generate approximately $2.8 billion, or $820 million net to BEP. Recently, we agreed to sell our remaining 50% interest in a portfolio of non-core U.S. hydro assets, crystallizing significant value we created under our ownership. We also completed the IPO of CleanMax in India, selling approximately half of our interest. With the IPO, we have returned all of our original invested capital while continuing to maintain exposure to the platform’s long-term growth trajectory and generated a 25% IRR to date. We also closed a previously announced sale of a portfolio of operating solar assets in the U.S. from our Dereva platform. Our asset recycling in the quarter was also highlighted by the creation of a new private renewable vehicle focused on operating renewable assets in North America—Northview Energy—which is a partnership between BCI, Norges Bank Investment Management, and a Brookfield fund. The creation of Northview Energy is in response to the strong demand we are seeing from our institutional partners for high-quality, de-risked, infrastructure-like assets with long-term contracted and durable cash flows. We seeded the vehicle through the sale of 22 operating onshore wind and utility-scale solar assets, generating total proceeds of $1.3 billion, or $315 million net to BEP. Beyond the initial seed assets sold into the platform, the arrangement with BCI and Norges also established a framework to sell additional newly developed assets from our pipeline into the vehicle, with a framework to acquire assets generating up to an additional $1.5 billion of incremental gross proceeds over time. While Northview is the first vehicle of its kind we have launched, we continue to progress similar initiatives of meaningful scale across our global platform. During the quarter, we also launched our at-the-market equity issuance program for BEPC, which we paired with the buying of BEP units under our normal course issuer bid. In the first quarter, we issued 2.8 million BEPC shares, with proceeds from the issuance used to repurchase the same number of BEP units, resulting in approximately $27 million of realized cash gains. Lastly, as our business and the broader market continue to evolve, we remain focused on ensuring that our structure is aligned with the best interests of our shareholders. We are currently exploring whether a single combined corporate structure would better serve our investors going forward, with the goal to determine if, on a tax-free basis, we can create a single corporate security to enhance liquidity, increase index inclusion, and create value for our investors. We expect to have more details to provide later in the year as we begin our work and look forward to updating you on our progress. In closing, we remain focused on delivering 12% to 15% long-term total returns for our investors, supported by our strong operating platform, disciplined capital allocation, and our growing capital recycling program. On behalf of the board and management, we thank all our unitholders and shareholders for their ongoing support. We are excited about Brookfield Renewable Partners L.P.’s future and look forward to sharing further updates on our progress over the course of the year. We will now open the call for questions. Operator: Certainly. Our first question comes from the line of Sean Steuart from TD Cowen. Your question, please. Sean Steuart: Thanks. Good morning, everyone. I wanted to start with asset recycling. You have a lot on the go there; the magnitude is accelerating, I guess, in tandem with an expanding organic pipeline as well. Can you give us updated perspective on the cadence and magnitude of overall asset recycling plans over the next year? And you referenced the CleanMax IRR, but a broader perspective on returns you are crystallizing through those initiatives. Second question is with respect to the M&A opportunity set. The previous quarter’s commentary was that public equities offered a more compelling opportunity than private M&A opportunities, and that is consistent with the Boralex deal. Do you still see that gap in place, and post-Boralex can you qualify your continued M&A appetite? Connor Teskey: Good morning, and thanks for the question, Sean. Three things are worth highlighting about capital recycling. First, the growth in our asset recycling activities is a very natural expansion of our business that is tied, on a slightly lagged basis, to the growth in our organic and development activities. As we build more wind, solar, and other assets in-house, we increasingly look to sell those down to lower cost-of-capital buyers, capture our development margin, and redeploy that capital into accretive growth. While it has been growing incrementally in recent years, we expect it to grow on a similar trajectory going forward, and it is increasingly becoming a very normal course and consistent part of our business. Second, in terms of targets for size and scale, we will continue to be entirely driven by the values we see in the market. If we see opportunities to sell assets at values above where we think they will produce within our portfolio, we will sell them for cash and redeploy that cash. We are not working to a fixed target, but for direction, at our Investor Day last year we spoke about a $9 billion to $10 billion deployment of equity into growth over a five-year period, and we would expect at least a third of that capital over five years to come from asset recycling—and perhaps more if we see strong values in the market. Lastly, we have a fairly robust capital recycling program ahead of us in 2026, purely as a result of the strong bids we are seeing for both platforms and stabilized assets in the current market. On balance, the returns that we are generating through this program are consistently at the high end, or even above the high end, of our target range. On your M&A question, we continue to see opportunities in both public and private markets. For all the same reasons we mentioned last quarter, public markets still present compelling opportunities; those opportunities did not stop with Boralex. Some public companies are more constrained for capital and therefore not able to capture the tremendous demand environment we are operating in. Public companies with access to capital that they can use to capitalize on this environment are performing well, while companies that do not have the right access to capital are struggling. We therefore continue to see opportunities in public markets, and we are also seeing a robust pipeline across private markets for the remainder of the year. Operator: Thank you. Our next question comes from the line of Mark Jarvi from CIBC. Your question, please. Mark Jarvi: Thanks. Good morning, everyone. Could you clarify the comments you made about progress with the U.S. government and Westinghouse in terms of long lead items? Have those long lead items actually been signed now, and are you starting to get support from the U.S. government at this point? If not, when does that come? And then a follow-up: you mentioned an outsized ability to drive growth in the near term. Is the expectation that you can exceed 10% FFO per-unit growth in the next couple of years, and if so, what are the primary drivers? Excluding asset sale gains, is the ability to drive FFO growth from organic development and M&A stronger today? Connor Teskey: Hi, Mark. This is a very live discussion, and we hope to be in a position to announce significant progress not only in 2026 but in the near term. Since our announcement in Q4 of last year, we continue to see tremendous demand for nuclear around the world and particularly in the U.S., from the government as well as the utilities. That demand is coming from all stakeholders—offtakers, utilities, and government. We are making significant progress on establishing frameworks under which initial orders can be made, and we hope to make announcements as soon as practicable. On growth, in the current environment we feel well-positioned to exceed our long-term target of 10% per year. This is driven by three things: M&A, significant new capacity coming online from organic growth, and our ability to recycle assets at very attractive values in the current environment. There can be timing variability, but based on fundamentals we are well positioned in the short to medium term to exceed 10%. Excluding gains on asset sales, we would still say the operating fundamentals and organic growth profile of our business are as strong as they have ever been; gains on sale and accretive recycling are upside to that. Operator: Thank you. Our next question comes from the line of Analyst from National Bank of Canada. Your question, please. Analyst: Good morning. On Northview Energy, how should we think about the cadence of future dropdowns and the potential mix of assets into this vehicle? Should we think of this as more of a steady-state annual funding lever or something that could scale more opportunistically depending on market conditions? And a second one: on the prevailing hyperscaler agreements, could you provide an update on how those agreements are progressing and what the potential pipeline looks like? How are conversations evolving? Connor Teskey: Thank you. From BEP’s perspective, it is important to recognize that we have the option, but not the obligation, to sell assets into Northview Energy. The assets that fit that pool of capital are high-credit, contracted, long-duration wind and solar assets in North America, at prices and go-forward returns consistent with what we have seen and expect to achieve in third-party asset sales outside this vehicle. This structure helps us de-risk development and enables funding of further high-margin growth. In terms of cadence, the additional capital for future dropdowns is expected to be utilized over a two- to four-year period, among asset sales to third parties outside of Northview. At the end of the initial allotment, we will consider next steps—potentially expanding this vehicle or creating new vehicles—but for now we are focused on consuming the initial commitment over that two- to four-year horizon. On hyperscalers, two things characterize our activity. First, demand continues to increase—higher today than last quarter and last year—and we expect it to be higher next year than it is today, particularly in their core markets. Second, our activities continue to broaden and evolve. For example, our first framework agreement with Microsoft focused on wind and solar; we continue to contract more of those, but last quarter we also contracted some hydro under a long-term contract, and we are increasingly including battery storage either with the projects or as part of the broader arrangement. The broadening of scope is where our scale and diversity differentiate us in serving the largest corporate consumers of electricity. Operator: Thank you. As a reminder, if you do have a question at this time, please press 11 on your telephone. Our next question comes from the line of Christine Cho from Barclays. Your question, please. Christine Cho: Good morning. I wanted to ask about the potential single combined corporate structure. You have been trying to increase the liquidity of BEPC for a while, so this seems like a natural progression. What led you to evaluate this, and what is on the table other than the tax-free aspect? Could you talk about other considerations in trying to do this, and would this change how you view your distribution policy? Also, are there any regions or technologies where execution risk has increased more than you would have thought, especially with the surge in power demand from hyperscalers and community pushback around permitting, interconnection, and supply chain? Patrick Taylor: Hi, Christine. There is not much more we can say beyond our opening remarks and press release. Our focus as we begin the work is to determine whether we can achieve a simplified structure on a tax-free rollover basis for our investors, and capture potential benefits around broader index inclusion and enhanced trading liquidity that we see among corporate securities relative to partnerships. Lastly, we are focused on whether this can create value for the entire investor base. We cannot provide further details at this time, and we would not expect any change in our distribution policy if we proceed. Connor Teskey: On execution dynamics, a few points. First, this is an “all of the above” environment—the demand for energy will require multiple sources. We are seeing the greatest growth in renewables because they are quick to deploy and low cost, but demand additions will come across the spectrum. Second, the fastest-growing technology across Brookfield Renewable Partners L.P. today is batteries and energy storage. We are seeing this within all our development platforms and increasingly as stand-alone opportunities. They remove grid congestion rather than add to it and are very quick to deploy. Further, CapEx for batteries and storage is down roughly 65% to 70% over the last 24 months, making these investments very economic. Third, we are seeing a dramatic increase in interest and growth in behind-the-meter solutions. The reality is that the demand trajectory is greater than the pace of grid expansion, so while the vast majority of growth will still go through grids, behind-the-meter solutions are growing faster off a very low base. Operator: Thank you. Our next question comes from the line of Nelson Ng from RBC Capital Markets. Your question, please. Nelson Ng: Great, thanks. Connor, you previously talked about how battery storage is a big opportunity. Looking at your current solar and wind portfolio, is it economic to add batteries to existing sites, and are offtakers willing to pay extra to firm up their power given many assets are contracted? And then switching gears to South America: the environment is not great for renewable development and rates are high, and you are not that active on the development front, but on M&A you recently increased your stake in Isagen—are there other M&A opportunities you are seeing in South America? Connor Teskey: Absolutely—yes in no uncertain terms. The value proposition for batteries in today’s market is very compelling for offtakers in terms of providing a load profile that better matches their 24/7 demand curve. We are seeing batteries deployed alongside existing projects, in new developments, and on a stand-alone basis. In South America, we will continue to pursue opportunities when we can do so at strong risk-adjusted returns. Our more modest activity over the last two to three years outside of the Isagen transaction has been episodic. Brazil experienced very high hydrology and rapid build-out that pushed prices down and made new build less compelling for a period; we are seeing hydrology normalize and markets strengthen again. We continue to do significant growth in Colombia within the Isagen platform, so it does not show up as a discrete M&A transaction, and we have completed smaller transactions in other countries, including Chile and parts of Central America. It remains a compelling region, but it will be a smaller portion of our business relative to our core markets in North America and Western Europe. Operator: Thank you. Our next question comes from the line of Anthony Crowdell from Mizuho. Your question, please. Anthony Crowdell: Thanks so much. Two quick ones. First, a follow-up on the corporate consolidation: is there a timeline for when you hope to have a decision? Is it next quarter or by year-end? Second, on nuclear—you talk about the success and momentum with the AP1000 and the U.S. government. Where do you see the bottleneck before we get an announcement: utility side, government side, regulatory? Patrick Taylor: Hi, Anthony. We have just begun our assessment, so we cannot provide an indicative timeline or add more at this time. Connor Teskey: On nuclear, I would not characterize it as a bottleneck. The potential for new-build nuclear reactors in the U.S. represents a step-change versus the last 10 to 20 years. We are talking about additions that in one shot could exceed 10 times what has been done over the last 15 years. That scale requires alignment from all stakeholders—the government, nuclear-eligible utility operators, regulators, and financing parties. The momentum and traction over the last six to nine months have been incredibly significant and reflect the demand for growth in the asset class. The interest and support for getting this done are overwhelming; it is about finalizing alignment among the appropriate groups. Operator: Thank you. This concludes the question-and-answer session of today’s program. I would like to hand the program back to Connor Teskey for any further remarks. Connor Teskey: Thank you, everyone, for joining our earnings call this quarter. We deeply appreciate your continued support and interest in Brookfield Renewable Partners L.P., and we look forward to updating you following our Q2 results. Thank you, and have a great day. Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This concludes the program. You may now disconnect. Good day.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Please standby. Hello, and welcome, everyone, to the Matthews International Corporation second quarter fiscal 2026 financial results. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call is being recorded. It is now my pleasure to turn the meeting over to Daniel Stopar, Chief Financial Officer and Treasurer. Please go ahead. Daniel Stopar: Good morning. I am Daniel Stopar, Chief Financial Officer of Matthews International Corporation, and with me today is Joseph C. Bartolacci, our company's President and Chief Executive Officer. Before we start, I would like to remind you that our earnings release was posted last night on the Investors section of the company's website, matw.com. The presentation for our call can also be accessed in the Investors section of the website under Presentations. Any forward-looking statements in connection with this discussion are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Factors that could cause the company's results to differ from those discussed today are set forth in the company's Annual Report on Form 10-K and other public filings with the SEC. In addition, we will be discussing non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables carefully as you consider these metrics. In connection with any forward-looking statements and non-GAAP financial information, please read the disclaimer included in today's presentation materials located on our website. I will now turn the call over to Joseph C. Bartolacci. Joseph C. Bartolacci: Good morning, and thank you for joining us to discuss Matthews International Corporation’s fiscal 2026 second quarter results. On our last earnings call, we said that we were focused on execution, and we did just that in the second quarter. The redemption of our high-cost notes is complete, our balance sheet is significantly improved, interest expense is down materially, and for the first time in several years, we are entering the second half of our fiscal year with greater clarity and flexibility in our outlook. Our Memorialization business continues to set the pace, delivering its fourth consecutive quarter of year-over-year EBITDA growth. And while our Industrial Technology segment remains challenged, we are actively working to convert a substantial order pipeline that has grown since last quarter. Let us start with our balance sheet. In January, we completed the early redemption of our 300 million dollars of senior secured notes. This was not simply a refinancing exercise; this was a significant structural repair of a balance sheet that now looks fundamentally different than it did just 18 months ago. Our total long-term debt is now 579 million dollars, down from 822 million dollars one year ago, a reduction of over 240 million dollars. Net debt stands at approximately 543 million dollars today, and the interest expense savings from retiring those high-cost notes are now flowing through, reducing annual interest expense by approximately 10 million dollars and materially improving our cash profile dollar for dollar. The debt extinguishment charge of 16.3 million dollars recorded in Q2 included non-cash items of 3.4 million dollars and is a one-time cost. It should be read for exactly what it is: the price of materially improving our cost of capital, a trade that we are very comfortable with. Turning to Propellus, our 40% equity interest continues to represent what we believe is one of the most compelling unrecognized value drivers in our portfolio. The Propellus team is making great progress on their SAP migration, the single most important operational milestone that will unlock the next layer of significant synergies. As we shared last quarter, this migration is expected to unlock over 25 million dollars of the more than 60 million dollars in total identified synergies. The Propellus team has successfully stood up their own instance of SAP during the quarter, and we will begin the migration of SGS locations onto SAP over the next six to nine months. We expect to begin to see the results of these actions in our fourth quarter. Also, as further evidence of the performance of Propellus, we expect to receive a partial redemption of our preferred interest in the coming quarter. Propellus is continuing to perform well above the 100 million dollars EBITDA run-rate that was assumed when we structured the transaction. As they move through 2026 and execute on their synergies, their EBITDA run-rate is expected to be around 130 million dollars going into 2027. We continue to expect an exit from this investment within the next 12 to 18 months. Every quarter Propellus continues to grow EBITDA and capture synergies increases the value we expect to realize upon exit. With regard to our second quarter results, total revenues were 259 million dollars compared to 428 million dollars a year ago. As we have consistently communicated, year-over-year revenue comparisons will continue to reflect the deliberate portfolio reshaping we executed in fiscal 2025 and early fiscal 2026. The divestitures of SGK, warehouse automation, and European packaging and tooling account for the majority of the reduction. Adjusted EBITDA for the fiscal 2026 second quarter was 45 million dollars compared to 51 million dollars in the prior year's second quarter. A solid result when you consider that the prior year's second quarter included a full quarter of SGK results, while this quarter contains only our 40% interest in Propellus. Stripping out the businesses we have deliberately exited, the continuing portfolio is performing as we projected: Memorialization delivering, the balance sheet improving, and Industrial Technologies remaining the variable we are actively working to improve. That is what we laid out at the start of this fiscal year. Daniel will walk you through our cash flow in detail, but I want to briefly note that our first-half operating cash outflow reflects a cluster of discrete items: a legacy settlement payment, transaction-related fees from our recent divestitures, and annual recurring payments concentrated in our first quarter that do not represent the underlying cash generation capacity of our continuing businesses. We expect both Q3 and Q4 to generate positive operating cash flow. Turning to our businesses, the Memorialization business continues to be the engine that drives this company. Our core Cornerstone segment reported sales of 215 million dollars for the second quarter, an almost 5% increase over the prior year, and adjusted EBITDA of 49 million dollars, up 8% year over year. For fiscal 2026 year-to-date, sales grew to 419 million dollars and adjusted EBITDA grew to 88 million dollars. This segment continues to perform well. The Dodge acquisition continues to contribute meaningfully, adding approximately 10 million dollars in sales per quarter and is ahead of our EBITDA targets. Our team has done an excellent job integrating Dodge, and we are now realizing cost and commercial synergies we expected when the deal was first identified. After accounting for asset monetization and working capital actions, we expect the adjusted purchase price of Dodge to be under 50 million dollars with EBITDA contributions exceeding 12 million dollars. This will stand as another highly accretive acquisition for our shareholders. We are also seeing continued strength in mausoleum construction orders through our Gibraltar Mausoleum business, which not only generates good margins directly, but pulls through demand from bronze lettering, vases, and other memorialization products. Pricing realization remains solid in the business, and we continue to benefit from productivity improvements across the segment. We believe there are more M&A opportunities in the Memorialization space that look like Dodge—highly accretive, strategic, defensible market positions. Our relationships in this industry are deep and longstanding, and we are positioned well to move when the time is right. With regard to the tariff environment and its impact on our businesses, the situation remains fluid, and we will continue to manage this proactively as we have over the past several years. Moving on to Industrial Technologies, revenue was 43 million dollars for the quarter compared to 81 million dollars a year ago. The year-over-year decline reflects the divestitures of the warehouse automation and tooling businesses completed in 2025. What remains is a focused, technology-driven portfolio of high-value Product Identification and Engineered Solutions, and we continue to see significant opportunities in both businesses. Let me start with Product Identification. We can report that we shipped our first production units to paying customers, several of whom were beta customers that saw the tremendous value of the technology. As noted last quarter, we had stopped deliveries as we corrected certain minor issues noted during beta testing, but now those issues have been resolved. The commercial response to Axiom remains strong. The value propositions that we hoped to deliver are proving true: higher quality marks using significantly less solvent, while reducing the cost of maintenance, are driving strong interest in our new product. As we noted last quarter, we have expanded our total addressable market estimate to about 3 billion dollars as we have validated interest from customers currently using high-quality but more expensive solutions. We continue to actively pursue and engage in strategic partnership discussions, including white-label opportunities with leading industry participants, to accelerate adoption and market reach. These opportunities will speed up adoption and give us access to markets that we would not develop for a while. We hope to have news to share on these discussions before fiscal 2026 year end. With that said, let me reiterate that Axiom will not be a material contributor to the top line this year given last quarter's delays, but we expect to see a more meaningful contribution from the product line next year. Moving now to our Engineering and Energy Solutions business. The second quarter was again challenging, as expected. However, let me walk you through our pipeline. We were recently awarded a 25 million dollars order converting line to be delivered to the United States. Together with 75 million dollars of orders that we continue to confidently work on, we expect a material change in this business next year. In addition to those orders, we are working on multiple partnership agreements that utilize our highly proprietary DBE technology. We hope to announce those partnerships before the end of our fiscal year as well. Included in those partnerships are discussions with global ultracapacitor manufacturers looking to move their production to DBE technology. Ultracapacitors, an essential element of energy delivery to the data storage industry, are yet another energy storage solution that will benefit from DBE. On the DBE front, we received an important legal development in the second quarter. On February 13, an arbitrator issued an interim decision that favorably affirmed our ownership of and rights in our DBE technology, and denied Tesla's request for broad injunctive relief. Tesla's attempt to prevent us from selling our own proprietary DBE technology was rejected again. The very narrow injunction on certain components has had no material impact on our technology, as we already have alternative components. This is a meaningful win for our IP position and for the long-term value of our Energy Solutions business. Practically speaking, the ruling removes a key overhang that we believe has caused several sophisticated counterparties to delay deepening their engagement with us. Moreover, this ruling meaningfully mitigates any material liability. Our near-term expectations from the DBE market remain measured, but the long-term thesis is intact and is actually strengthening. Many industry participants continue to affirm that DBE is a critical enabling technology for next-generation chemistries, including solid state. We expect to take additional cost reductions within the Engineering business in the second half to protect cash while we wait for the market to absorb our pipeline. With regard to our full-year outlook, we set guidance of at least 180 million dollars in adjusted EBITDA for fiscal 2026, inclusive of our 40% interest in Propellus. Achieving the full-year target requires a stronger second half, driven primarily by Memorialization continuing its current trajectory, Industrial Technologies converting its pipeline, and Propellus’ continuous operational execution. We continue to believe this is achievable. Memorialization is operating at an annualized run-rate well above 175 million dollars in adjusted EBITDA on its own. Propellus' contribution provides meaningful incremental EBITDA in our Brand Solutions segment, and the recent win in Engineering gives us confidence in our Engineering forecast. But several things may impact that forecast: the pace and timing of Engineering orders, the outcome of current tariff discussions at the federal level, the timing of synergies at Propellus, and the economic impact of geopolitical challenges all can have an impact on our full-year results. With that said, we are working hard on things that we can control to deliver those results. The pipeline is real, the synergies are clearly identified, and tariffs can come and go. With these factors in mind, we are reaffirming our full-year adjusted EBITDA guidance of 180 million dollars. Finally, our strategic alternative review continues. As I have noted above, we have multiple potential partnerships and arrangements currently in discussion. The Board is actively engaged, and our focus remains on delivering on the full value of our intellectual property, particularly in Energy Solutions and Axiom, through partnerships, licensing, or other structures that do not require us to sell our businesses at a discount to their intrinsic value. I will now turn it over to Daniel for a deeper dive on our financial performance. Daniel Stopar: Thank you, Joe. Before starting the financial review, I want to give a reminder on the financial reporting with respect to the SGK business. As you are aware, the divestiture of this business closed on 05/01/2025. The fiscal 2025 consolidated financial information presented in this release reflects the financial results of the SGK business through the closing date. As a result of the integration process of Propellus and transition to its standalone reporting systems, our 40% portion of the financial results of Propellus is reported on a one-quarter lag. Consequently, for the three months ended 03/31/2026, the company's portion of earnings or losses for its equity method investment in Propellus includes the months from October 2025 through December 2025. Similarly, for the six months ended 03/31/2026, the company's portion includes the months from July 2025 through December 2025. Now let us begin the financial review. For the fiscal 2026 second quarter, the company reported a net loss of 21.8 million dollars, or 0.69 dollars per share, compared to a net loss of 8.9 million dollars, or 0.29 dollars per share, a year ago. The change primarily reflected a loss recorded this year on the redemption of 300 million dollars of senior secured notes, higher strategic initiative costs, and lower operating performance in the Industrial Technology segment, which was partially offset by lower acquisition and divestiture costs, reduced net interest and other deductions, and higher income tax benefits. Consolidated sales for fiscal 2026 second quarter were 259 million dollars compared to 428 million dollars a year ago. The decrease primarily reflected the divestitures of the SGK business on 05/01/2025, the European packaging and tooling businesses on 12/01/2025, and the warehouse automation business on 12/31/2025. The consolidated sales impact of these divestitures was approximately 166 million dollars for the current quarter and was partially offset by an 11 million dollars contribution from the acquisition of the Dodge Company. Sales for the Industrial Technologies and Brand Solutions segments were lower for the quarter, offset partially by higher sales for the Memorialization segment. Consolidated adjusted EBITDA for the fiscal 2026 second quarter was 44.7 million dollars compared to 51.4 million dollars a year ago. The decline reflected lower operating performance by the Engineering business within the Industrial Technologies segment. In addition, our 40% share of Propellus' adjusted EBITDA included in our results for the quarter was lower than the amount of adjusted EBITDA that we reported for the SGK Brand Solutions segment last year. The Memorialization segment reported higher adjusted EBITDA for the quarter, while corporate and other non-operating costs were lower in the current year. On a non-GAAP adjusted basis, net income attributable to the company for the current quarter was 11.6 million dollars, or 0.37 dollars per share, compared to 10.5 million dollars, or 0.34 dollars per share, last year. The increase primarily reflected the impact of lower interest expense and higher other non-operating income, which more than offset lower operating profits. Please see the reconciliations of adjusted EBITDA and non-GAAP adjusted earnings per share provided in our earnings release. Sales for the Memorialization segment for the quarter were 215.3 million dollars compared to 205.6 million dollars for the same quarter a year ago. The Dodge acquisition contributed sales of approximately 11 million dollars to the quarter. Sales volumes for caskets and cemetery memorials declined in the quarter due to lower estimated U.S. casketed death rates. Sales of cremation equipment and mausoleums were also lower in the current quarter. These volume declines were partially offset by the impact of inflationary price increases. Memorialization segment adjusted EBITDA for the current quarter was 48.8 million dollars compared to 45 million dollars for the same quarter last year. The increase was primarily contributed by the Dodge acquisition. Benefits from inflationary price realization and cost savings initiatives were partially offset by the impact of lower sales volume combined with higher labor and material costs. Sales for the Industrial Technologies segment for the quarter were 43.4 million dollars compared to 80.8 million dollars a year ago. The decrease primarily reflected the divestiture of the segment's tooling business on 12/01/2025 and warehouse automation business on 12/31/2025. The segment's Engineering business also reported a decline in sales compared to last year, which was offset partially by higher sales for the Product Identification business. Changes in foreign currency rates had a favorable impact of 3.1 million dollars on the segment's current quarter sales compared to a year ago. Adjusted EBITDA for the Industrial Technologies segment for the current quarter was a loss of 3.3 million dollars compared to a profit of 6 million dollars for the same quarter a year ago. The decrease primarily resulted from the impact of the warehouse automation divestiture and lower Engineering sales, offset partially by the segment's cost-reduction actions in its Engineering business and the impact of lower compensation expense. With the divestiture of the European packaging operations on 12/01/2025, combined with the divestiture of the SGK business on 05/01/2025, the Brand Solutions segment did not have reportable revenue for the quarter ended 03/31/2026. A year ago, the divested operations reported sales of 141.2 million dollars. Adjusted EBITDA for the Brand Solutions segment was 9.6 million dollars for the current quarter compared to 15.6 million dollars a year ago. The current quarter mainly reflects the company's 40% interest in Propellus. To reiterate, our 40% portion of the financial results of Propellus is reported on a one-quarter lag; as a result, the consolidated financial information for the quarter ended 03/31/2026 includes our 40% interest in the financial results of Propellus for the months of October through December 2025. Cash flow used in operating activities for the six months ended 03/31/2026 was 67.4 million dollars compared to 18.7 million dollars a year ago. During the period, the company made significant disbursements in connection with divestitures, including income taxes, transaction fees, and repayments of securitized receivables. Expenditures for litigation and proxy defense also consumed significant cash in the period. Additionally, our first half of the fiscal year is typically slower than the second half, generally reflecting a net operating cash outflow due primarily to seasonally lower earnings and the payment of year-end bonus accruals and other annual payment items. Outstanding debt at 03/31/2026 was 579 million dollars, and net debt, which represents debt less cash, was 543 million dollars. The net debt decreased by 135 million dollars since the end of fiscal 2025, driven by the receipt of 243 million dollars of cash proceeds from the divestitures of the warehouse automation business and the European packaging and tooling businesses during the first quarter. These cash inflows were partially offset by cash used in operations and the payment of fees to redeem the 300 million dollars senior secured notes. During fiscal 2026, the company purchased 22,953 shares under its stock repurchase program at an average cost of 26.33 dollars per share. These repurchases were solely related to the withholding tax obligations for vested equity compensation. Finally, the Board declared this week a quarterly dividend of 0.255 dollars per share on the company's common stock. The dividend is payable on 05/25/2026 to stockholders of record at 05/11/2026. This concludes the financial review. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please press star and 1 on your keypad. To leave the queue at any time, press 2. Once again, that is star and 1 to ask a question. We will take our first question from Daniel Moore with CJS Securities. Please go ahead. Your line is open. Daniel Moore: Good morning, Daniel. Good morning, Joe. Let us start with Memorialization outlook. You guided to modest sales growth through the remainder of the year. I think Dodge has maybe a half a quarter left. Looking at your expectations for organic growth beyond the next quarter or so with the revised mix, including Dodge. And then from an inorganic perspective, are you seeing more inbound inquiries from competitors or other players in that arena since the acquisition? Joseph C. Bartolacci: Let me parse that out. First, with regard to our forecast for the balance of the year, I would tell you to expect volume to be stable to modestly down. If you listen to some of our customers' earnings calls, you will recognize that casketed deaths had a pretty low period this past quarter. We performed better than that because of some things that we have done internally—both the addition of Dodge and pricing—and, frankly, some better execution in other markets that we serve. As we move forward through the balance of the year, we are in the midst of cross-selling activities, trying to get both Dodge customers to become our customers on the casket and bronze side and our customers to become Dodge customers as well. Those efforts are baked into our forecast looking forward. Hopefully, they will be successful, but that is part of the synergy expectations we expect to get. On the M&A front, we are always in the market and there are always a few opportunities floating around. I would not say there are a lot of inbounds, but there are opportunities out there. We will pick timing based on when it is right for us as well as when others are ready to sell. There still are small opportunities like that. As I said, these are highly accretive over a wonderful base that we have, so we expect to be able to pull those off. I just cannot pick the timing of them all the time. Daniel Moore: Understood. On Propellus, are we at the front end of the IT and SAP implementation? Talk about your progress and when we will have a better sense for execution. Joseph C. Bartolacci: We are in the middle. The biggest part of that middle was standing up their own instance of SAP. All of the SGK team has separated onto their own instance of SAP. We are still supporting, but they have separated. That is a massive lift, and that is the key to bringing on the other parts of the company, in particular SGS. One thing I would stress: we have already implemented all of the changes necessary to make SAP adaptable to a brand-related business like SGK when we bought SGK, so it is not a novel ERP implementation. Yes, there are some flows that are going to be different and some keystrokes that are going to be different, but at the end of the day, SGS is moving onto a platform that is already fully baked and ready to go for brand-related systems. We are very confident in their ability to execute going forward. They will start that migration in about 90 days and will go location by location like we did in 2014 successfully. I would hope that would go even easier because the SGK team will populate the SGS team with people that know how the system already works for their business. Daniel Moore: Thanks. One more on the arbitration with Tesla announced in February. What are the next steps, and more importantly, have you seen increased engagement with potential customers since that ruling? Joseph C. Bartolacci: I am not in the minds of our friends, nor do I want to be, but I can tell you it has given a lot of clarity both to us and to the customers that we have been trying to work with for a while. Those efforts will continue. We have opened more doors in the last 60 days or so. We have expanded our geographies to include Japan, we have gone deeper with our European potential customers and partners, and we have had some U.S.-based companies reach out to us that had not been very specific in the past. This clarity has been the hindrance for a long time. I cannot tell you what is next for them; I can tell you that we are emboldened by it. Operator: Thank you. Our next question comes from Colin William Rusch with Oppenheimer. Please go ahead. Your line is open. Colin William Rusch: Thanks so much. Could you talk about the breadth and depth of the supercapacitor and ultracapacitor customers? The need for voltage buffering at the data center is enormous. How quickly could that opportunity develop and how many folks might participate? Joseph C. Bartolacci: We have the three largest producers of ultracapacitors at our doorstep today. As you know, this is how we got into DBE in 2015. We converted some activated carbon for Maxwell using our technology back then, so we are well down the path. When we talk about partnerships, there are multiple forms with the three largest producers we are dealing with—both in terms of joint investment to produce the electrode used for an ultracapacitor as well as to provide the electrode to them. We have a piece of equipment in Germany right now that is being commissioned as we speak. That production-level equipment will be ready shortly, and we are lining up to produce test results at production rates of speed, something we did not have capacity to do before. So the opportunity on the ultracapacitor side is significant, and it is something we have already done; we do not need to relearn it. Colin William Rusch: Understood. And on re-shoring of supply chains—particularly around drones and U.S. military requirements for integrated North American supply—how active are conversations around supporting battery manufacturing in the U.S. for those applications? Joseph C. Bartolacci: You could not have teed it up better. We are operating in several forms with respect to that. You have heard us speak about a relatively large order for North American battery separators—that is one of the big orders we expect here over the next three to four months, going specifically to the United States for onshoring. We are having significant discussions with solid-state manufacturers who use, or have used, our equipment to produce batteries necessary for solid state, which is a military application. Importantly, it is not limited to our battery business. We have talked about our 3D printing capabilities in our Memorialization segment. That business produces 3D-printed molds at highly rapid speeds, with great application to the military for spare parts and other cast-related products. We think we have some legs in front of us on a couple of fronts in our industry, not just the battery side. Operator: Thank you. Once again, that is star and 1 on your telephone keypad if you would like to join the queue. We will move next with Justin Laurence Bergner with Gabelli Funds. Please go ahead. Your line is open. Justin Laurence Bergner: Good morning, Joe. Good morning, Dan. Nice quarter, particularly on the Memorialization side. A few clarifying questions. I think you said you got 11 million dollars of revenue from Dodge, but you lost about 166 million dollars from the divestitures. Do I have those numbers correct? Daniel Stopar: 166 million dollars from the divestitures is correct. Justin Laurence Bergner: On Propellus, you said it is already doing a 100 million dollars-plus EBITDA run-rate, but the 40% figures of roughly 9.5 million dollars to 9.9 million dollars are slightly below that. Is that just seasonality being a little bit weaker in the fourth calendar quarter? Daniel Stopar: That is exactly right. Their slowest quarter is typically the fourth calendar quarter, and that is the quarter we reported in this fiscal quarter for Matthews International Corporation. Justin Laurence Bergner: On Memorialization, did it perform better than you expected in the quarter or about in line? And is there any element of price-cost timing from inflation in your average cost method of inventory that might have temporarily boosted EBITDA in March at the expense of future quarters? Joseph C. Bartolacci: The quarter actually performed better at an execution level and worse at a revenue level. One of our customers reported a 4.5% decline in casketed deaths. We were well better than that. Our casket volumes outperformed that level, but we were not anticipating that dynamic. We had a strong early flu season with strong results in our November and December period that did not carry forward, so volumes were modestly lower than we would have expected. Price was consistent with expectations, and execution was even better. Justin Laurence Bergner: When you say execution was better, what does that mean in terms of KPIs? Joseph C. Bartolacci: In the factories, they are running well. Yields and efficiencies are performing at admirable levels, and that helped this quarter tremendously. There are things going on that are somewhat out of our control, such as tariffs coming and going, which are difficult to anticipate. Those flow through our forecast today as if they would be implemented, so we are cautious looking forward on items we do not control. On the things we do control, we have it under our belt. Justin Laurence Bergner: So you are actually factoring in some incremental tariff headwind for the rest of the year? Joseph C. Bartolacci: Rather modest, yes. We have implemented some expectation around Section 232. Whether that gets worse or better is something we do not control, but there is a forecast for some impact. Justin Laurence Bergner: On cash costs that are mostly one-time—debt redemption, transaction fees, legal and proxy costs—were there any other major buckets? And are you paying a material amount for the ongoing strategic review, or is that more conditional on outcomes? Daniel Stopar: The items that hit in the quarter were payments pursuant to the closure of the warehouse sale. We received 225 million dollars right at the end of last quarter and closed that deal on the 31st. We had tax payments this quarter, deal fees that had to be paid, and we also had to settle out on securitized receivables. Justin Laurence Bergner: What are securitized receivables at as of now? Daniel Stopar: About 55 million dollars. Justin Laurence Bergner: And ongoing cash costs associated with the strategic review? Joseph C. Bartolacci: There are no ongoing costs associated with that. It is mostly done internally. To the extent we need external advice, it will be around legal more than anything else. Justin Laurence Bergner: Thank you for taking all my questions. Daniel Stopar: Thank you, Justin. Operator: Once again, that is star and 1 on your telephone keypad if you would like to join the queue. We will pause a moment to allow any further questions to queue. We show no further questions in queue at this time. This will conclude our Q&A session as well as our conference call. Thank you for your participation. You may disconnect at any time.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to AptarGroup, Inc.'s 2026 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Introducing today's conference call is Mary Skafidas, senior vice president, investor relations and communications. Please go ahead. Mary Skafidas: Hello, everyone, and thanks for being with us today. Joining me on today's call are Stephan B. Tanda, our president and CEO; Vanessa Kanu, executive vice president and CFO; and Gael Tuya, our CEO designate and president of Aptar Pharma. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for the reconciliations of non-GAAP measures to the most comparable GAAP measure discussed during this earnings call. As always, we will post a replay of this call on our website. I would now like to turn the conference call over to Stephan. Stephan B. Tanda: Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. As previously announced, I will be retiring later this year, and we will welcome Gael Tuya as AptarGroup, Inc.'s next CEO on September 1. I will still lead the Q2 earnings call on July 31, so please hold any roasting remarks for that call. Gael and I are collaborating closely during the transition period. Gael is joining us today and would like to say a few words to kick off the call. Gael? Gael Tuya: Thank you, Stephan, and good morning, everyone. I am pleased to join the call today and grateful for the warm welcome I have received as CEO designate. I am very much looking forward to connecting more closely with our investors and stakeholders over the coming months and happy to be here with you today. Stephan B. Tanda: Thank you, Gael. Everyone, again, please save your roast comments until the second quarter, and the tougher questions you can keep for the third quarter when Gael officially takes over as CEO. Now I will begin my remarks by highlighting our first quarter results, and later in the call, our CFO, Vanessa Kanu, will provide additional details on the key drivers for the quarter. Overall, the quarter unfolded largely as we expected. Reported growth benefited from favorable currency movements; however, underlying performance reflected a mixed operating environment, driven primarily by the anticipated emergency medicine destocking following exceptional growth in Q1 2024 and Q1 2025. Across the broader portfolio, demand trends remain healthy, and several of our core growth platforms have continued to perform well. Our pharma segment continued to see growing demand in key areas including GLP-1, biologics, systemic nasal drug delivery, nasal decongestants, and ophthalmic dispensing, reinforcing our confidence in the long-term growth profile of the business. Consumer dispensing also contributed positively with volume and mix improvements across both Beauty and Closures. In Beauty, demand was supported by strength in prestige fragrance and select personal care applications. Closures benefited from high product volumes, which was offset by the passing on of lower resin pricing. Across both segments, our teams remain focused on disciplined execution, portfolio optimization, and overall operational resilience. Before I turn the call over to Vanessa, let me turn to our pharma pipeline where our core business has continued to deliver. Systemic nasal drug delivery is accelerating, and injectables now account for a greater portion of our opportunity set. The decline in emergency medicine dispensing systems negatively impacted core sales by 3% in the first quarter. Over the past several months, multiple programs have advanced through key clinical and regulatory milestones, many of them leveraging AptarGroup, Inc.'s market-leading nasal and drug delivery technologies. Across intranasal delivery, our platforms are supporting a range of Phase 2 programs, including ENA respiratory virus-agnostic respiratory therapy. These programs rely on the precision, reliability, and scalability of our delivery systems supported by AptarGroup, Inc.'s integrated formulation and regulatory capabilities, reinforcing our role as a trusted development partner. I also wanted to share a few approval updates regarding NEFFY, the emergency treatment of type 1 allergic reactions including anaphylaxis. Recently, the U.S. Food and Drug Administration approved an update to prescribing information for NEFFY, removing the age criteria. In addition, Health Canada granted approval for NEFFY, along with the Emirates Drug Establishment in UAE. In the prescription market, Cipla recently announced that they received U.S. FDA approval for the first AB-rated generic therapeutic equivalent of Ventolin using our metered dose inhaler valve. This medication is used to treat or prevent bronchospasms in people who have reversible obstructive airway disease, and is another example of our technologies being used on the original drug and then playing a key role in the approval process for the generic version. I also want to highlight a few more products that launched in the quarter. Our elastomeric components for injectables are featured on a blood derivative medication in the U.S. Our ophthalmic dispensing technology is being used for an eye care product in Latin America. And in Europe, our valve spray technology is featured on a nasal saline for infants. Finally, our recent partnership with Enable Injections integrates Aptar digital health connected, lifecycle-ready digital solutions with the enFuse on-body delivery system, supporting patient engagement, patient adherence, and data insights from clinical development through commercialization. In Beauty, one of our newest prestige fragrance pumps is featured on Dior Addict by Christian Dior. Also, as brands move toward more alcohol-free, water-based formulas, they need pumps specifically engineered to dispense higher viscosity or bi-phase liquids while delivering the fine mist consumers expect from a perfume. There is also a growing trend for skincare-infused fragrances—those that hydrate, soothe, or even protect—along with microencapsulated fragrances where molecules are suspended in the formula to offer controlled fragrance release. Several of our pumps are engineered to address these growing consumer demands and the associated dispensing challenges, including our spray technology for the European launch of Guerlain’s Aqua Allegoria alcohol-free hybrid and microencapsulated line. In skin care and makeup, following the success of Clarins Double Serum, Clarins has launched Double Serum Foundation featuring our patented dual dispensing technology with progressive dosage. Lastly, Clorox is using our custom actuator on its daily air spray in North America, highlighting the value of early customer engagement where rapid prototyping and application-specific engineering can accelerate product launch. Turning to Closures, our dispensing closure that is often used for Asian sauces is now featured on Newman’s Own barbecue sauces. Lastly, I want to highlight our technology that is turning beauty and personal care products upside down similar to what we did with ketchup and other condiments. We have launched our inverted, lidless closures for single-handed dispensing that can be used with shampoos and conditioners, body washes, baby soaps, lotions, pet shampoos, and more. This technology is already being featured on a pet care shampoo line, and additional versions have been successful in the home care and hair care markets. It features our patented Simply Squeeze flow control valve and reflects our commitment to converting categories and making daily routines easier for consumers around the world. I also want to provide a brief update on our ongoing litigation with ARS Pharmaceuticals. The case continues to progress, and we are pleased that the court denied ARS’s motion to dismiss. We are now well into the discovery phase, and we have also filed a motion to dismiss the Southern District antitrust case or, alternatively, to have it transferred to New York where the underlying trade secret case is pending. As these matters remain ongoing, there is nothing further that I can share at this time. Now I would like to turn the call over to Vanessa to share more details on the quarterly results. Vanessa? Vanessa Kanu: Thank you, Stephan, and good morning, everyone. Let me begin by summarizing the highlights for the quarter. Our reported sales increased 11%, and core sales, which adjust for currency effects and acquisitions, were flat compared to the prior year. We achieved adjusted EBITDA of $189 million, an increase of 3% from the prior year, and adjusted EBITDA margin of 19.2% compared to 20.7% in the prior year, primarily due to less favorable product mix and operational challenges in Beauty and Closures. Adjusted earnings per share were $1.19 compared to the prior year's adjusted earnings per share of $1.30 at comparable exchange rates. With those high-level comments, let us take a closer look at segment performance. Our Pharma segment's core sales decreased 1%, primarily due to less favorable product mix. Going into the year, we expected a challenging year-over-year comparison due to an anticipated decline in emergency medicine. On that note, our previously communicated estimate that emergency medicine sales would decline by approximately $65 million in full year 2026 continues to track. In Q1, the decline in emergency medicine dispensing systems negatively impacted Pharma core sales by 3%. Let me break that down by market, starting with our proprietary drug delivery systems. Prescription core sales decreased 10%. The decline in emergency medicine dispensing systems negatively impacted prescription core sales by 5%. Additionally, as previously noted by Stephan, Q1 2025 was a strong quarter for this division across a number of application fields, which created a challenging comparison. Looking ahead, we expect continued growth in key end markets as we progress through the year. Consumer Healthcare core sales increased 4%, primarily due to an increase in sales for eye care and nasal decongestant products. Injectables core sales increased 20% with strong demand primarily for elastomeric components used for GLP-1, biologics, and antithrombotics. Services also contributed positively in the quarter, and we continue to see strong pipeline build for Aptar CSP Technologies’ Activ-Blister, Activ-Vial, Annex 1, and biologics projects. For Active Materials Science Solutions, core sales decreased 1% in the quarter. Growth in oral solid dose sales was not sufficient to fully offset lower sales in probiotics and diabetes test strips. Pharma's adjusted EBITDA margin for the quarter was 33.3%, a 150 basis point decline from the prior year. The margin decline was anticipated and driven by product mix and volume, due primarily to a decline in high-margin emergency medicine sales, while royalties continued to positively impact margins. Moving to our Beauty segment, core sales increased 3% with improving volumes in the quarter. Looking at the two largest end markets for Beauty, fragrance; facial skincare and color cosmetics core sales increased 3%, primarily due to double-digit sales growth for prestige fragrance pumps as well as color cosmetics. Sales from masstige fragrance technologies also grew in the quarter, offsetting a decline in skincare. Personal Care core sales increased 6% with broad-based growth across all regions. Applications for both body care and hair care continue to show strong demand. Beauty's adjusted EBITDA margin for the quarter was 11.1%, a decline of 100 basis points, primarily due to less favorable product mix in North America, and we are still feeling the impact from the fire at a supplier that we reported last quarter, although we did see the margins improve sequentially from Q4 2025. Moving to the Closures segment, core sales were flat compared to the prior year. While volumes were up, core sales were impacted by the pass-through of lower resin pricing. Looking at the two largest end markets for Closures, Food core sales decreased 3%, primarily due to the impacts I just mentioned, partially offset by continued demand for our sauces and condiment dispensing closures. Beverage core sales increased 10%, primarily driven by increased sales for dairy drinks and liquid coffee creamers. This segment's adjusted EBITDA margin was 13.1%, a 270 basis point decline over the prior year, primarily due to previously reported maintenance issues which our Closures team continues to work through, and temporary plant closures as a result of extreme weather conditions in North America during the quarter. Additionally, we wrote off a minority investment in the quarter. At the total company level, consolidated gross margins declined by 210 basis points in Q1 year over year, primarily as a result of the aforementioned factors. Selling, research and development, and administrative costs, which we abbreviate as SG&A, increased in absolute dollars largely due to currency effects and the impact of acquisitions. Excluding currency effects and acquisitions, SG&A dollars were flat year over year. SG&A as a percentage of sales decreased from 17.5% in Q1 2025 to 17.1%, a 40 basis point reduction year over year. These amounts include approximately $4 million in legal expenses for non-ordinary course litigation, which did not exist in the prior-year period. Adjusted earnings per share of $1.19 were down 8% year over year at comparable exchange rates due to higher depreciation and amortization expenses associated with our capital investments and acquisitions, and interest expense of $17 million, a $6 million increase from the prior year due to higher rates on current-year borrowings. Our adjusted effective tax rate for the quarter was 22.6%, compared to the prior year's 25.8%, due to a more favorable mix of earnings and greater excess tax benefits from share-based compensation. Moving over to cash flow, free cash flow more than doubled year over year to $53 million for the quarter, comprising cash from operations of $119 million net of capital expenditures of $65 million. We repurchased $100 million worth of shares in the quarter and paid $31 million in dividends, returning a total of $131 million of capital to shareholders. Finally, we ended the quarter with a strong balance sheet once again, reflecting a cash balance of $223 million as of March 31, net debt of $1.1 billion, and a leverage ratio of 1.43. Before we move to outlook, I would like to touch briefly on the impact of the Middle East conflict. For Q1, the impact on our results was minimal. As we look ahead to Q2, along with others, we are seeing significantly increased input costs, most notably raw materials, transportation, and energy. We are largely passing these higher costs through to customers, supported in some cases by index contract clauses for resin. While we have not experienced any material supply chain disruptions to date, we are monitoring the situation very closely. As a reminder, as costs are passed through, margin percentage will experience some compression. Our focus is on neutralizing the impact to our overall earnings. Now on to outlook for Q2. We anticipate second quarter adjusted earnings per share to be in the range of $1.32 to $1.40 per share, an effective tax rate range of 22.5% to 24.5%, and a euro to U.S. dollar exchange rate of 1.18. For full year 2026, capital investments are expected to be in the range of $260 million to $280 million, and depreciation and amortization expense is now expected to be between $310 million and $320 million. With that, I will turn it over to Stephan to provide a few closing comments before we move to Q&A. Stephan B. Tanda: Thanks, Vanessa. Regarding our outlook, looking ahead to Q2, we anticipate a solid quarter with growth across each of our segments. As a reminder, the first half of the year is challenged due to the emergency medicine comparison, which should ease in the second half. Within Pharma, outside of the emergency medicine end market, we expect our Prescription division to return to healthy growth. We also anticipate continued growth across a number of Pharma end markets driven primarily by strength in our Injectables and Consumer Healthcare businesses. Beyond Pharma, we are expecting a strong quarter in Closures, supported by solid demand, and continued growth in Beauty with particular strength in fragrance. As we head into the quarter, we remain mindful of potential supply chain uncertainties and cost volatility as we continue to operate in a dynamic environment. While we are managing these conditions actively, we are staying disciplined and focused on what we can control as we execute through Q2. The demand we are seeing across a number of end markets is very positive. Our pipeline continues to build in Pharma, and in Beauty and Closures, we see healthy order book activity. We will now open the call for questions. Operator: Thank you. If you would like to ask a question during this time, simply press 1 on your telephone keypad. If you would like to withdraw your question, press 1 again. In the interest of time and fairness to all participants, please limit yourself to two questions and then come back into the queue if you have more questions. Please stand by while we compile the Q&A list. Your first question comes from Paul Knight at KeyBanc. Your line is open. Please go ahead. Paul Knight: Thanks, Stephan. We will save the remarks until July, as you suggested. The comments you made at the beginning around NEFFY being approved for any age group in the U.S. and also in Canada, along with some other highlights—are those events and approvals enough to say my visibility for 2026 is higher? Operator: A reminder to unmute yourself locally. Stephan B. Tanda: Alright. Let us try again. Does this work? Paul Knight: Can you hear me now? Stephan B. Tanda: Operator, can you hear me? Loud and clear. Operator: Alright. Sorry about that problem. We have a new system. Stephan B. Tanda: A reminder: no single product really moves the needle substantially—I guess the exception is Narcan—in any quarter. These incremental approvals are more proof points that over time we expect this to be a successful product. Clearly, being able to expand the market to children over 30 kilos, I think it is, and additional geographic approvals obviously bode well. But I would not translate that to significant impact on a quarter or even the balance of the year. Having said that, we feel very good about Prescription growth for the balance of the year. Q1 had a very tough comparable, but we already in Q2 expect strong growth in Prescription, excluding emergency medicine. Paul Knight: And then last, are you adding GLP-1 capacity in the elastomer business? Stephan B. Tanda: We made substantial investments. Right now, we have plenty of capacity, and we do have the ability to creep additional capacity by just putting in additional equipment in the existing large building. Paul Knight: Good. Thank you. Operator: Your next question comes from the line of Ghansham Panjabi. Please go ahead. Your line is open. Ghansham Panjabi: Yeah. Hi. Good morning. Can you hear me okay? Stephan B. Tanda: Yep. How are you doing, gentlemen? Okay. Great. Thank you. Ghansham Panjabi: Good morning. Congrats to you, Stephan, first off on a great run, and to you as well, Gael—our team wishes you the very best in your new role. First off, on the Rx component, I think you said down 5% excluding the naloxone destock, if you will. You called out tough comps from a year ago in 2025, but the comp for February is also pretty tough from what I remember. I think it was up 10% in Q1 2025 and plus 8% in February. What is the expectation for Rx ex-naloxone in Q2? I know you do not give specific guidance, but do you expect it to grow year over year based on the tough comp as well? Stephan B. Tanda: Thanks for the congrats, and the short answer is yes. Yes, the comps are also demanding in Q2, but we expect very solid growth for Rx in Q2, excluding emergency medicine, of course. Ghansham Panjabi: Okay. Thank you for that. And then Consumer—you said plus 4% in Q1 2026. From what I remember last year, you had a pretty easy comparison, given the destock that was occurring in cough and cold, etc. Was that in line with your plan in terms of Consumer? And then, a broader question as it relates to some of the comments about supply chain uncertainty—was there any benefit in any parts of your businesses across the portfolio as it relates to any sort of pre-buy, given customer uncertainty as it relates to supply chain? Stephan B. Tanda: Let me take the second one and then, Gael, maybe you can comment on Consumer Healthcare growth. We really do not see a lot of pre-buying and, to be perfectly honest, with the bounce back of demand, there are several product lines where we could not even fulfill the demand of pre-buying. So it is rather limited. But I understand the question. Consumer Healthcare, Gael? Gael Tuya: Consumer Healthcare is back on a trend for several quarters in a row after a good Q4, so it is in line with expectation. We continue to get a very strong ophthalmic business with a good pipeline conversion. Dermocosmetics is doing well. From a cough and cold standpoint, we have seen the end of the inventory adjustments, and in certain countries there was a low cold and flu season, especially in the U.S. Ghansham Panjabi: Yeah. Okay. Terrific. Thanks again. Congrats to you both. Operator: Your next question comes from the line of George Staphos at BofA Securities. Your line is open. Go ahead. George Leon Staphos: Thanks so much. Hi, everyone. Good morning. Congrats to Gael and to Stephan. We will save the roast for July. Congrats on the quarter too. Point of clarification to Ghansham's question—did you say Pharma will grow even with the impact from emergency medicines, or just Rx will grow ex the eMed impact? How should we think about that now? Vanessa Kanu: It is the latter. Stephan B. Tanda: It is the latter. We just wanted to highlight—and I know you all take a lot of comfort—that Pharma ex-emergency medicine grew 10% in Q4, and it is a little bit less this quarter, but we expect again good growth in Q2. Do not read too much into a single quarter here. George Leon Staphos: Growth in Pharma ex-eMed, correct. My questions—one on Pharma and one on Closures. Stephan, Gael, is there any thought in terms of what you are seeing with GLP-1s—recognizing it is not a huge driver of your business—that nonetheless maybe there is some pipeline filling occurring somewhere? How do you peer into that if that is a risk? And then on Closures, when do you expect that we will be back to normal margins in this segment? And are you seeing any kind of uptake because of maybe a little bit stronger-than-expected barbecue season because of America 250, or any of your customers talking about that, or is that, at this juncture, not something you are baking in? Stephan B. Tanda: I have not heard the America 250, although it is a worthy cause to celebrate. Let us all have some barbecues on that. Coming back on GLP-1, demand is very strong. I still hear anecdotally that consumers have to wait not for weeks, but maybe a few days to get their prescription filled. You also saw Lilly's very strong result with Zepbound being up around 80% or so. Clearly, as people see other people losing weight, they want to get in on it, and there is strong demand for the product. Gael, do you hear anything about pipeline build? Gael Tuya: There is a very healthy pipeline, as we speak, because it is attracting a lot of players. Inventory build—no. There is no inventory build. This is not at all what we are hearing from our customers. Stephan B. Tanda: On Closures, let me start and maybe Vanessa can also jump in. Clearly, I am disappointed with some of the maintenance issues that we had, and the dozen tornado warnings that we got on our phones in the Midwest did not help, as we had to shut down plants and people had to take shelter—adding up to 11 days. My expectation would be for the second half for Closures to return to normal margins, but I look to you, Vanessa. Vanessa Kanu: Absolutely, Stephan. You are right. We did have some challenges, which I called out in my prepared remarks, and we do expect to see sequential margin improvements in Closures, and that is baked into our guidance. George Leon Staphos: Thank you, Vanessa. Thank you, Stephan. Thank you, Gael. I will turn it over. Operator: Your next question comes from Matthew Burke Roberts at Raymond James. Your line is open. Please go ahead. Matthew Burke Roberts: Stephan, Vanessa, and Mary, good morning. On emergency, coming back to the 3-point headwind in Q1—on a dollar amount as well, maybe my Friday morning calculator is broken, so just to sanity check because it seems a bit lower. How did emergency growth specifically compare in Q2 2025 to Q1 2025? And any other considerations within the Pharma category that decelerated in Q1 worth mentioning? I noticed asthma/COPD was not in the prepared remarks—anything else going on there? Stephan B. Tanda: On your specific question, I would point you to follow up with Mary. It is a very specific question that we probably do not have at our fingertips. In general, let us reconfirm that the $65 million is still the right number. About two-thirds of the impact we expect in the first half of this year and the balance in the second half. By the time Q4 comes around, this should be almost washed out, and certainly with Q1 2027 we will have a clean comparison. In the first half, the bulk of the $65 million will have been done, and we feel reasonably confident that this is the new level—deduct the $65 million; this is the new level from which we expect to grow from low- to mid-single digits according to our customers. Other movements, I do not think we want to get into those specifics. Matthew Burke Roberts: Right. I appreciate that, Stephan. And while we are on Pharma—on the margin, it was down. It was within the range despite the mix impact. I think down 1.5 points versus the 3 points you saw last quarter that had an emergency in there. Given what you saw in Q4 and Q1, is the long-term range still achievable in 2026? How do you think about the progression through the year? And in Q1 specifically, despite the mix, it was still within the range. Any other drivers—whether cost, performance, change in royalty revenues, or Injectable margins improved that much? Any color on the margin? Stephan B. Tanda: Pharma is a great business, and of course emergency medicine is very profitable. Hence somewhat lower margin this quarter but still within the range. To answer your first question, we do expect Pharma to be within its long-term EBITDA margin target for the year, and as the year progresses, to return with top line growth. We also said last time that we expect the company to be within its long-term EBITDA margin target for the year—which is not guidance per se, but is a consequence of Pharma being there. Vanessa? Vanessa Kanu: The only update I would add is as we look at the full year and the pass-through of higher costs that we are seeing—I mentioned this in my prepared remarks—as we pass on these costs, it does have a compression impact on margin percentage. Our focus is to neutralize the dollar impact on our bottom line. So you might see, at the segment level, some compression based on the pass-through of these costs. Matthew Burke Roberts: That makes sense. Thank you again. Operator: Your next question comes from Matthew Larew at William Blair. Your line is open. Please go ahead. Matthew Larew: Good morning, everyone. Following up on the margin point—the six prior quarters before the emergency med destock occurred, corporate gross margins averaged around 38%, and then, obviously, the last couple quarters below that because of the destock. You have also had, as you referenced, the operational issues in Beauty and Closures. If all of those things in the back half are improving, is it fair to think that you can get back to that range for corporate gross margins by Q3 or Q4? Vanessa Kanu: Matt, we are guiding for Q2, not Q3 or Q4. But directionally, that aligns to what Stephan just shared and what we shared on the last call as well. The overall EBITDA margin impact is a gross margin story because, as you would have seen in Q1, we are pretty tight from an SG&A perspective. The gross margin impact is coming from mix and from the operational issues we have had to deal with in Beauty and Closures. All of those will start to sequentially improve starting in Q2. So directionally, you are right. Matthew Larew: Okay. And then following up on the operational issues—the maintenance, which is something you can control, and then the fire at one of your suppliers, which you cannot control as much—how did those progress through the quarter, and when do you expect to close the loop on those things? Stephan B. Tanda: I can only repeat what we said earlier. I expect in the second half for these issues, both in Beauty and in Closures, to have passed, with sequential improvements. Matthew Larew: Thank you. Operator: Your next question comes from the line of Daniel Rizzo at Jefferies. Your line is open. Please go ahead. Daniel Rizzo: Hey, thank you for taking my questions. On Narcan, I was wondering if after we get through this initial destock, over the long term we are going to see this again where emergency services or buyers of this product reload—you see a huge surge and then it flattens, then it declines. Is it going to be lumpy like that, or was it just over-ordering the first go-round? How should we think about it? Stephan B. Tanda: Hi, Dan. I certainly would expect the first wave to be unique. This is a unique set of circumstances where you have the originator, more than a handful of generics, over-the-counter approval, and all this money from the settlements converging—everybody getting ready to do battle to win contracts. Now it is a much more competitive market. People win one state, lose another. I do not see the same kind of dynamics repeating. Will you have lumpiness? I am sure. There is no business without that, and this one has less visibility than most because we cannot track inventory levels at the end user. But since we have 50 states being in this game and more than a dozen competitors, there should be some evening out. I do not expect this kind of magnitude in the foreseeable future. Daniel Rizzo: Okay. That is helpful. You mentioned there was no pre-buying among your customers. Have you stocked your own inventories or planned to, to smooth things out and ensure security of supply, given volatility with logistics, input costs, and everything? Vanessa Kanu: Yes, Dan, absolutely. Our purchasing and supply chain teams are managing this very tightly—securing safety of supply, balancing geographically, and monitoring even the health of some of our suppliers to see what the impacts of rising energy may have on those suppliers' overall health. We will increase some of our safety stocks, so I do expect a bit of a trend in rising inventory—but for the right reasons and done intentionally to ensure we are well managed through this crisis and its longer-term impacts. Daniel Rizzo: After COVID logistical issues, did something similar unfold? Stephan B. Tanda: Not really that I can remember. The main challenges in COVID were U.S. labor availability as we came out of COVID and people still had government money in their pockets and were not really coming back into manufacturing. In Europe, companies kept running because companies had the support from the government, not the individuals. So it returned pretty smoothly. It is very different. Daniel Rizzo: Alright. Thank you very much. Operator: A reminder, if you would like to ask a question during this time, simply press 1 on your telephone keypad. If you would like to withdraw your question, press 1 again. The next question comes from the line of Gabrial Shane Hajde from Wells Fargo. Please go ahead. Gabrial Shane Hajde: Stephan, Gael, Mary, Vanessa—good morning. I wanted to ask about Active this quarter. You talked about probiotics and another headwind for test strips. On a go-forward basis, we are talking a lot about GLP-1s for Injectables, but I think there are some solutions that you have for oral solid dose of GLP-1. Anything you can highlight in that arena for us? Stephan B. Tanda: I would not put too much into Active film, which is the film that goes into the blisters of sensitive drugs, including GLP-1 drugs. It is too early. I know we have one in the pipeline, but it is too early to make any calculations on that. The Active Materials business has a very exciting pipeline—for example, on nitrosamine reduction. That is a much bigger topic that the FDA is cracking down on, and we may be the only solution where you can reduce nitrosamine and not change anything else. Another dynamic this quarter is the further transition from finger prick with diabetes test strips—we make the vial for the test strips—to more flash glucose monitoring and continuous glucose monitoring. As you know, we are involved with Abbott’s Libre and Lingo. It is more a matter of the decline of the first one and the growth of the second one and how it balances out in any given quarter. Overall, we continue to be bullish about Active Materials, but I would not hang it on oral GLP-1. Gabrial Shane Hajde: Understood. Vanessa, you called out a specific headwind. Historically, you have been able to catch up quickly on price/cost headwinds. Is there something specifically baked into Q2 on resin lags or transport that you are behind on, that you would expect to get back in the second half? Vanessa Kanu: Not anything material to call out. We are going to see the impacts of rising resin prices—we have already been feeling that. Our Closures business is where we see the biggest impacts from a segment perspective, but it does impact all segments. Closures are generally protected by indexation. In Beauty and Pharma, a little bit less so, but even there, we pass it on to customers—we have done that in other periods of rising costs, and this is something we have a good muscle for. In terms of impacts to Q2, we have already started with those cost pass-throughs, and we do not expect any net material impact to our overall Q2 results—that is baked into our guidance. Gabrial Shane Hajde: Perfect. Last one—you mentioned building a little bit of safety stock. Is that on the raw material side or finished goods side? Thinking about overhead absorption, to the extent things de-escalate and nine months from now you may be underproducing in some product lines—anything specific as you build a little bit of a safety net? Vanessa Kanu: That is on the raw material side, to make sure we do not run out of any critical inputs. Gabrial Shane Hajde: Thank you. Vanessa Kanu: Thanks, Gabe. Operator: Your next question comes from George Staphos at BofA Securities. Your line is open. Please go ahead. George Leon Staphos: Hi. Thanks, everyone. A couple of quick ones. Vanessa, if you mentioned it, I missed it—can you talk about what the minority investment write-off was, what the amount was, and what was behind it? And then on Closures—you are managing through operating issues and will resolve them in the second half. Remind us how the Lincolnton plant has been doing. How has that performed after you put it up for Food and Beverage? In general, how do you view your operating network in Closures now, and how is Lincolnton doing in particular? Stephan B. Tanda: Let me start with Lincolnton, and Vanessa maybe you can address the other question. Lincolnton is doing fine—like any other plant, it sometimes has an issue here and there, but overall it has grown up to be a good-performing plant. It also had some of the weather issues we talked about—it was not just in the Midwest, also in the South. I think we had some snow there. Other than that, we are quite happy with Lincolnton. Some of the maintenance issues we talked about are more in the Wisconsin plant. Vanessa, maybe you talk about the venturing. Vanessa Kanu: Yes. George, I did not talk too much about it in my remarks. I commented that there was a write-off of a minority investment. We had the challenges—the weather issues—and this was yet another factor, though not the most material item. As Stephan mentioned, maintenance impacted Closures negatively in the quarter. The write-off was a venture investment we made a few years ago. As we do with all investments, we assess recoverability, and we chose to write it down. It was not a big amount—another thing that impacted Closures’ margins in the quarter—but not material to overall results. George Leon Staphos: A few million bucks, a hundred thousand—any way to size it? Bigger than that? Vanessa Kanu: About 50 to 60 basis points in margin impact year over year. Important to call out, but I would not spend too much time on it. Stephan B. Tanda: Overall, not to digress too much, we have a venturing program that has served us well—to complement our in-house innovation by taking positions in leading-edge companies that do innovation. We trade few-million-dollar investments, often with a board seat, and get dibs on the technology. Overall, the portfolio has been returning quite well. But as venturing goes, you do not win them all, and those that you do not win, you have to write off. George Leon Staphos: Thank you, guys. Appreciate it. Operator: There are no further questions at this time. Mr. Tanda, I turn the call back over to you. Stephan B. Tanda: Great. Thanks. Let me zoom out and summarize the call. Number one, thanks for holding off on the roasting—appreciated. On the quarter, the team performed solidly, overcoming some unexpected challenges and delivering a good EPS number. As we move through the last two quarters, the visibility of the destocking trajectory of emergency medicine has improved, and we have confirmed our estimate of the $65 million and that about two-thirds of that will impact the first half of this year with the balance in the second half. We talked about Q1 being a tough comp for Prescription in particular, but we expect Prescription, excluding emergency medicine, to return to solid growth in Q2—adding to the growth of Injectables and Consumer Healthcare. We continue to be very excited about the growing pipeline in Pharma on the back of ever-growing numbers of systemic nasal drug delivery projects and higher participation in Injectable projects, including the GLP-1, biologics, and Annex 1–driven projects. As a reminder, pulmonary, biologics, and systemic nasal drug delivery remain the top end markets in our Pharma pipeline on a risk-adjusted basis. More and more of our customers choose to disclose their collaboration with AptarGroup, Inc., which is also a credibility builder for them in their early development phases and allows us to give you progressively more color on the kinds of things that are in the pipeline. As we look to Q2 and the balance of 2026, emergency medicine aside, we are well positioned for broad-based growth across all three of our segments. We expect continued strong growth in Pharma, including emergency medicine, with solid momentum across Injectables, systemic nasal drug delivery, and Consumer Healthcare. Beauty has returned to growth, and in Closures, we expect continued innovation driving more category conversions, including in personal care applications. We are executing on our rigorous productivity roadmap, not only to address the short-term headwinds—including now the impacts from the Middle East conflict—but also to drive further efficiencies across our operations and supply chain networks as well as SG&A. Last but not least, our strong balance sheet gives us strong optionality while investing in the business and returning capital to shareholders. We look forward to talking to you in the coming weeks. Operator: Thank you. You may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the NPK International Inc. First Quarter 2026 Earnings Conference 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star two. I would now like to turn the call over to Gregg S. Piontek. Please go ahead. Gregg S. Piontek: Thank you, operator. I would like to welcome everyone to the NPK International Inc. First Quarter 2026 Conference Call. Joining me today is Matthew S. Lanigan, our President and Chief Executive Officer. Before handing over to Matthew, I would like to highlight that today’s discussion contains forward-looking statements regarding future business and financial expectations. Actual results may differ significantly from those projected in today’s forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. Our comments on today’s call may also include certain non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our quarterly earnings release, which can be found on our corporate website at npki.com. There will be a replay of today’s call available by webcast within the Investor Relations section of our website at npki.com. Please note that the information disclosed on today’s call is current as of 05/01/2026. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I would like to turn the call over to our President and CEO, Matthew S. Lanigan. Matthew S. Lanigan: Thanks, Gregg, and welcome to everyone joining us on today’s call. We are very pleased with our strong start to 2026, which played out in line with our expectations discussed on last quarter’s call. Despite the typical pause in customer projects around the year-end holidays, rental activity accelerated throughout the quarter, with total rental and service revenues setting another quarterly record at $52 million, a 4% sequential and 20% year-over-year increase. Product sales demand also remained robust, contributing $23 million to first quarter revenue. Off the back of our solid execution, we delivered $22 million of adjusted EBITDA in the quarter, representing a 4% sequential and 14% year-over-year improvement. We are also very pleased with our first quarter cash flow, delivering $21 million of cash flow from operations and $5 million of free cash flow while also expanding our rental fleet by 4%, repaying our revolving credit facility, and using $3 million to fund share repurchases. Overall, Q1 once again demonstrated our consistent strong execution, which we believe is a direct reflection of our commitment to our key strategic priorities. As highlighted last quarter, a key component of our organic growth strategy is our manufacturing capacity expansion effort. Having substantially concluded our project evaluation, our board of directors recently approved our plans to increase our production capacity by approximately 50% from current levels. We expect to invest $40 million to $45 million over the next five quarters to complete this project, with the goal of bringing the additional capacity online by mid-2027. We are confident that this expansion, along with our continuing debottlenecking initiatives, will support our growth and composite matting market share gains for the foreseeable future. With that, I will turn the call to Gregg for his prepared remarks. Gregg S. Piontek: Thanks, Matthew. I will begin with a more detailed discussion of our first quarter results, then provide an update on our operational outlook and capital allocation priorities for the remainder of 2026. As Matthew touched on, the first quarter results were in line with our outlook commentary on our Q4 earnings call and reflect the continued momentum in our end markets. It is worth noting that 2026 followed a similar pattern to early 2025, with a seasonal lull in project activity around the year-end holidays, then picking up steam as we progressed through the first quarter. Rental revenues grew 27% year-over-year, reflecting 12% organic growth combined with a $4 million contribution from the Grassform acquisition. Service revenues grew 7%, with substantially all of the increase coming from the acquisition. Total rental and service revenues were $52 million in the first quarter, achieving another all-time quarterly high, improving 4% sequentially and 20% year-over-year. Product sales activity also remained robust, benefiting from continuing demand from utility companies, generating $23 million of revenues in the first quarter, an 8% improvement from the first quarter of last year. Looking at revenues by geography and sector, our U.S. revenues increased 9% year-over-year to $66 million, including 17% growth in rental revenues, with the utility sector driving the substantial majority of our growth. U.K. revenues more than doubled year-over-year to $9 million in the first quarter, primarily reflecting the Grassform contribution. Turning to gross profit, the first quarter gross margin was 36.2% compared to 37.7% in the fourth quarter and 39% in the first quarter of last year. The modest sequential gross margin compression primarily reflects the effect of lower rental fleet utilization early in the quarter attributable to the timing of large-scale projects, partially offset by improvements in pricing, while the year-over-year decline also reflects the continuing impact of the cross-rental costs discussed in previous quarters. It is important to highlight here that our cross-rental fleet provides flexibility to support our large project activity and meet our customer commitments, while also helping limit inefficient transportation. First quarter SG&A expenses totaled $13.2 million compared to $15.4 million in the fourth quarter and $11.7 million in the first quarter of last year. The first quarter result includes $12.5 million from our legacy business along with $700 thousand associated with the Grassform business. As highlighted last quarter, the fourth quarter results included $1.8 million of acquisition-related transaction costs and severance. Income tax expense was $3.6 million in the first quarter, reflecting an effective tax rate of 26%. Adjusted EPS from continuing operations was $0.12 per diluted share in the first quarter compared to $0.13 per share in the fourth quarter and $0.12 per share in the first quarter of last year. Turning to cash flows, operating activities generated $21 million of cash in the first quarter, including $22 million from net income adjusted for noncash expenses, slightly offset by $1 million of cash used by a net increase in working capital. Net CapEx used $16 million, which includes nearly $15 million of net investment into the rental fleet expansion. We also used $3 million to fund share repurchases. We ended the quarter with total debt of $11 million and total cash of $7 million, for a net debt position of $4 million. Additionally, we have $148 million of availability under our bank facility, providing us with ample financial flexibility to continue executing on our strategic growth objectives, including our manufacturing expansion. Now turning to our business outlook, as disclosed in yesterday’s press release, our customers remain highly constructive on the near- and longer-term outlook for utilities and critical infrastructure spending. With the benefits of our first quarter results and near-term expectations, we have raised the range of our full year 2026 outlook, now anticipating total revenues of $310 million to $325 million and adjusted EBITDA of $92 million to $102 million. The midpoint of our range reflects 15% revenue growth and 28% adjusted EBITDA growth over 2025. Our revenue guidance continues to reflect double-digit organic rental revenue growth along with the contribution from the Grassform acquisition, while product sales remain relatively in line with 2025 levels. In terms of CapEx, outside of the manufacturing expansion project, there are no other changes to our investment expectations for 2026. We anticipate total net CapEx of $75 million to $90 million for the year, including $30 million to $35 million of current year spending for the manufacturing expansion project along with $35 million to $45 million targeted for rental fleet expansion. This level of investment is expected to grow our DuraBase rental fleet by a low- to mid-teens percentage, supporting our organic growth and also displacing a portion of cross-rent assets currently deployed on projects. As for the near-term outlook, we expect to deliver 20% year-over-year growth in rental and service revenues in Q2, which includes the benefit of double-digit organic growth combined with the effect of the Grassform acquisition. On the product sales side, we expect Q2 revenues will be fairly in line with prior Q2 levels. Q2 gross margin is also expected to be roughly in line with the prior Q2 result, though it remains dependent on the timing of project completions and fleet redeployments for a few large-scale projects. In terms of SG&A, we expect to remain near the $13 million quarterly level in the near term. For taxes, we expect our effective tax rate will remain relatively in line with the Q1 level for the full year 2026. We entered the year with roughly $40 million of NOLs and other tax credit carryforwards, which, when combined with the accelerated deductions for capital investments, are expected to significantly limit our cash tax obligations for the next several years. As it relates to our capital allocation strategy, we continue to prioritize investments in the growth of our rental fleet and our manufacturing capacity expansion, as well as strategic acquisitions, while also remaining committed to returning a portion of free cash flow generation to shareholders through our disciplined share repurchase program. And with that, I would like to turn the call back over to Matthew for his concluding remarks. Matthew S. Lanigan: Thanks, Gregg. With a strong start to the year, we remain committed to our strategic priorities and executing to our 2026 plan we laid out last quarter. To that end, our primary focus continues to be the scale-up of our rental platform, which generates the highest long-term returns for our business. Our strategy includes a combination of geographic expansion and market share growth in the U.S. and U.K. We remain confident that the strong momentum in these markets will support our continued fleet and operational expansion throughout the year, though the quarterly cadence remains dependent on project timings, particularly the large-scale projects. We remain committed to making the necessary investments to support our growth, investing a substantial majority of 2026 cash flows into the expansion of our DuraBase composite mat rental fleet, which we expect to grow by a low- to mid-teens percentage in 2026, while also advancing our manufacturing expansion project, which will increase our production capacity by roughly 50%. Our second focus area remains on driving organizational efficiencies across the business. As we work through the significant transition to our new ERP system implemented in the first quarter, we now seek to leverage the enhanced system capabilities to drive further improvements while also making the necessary investments to drive sustainable long-term revenue growth for the company. On balance, we expect our approach will help limit SG&A spending growth and drive continued improvement in our SG&A as a percentage of revenues. With respect to the conflict in the Middle East, we continue to monitor its impact on both our own and our customers’ supply chains, and we have not seen any meaningful impacts to date. We are tracking our raw material supplies closely and expect our work over the last several years to diversify our supply base will provide a useful counterbalance to any short-term cost movements. In addition, as Gregg mentioned earlier, our cross-rental fleet capacity provides some offset to our internal transport charges associated with fleet movements between projects, and we are ensuring our direct sales pipeline maintains commercial flexibility to pass through impacts where practical. And our final priority is the allocation of capital beyond our organic requirements. With a strong balance sheet and a disciplined approach, we remain committed to our share repurchase program while also continuing to evaluate core strategic and organic opportunities that increase our market coverage, value, and relevance to customers in key critical infrastructure markets. With robust market outlooks in our served geographies, a clear strategic focus, and a pristine balance sheet, we are confident in our ability to deliver another strong year of profitable growth in 2026. In closing, I want to thank our shareholders for their ongoing support, our employees for their dedication to the business, including their commitment to safety and compliance, and our customers for their ongoing partnership. We will now open the call for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We request you limit yourselves to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Aaron Michael Spychalla with Craig-Hallum. Your line is open. Aaron Michael Spychalla: Good morning, Matthew and Gregg. Thanks for taking the questions. Maybe first from me, can you talk about the pipeline in a little bit more detail? What have you been seeing from greenfield versus brownfield projects? Are you starting to see any pickup from some of the high-voltage projects that are starting to come to the market? Matthew S. Lanigan: Aaron, I will take that one. I think at this point, answering the second part of your question first, it is still a little early for some of the larger, higher-voltage projects. We are expecting to see them a little later in the year, so most of the activity we are seeing right now is outside of that range. When I look at the split, where we left it last year in terms of pipeline build year-on-year, I think that is holding pretty well. We are seeing very slight growth in our emerging territory quoting activity, which is great to see the investments in that commercial front end starting to pay off. So I would say, generally speaking, our pipeline remains as robust as where we left it last quarter. Some timing issues here in the first quarter that we touched on on the call really kind of driving that first quarter, but still very optimistic for the rest of the year. Aaron Michael Spychalla: Alright, thanks for that. And then color on the capacity expansion. As we are hearing more of your customers talking about multi-decade CapEx cycles for utility transmission, can you talk about how long of a growth runway the expansion provides you and the potential to add additional capacity either in Louisiana or at a new location over time? Matthew S. Lanigan: The answer is going to be a function of how fast the market wants to grow. We see this plan giving us plenty of capacity through the end of the decade, and then beyond that, it is worth noting we have plenty of room in our Louisiana facility if we wanted to colocate everything there, and we also have the ability to look for alternate sites. So I feel pretty good about our ability to grow our capacity in a timely fashion to meet market demand, Aaron. Operator: Your next question comes from the line of Laura Maher with B. Riley Securities. Your line is open. Laura Maher: Hi, Matthew and Gregg. Thanks for taking the question. My first question is, with the additional CapEx in mind, are you anticipating maintaining the same returns that you are currently generating? Matthew S. Lanigan: I would expect no change in the overall expectation. Obviously there is a bit of a step change in terms of the investment in the asset base, but over time we should continue to gain operating leverage on our asset base and provide a tailwind to our return on invested capital. Laura Maher: Great, thanks. And then you mentioned improved pricing. Can you frame the magnitude of rental rate increases and whether you see room for further pricing? Matthew S. Lanigan: I would frame it in low single digits, Laura, and I think what we are seeing is a little bit of tightness in the market, so we would expect to be able to hold that and maybe add to it moving forward in the year. It is a little early for that, but we are encouraged with what we are seeing so far. Operator: Your next question comes from the line of Min Cho with Texas Capital Securities. Your line is open. Min Cho: Good morning. Thank you for taking my question. It sounds like as utilization remains strong that you are going to continue to prioritize rental fleet additions over product sales. Do you feel like your capacity is sufficient right now to support both at least through this year? Matthew S. Lanigan: I think we touched on that last quarter. We feel comfortable that we can meet both, and I do not think we have been in a position yet where we have had to prioritize one over the other. We have been able to meet both. As Gregg touched on, we have a cross-rental fleet that we can utilize, which has been helpful in offsetting any transportation inefficiencies, and with the price of diesel now rising with the conflict in the Middle East, we are using that to help offset it, but we feel comfortable that we can meet what we see in the foreseeable future. Min Cho: Excellent. So how should we think about revenue and EBITDA progression through the rest of the year relative to the first quarter, given seasonality, continued cross-rental usage or displacement, as well as CapEx timing? Matthew S. Lanigan: I would expect there will be some front-loaded elements associated with the procurement of equipment for the manufacturing expansion, so that will be a little more loaded up than Q2 and Q3. As far as the revenue and EBITDA cadence, EBITDA will follow revenue as we are holding a pretty consistent EBITDA margin. For revenue cadence, the back half of the year still has that natural seasonality in Q3. We framed up expectations for Q2. Q3 typically pulls back a bit from Q2, and then rebounds and surges from there into Q4. Operator: Your next question comes from the line of Analyst. Your line is open. Analyst: Hi. This is Brandon Rogers on for Gerard J. Sweeney. Thanks for taking my questions. In terms of the wood-to-composite matting conversion, where would you estimate composite matting stands as a percent of the overall market, and do you see the pace of conversion accelerating or remaining stable? Matthew S. Lanigan: Thanks. We still see roughly a quarter of the market in total being composite at this point based on our analysis. The market share shift is going to be a function of the pace of growth. If the market keeps growing as strongly as it is now, we would expect that percentage to hold, as everybody is keeping up with the growth rate, with maybe a point or two of relative share shifts. Analyst: Thanks. And then one more for me. Utility spending has accelerated. Your manufacturing capacity plans target a 50% increase by mid-2027. Is there anything that could delay this timeline, or is there any likelihood that the investments required to complete the expansion are more than your estimated $40 million to $45 million? Matthew S. Lanigan: There are always some movements in project timings and budget estimates. We feel pretty good about the range we have provided and the timing. We have been planning this for a while. Unforeseen things may happen, but we feel confident that we are going to be able to deliver this within the timeframe and the budget that we have put forward. Operator: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. Your next question comes from the line of William Joseph Dezellem with Titan Capital. Your line is open. William Joseph Dezellem: Thank you. A couple of questions. Following up on your remarks about the large high-voltage projects, they have not yet begun, but you see them beginning later this year. Does that imply an acceleration of your growth rate in 2027 relative to 2026? Matthew S. Lanigan: It is a little early to piece it all together, but what we have called out on previous calls is these high-voltage lines are going to have a large amount of requirement to fulfill them—heavier equipment, larger equipment to get those lines installed. We see that as a net increase in matting requirement. Logically you would say yes. How that fits in with the rest of the project activity and what we can service, we will need to look at as we get closer to 2027, but these are encouraging trends for sure. William Joseph Dezellem: Great, thank you. And then relative to the acquisition comments, when do you anticipate that Grassform will be fully integrated, which I am presuming is the point that you would be willing to seriously entertain the next acquisition? And when that time comes, what are you structurally looking for with that next acquisition? Help us understand the characteristics that you are looking for and what you would be trying to accomplish. Matthew S. Lanigan: Thanks. We would expect to have substantially most of the integration completed within the next three to six months. An ERP conversion—we will look to roll them onto our ERP system—may put a little bit longer tail on that. When we bought the business, our focus was not to distract them with a lot of integration activity; it was to let them run. They are a very well-run business, and we did not want to get in the way with integration activities, which is why that timeline may seem a little longer than you might have expected. So far that is going well for us. With respect to future acquisitions, it is pretty clear relative to our strategy: if there are markets where we can accelerate composite market share relative to a timber incumbent, and we think that an acquisition will accelerate that relative to what we could do organically, that is when we would look to seriously kick the tires on something to acquire. From there, you have your normal structural pipeline factors in terms of the leverage of the company, the strength of the management team, the quality of the contracts that they have, etcetera—all of those normal diligence items that you would expect. I hope that addressed your question. Operator: I will now turn the call back over to Gregg S. Piontek for closing remarks. Gregg S. Piontek: Alright. That concludes our call today. Should you have any questions or requests, please reach out to us using our email at investors@npki.com. We look forward to hosting you again next quarter. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the BayFirst Financial Corp. First Quarter 2026 Conference Call and Webcast. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press 0 for the operator. This call is being recorded on Friday, 05/01/2026. I would now like to turn the conference over to the chairman of the board, Anthony Cervanos. Please go ahead. Thank you, Joanna. Anthony Cervanos: Good morning, and thank you for joining our call today. With me are Scott McKim, our CFO; Robin Oliver, our COO; and I would like to introduce Al Rogers as the new Chief Executive Officer and President of BayFirst National Bank. We are announcing some exciting news regarding the future of BayFirst Financial Corp. First, we have raised $80 million of capital from investors through a private investment in a public equity offering. The company issued shares of convertible preferred stock in this PIPE which, subject to shareholder and regulatory approvals, will convert to or be exchanged for approximately 22.9 million shares of common stock at an effective purchase price of $3.50 per share. We are announcing a rights offering for our existing shareholders to participate in this capital raise and are scheduling a special shareholder meeting on July 14. This successful capital raise reflects the trust our investors place in our institution and our long-term strategic direction. This has been a lengthy process over the past several quarters following the bank's exit from SBA 7a lending. I am extremely pleased to have Al join Robin, Scott, and all the BayFirst Financial Corp. team members to lead the company back to profitability and growth as a premier financial institution of Tampa Bay. We will hear more from Al in a few minutes. The board of directors has made additional decisions, including the appointment of Kenneth R. Lehman as a member of both boards. Al’s appointment to the board of directors of the bank and as Chief Executive Officer has received all necessary regulatory approvals. The appointment of Al as CEO and President of the holding company as well as a director is contingent upon receipt of regulatory non-objection. Ken Lehman’s appointment to the board of directors of the holding company and the bank is also contingent upon receipt of regulatory non-objections. Finally, the board of directors has made the decision to resume dividend payments to our preferred shareholders and will formally redeem the Series A shares. I will now turn the call over to Scott, who will discuss the earnings report for the quarter and the impact of the capital raise. Scott McKim: Thank you, Anthony. Good morning, everyone. Please remember today’s call will include forward-looking statements and non-GAAP financial measures. Please refer to our cautionary statement on forward-looking statements contained on page two of the investor presentation. We are reporting a net loss of $5.7 million in the first quarter. This compares to a net loss of $2.8 million we reported for the fourth quarter of last year. Loans held for investment decreased by $33.5 million, or 3%, during the first quarter of 2026, down to $930.4 million, and decreased $154.4 million, or 14%, over the past year. Most of this year-over-year decrease reflects the sale of loans as well as our exit from SBA 7a lending that we had mentioned in previous quarters. Deposits decreased $98 million, or 8%, during the first quarter of 2026, and decreased $42.4 million, or 4%, over the past year to [inaudible]. The decrease in deposits during the quarter was primarily due to reductions in high-rate promotional deposits held with non-relationship customers and also a decrease in brokered deposits. Eighty-three percent of the bank’s deposits were insured by the FDIC on 03/31/2026. The bank balance sheet liquidity ratio as of 03/31/2026 was 13.85%, and the bank did not have any wholesale borrowings. Shareholders’ equity at quarter end was [inaudible], which is $5.7 million lower than the end of 2025. Net accumulated other comprehensive loss increased slightly by $94,000 during the quarter and ended at $2.1 million. Tangible book value decreased this quarter to [inaudible] per share from $17.22 per share at the end of the fourth quarter. Our net interest margin was 3.42%, down 16 basis points from fourth quarter. Net interest income was $9.4 million in the first quarter, down $1.7 million compared to the fourth quarter and down $1.5 million from the year-ago quarter. This reduction reflects the sale of a portfolio of loans that we announced and fulfilled back in December 2025 of approximately $97 million. Notably, the bank’s cost of funds was also 27 basis points lower than the fourth quarter, reflecting efforts to exit promotional-rate balances on deposits and brokered deposit balances. Noninterest income was $884,000 in the first quarter of 2026, which is a $1 million improvement over 2025, and a decrease of $7.9 million from the year-ago quarter. The year-over-year decrease is primarily from the decrease in gains on the sale of SBA 7a government-guaranteed loans. Please recall that with the exit of SBA 7a lending, revenue from gains on sale of government-guaranteed loans will no longer impact our noninterest income as it has in prior periods. Noninterest expense was $14.9 million, an increase of $3 million compared to the fourth quarter. Most of this increase—$2.3 million—represents a full quarter of servicing cost on the bank’s legacy SBA 7a portfolio. The bank still receives a servicing strip on the guaranteed balances which we had sold in prior periods, and the bank also is the holder of the related servicing rights on these loans. That revenue, less the amortization of the servicing rights, was $770,000 and is recorded as noninterest income. Compensation costs were higher by $700,000, reflecting lower deferred personnel costs and higher commission and bonus expenses. Provision for credit losses was $3.1 million in the first quarter, compared to $2 million in the fourth quarter and $4.4 million in 2025. Net charge-offs were $4.4 million, down $200,000 from the fourth quarter, which was $4.6 million, with unguaranteed SBA 7a loans accounting for $3.4 million of the $4.4 million in net charge-offs during the last quarter. By comparison, unguaranteed SBA 7a loans accounted for $4.4 million of the $4.6 million of net charge-offs we announced in the fourth quarter. The bank had $159.3 million of unguaranteed SBA 7a loan balances on 03/31/2026. This is a decrease of $12.3 million from 12/31/2025. Total annualized net charge-offs as a percentage of average loans held for investment at amortized cost were 1.98% for the first quarter, up slightly from 1.94% in 2025. The ratio of allowance for credit losses on loans held for investment at amortized cost was 2.35% at 03/31/2026. That compares to 2.42% as of 12/31/2025 and 1.61% as of 03/31/2025. The ratio of ACL to total loans held for investment at amortized cost, excluding government-guaranteed loan balances, was 2.53% at 03/31/2026, down very slightly from 2.58% as of 12/31/2025, and 1.84% as of 03/31/2025. The increase in ACL ratios from the prior year was a result of increases in nonperforming loans and continued economic stability impacting this portfolio. The addition of $80 million of additional cash will provide for growth and expansion of the community bank, with a focus on relationship growth through lending across the bank’s retail footprint. The bank has no plans to deploy lending programs outside of the Tampa Bay and Sarasota markets. It also provides foundational support as the bank continues to manage the legacy unguaranteed SBA 7a portfolio, which continues to account for most of the bank’s net charge-offs and our allowance for credit losses. The bank’s Tier one leverage ratio was 6.54% at March 31, 2026, compared to 6.52% at 12/31/2025, and 8.56% at March 31, 2025. Total capital to risk-weighted assets ratio was 9.84% as of 03/31/2026. That compares to 10.18% as of 12/31/2025, and 11.73% as of 03/31/2025. On a pro forma basis, giving effect to a $42 million capital contribution from the holding company to the bank, the Tier one leverage ratio improved to 10.02% as of 03/31/2026. The total capital to risk-weighted assets ratio improves to 14.4% as of 04/30/2026. At this time, I will hand the call over to Robin for some additional comments on credit and operations. Robin Oliver: Thank you, Scott. As we look forward to the future growth of the bank and work towards returning to profitability, we will simultaneously closely manage our credit risk and problem assets to reduce future losses. The additional capital will allow us to make different decisions on the resolution of problem assets than we otherwise could have. That being said, we have already taken proactive steps to resolve nonperforming and classified credits as quickly as possible and are continually working with our BayFirst Financial Corp. team as well as our lender service provider who services our SBA 7a portfolio to enhance collection processes, collect updated financials from borrowers as quickly as possible, and to evaluate loans for upgrade or return to accrual status whenever appropriate. At the end of the first quarter, total nonperforming loans, excluding government-guaranteed balances, were $15.9 million, down from $16.3 million at the end of the fourth quarter. The percentage of nonperforming loans, excluding government-guaranteed balances, compared to total loans held for investment was up slightly by one basis point to 1.81% from the fourth quarter and up 34 basis points from the year-ago quarter. It should be noted that of the $15.9 million in nonperforming loans, $3.8 million of these balances were current and paying as agreed. In addition, classified loans remain relatively unchanged from last quarter, and as of quarter end, 68% of the bank’s classified loans were current and performing loans whereby we are working with the borrowers towards resolution. While we acknowledge that problem loans and charge-offs remain elevated, we want to assure you we are taking proactive measures to get the losses behind us as quickly as possible so we can focus on our bright future ahead. Our focus over the last two years on growing business deposits and treasury services while maintaining our fantastic set of consumer products should set us up to adapt quickly to serve a growing client base and add earnings to the bottom line. We believe our current set of products, along with our technology and branch footprint, positions us well to support this future growth that is needed for BayFirst Financial Corp. to thrive and return to profitability in our fantastic Tampa Bay market. At this time, I will turn the call over to Al to make some final comments. Al Rogers: Thank you, Robin, Anthony, and Scott. I am excited to begin my next chapter with the board and the bank’s leadership at BayFirst Financial Corp. While progress has been made with our focus on community banking, much work lies ahead for us. I have worked in the Tampa Bay market for most of my career, and our terrific network of branches and dedicated people are the ideal foundation for BayFirst Financial Corp. to become the community bank of choice in our market. I am looking forward to getting to know our talented people. I have been blessed to have had the opportunity to lead several community banks, with each serving and helping to grow local businesses and retail customers. BayFirst Financial Corp. has the same dedication to this community, and I am looking forward to rolling up my sleeves with the team to accomplish great things right here in our backyard. This means investing dollars back into our community to create opportunities, fund investments, and expand businesses that generate jobs. I will be working with our marketplace leaders to expand our reach across the Tampa Bay area. Our branch network is well positioned for growth. We will be leveraging this network with more focus than in the past. We plan on expanding our presence specifically in the Tampa Metropolitan Area, providing more coverage beyond the two branches we currently have today. I have spent the past few months working as a consultant for BayFirst Financial Corp., and in that capacity, I have supported the capital raise to ensure that much of the investment in this capital raise came from local investors, whom I have known and done business with for several years. I believe that local investors make the best partners for community banks. This also reinforces the bank’s network of partners and will lead to deposit and loan growth opportunities. Finally, I already know many of our investors and look forward to meeting the rest of you. As we proceed with the rights offering Anthony mentioned, Robin, Scott, and I are looking forward to speaking with each and every one of our existing investors should they have any additional questions. Operator, I will now turn the call back over to you so that we can take some questions. Operator: Thank you. Ladies and gentlemen, we will now open the call for questions. Should you have a question, you will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Ross Haberman at RLH Investments. Please go ahead. Ross Haberman: Good morning, Al. Al, welcome on board. As you said, you are going to have some heavy lifting. Could you prioritize what your one, two, and three initiatives are going to be, and then, specifically, could you address the non-guaranteed portion, the roughly $160 million, how you view that, and your initial thoughts on what kind of plug you are going to need for that $160 million? Thank you. Al Rogers: Thank you, Ross. Really, getting an understanding of the portfolio is job one. As Robin mentioned, we have to work diligently at working our way out of that, so that is really number one. Returning to profitability is number two. And, of course, expanding, deepening, and growing relationships with local customers is our ultimate goal as we look to stabilize and grow the bank. It is hard for me to say at this point, having just arrived, what we are going to need to shore up the current loan book, but I can turn that over to one of my partners here should they want to expand on that. Scott McKim: Ross, this is Scott. I will talk a little bit more about it. Previously, we have had a conversation around how much is set aside in terms of reserves for the unguaranteed components of the portfolio. What I can share with you is that the Bolt and the FlashCap components of that portfolio, which represent about $100 million of the $159 million that is there, are collectively reserved at close to 13%. So that makes up the bulk of what is in the allowance for credit losses right now—approximately almost $12 million of the approximately $20 million that is out there. The other components—the core real estate and the core C&I—are reserved at closer to 4%, and those particular groups of loans do not exhibit the same high default characteristics that the Bolt and the FlashCap portfolio do. We continuously are looking at this, and under GAAP and the CECL model, we are adequately reserved for that portfolio. That is not to say that we will not potentially take a look at it and make other changes that need to be made to reflect additional defaults. We do believe that there is an underlying component of this portfolio that performs well and has performed well, but the defaults have really been overshadowing that. The portfolio continues to run off—about $12 million just in the first quarter alone—and will continue at that rate. Some component of that is charge-off, I do acknowledge that, but at the same time, it is also continuing to pay down. As we look forward, the question is going to be at what point will the defaults begin to subside, and I do not have a clear answer for you at this time. That is certainly something that leadership here is spending quite a bit of time on. We will spend time with Al and obviously look at it from an asset resolution point of view. We want to put this in our rearview mirror, but we are going to do it smartly so our focus can continue to be on the payday bank. Ross Haberman: Just one follow-up, if I may. The $100 million you are talking about, which you have reserved—I think you said 13%—does that have any sort of collateral, or, for generalizing, is that as good or bad as basically a credit card loan? Thank you. That is my last question. Scott McKim: Ross, that is actually a pretty good comparison. I think we have talked about that before, that the Bolt and FlashCap components are more like a small business credit card in terms of overall performance. Some of the loans do have collateral; however, for the most part, the nature of the portfolio is that these really are unsecured. I think it is safe to assume that it is going to perform more like that versus less like that. Kind of like a credit card, as interest rates went up, a lot of these borrowers saw their rates go up 500-plus basis points. That, combined with inflation, supply chain issues, and some of the other things that a lot of small business owners and managers are incurring, is really what is driving the defaults. This portfolio has a very unique nature to it. To be honest with you, we have not found anything that is similar to it that we could use as a basis or a business case to support our modeling around it. So the future is not as clear as we would like it to be, but we very much are prepared for what is going to come next with it. Ross Haberman: Thank you very much. Best of luck. Al Rogers: Thanks, Ross. Operator: Thank you. Ladies and gentlemen, as a reminder, if you have any other questions, please press 1 now. Our next question comes from Duane Roberts at Charis. Please go ahead. Duane Roberts: Good morning. I am sorry, I may have missed this, but can you please tell me what your cash position is now? Scott McKim: Sure. The bank liquidity ratio was about 13.6% at the end of the first quarter. So on about $1 billion, you can do the math there—it is about $130 million. Duane Roberts: Thank you. Duane Roberts: I am sorry. Does that include the capital raise that was just done, or does it not? Scott McKim: No, that is exclusive. That was as of 03/31. The capital raise was completed this week, so you could add those funds to it if you wanted a more real-time number. Duane Roberts: Okay. Thank you. Operator: Thank you. The next question comes from Sam Haskell from Clarion. Please go ahead. Sam Haskell: Hey, thank you all. Scott, I just want to make sure I heard you correctly. Did you say that the 13% reserve on the roughly $100 million Flash loans—that you felt that that was adequate per the reserve? Thank you. Scott McKim: Yes. I will put it in this context: from a CECL compliance standpoint, it suggests that it is adequate. Most of my career was spent in historical loss modeling, and we do not get to operate under those rules today, but according to CECL, it is adequate. Sam Haskell: Got it. Okay. Thank you. Operator: Thank you. This does conclude our Q&A session. Ladies and gentlemen, this concludes our conference call for today. We thank you for your participation, and we ask that you please disconnect your lines.
Operator: Good day, and welcome to the Federal Realty Investment Trust 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. And to withdraw your question, please press star then 2. We do ask that you limit yourself to one question, and then you can re-queue if you have. Please also note, today's event is being recorded. I would now like to turn the conference over to Jill Sawyer, Senior Vice President, Investor Relations. Please go ahead. Jill Sawyer: Thanks, Rocco, and good morning, everyone. Thank you for joining us today for Federal Realty Investment Trust’s first quarter 2026 earnings conference call. Joining me on the call are Donald C. Wood, Federal Realty Investment Trust’s Chief Executive Officer; Daniel Guglielmone, Chief Financial Officer; Wendy A. Seher, Eastern Region President and Chief Operating Officer; and Jan W. Sweetnam, Chief Investment Officer, as well as other members of our executive team who are available to take your questions at the conclusion of our prepared remarks. A reminder that certain matters discussed on this call may be deemed to be forward-looking statements. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results, including guidance. Although Federal Realty Investment Trust believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, Federal Realty Investment Trust’s future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued this morning, our annual report filed on Form 10-K, and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and operational results. Given the number of participants on the call, we kindly ask that you limit yourself to one question during the Q&A portion. If you have additional questions, please re-queue. And with that, I will turn the call over to Donald C. Wood. Donald C. Wood: Well, thanks, Jill, and good morning, everybody. You know, the combination of stepped-up capital recycling portfolio-wide; the strong incremental cash flow, the result of near-record leasing in terms of both volume and rate over the past 18 months; and the beginnings of meaningful incremental contributions from previous years’ development spend are showing up in bottom line results with FFO per share of $1.88, besting a year-ago quarter by 10.6%, setting the stage for this quarter’s earnings beat, enabling us to raise guidance for the balance of the year. More details from Dan in a few minutes. Lease termination fees, a direct result of strong landlord-oriented leases and an important part of our business, were higher this quarter compared to a year ago by $2.8 million, below higher snow removal and related energy expenses than our recoveries caused by the season’s unusually rough winter were also higher this quarter by over $2 million. Of course, we still grew at 9% even if you eliminate just the termination fee impact. Capital recycling this quarter saw us close on the sales of Misora apartments at Santana Row and Courthouse Shopping Center in Rockville, Maryland for combined proceeds of $159 million at a combined cap rate well inside 5%. Subsequently, we closed on the acquisition of Congressional North Shopping Center, directly adjacent to our long held A-rated Congressional Plaza in Rockville, for $72 million at a 7% stabilized yield. Opportunities for additional accretive acquisitions net of dispositions continue to be a laser-like focus of this team and are expected to continue to improve our overall growth. Activity in the form of additional interesting centers coming to market that are worth looking at has clearly picked up as we have come into the spring season. Business is good with strong demand for our assets in both our historical locations as well as the newer markets. We ended the quarter with the overall portfolio 96.1% leased and 93.8% occupied, and about 40 basis points higher excluding newly acquired centers. With the continued strength in new leasing that I will talk about in a minute, these good times that we are seeing are expected to continue. Specifically, the anchor box leasing and repositioning that has been done and will continue to get done, particularly on the West Coast for us, should provide strong income contributions in 2027 and 2028. Now I know there has not been a lot of obvious evidence over the past few years that great demographics, particularly in an affluent customer base, make a demonstrable business difference in the performance of a retail property. And there are a lot of reasons for that, including shifting population trends, government subsidies, and a favorable supply and demand dynamic. And some of those macro trends will likely continue. But today’s economic realities are different. And the divergent day-to-day purchasing decisions of consumers in this K-shaped economy are very real. Periods like this, where everyday costs from gas to groceries are elevated and the consumer is more selective, quality demographics matter more. They matter a lot. Wendy will talk through what we are seeing on the ground specifically. Now it is no surprise that leasing drives these and future results. With over 100 leases and 649,000 feet of comparable deals done in the quarter, at 13% cash rollover and 23% on a straight-line basis, this was more volume than we have ever leased in any first quarter, and the third best ever in any quarter. That includes 13 anchor deals for nearly 400,000 square feet at 13% rollover and 21% on a straight-line basis. This is really strong leasing, and it looks to be continual. As we have talked about over the last several quarters, we are also finding ways to intensify our properties with development, usually residential product that is complementary to our shopping centers. With little or no incremental land costs, the math can work in the right locations. If 2025 has taught us anything about value, it is that high-quality apartments adjacent to great shopping environments in strong suburban locations create a more desirable living environment. That translates to higher residential rents, higher and stronger growth, and ultimately lower cap rates upon sale. The 2025–2026 sales of Levare Misora at Santana Row and The Parker at Pike & Rose unlocked an unmatched cost of capital for us to reinvest, sub-5% overall. We have also previously disclosed the allocation of a total of $400 million for residential development of The Blair at Ballard + Kenwood, which at 34% leased already is well ahead of projections for both timing and rate; 301 Washington Street in Hoboken, which is under construction and will begin lease-up in about nine months; Lot 12 at Santana Row, which is well under construction and will be seen by many of you if you are coming to our Investor Day in a couple of weeks; and an incremental 261 units at Willow Grove Shopping Center outside of Philadelphia, for which demolition of part of the adjacent shopping center is happening this week. Together, this densification of our shopping center assets will add nearly 800 units and $27 million of new operating income to the portfolio once stabilized in the next few years. Our experience with residential development at our retail-centric properties is a skill set developed over 25 years and is certainly a unique differentiator of our business. Now, with the signing of a lease with PNC Bank a couple of weeks ago for the last remaining 11,000 square feet, Santana West is officially 100% leased. In fact, all of Santana Row’s office space is 100% leased. This is particularly impressive given that just a few miles away, downtown San Jose, California Class A office vacancy stands at 36%. Let that sink in for a minute. And it is not an anomaly. Pike & Rose office stands at 100% leased. CocoWalk office stands at 100% leased. Bethesda Row office stands at 97% leased. And Assembly Row office stands at 94% leased. Our whole office portfolio is 99% overall leased. Now our office income stream at our nationally recognized mixed-use communities is in extremely high demand and is stable, solid, and growing. We will showcase our plans with a comprehensive day at Santana Row in May. Looks like we will have a great turnout and would love to add a few more. Really looking forward to seeing most of you there. Enhanced internal and external growth using all the tools at our disposal is the name of the game. Quarters like this first one increase my confidence in our ability to do so. I will now turn it over to Wendy and then to Dan to provide additional color. Wendy A. Seher: Thank you, Don. This was a strong quarter across the board. Every key operating metric delivered, continuing the momentum from prior quarters and validating the broad-based demand on our high-quality real estate across all of our formats. As Don mentioned, we had record leasing this quarter with rent rollover at 16% on a trailing 12-month basis, keeping in mind that the rollover statistic represents 96% of our reported deals. Comparable POI growth was strong for the quarter at 4.7%, particularly impressive given the challenging winter conditions we faced in the Northeast. I could not be more pleased with the results. Our lease rate held firm at 96.1%, a direct reflection of our proactive leasing approach. Foot traffic was up 3% for the quarter and, more importantly, 4% in April. Executed but not yet occupied deals will contribute an incremental $36 million of rent over the balance of the year and into 2027. On the small shop side, we are at 93.8% leased, with room to push rents further given the demand we continue to see across our submarkets. The pipeline remains robust at over 1.7 million square feet of space under lease negotiation, providing embedded growth over the next two years. Last quarter, I highlighted several of our recent acquisitions, walking you through the early leasing momentum and outsized performance we are seeing relative to our underwriting. What is now coming into focus more clearly is the financial opportunity we are seeing on the operating side. We are operating these properties at a higher level, not only meeting our internal standards, but doing so more efficiently and at a lower cost. As we all know, it is not how much you spend, it is how you spend it. Through a combination of internal scaling, vendor management, and scope alignment, we expect to continue creating value through more efficient operations. Lastly, there is a great deal of conversation right now about the K-shaped economy and its impact on commercial real estate. When I match that narrative up against what we are actually experiencing across the portfolio, there is no doubt that we are benefiting from the upper end of that K. Traffic is up, sales are up, and not with just value-based retailers as you would expect, but at full-price and aspirational concepts like Crate & Barrel, Madewell, and Aritzia, all of which continue to outperform in our centers. Discretionary spending in restaurants is another topic that is getting a lot of airtime, so I wanted to share some numbers with you. Our full-service restaurants average $723 per square foot in sales, and our fast casual restaurants average $873 per square foot. Both represent healthy performance, more than double the national averages, and both are operating and occupancy cost ratios in the 9% range, leaving meaningful cushion to absorb either consumer fluctuation or a broader economic cycle. Durable real estate matters. And with that, I will turn it over to Dan. Daniel Guglielmone: Thank you, Wendy, and hello, everyone. Our FFO per share of $1.88 for the first quarter reflects almost 11% growth versus last year and highlights an exceptionally strong quarter operationally. This result came in $0.06 plus, or 3.6%, above the midpoint of our guidance range, a result which reflects a business plan firing on all cylinders. Drivers for the outperformance include $0.02 from higher revenues through better occupancy, parking revenues, and ancillary income; $0.01 from expense savings, including efficiencies from our 2025 acquisition pool as Wendy just highlighted; $0.01 from higher than forecast term fees; and $0.02 attributed to timing, pulling forward some items that were expected later in the year. Comparable POI growth, a GAAP metric, was 4.7% for 1Q. Cash-basis comparable growth was 5.1% for the quarter. Excluding term fees, the result was still roughly 4%. Cash-basis minimum rent increased 3.6% for the quarter. All variations of this metric were ahead of our expectations, highlighting the strong start to the year. Look to our 8-Ks for expanded disclosure in this area. Now let us turn to the balance sheet. Subsequent to first quarter end, we closed on a recast of our revolving credit facility where we increased the size of the facility to $1.4 billion, extended the initial term to April 2030 with extension options into 2031, and reduced the spread over SOFR by 5 basis points to 72.5. We repaid our 1.25% notes due in February and now have only $50 million of remaining loan maturities through the balance of 2026. We continue to forecast strong free cash flow after dividends and maintenance capital and expect to exceed $100 million in 2026 and head higher in 2027 and 2028 as we convert straight-line rent to cash-paying rent. During the first quarter, we closed on asset sales of $159 million combined at a blended mid-4s cap rate. We also have an additional $66 million of sales in process with expected closings by quarter end, with cap rates targeted in the mid- to upper-5% range. 2025 and expected year-to-date 2026 asset sales will stand at a total of $540 million with a blended cash yield in the low- to mid-5% range, a very attractive cost of capital. Through this active and disciplined asset recycling program, which has effectively been executed on a leverage-neutral basis, our debt metrics remain solid. First quarter annualized net debt to EBITDA is 5.5x and should improve over the course of the year. Fixed charge coverage is 3.9x and should eclipse our target metric of 4x over the balance of 2026. And with that, I will now move on to guidance. As a result of a robust first quarter and more encouraging outlook, given the continued resiliency in our portfolio, we are raising guidance for both NAREIT and core FFO to $7.46 to $7.55 per share. At the midpoint, this $0.03 to $0.04 increase represents 6.3% growth for core FFO when compared to 2025. Drivers for the increase in guidance include our comparable POI growth outlook improving to 3.125%–3.625% from the previous range of 3%–3.5%. We still expect the trajectory of occupancy in 2026 to be in the mid- to upper-93% range before climbing higher to the mid- to upper-94% range by year-end, powered by leases that have already been signed. Our improved guidance reflects stronger than expected contribution from the $750 million of dominant high-quality properties acquired in 2025, driven by expense savings and greater leasing velocity at these dominant assets. We increased our expected incremental POI for redevelopment to $14 million to $15 million as we get tenants open and operating sooner than forecast, and our outlook on term fees also improves to $8 million to $9 million as our strong leasing contracts allow us to leverage underperforming tenants. We refinanced our 1.25% unsecured notes with a combination of a new term loan and availability on our upsized credit facility, so assume roughly 4.5% for the effective interest rate reset on those notes, in line with prior expectations. Please note that this represents roughly 175 basis points of refinancing headwind, without which our midpoint core FFO guidance would eclipse 8% growth. Given it is early in the year, we are keeping our credit reserve flat at 60 to 85 basis points of rental income, and additional guidance assumptions all remain unchanged and are outlined on Page 27 of the 8-Ks. This updated guidance also reflects the $92 million of acquisitions completed to date in 2026, as well as the Misora and Courthouse Center asset sales. We continue to be active on recycling, with additional acquisition and disposition opportunities targeted for the second half of the year, and we will adjust our guidance for those, likely upwards, as we go. To summarize, our $0.03 to $0.04 increase in guidance is driven by better than $0.01 of operational outperformance, $0.01 from acquisitions, $0.01 from term fees primarily in our non-comp pool, and roughly half a penny from incremental redevelopment. All areas of our business plan are exceeding forecast. With respect to our expectations for quarterly FFO cadence over the remainder of 2026, the second quarter is $1.83 to $1.86, the third quarter is $1.84 to $1.87, with the fourth quarter in the low to mid-$1.90s per share primarily driven by contractual occupancy growth. And with that, operator, please open the line for questions. Operator: Yes, sir. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. Once again, we do ask you limit yourself to one question, and then you can join the queue again if you have further questions. At this time, we will pause for just a moment to assemble our roster. And today’s first question comes from Samir Khanal with Bank of America. Please go ahead. Samir Upadhyay Khanal: Good morning, everybody. I guess, Don, maybe high level to start off. You talked about the K-shaped economy. So if this backdrop continues and given your sort of high-income trade areas, your strategy and tenant mix, I guess, does that all translate into relative strength or outperformance versus your peers? Thanks. Donald C. Wood: Thanks, Samir. There is a lot to unpack in that. I am thinking the best way to try to say it. I mean, look. We are a real estate company of high-quality stuff that is not about eliminating things that change in the economy. We expect things to change in the economy. What it is about is limiting effectively the negative impacts on us, and we do that by the type of real estate that we own. You know, we used to give out a metric I think we are going to dig up again based on this question, and it is about purchasing power. What purchasing power is: if you take our household incomes of $167,000 overall, and you multiply that by the number of households within the three-mile—this is the easiest thing to look at—you are talking about $11 billion per shopping center of purchasing power. Now, when you think about that, it becomes less about the type of product and more about the real estate and who shops in that real estate. And that is really where we are in the right spot. If you have looked over the past few weeks, there was a series of articles in the Wall Street Journal. It was all about a growing upper middle class. It was all about where that discretionary income comes from and how it is being spent by consumers. That is the center of our business plan, and it has always been the center of our business plan. It is why during some periods it does not matter as much. You are asking me to look at a crystal ball. Now is when it matters. So I think it is real, the K-shaped economy. I think it is real that we operate in the top part of the K. And I think it is real that the affluence and the number of people effectively combined that are around our shopping centers provide a level of cushion that is really hard to replicate. Operator: Thank you. And our next question today comes from Michael Goldsmith at UBS. Please go ahead. Michael Goldsmith: Good morning. Thanks a lot for taking my question. You continue to make progress on the capital recycling and—and not to spoil what I am sure will be an excellent Investor Day—but what inning do you think you are in here? And is there any way to how this capital recycling had benefited the comp POI this quarter and maybe where that contribution could go over time? Donald C. Wood: Thanks, Michael. I want to make a couple of points, and I do not know if I can quantify—I know I cannot quantify—what you are asking. There are a couple of things to think about. It is not about what inning it is in, because what this is all about is continuously, forever, being able to recycle assets that we have created a ton of value on into things and raw material that give us an opportunity to do that again. In certain times in the marketplace, that will be a boon, and there will be lots. In other times, there will be less. But it is a continuous laser-like focus, and that is, to me, the most important thing. You should always expect us to buy and build, make a lot of money, recycle into stuff that we can do it all over again year in, year out. And we will talk about that with more specificity at the Investor Day, but that is the concept in what you buy when you buy a share of Federal Realty Investment Trust. Daniel Guglielmone: Yes, and just to add to that, just to give a little bit of color on the growth in FFO—6.3%—more than half of it is driven by growth in the core portfolio, call it 50% to 60%. And then acquisitions and redevelopments are the other two big drivers, in the 20% to 25% of growth. I would expect going forward growth in our core portfolio will be a little bit higher, and so the pressure on acquisitions and redevelopment will actually come down a little bit, but probably, you know, 20% to 25% of the overall FFO growth this year was driven by acquisitions. Operator: Thank you. And our next question today comes from Juan Sanabria with BMO Capital Markets. Please go ahead. Juan Carlos Sanabria: Hi. Good morning. Just hoping you could talk a little about the same-store NOI trajectory and cadence we should expect in occupancy as part of that FFO build in the quarter. Will the run-rate you gave, Dan, just given some of the noise both in the quarter and with weather and closures and bankruptcies, etcetera, hold? Daniel Guglielmone: Good question. You know, with regards to—you know, we mentioned the occupancy, which will stay a little bit at this lower level in the mid- to high-93s. That will impact the cadence of comparable growth, and then we will shoot up in the fourth quarter because we have a lot of rent commencing in late third quarter, early fourth quarter that will really drive, and those are with leases that are already signed. So that will dictate. We will see a little bit of a dip in the second and third quarters from a comparable growth perspective into the twos, closer to 2%, and then a resurgence back up in the fourth quarter up into the 3.5% to 4% range on a comparable GAAP basis. It will be probably about 40 to 50 basis points higher on a cash basis. Cash will be higher this year than our reported GAAP. So that is a little bit of the color there, and we should see momentum heading into 2027 on that. Operator: Thank you. And our next question today comes from Cooper Clark at Wells Fargo. Cooper R. Clark: Great. Thanks for taking the question. Could you provide us with an update on the multifamily dispo pipeline today and how much product you may consider bringing to the market over the course of the year if you are continuing to find attractive opportunities on the acquisition front? And if we should continue to expect strong pricing in the high-4% to low-5% cap rate range? Donald C. Wood: Sure, Cooper. Let me cover that in a couple of different ways. I do not have any particular residential property on the market as we stand here today. However, what we are looking at doing and thinking about doing is monetizing not only that, but other parts in the form of a joint venture. As we talked about in the past, that is one potential way. But the notion of being able to do that will be tied certainly with what it is that we are able to find on the acquisition side, because there is an important matching that is critical there because, as you know, we created a lot of value. And so we have big tax gains that we would like to be able to shelter to the extent we could with 1031. So I cannot give you a number that way. It will be largely driven by the acquisition pipeline, which Jan can talk about here in a moment. But I do want you to know the reason we sell is because we have created a ton of value and see places where we can reinvest with creating greater value going forward. So that is the theory. Jan, what are you seeing on the ground? Jan W. Sweetnam: It is not new news that it is more competitive now than it was a year ago. But the good news is we are seeing a lot more opportunities today than we were just three months ago. So when we look at what we are underwriting, both on market and off market, we are as busy as heck right now. And, notwithstanding all the noise out there, properties where we compete best really are just more complicated, probably have more leasing opportunities to them. And more good news really is that large, more leasing- and more complicated assets are still thinning out the crowd. And our ability to compete for those really fits right into our skill set—identifying where tenant demand exceeds supply, remerchandising, and, if applicable, placemaking where we can lift sales and rents. We have seen it in recent acquisitions. We are seeing it in opportunities looking forward. So it is hard to say what is going to happen, what the volume is going to be, but we like our ability to compete, and we have been busier than we have been in a long time. So still pretty optimistic on the second half of the year. Operator: Thank you. And our next question today comes from Michael Griffin at Evercore ISI. Please go ahead. Michael Anderson Griffin: Great, thanks. Maybe following up in that vein of acquisition—Don or Jan, I am curious if you can give any color on the two deals announced year to date, the one at Kingstowne and in Congressional. And it seems like the tenant roster there could see some remerchandising as benefit there. So maybe talk about the opportunity set with those two. And then maybe, Jan, just expanding a bit on your acquisition pipeline comments just a minute ago, would you say more of the deals you are looking at in the hopper are towards a Congressional—kind of standard, larger open-air retail format—versus maybe a town center or a Village Pointe that you closed last year? Just kind of talk about the interplay of those two as well. Thanks so much. Donald C. Wood: Sure, Griff. Thanks so much for the question. A couple of things to say. First of all, to the last part of your question, it is a wide band—it is a wide swath of things that we look at. And with Congressional North Shopping Center, I mean, stand-alone, that is a power center with a vacant Bed Bath & Beyond that historically we would not be all that interested in. Now let us talk about what is around it. Basically, it is on Rockville Pike, one of the most critical retail nodes in D.C., certainly the most critical on the Maryland side. And we control Congressional Plaza—the one we have owned forever—Federal Plaza, Pike & Rose, Mid-Pike Plaza, and Wildwood Shopping Center, all within a few miles. This Congressional North was the last center of any kind of size where a box tenant had the opportunity to go. So the notion of being able to buy that and better control, frankly, was a no-brainer. And the reason those types of things do have vacancy is because often, private ownership, particularly smaller private ownership families, do not want to put money in necessary to create the return that you can get on the asset. So that is what we were doing there. Similarly at Kingstowne, we are simply closing a loop and controlling the entire very big shopping center by taking a hole in the donut and moving that over to our side for a very nominal capital outlay, frankly. Putting that stuff together—we will always try to do those things. Those are strategic to where it is that we go. In terms of our love, frankly, for Kansas City, and for Omaha, and for Annapolis, you bet we are trying to do more of that stuff. And to Jan’s point a few minutes ago, we are very active in looking through those and other markets to make sure nothing slips through. Those markets could also be supplemented with smaller centers, grocery-anchored, etcetera, that will complement the big assets that we have already purchased. Those are some of the things that we are working on. Jan, I do not know if there is anything to add to that. Jan W. Sweetnam: I would add that there is a good blend between opportunity—I kind of consider Congressional and Kingstowne, they are both opportunistic acquisitions and strategic at the same time. And, you know, when we look at the yields of those, it does not really count in the leverage that we get at the existing properties, whether it is next door on the Pike or in Kingstowne itself. So I think we have got a really good mix of opportunistic transactions that we are looking at in our existing markets, maybe with some smaller assets, both in markets we have been in a long time as well as our new markets. And there are a lot of larger assets that we think dominate trade areas that we are not in yet that we are looking at right now. So it is a pretty good mix. Operator: Thank you. And our next question today comes from Greg McGinniss at Scotiabank. Please go ahead. Greg Michael McGinniss: Hey. Good morning. Don, as you mentioned, Santana is now 100% leased on the office side. But you are also entitled to do more there. And more broadly across the portfolio, office lease rate is healthy. Are you willing to start more ground-up office development today? Donald C. Wood: Hey, Greg. Yes—I still have scar tissue, in case that is really your question. The notion of starting another office building at Santana would not happen on a spec basis. It would only happen to the extent we have a build-to-suit, which, by the way, with what is going on out there—and I mean, when you juxtapose Santana Row with downtown San Jose—it is incredible. I do want you there. I really want you to see this because these things are three miles away, and one is clearly a winner in this situation. And so there may be more opportunities, but I am not going to spec. Operator: Thank you. And our next question today comes from Craig Mailman at Citi. Please go ahead. Craig Allen Mailman: Hey, good morning, guys. Dan, maybe for you—just helpful that you went through some of the benefits to earnings in the first quarter and giving us quarterly cadence for the next couple of quarters here. But could you just bridge the $1.88 to get to sort of the $1.84 and a half next quarter and $1.85 and a half in 3Q? Like, how much of the $0.02 benefit of earlier timing is nonrecurring? I know the lease term fees are lumpy, but could you just walk through what was more nonrecurring this quarter versus recurring, to get to the decel before the pickup in the back half of year, especially as you guys are talking more about potential acquisitions ramping up? Daniel Guglielmone: Again, we have probably some seasonality that is a positive going from the first quarter to the second quarter with less weather-related issues and so forth. There is some—but probably the biggest drag heading into the second and third quarters are, obviously, we have the refinancing headwind, which is at least a penny or so of drag. We are leasing up The Blair in the second quarter—early lease-up of a residential product is something that will be a drag initially before it turns positive later in the year as we hit the breakeven occupancy levels. I think just some other timing-related things that just happened to be forecasted for later in the year, and we were able to move them forward into the first quarter—lock them in—so there is greater certainty there, but they will not happen a little bit later in the year. So those are the main drivers of a little bit of the cadence there. And then the big spike in performance in terms of FFO is driven by leases that have already been signed that have rent commencement dates—surprisingly, a surprising amount of October 1 rent commencement dates—that we feel really, really good about will occur, and that is what drives us up into the January. So that is a little bit of the color on the cadence there. Operator: Thank you. And our next question today comes from Haendel St. Juste with Mizuho. Please go ahead. Haendel St. Juste: Hey. Good morning. Don, I can hear the clear excitement in your voice about the earnings growth setup, the momentum that seems to be improving with the leasing tailwind and capital rotation. Looks like better, maybe mid- to upper-single-digit growth the next couple of years by our estimates. So maybe what can you share with us about the earnings trajectory that you think you are setting up here, how sustainable it is? And then remind us what the long-term plan for the green bond refinancing here is. I think it is on the revolver at the moment. Thanks. Donald C. Wood: You bet. And I hope—I think you are on the list. I know you are playing golf when you come out on May 20 or so with Jay, but that is the purpose. I do not want to steal thunder for the Investor Day. We are going to talk about earnings trajectory. We are going to talk about those opportunities on those two days. So I am going to leave it at that if you do not mind. And with regards to the second part of your question with regards to the 1.25% bond, we put longer-term $250 million on a five-plus-year term loan. That gets us into 2031. The balance is on the line, and we will be opportunistic in either hitting the bond market or the convert market as we see the opportunity. We have the capacity to look to do this at the most opportune moment. That is when we will do it. I would love to do a bond and do a long-term bond. So stay tuned on that front. Operator: Thank you. And our question today comes from Alexander Goldfarb at Piper Sandler. Please go ahead. Alexander David Goldfarb: Hey. Good morning. Don, just a question on the new governor in Virginia. Certainly, you guys are used to operating in some other very deep blue states, but Virginia has taken a noticeable shift. That said, you have more defense spending, cyber investment, etcetera. But as you look at what is going on in the Mid-Atlantic and the two Maryland and Virginia markets, are you concerned at all that Virginia could mirror Maryland and become anti-development or enact policies that slow down what has otherwise been a very good path? Or is your view that whatever the governor is talking about and the change in politics—not much of it you see interfering with your shopping centers and the customer base and the reason why businesses want to locate in Northern Virginia? Donald C. Wood: Yeah, Alex. It is the latter. Take a look at Federal Realty Investment Trust and understand the markets that we operate in; understand not only the incomes that I have talked about here, but you know what we do not talk about? It is the wealth—the wealth of those families—and how that continues the spending throughout ups and downs and all kinds of changes. The political atmosphere—if I get worried about the political atmosphere, I am effectively not running my company as well. And the diversity of these marketplaces is really important. Now, on the Virginia side, which happens to be where I live, have you seen the defense budget that is being proposed? And I do not know if $1.5 trillion is going to happen or not. But, boy, I know who the beneficiary is going to be to the extent it does, and it is going to be a lot of the consumers around our properties. Do I think that will be a measurable difference? Probably not. But overall, when you buy into this company, you are buying a diversified group of geographies and types of assets—formats of assets, tenant base, etcetera—with an awful lot of room, effectively, in occupancy cost ratios to be able to continue the path that we are on. That is my focus. Operator: Thank you. And our next question today comes from Omotayo Okusanya with Deutsche Bank. Please go ahead. Omotayo Tejumade Okusanya: Yes. Good morning, everyone. Congrats on the results. Clearly, momentum is on your side. Dan, just quick comments around the occupancy rates again in 1Q for the comparable occupancy, 94.1%. And I think we were all kind of expecting something in the mid-93s. Clearly, again, better leasing, but also curious if there were leases you were expecting to fall out that did not that maybe we see in 2Q and 3Q, which kind of explains some of the momentum for the rest of the year. Daniel Guglielmone: Yes. Look, we did better from an occupancy perspective than we had talked about. We had expected the overall occupancy rate to dip down into the low- to mid-93%. I think first quarter we held occupancy better than we expected, and we are at 93.8%. It should stay fairly constant at that level with some timing and puts and takes of tenants coming in and so forth and leaving, and then seeing that spike in the fourth quarter up into the mid- to upper-94% range. That is consistent with what we talked about, although we will be a little bit higher in the second and third quarter than I think we had originally forecast because we did so well maintaining occupancy in the first quarter. Hopefully that answers your question. Operator: Thank you. And our next question today comes from Floris Van Dijkum with Ladenburg. Please go ahead. Floris Van Dijkum: Thanks. Morning, guys. We talked a little bit about San Jose. We have talked a lot about some of your acquisitions—Congressional, which looks very good. We have not really talked about Boston and Assembly Row much. Could you guys give us a little bit of an update on what is happening there and what your plans are for that asset going forward? In terms of, in particular, the Row aspect of that property. Donald C. Wood: You bet, Floris. It is actually a very good question from the standpoint of understanding that big asset. First of all, clearly, Assembly Row has become the center of that—not only immediate area—but larger area from the standpoint of shopping and entertainment and food and all of that. Clearly, the residential product that we built there adjacent to the Avalon stuff—we have got our own 1,000 units there—that does extremely well and continues to do extremely well. The notion of building out the rest of Assembly clearly took a back seat when life science imploded. I am very proud of the fact that we did not move forward on that, but it does not change the fact that there is great opportunity for the remaining three lots that are there. We have them fully entitled. We cannot get them to pencil yet at this point. But while we are doing that, we are also entitling the entire Assembly Square marketplace, which is the power center that is adjacent to it—and a very powerful power center at that. We are in the process of getting entitled 3 million—Dan, is it 4 million?—square feet. In other words, the notion of continuing the Assembly Row property through the power center at some point well into the future. But we are going to have that entitled this year, we expect it. And if that is entitled this year, even if the numbers do not work at this point, think about the future value of that entire 50-acre piece of land. And so when you look at Assembly, you ought to be thinking about value banking there that I do not expect to be paid for in stock price today but certainly anybody that looks at that property will see the long-term value to be created. In the meantime, income keeps rising. Rents keep going up. Residential keeps staying filled. Really, really powerful property. Operator: Thank you. And our next question today comes from Mike Mueller at JPMorgan. Please go ahead. Michael William Mueller: Yes, hi. I know it was a small sale at just $10 million, but can you talk about selling Courthouse Center in Rockville considering it is part of critical mass and scale that you have built up over decades there? Would you have sold a more consequential center there? Donald C. Wood: Oh, yeah, Mike. It is not part of the critical mass at all. Basically, you may remember a couple of years ago we sold Rockville Town Square. This is an adjacent small unanchored strip next to it that really had nothing to do with the rest of our properties at all. If we could have, we would have simply sold it at the same time we sold Rockville Town Square, but there was a local buyer here that stepped up to pay us a number that there is no way we are saying no to. So that is all it is. It really is not—I know on a map it looks close to the rest of our properties on Rockville Pike, but it is a different world away. So no, it is not at all important. Operator: Thank you. And once again, if you do have a question. And next question is a follow-up from Samir Khanal at Bank of America. Samir Upadhyay Khanal: Hey, I am sorry if I missed this, but you mentioned there were some items that were pulled forward in the quarter. Was that term fees or something else? Maybe just some clarification. Thanks. Daniel Guglielmone: Yeah. Look. There were some FAS 141 benefits that we were expecting later in the year—in second or third quarter—that were in our budget that we pulled forward into the first quarter. That was the primary driver of that. So, yes, it is good we got it locked in in the first quarter, but it is just timing. Operator: Thank you. And our next question is a follow-up from Omotayo Okusanya with Deutsche Bank. Please go ahead. Omotayo Tejumade Okusanya: Hi. Yes. Just a very quick one on cost reimbursement rates. It felt a little elevated in 1Q 2026. Curious if anything pulled forward. Is there a timing thing that happened? How do we think about that for the rest of the year? Daniel Guglielmone: Yes. Look, there was a huge amount of weather impacts in the Northeast, particularly anywhere from our D.C. Metro all the way up to Boston. So snow removal and utility expense were highly elevated for the quarter. And, obviously, our cost reimbursements are elevated as a result. That was well above our initial expectations, and it ended up working out as we expected, but that is the driver there. Operator: Thank you. And our next question today is a follow-up from Alexander Goldfarb at Piper Sandler. Please go ahead. Alexander David Goldfarb: Thank you. Dan, I think in your opening comments, you made a reference that you expect some positive revision to guidance later this year. But I want to make sure, one, I heard that correctly. And two, what were the factors? I think you said there were some things that could happen that would cause that, and I just want to understand more about that. Daniel Guglielmone: Looking at my prepared remarks, I do not recall making that comment. I am optimistic with regards to the balance of the year, and I am optimistic with how we are being set up for 2027. So I feel good about our positioning. We are only here in the first quarter. But, no, I do not think I referred to forecasting a positive revision going forward. Operator: Thank you. That concludes our question and answer session for today. I would like to turn the conference back over to Jill Sawyer for any closing remarks. Jill Sawyer: Thanks for joining us today. We look forward to seeing many of you at our upcoming Investor Day in a few weeks. Bye. Operator: Thank you. That concludes today’s conference call. Thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.
Operator: Good morning, everyone. Welcome to the OneMain Holdings, Inc. First Quarter 2026 Earnings Conference Call and Webcast. Hosting the call today from OneMain Holdings, Inc. is Peter R. Poillon, Head of Investor Relations. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode. The floor will be opened for your questions following the presentation. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We do ask that you please limit yourself to one question and one follow-up. Also, please pick up your handset to allow for optimal sound quality. Lastly, if you require operator assistance today, please press star 0 at any time. It is now my pleasure to turn the floor over to Mr. Peter R. Poillon. Please go ahead, sir. Peter R. Poillon: Good morning, everyone, and thank you for joining us. Let me begin by directing you to Page 2 of the first quarter 2026 investor presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the Investor Relations section of the OneMain Holdings, Inc. website. Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future, financial performance, and business prospects. These forward-looking statements are subject to inherent risks and uncertainties and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release. We caution you not to place undue reliance on forward-looking statements. If you are listening via replay at some point after today, we remind you that the remarks made herein are as of today, May 1, and have not been updated subsequent to this call. Our call this morning will include formal remarks from Douglas H. Shulman, our Chairman and Chief Executive Officer, and Jeannette E. Osterhout, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question-and-answer session. I would now like to turn the call over to Douglas H. Shulman. Douglas H. Shulman: Thanks, Pete, and good morning, everyone. Thank you for joining us today. Let me begin by saying we are quite pleased with the financial results of the quarter, which continue the momentum we built over the last couple of years. Our customers remain resilient, and we are confident in our ability to execute our 2026 financial plan as we operate from a position of strength. Let me briefly walk you through a few of the highlights for the quarter and then I will discuss progress on some of our important strategic initiatives. Capital generation was $194 million in the quarter. C&I adjusted earnings were $1.95 per share, up 13% year over year. Total revenue and receivables each grew 6% year over year. We achieved this growth while still maintaining a conservative underwriting posture. Receivables growth was supported by focused initiatives to drive high-quality personal loan originations and important contributions from our newer businesses, auto finance and credit card. Credit performance was very good and continues to track well against our expectations both for delinquencies and losses. Our 30–89 delinquency declined year over year, improving on last quarter's slight increase. Quarter-over-quarter improvement in 30–89 delinquency was better than last year and better than the pre-pandemic average. C&I net charge-offs were 8.4%, in line with expectations as first-quarter losses are seasonally the highest of the year, and we feel good about our full-year credit outlook. Consumer loan net charge-offs were 8%, also in line with expectations, and we continue to see strong recoveries across the business. During the quarter, we continued to make progress on key strategic initiatives positioning the company well for continued earnings growth in 2026 and beyond. In our personal loans business, we are always enhancing our product offerings to better serve customers and drive profitable growth while maintaining our disciplined underwriting practices. We continue to refine how we deliver debt consolidation loans, making the experience more seamless. This product provides real value to our customers, as they consolidate other debt onto a loan with a single monthly payment that amortizes down over time. In a majority of the cases, our customers' credit scores improved, and OneMain Holdings, Inc. also benefits from better credit performance. We have also seen an uptick in the number of customers who choose to share bank data with us. By accessing this more granular data, we can offer better loan terms, improve credit outcomes, and continue to enhance our credit models over time. We are also encouraged by the early performance of our new HomeFix secured loan product, which provides OneMain Holdings, Inc. homeowners with a differentiated way to access credit. We continue to pilot this offering, and it is performing very well, attracting high-quality customers and delivering strong results. These types of innovations are positioning our personal loan business for continued growth. As always, we move quickly but with discipline, testing rigorously, scaling what works, and building a pipeline of initiatives that we expect to drive value over time. Turning to auto finance, receivables grew 14% year over year to $2.8 billion. Credit performance was in line with expectations and continues to outperform the broader industry. During the quarter, we continued to grow our dealer network across the country, including through our partnership with Ally. We are also innovating across our auto finance business. Earlier this year, we began piloting an agentic AI tool that improves insurance recovery outcomes on damaged customer vehicles by automating negotiations with insurers. Initial results have exceeded expectations with improved outcomes for us and our customers. We have also deployed AI more broadly across the company where we see clear near-term benefits. This includes using AI across the product development life cycle, leading to faster deployment of technology at a potentially lower cost. We have also developed an AI tool which gives our team members easy access to a broad array of internal information, increasing their effectiveness, saving them time, and speeding up customer service. And we are launching pilots in key customer service areas where the risk is low and the learning potential is high. We are taking a focused, strategic approach to AI by implementing where we have high conviction and piloting in other areas to build capability and scale over time. Turning to our credit card business, we delivered strong results for the quarter, with receivables increasing 45% year over year to just under $1 billion, and customer accounts up 40% year over year to nearly 1.2 million. All of the key metrics in the credit card business were very strong, as we saw increased yields, improvement in loss trends, and decreased unit costs. We are driving profitable growth in the card business by combining product innovation with deeper customer engagement. As the business has matured, we have enhanced line management processes for our best customers. We are developing differentiated offerings across rewards and pricing to increase our share of wallet with lower-risk customers. And our data science team has refined marketing and credit models to make better offers to customers more likely to use the card, thereby creating more value for the customer and for OneMain Holdings, Inc. All of this shifts our portfolio mix to our best customers and supports profitable long-term growth. We are also implementing initiatives to improve delinquency and collections performance while driving cost efficiencies as we scale. Taken together, we expect these efforts to position the business for profitable growth this year and beyond. We have also seen a steady rise in customer adoption of our financial wellness offering, which has recently been enhanced and rebranded OneMain MyMoney. Our customers use OneMain MyMoney to monitor credit scores, manage budgets, track expenses, and negotiate bills to save money. It is another way we build deep, long-lasting relationships with our customers and help them make progress toward a better financial future. These are just a few examples of strategic business initiatives across our company that are driving both short- and long-term value. Let me briefly touch on the consumer. While the current economic environment continues to have some uncertainty, our customers remain resilient. A year ago, tariffs were top of mind. Today, geopolitical tensions and their impact on energy prices are the broader risk. However, unemployment remains low, providing ongoing support for credit performance. As always, we are closely monitoring trends across the consumer and our portfolio, and we are maintaining our cautious underwriting posture. But credit is performing well, as the actions we have taken over the past several years put us in a strong position. Turning to capital allocation, our first priority for capital remains extending credit that meets our risk-adjusted returns while also investing in the business to meet customer needs, drive efficiency, and build an enduring franchise. Our regular dividend, which is currently $4.20 per share on an annual basis, represents a 7% yield at today's share price. As I discussed last quarter, all else equal, we expect incremental capital returns to be weighted more toward share repurchases going forward. In the first quarter, we repurchased 1.9 million shares for $105 million. Over the last two quarters, we have repurchased 3.1 million shares for $176 million. As we look ahead, we will continue to pace share repurchases based on several factors, including the capital needs of our business, market dynamics, and economic conditions. I am feeling very good about our business, as we are operating from a position of strength with disciplined underwriting, a proven team that is experienced in serving the nonprime consumer, and a resilient, diversified balance sheet. We remain confident in our competitive positioning and like the trajectory of our credit performance, and we anticipate continued capital generation growth this year and beyond as we execute on our strategic priorities. With that, let me turn the call over to Jeannette. Jeannette E. Osterhout: Thanks, Doug, and good morning, everyone. Let me begin by summarizing our solid first-quarter performance, which supports our continued confidence in the trajectory of the business. We delivered revenue growth, credit performance, and capital generation in the quarter that was right in line with our expectations. We saw good performance in our personal loan business, coupled with growth in auto and outsized improvement across key financial metrics in the credit card business. Additionally, we executed across all our businesses on several strategic initiatives that we expect to deliver significant value in the quarters ahead. Funding was, once again, a highlight as we further strengthened our balance sheet and accessed markets favorably even in a challenging environment, demonstrating the strength of our programs and our access to capital. We increased our share repurchases in the first quarter to $105 million. While we remain committed to our dividend as the primary means to return capital to our shareholders, we continue to expect to use share repurchases as a means to bolster capital returns in the future. In the first quarter, we generated higher excess capital due to our seasonally lower growth needs and returned that excess capital through our share repurchase program. Looking ahead for the year, we expect to continue generating excess capital, though at more moderate levels, as we deploy additional capital to support higher seasonal growth in the business. As a result, we expect share repurchase activity to adjust accordingly. First-quarter GAAP net income per diluted share of $1.93 was up 8% from $1.78 in 2025. C&I adjusted net income per diluted share of $1.95 was up 13% from $1.72 in 2025. Capital generation totaled $194 million, comparable to 2025. Managed receivables ended the quarter at $26.1 billion, up $1.5 billion, or 6%, from a year ago. First-quarter originations of $3.1 billion increased 3% compared to the first quarter of last year, and we see opportunities to continue our growth across our products. In our personal loan business, we saw good performance as the initiatives we have discussed continued to gain traction. Moving to our newer businesses, auto originations this quarter benefited from the expansion of our dealer network and new partnership activity, which has helped support scale and momentum across our auto business. We like the pace and performance of our auto business and expect it to continue to grow and contribute to our future capital generation. In our card business, we saw growth in both account openings and receivables, as our increased customer engagement continues to support the enhanced value proposition of the BrightWay card product. Notably, in April, we crossed $1 billion in card receivables, marking another important milestone in scaling the card business. As we look forward, we expect both of our newer products and personal loan innovation initiatives to help drive receivables growth throughout the year. Turning to yield, our first-quarter consumer loan yield was 22.5%, up 13 basis points year over year. Consumer loan yields are up over 60 basis points since second quarter 2024, resulting from the proactive steps we took to optimize pricing in certain customer segments since 2023. Despite the mix-shift headwinds from the growth of our lower-loss, lower-yielding auto business, we expect consumer loan yield to remain around current levels throughout the rest of the year, assuming a steady product mix and competitive environment. While the credit card portfolio remains a relatively small portion of our overall portfolio, we continue to see strong yield momentum with total revenue yield of 33.9%, increasing roughly 300 basis points since last year, supporting our overall revenue growth as the card portfolio scales. Total revenue was $1.6 billion, up 6% compared to 2025. Interest income of $1.4 billion grew 6% from the first quarter of last year, driven by receivables growth and yield improvements. Other revenue of $198 million was up 4% from last year, primarily due to higher servicing fees on our growing portfolio of loans serviced for third parties and higher credit card revenue as we grow the card business. Interest expense for the quarter was $322 million, up 4% compared to 2025, driven by an increase in average debt to support our receivables growth. Our interest expense as a percentage of average net receivables was 5.3% this quarter, down from 5.4% in 2025, helping our profitability as we grow the book. Going forward, we expect our funding costs to remain at approximately this level throughout 2026. First-quarter provision expense was $465 million, comprising net charge-offs of $512 million and a $47 million decrease in our reserves driven by the seasonal sequential decline in receivables during the first quarter. Our loan loss reserve ratio of 11.5% remained flat to prior year and last quarter. Policyholder benefits and claims expense for the quarter was $52 million, up from $49 million in the first quarter last year. Looking forward, we expect quarterly claims expense in the mid- to high-$50 million range over the remainder of the year. Turning to credit, 30–89 day delinquency on March 31, excluding Foresight, was 2.62%, down 1 basis point compared to a year ago. This year-over-year performance is in line with our expectations and modestly better than the performance we saw a quarter ago. The 48 basis point sequential improvement was better than the 43 basis point sequential improvement both last year and in the pre-pandemic benchmark period. Our front book continues to perform in line with expectations, while our back book, which represents only 5% of the portfolio, still accounts for 14% of 30-plus delinquencies. This is more than double the impact we would typically expect from vintages on the book this long, so the back book continues to present a headwind for total portfolio credit metrics. Moving to net charge-offs for the quarter, first-quarter C&I net charge-offs, which include the results from our small but growing credit card portfolio, were 8.4%, up 24 basis points year over year and in line with expectations. Consumer loan net charge-offs, which exclude credit cards, were 8% of average net receivables in the first quarter, up 19 basis points from a year ago and in line with our expectations. Strong recoveries continued to support our results, increasing 18% year over year to $104 million in the first quarter. Recoveries as a percentage of receivables increased to 1.7% from 1.5% in 2025, largely due to continued enhancements to our internal recovery strategies, and it is worth noting that bulk sales of charged-off loans, which is one of the strategic tools in our overall recovery strategy, were slightly less than prior year. As net charge-offs are seasonally highest in the first half of the year, we expect losses in the second half of the year to significantly decline following the improvement in early delinquencies we have seen. This normal seasonal improvement is reflected in our full-year C&I net charge-off guidance range provided on our last earnings call, which remains 7.4% to 7.9%. As a reminder, C&I net charge-offs include losses in our credit card portfolio, which has higher yields and higher loss content and will continue to pressure overall losses as the portfolio grows. With that in mind, we are seeing improvement in our credit card net charge-offs, which declined 176 basis points year over year to 18% in the quarter. We also continued to see strong performance in card delinquency, as 30-plus delinquency fell 105 basis points year over year in the first quarter, a notable improvement from the 83 basis point decline we saw in the fourth quarter. While we like the sustained improvements we are seeing, we remain committed to measured growth and disciplined underwriting. Loan loss reserves ended the quarter at $2.8 billion. Our loan loss reserve ratio remained flat both sequentially and year over year at 11.5%. The continuation of the steady improvement in our card portfolio I just spoke about was also reflected in our reserves this quarter, as the reserve rate on the credit card portfolio dropped 80 basis points from last quarter. However, given it is a higher-yield, higher-loss business, the card portfolio maintains a higher reserve rate than the consumer loan book and will continue to pressure the overall reserve rate of the company. This quarter, the credit card portfolio continued to add approximately 40 basis points to the overall reserve rate, and we expect that to increase slightly over the remainder of the year, consistent with the growth of the portfolio. Looking forward, in addition to the shifting product mix of the overall portfolio, we will continue to be prepared to adjust reserves if and when the macroeconomic environment changes. Operating expenses were $437 million, up 9% compared to a year ago, driven by thoughtful investment in growth initiatives in our newer products and solutions, as well as data and technology capabilities to better serve our customers, accelerate product innovation, and drive operating efficiency in the future. Our OpEx ratio this quarter was 6.8%. As the year progresses, we have a clear line of sight to lower quarterly expense growth, which combined with expected receivables growth will drive the OpEx ratio lower, and we remain confident in the full-year OpEx ratio guide of approximately 6.6%. Now turning to funding and our balance sheet, during March, even with escalating geopolitical tensions and market uncertainty, we were able to issue an $850 million three-year revolving ABS. The offering saw very strong demand and was executed at attractive pricing of 4.63%, once again demonstrating our excellent access to markets and strong ability to execute even in difficult market conditions. The proactive measures we took last year to reduce our secured funding mix, redeem and repurchase near-term maturities, and refinance the 9% 2029 bonds reduced our interest expense and gave us significant flexibility on both the mix and timing of issuance in 2026, an important advantage, especially given the increased volatility in markets so far this year. At the end of the first quarter, our bank lines totaled $7.5 billion, unchanged from last quarter. These bank lines add significant liquidity and funding flexibility to our program. Our balance sheet is a core strength, highlighted by staggered long-term maturities, strong market access and experienced execution, a balanced funding mix, and significant liquidity. We view this as a durable competitive advantage that supports our business through economic cycles. Our net leverage at the end of the first quarter was 5.4x, in line with last quarter and within our targeted range of 4x to 6x. We are reiterating our 2026 guidance that we provided last quarter. We had a good first quarter that was in line with our expectations, and we are pleased with our performance. For full-year 2026, we expect to grow managed receivables in the range of 6% to 9% while maintaining our current conservative underwriting posture. We expect C&I net charge-offs in the range of 7.4% to 7.9%, and we expect our full-year operating expense ratio to be approximately 6.6%. All of this supports the strong capital generation of the company for 2026 and beyond. In closing, we are encouraged by our first-quarter performance and start to the year. Our credit metrics are in line with expectations, supporting good momentum over the remainder of the year. We see opportunities to grow through innovation and product expansion while improving efficiency, which we expect will deliver outstanding shareholder value in the quarters and years ahead. With that, let me turn the call back over to Doug. Douglas H. Shulman: Thanks, Jenny. In closing, we remain very confident in the strength and trajectory of our business. We are serving more customers with products that meet their diverse needs and strengthen OneMain Holdings, Inc.'s position as the lender of choice for hardworking Americans. We remain focused on profitably scaling our auto finance and credit card businesses to provide value in both the short and long term. Credit is performing well and in line with our expectations, and our industry-leading balance sheet remains a key competitive advantage, supported by a diversified funding model, consistent market access, and a strong liquidity position. All of this points to our expectations of driving increased capital generation this year and beyond. Let me conclude by thanking our team members for their outstanding execution, as well as their commitment to our customers and to each other. We will now open the call for questions. Operator: Thank you, Mr. Shulman. Ladies and gentlemen, the floor is now open for questions. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Again, we do ask that you please limit yourself to one question and one follow-up. We will go first this morning to John Douglas Hecht with Jefferies. John Douglas Hecht: Hey, guys. Thanks very much for taking my questions. First, any update on the bank application, any sense of timing and so forth there? Douglas H. Shulman: No updates this quarter. The process continues to move forward. Timing is uncertain, but we remain optimistic because we continue to believe we have a very strong case for approval. We are having dialogues with the FDIC and the Utah Department of Financial Institutions, so we are optimistic, and we will keep folks posted as things evolve. John Douglas Hecht: Thanks. And then you talked about a lot of focus on technology and using AI for productivity. Any update on the branch versus digital activities and how they integrate together, and thoughts on the trajectory of the branch system over time? Douglas H. Shulman: We have, over the last seven to eight years, really focused on being a multiproduct omnichannel lender. We have added card and auto, which are not dependent on the branch, but our core personal loan business has a model where you can do business with us in person, on the phone, or digitally. We do think our branches are a competitive differentiator and one of the secret sauces of how we serve the nonprime customer very well. They can walk into a branch, work out issues with us, gain confidence, and we can advise them on getting into a loan they can afford and the right type of loan. Over the years, our branch footprint shrank from about 2,000 to about 1,400 and has remained somewhat steady. It has gone down about 100 over the last couple of years. We have focused on making sure our branch team members spend time working with customers, either in lending or in servicing, and moving lower-value work to technology, self-service, or our call centers. We have made a lot of progress automating information branches used to need to get, adding outbound calling to complete applications, and bringing in DMV data so branches do not have to look up VINs. We continue to invest in technology to make our branch team members more productive and free them up to work with customers. On AI, we see opportunities to automate tasks and provide chatbots to get information for the branch. A great example is that all of our internal information—previously on our intranet or in different applications—is now fed into an AI program where someone can just ask, “What is the policy for loan size in Tennessee?” or “What is the policy about health insurance for my child?” They can just have a chat and get information at their fingertips, freeing up branch team members. John Douglas Hecht: Great. Thanks very much. Operator: We will go next now to Moshe Ari Orenbuch with TD Cowen. Moshe Ari Orenbuch: Great. Thanks. I was hoping to talk a little bit about credit quality. You called out that you expect credit to improve more than seasonal patterns by the second half, and you have a lower level of the back book, yet it has been a little bit stubborn. Can you expand on what is going on with those loans and customers, and what gives you confidence you will get to that back-half level? Jeannette E. Osterhout: Hi, Moshe. This quarter we saw that back book represent about 5% of the portfolio, and it contributed 14% to the 30-plus delinquency. Those loans are continuing to go delinquent at about two times the rate we would have expected. What gives us confidence is that our loans typically are about five years, and as those loans season and burn off, we should get closer to our historical range, with growth also playing a role in the mix. Moshe Ari Orenbuch: Thanks. I was also intrigued to hear you talk about the credit card business turning to profitability. Can you talk about the level of investment to date and how you think about the ultimate profitability compared to your core installment product and what that might mean for overall earnings for OneMain Holdings, Inc.? Jeannette E. Osterhout: Card businesses are challenging to set up and take time. What has been remarkable is that we were able to start this card business coming out of COVID and leverage the company’s scale, breadth, and knowledge—corporate functions, funding program, and more. We did mention we are now at scale and turning to profitability. From here, it is about scaling in a way we like. In terms of returns, personal loans have a very good return profile. Credit cards are one of the few businesses serving the nonprime consumer where you can have a similar or slightly higher return profile. You can see revenue yields in the low 30s, support over time for credit coming in closer to the mid-teens percent range, and we are very focused on operating and unit operating expenses. As we scale, unit costs come down. We are pleased with where we are and where we are going. Operator: Thank you. We will go next now to Aaron Cyganovich with Truist. Aaron Cyganovich: Good morning. In terms of personal loans, they are up on balance sheet around 2%. I know you are selling a portion as well. Can you talk about the balance of pushing personal loans versus demand relative to card and auto that you are increasing? Is there any push and pull in how you focus on originations? And can you touch on the health of the consumer given rising oil prices and how that might impact your customers? Douglas H. Shulman: There are two questions there. We run the three businesses independently. We are not trying to balance how much personal loans versus card versus auto. Each loan—card, auto, or personal—needs to meet our 20% ROE threshold based on credit box, cost of funds, OpEx, and losses over time. They will move at different paces. We have a very big market share in personal loans, so we are growing from a large base and do not expect as much percentage growth, although it remains the biggest part of our annual originations. Auto and credit card are huge markets—about a $500 billion card market where we have $1 billion of receivables, and a $600 billion auto market where we have just under $3 billion of receivables—so we would expect those to grow relatively faster. Each business has a dedicated team given different characteristics and competitive environments. On the consumer, our customers remain resilient. Our credit is performing where we expected. External data shows employment remains low—ticked up a little in the second half of 2025 but has been stable recently. Wages and savings have been stable. Sentiment has gone down a lot in the last six months, but we are not seeing that in our numbers. We are paying attention to geopolitical tension and oil costs, but we have not seen that creep into our book at this time. Our unemployment insurance data shows no uptick, and our branch survey of managers has been stable over the last couple of quarters. Aaron Cyganovich: Thanks. A follow-up on personal loans. Is there a higher competitive environment today from fintech lenders? Or are credit overlays keeping growth from being faster than expected? Douglas H. Shulman: We have a very conservative credit box, and we have had it for a few years because macro uncertainty has not fully cleared. There is no material change in the competitive environment. The last 18 months have been quite competitive with plenty of funding available for competitors. Different competitors have different return profiles and premiums on growth. We do not chase growth; we focus on profitability. We are still booking 60% of originations in our best, lowest-risk customers with very attractive pricing, which indicates our competitive position remains strong. We have a pipeline of product innovation. It will fluctuate quarter to quarter. We focus on a great product, targeted marketing, and booking loans that meet risk-adjusted returns. We are fine with 6% year-over-year receivable growth. Operator: We will go next now to Mihir Bhatia with Bank of America. Mihir Bhatia: Hey. Good morning, and thank you for taking my question. I wanted to turn to credit for a minute. There are a few moving pieces this quarter. Gross charge-offs and recoveries both stepped up materially year over year. What is driving that? And early-stage DQs, the 30–89 bucket, are basically flat while the 90-plus bucket increased. Is something going on in roll rates where folks are finding it difficult to cure once delinquent? Can you help frame what is going on with credit? Jeannette E. Osterhout: We focus on net charge-offs, and we ended net charge-offs in line with expectations. You are right there were puts and takes. We have seen historically low roll rates from delinquency to loss since the pandemic, and this quarter we saw some normalization in those roll rates. We are not expecting that normalization to continue through the rest of the year, and roll rates remain better than pre-pandemic. Second, recoveries efforts paid off. We saw very strong recoveries that helped offset gross charge-offs, largely from improvements to internal capabilities. Bulk sales of charged-off loans were slightly less year over year. In general, we feel good about where credit is and where it is going. The movement you see in 90-plus reflects some of those roll dynamics, but we are not expecting that to persist. Operator: Thank you. We will go next now to John Pancari with Evercore ISI. John Pancari: Morning. Just to go back to the credit point regarding the back book—you indicated the loans are going delinquent two times faster than expected, but you are still confident in the charge-off expectation given the burn-off. Is that view predicated on that two-times faster DQ formation slowing, or on it remaining stable? What is your assumption around that DQ formation when it comes to your charge-off outlook? Jeannette E. Osterhout: The back book’s contribution to delinquency has shrunk slightly over time, and it will not be perfectly linear with run-off. On a typical personal loan curve, as loans get older, you see some plateauing. For the second half, we look at the composition of vintages. We expect the back book contribution to come down slightly—approximately two times, maybe slightly more than two times, what we would have expected pre-pandemic—but we will also have newer, good-performing vintages coming on book, which improves the mix. John Pancari: Thanks. Separately, can you give us an update on the status of the State AG lawsuit filed back in March—any developments, progression in the courts, thoughts on exposure, fines, remediation, settlements? I know you indicated this issue had been addressed by the CFPB in a previous action. Douglas H. Shulman: First, please see our public statement on our website. The bottom line is the claims made by the states are untrue and have no merit. They are attempting to relitigate issues already reviewed by the CFPB and resolved. We are happy to go to court and are confident we can win. Regarding sizing, these are matters fully resolved with the CFPB, and it is only a fraction of states involved. We do not view this as a material matter or one that will have any material impact on our business. Operator: We will go next now to Richard Barry Shane with JPMorgan. Richard Barry Shane: Hey, guys. Thanks for taking my questions this morning. There is an interesting dynamic: you have had a tight credit box and have consistently tightened since August 2022, driven by sensitivity of lower-quality borrowers to inflation—housing and gas were standouts. We are now two months into substantially higher gas prices. How do you think about the credit box now? Had you anticipated loosening and you will maintain status quo, or do you tighten from here? Douglas H. Shulman: We think we have a good, conservative credit box, and we have kept it conservative for exactly the kinds of uncertainties we have seen recently. We have a 30% stress overlay in our credit box—on top of model predictions, we apply a 30% peak loss overlay—and even with that overlay, loans must meet our 20% marginal return on tangible equity. I would not say things are worse than in 2022. We are more than three years into a period of persistent uncertainty, but performance has been pretty good despite that. We have not declared the coast is clear, and we have constructed a book with better-quality customers, driving losses down and profitability up. We do not react to oil price moves in isolation. We look at on-us credit, external factors, early defaults, and we run weathervane tests—booking a de minimis amount under our 20% threshold to see if they pop above over time. Nothing indicates we should add more overlay now, but we are not taking the overlay off. We are always making tweaks—by geography, product type, and customer characteristics—but the overall overlay remains constant, and we will change it when warranted. Richard Barry Shane: Understood. As a follow-up, incumbent in your guidance is a significant improvement in credit in the second half. Do recent changes—like higher gas prices—reduce your confidence in achieving that? Douglas H. Shulman: No. What we have seen so far does not change anything. If the economy were to materially weaken, our outlook would change, but we are assuming a relatively steady environment and remain confident in our guidance. Douglas H. Shulman: Thank you, everyone, for joining us. As always, our team is available for follow-up. Have a great day. Operator: Thank you, Mr. Shulman. Thank you, Ms. Osterhout. Again, ladies and gentlemen, this concludes today’s OneMain Holdings, Inc. first quarter 2026 earnings conference call. Please disconnect your line at this time and have a wonderful day.
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.