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Operator: Welcome to the Ardelyx First Quarter 2026 Earnings Call. All participants will be in a listen-only mode. I would now like to turn the conference over to Unknown Speaker, Senior Vice President of Corporate Communications and Investor Relations. Unknown Speaker, you may begin. Thank you, Ross. Unknown Speaker: Good afternoon, everyone, and welcome to our first quarter 2026 financial results and business update call. Earlier today, we issued our earnings release, which can be found on the Investors section of our website at ardelyx.com. Slides that accompany today's call can also be found on our website. On today's call, I am joined by Michael Raab, President and CEO of Ardelyx, who will share our Q1 progress towards our 2026 priorities. Eric Foster, Chief Commercial Officer, will provide an update on the performance of Ibsrela and Exposa. And Sue Hohenleitner, our Chief Financial Officer, will provide some key highlights from our financial results. Before we begin, I would like to remind that some of the statements made during the call today are forward-looking statements, which are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our Annual Report on Form 10-K, our Quarterly Report on Form 10-Q, which was filed today, and from time to time in our other documents filed with the SEC. While we may elect to update these forward-looking statements in the future, we specifically disclaim any obligations to do so, even if our views change. I will now pass the call over to Michael Raab. Michael? Michael Raab: Thank you. Good afternoon, everyone. It is great to be with all of you today. Before we dive in, I want to take a moment to welcome Lisa to the team. We are excited to have her on board leading our IR efforts as our new head of investor relations. 2026 is poised to be another significant year of growth for our company, and we are already off to a great start. At Ardelyx, we are building an innovative pipeline of medicines for patients with unmet medical needs. Our first quarter performance reinforces our confidence in the strategy we have laid out and in our ability to capture the opportunities ahead to create long-term value. As we build on this momentum, our focus is on executing on our four key priorities: accelerating the growth of Ibsrela, maintaining the Exposa momentum, building and expanding our pipeline, and delivering strong financial results. Starting with Ibsrela. In the first quarter, our disciplined commercial execution drove 58% year-over-year revenue growth. With more than 7 million prescriptions written for IBS-C-indicated medicines last year, Ibsrela is well positioned as a differentiated mechanism for patients who continue to experience symptoms despite treatment with a secretagogue. Our strategy continues to positively impact demand drivers and today, Ibsrela is helping tens of thousands of patients with IBS-C, and we remain on track to deliver at least $1 billion in annual revenue in 2029. With Exposa, our patient-first strategy continues to guide our execution with demand growing. Today, more patients have access to Exposa than ever before, and we remain committed to supporting patients irrespective of payer coverage. Next, our pipeline. As a result of our performance and execution, we are at a stage where we have the financial flexibility to further invest in our pipeline, positioning our company for durable long-term growth. Earlier this year, we initiated the EXCEL trial, a Phase 3 clinical trial evaluating Ibsrela for chronic idiopathic constipation, or CIC, as part of our efforts to expand our label and to reach more patients. This trial has rapidly gained attention from clinicians and patients alike, and all pre-identified sites have been initiated in under four months and are engaged in patient recruitment activities. We remain on track to complete enrollment by year-end and to announce topline data in 2027. If EXCEL reads positive, Ibsrela will expand treatment options for more patients. In addition, we have a strategy to expand the use of Ibsrela which may help pediatric patients with IBS-C and has potential to extend SNDA-related patent life for an additional six months. Our ongoing pediatric program consists of several studies evaluating Ibsrela in patients with IBS-C and functional constipation, the pediatric equivalent to adult CIC. This effort is an example of our ongoing strategy to extend tenapanor, which includes our recently announced Orange Book-listed 2099 patent covering the commercial formulations of Ibsrela and Exposa, building additional value for these franchises. Also included in our pipeline is our development program for our next-generation NHE3 inhibitor, 531, which continues to progress through IND-enabling studies, building on our foundational experience in NHE3 inhibition. 531 may extend our reach into other therapeutic areas, which would drive additional value for shareholders. We are excited for this next phase of Ardelyx’s evolution as we execute on our pipeline and explore various external opportunities that align with our mission and core capabilities and meet our disciplined capital allocation approach. We have been growing our team at Ardelyx and now have a deep bench of talent at the executive level. I am excited with the two newest additions who have joined the executive team: Felicia Attenberg, our Chief Legal Officer, and Dr. Rajani Dharavahi, our Chief Medical Officer. Felicia’s broad legal training and experience as a business partner, as well as Rajani’s experience advancing innovative therapies from development to patients, will be beneficial to Ardelyx as we build upon our commercial foundation, invest in our pipeline, and focus on delivering meaningful outcomes for patients. I would also like to take a moment to thank Dr. Laura Williams, our Chief Patient Officer, who has been serving the dual role of CMO and CPO while helping to guide us on this journey and has done an outstanding job advancing our clinical programs. Thank you, Laura. Finally, we remain in a position of financial strength. Our Q1 revenue performance positions us to reiterate our previously communicated full-year 2026 revenue guidance for Ibsrela and Exposa. We have the flexibility to allocate capital to both near-term commercial execution and investments that would expand our pipeline to drive long-term growth and value for the company, our patients, and our shareholders. I am confident in our strategy and our team’s ability to deliver on our key priorities. Together, we are advancing a growing, differentiated, innovative pipeline of medicines that address unmet patient needs. With that, I am pleased to turn the call over to Eric to walk you through our commercial success. Eric? Eric Foster: Thank you, Michael. It is great to be with you all again. In Q1, we continued to build upon the incredible commercial momentum and execution and performance from last year. Ibsrela grew in total writers, new and refill prescriptions, and total prescriptions year over year. For Exposa, we continue to ensure patient access regardless of payer coverage, which drove an increase in total expenses and paid prescriptions year over year. Our commercial team remains focused on expanding adoption among HCPs, creating greater brand awareness for patients, and ensuring the fulfillment of written prescriptions. Our investments to improve the HCP and patient journey and expand access to our medicines have turned into consistent year-over-year growth for both Ibsrela and Exposa. Let me start with Ibsrela. Ibsrela continues to be our main revenue driver and our commercial execution generated 58% product revenue growth year over year. During the quarter, we saw robust demand trends, notwithstanding expected first-quarter market dynamics and temporary disruption from two severe winter storms. Our growth in demand is a result of our efforts to capture more of the IBS-C market in 2026 by driving Ibsrela as the first-line therapy following a secretagogue failure. Ibsrela is a first-in-class innovative medicine with a winning and sustainable position in a growing market with nearly 7 million prescriptions written last year. Through research, we know that as many as 77% of patients on a secretagogue continue to experience symptoms despite treatment, demonstrating a high unmet medical need for additional options. I will now walk you through our key demand drivers which include growing both breadth and depth of writing, increasing patient activation, and lastly, improving prescription pull-through and fulfillment. Beginning with growing breadth and depth of writing. We are focusing on high-writing health care providers who are responsible for approximately 50% of the IBS-C total prescriptions, and our field sales team is driving greater reach across those targets. These efforts resulted in an increase in the number of writers in Q1, underscoring the effectiveness of our commercial activities. We are also seeing deeper prescribing within existing accounts. When an HCP is familiar with the access path and sees positive patient experiences, they are more likely to prescribe Ibsrela more broadly. Our end-market messaging focused on Ibsrela’s differentiated mechanism of action and its established safety and efficacy profile is resonating and continuing to drive HCPs to prescribe Ibsrela. With respect to patients, the IBS-C population is highly engaged in managing their condition. As awareness of Ibsrela’s effectiveness and safety increases, patients are more likely to initiate conversations with their physicians, which in most cases results in a prescription. We continue to focus on identifying and reaching patients through multifaceted marketing efforts. We are currently seeing robust engagement across digital and social channels while we continue to explore new channels to reach and engage with the sizable IBS-C patient population looking for something different. One such initiative is through our partnership with the LPGA, where we will educate, empower, and mobilize patients to take control of their IBS-C by seeking new information and talking to their doctor about their symptoms and the treatment options that are available. We chose to partner with the LPGA due to their clear strategic alignment between the LPGA’s legacy of empowering women and Ardelyx’s mission to empower patients to proactively manage their health. Patients deserve open dialogue about their symptoms and their options, and we are excited to partner with the LPGA to accomplish this goal. Lastly, our full commercial organization is focused on driving prescription pull-through to help ensure that all patients prescribed Ibsrela get on treatment. Based on prior success, we are increasing the presence of our field reimbursement managers who support patient access. This team is talking directly to prescribers and supporting them with account education and patient pull-through to improve patient access. To drive further adoption, we are continuing to encourage HCPs to send prescriptions to the Ibsrela Pharmacy Network, a limited group of specialty pharmacies that offer a patient-centric, high-touch experience and who are best equipped to handle prior authorizations and the payer hurdles that can restrict patient access. As prescriptions go through our specialty pharmacy network, fulfillment rates are higher, and we see on average an additional refill per year for patients. This is a high-value opportunity that we will continue to help achieve our projected revenue growth. We are united in our purpose to make a meaningful difference to patients impacted by IBS-C, and we are moving with urgency to capture the opportunities ahead and realize our full potential. Moving on to Exposa. Our high-performing, patient-focused Exposa team is committed to achieving the full potential of Exposa and bringing this important medicine to patients in need. I continue to be proud of the team’s ability to improve patient access and drive growth. As a result, we saw an increase in total expenses by 32% and paid prescriptions by 19% compared to the same quarter in 2025, which is important as the overall prescription market declined by 10% over the same time period. We are broadening our reach by employing targeted sales initiatives and a cross-channel strategy to increase HCP and patient engagement. We saw solid growth across key metrics in Q1, with notable increases in total writers, new and refill prescriptions, and total prescriptions across the non-Medicare segments compared to the same time period last year. This growth shows progress against our key strategic initiatives, which includes optimized HCP targeting and enhanced access messaging to support pull-through. Exposa continues to be an important contributor for Ardelyx, and we remain focused on supporting and ensuring access for all patients regardless of payer coverage. With the majority of patients treated with binders not having fully controlled phosphorus, the high unmet need is clear. I am confident in the team’s ability to deliver on our priorities for both Ibsrela and Exposa this year. The entire organization is executing incredibly well at a high level in a fast-paced environment, consistently achieving our shared goals as a result. At the same time, we are making prudent investments across the commercial organization to strengthen our position in the market, support patients along their journey, and accelerate long-term growth. I will now turn it over to Sue. Sue? Sue Hohenleitner: Thank you, Eric. As you heard from Michael and Eric, we are continuing to advance our commercial momentum to drive significant value creation. We are leveraging disciplined capital allocation into a clear strategic advantage by investing with purpose in commercial growth and building our pipeline. We are driving towards profitability and meaningful cash generation, allowing us to strengthen our balance sheet, invest in growth, and build long-term shareholder value. Now let me walk you through the financials. Our quarter-over-quarter total product revenues were $93.4 million compared to $67.8 million in the same period last year, representing 38% growth. That growth was driven by a significant increase in Ibsrela demand with Q1 2026 revenues of $70.1 million, an increase of 58% compared to 2025. The Q1 2026 demand for Ibsrela increased despite the expected Q1 seasonal dynamics that were further exacerbated by the winter storms. We continue to expect Ibsrela revenues to grow quarter over quarter for the remainder of the year. Revenue for Exposa during the quarter was $23.3 million and, on an as-reported basis, remained consistent with the prior year revenue. However, it is important to understand the underlying business results we are seeing. As you may recall, in Q1 2025, we recorded a $3.8 million favorable adjustment related to product returns. Taking that adjustment into account, our paid prescriptions of Exposa actually grew 19% year over year. Now turning to expenses. R&D expenses for 2026 were $20.2 million compared to $14.9 million for the same period in 2025. This increase primarily reflects development activities for the EXCEL Phase 3 trial for CIC. SG&A expenses were $102.3 million for 2026 compared to $83.2 million for the same period in 2025. This increase was reflective of the ongoing investments to drive commercialization, demand, and adoption of Ibsrela. Our net loss for 2026 was $37.6 million, or a loss of $0.15 per share, compared to a net loss of $41.1 million, or $0.17 per share, for the same period in 2025. The net loss for Q1 2026 included $14.2 million for non-cash expenses from share-based compensation, compared to $12.1 million for the same period in 2025. We are in a position of financial strength with $238.1 million in total cash, cash equivalents, and short-term investments as of the end of the first quarter. To capitalize on the favorable market conditions, we recently refinanced our existing debt with SLR. You may recall we entered into a loan agreement with SLR in 2022 that provided a total of $300 million of cash, of which $200 million has been drawn down. The remaining $100 million of cash is available for drawdown this year. We are pleased with the positive outcome of this refinancing with SLR, which extended the maturity and interest-only period of our loan by two years and lowered our overall cost of capital and annual interest expenses throughout the term of the loan. Now turning to guidance for 2026. We are reiterating our 2026 revenue guidance for Ibsrela between $410 million and $430 million. That represents 50% to 57% year-over-year growth. We expect the growth to be driven by quarter-over-quarter increases in demand along with improved prescription pull-through. Our long-term growth expectation for Ibsrela remains to reach at least $1 billion in 2029, representing a 38% CAGR. Now turning to Exposa. We are reiterating our revenue guidance between $110 million and $120 million in 2026. We continue to invest at an appropriate level to ensure that Exposa remains a contributor of financial growth for Ardelyx. Our full-year product revenues are expected to grow between 38% and 46%, outpacing our operational expenses, which will grow by approximately 25%, consistent with prior guidance. We are at a stage in our development where it is necessary for us to prudently invest in our growth accelerators: our commercial operations and our pipeline, all of which require high-impact investments in R&D and SG&A. In 2025, we grew our cash balance year over year even as we increased investment in both commercial execution and pipeline development. As we transition into more steady and measurable cash flow in the near future, I think it is important to begin to share our capital allocation priorities as we head into this new era. Our priorities include: one, accelerating Ibsrela growth, as this is our highest ROI use of capital today; two, investing in our current pipeline to create additional growth drivers and expand with external business development opportunities; and three, maintaining our financial strength. Importantly, we are funding current operations and pipeline from our revenue base, which demonstrates the growing financial maturity of Ardelyx. In addition, as I stated previously, we have proactively refinanced our debt and reduced our cost of capital while preserving optionality for BD partnerships or other future opportunities. Ultimately, all of this builds towards sustainable profitability. We hope this view of our capital allocation priorities is helpful as you continue to support the strategic value of our now and as we evolve into the future. With that, I will hand it back to Michael. Michael Raab: Thank you, Sue. As you heard, we are focused on executing our priorities: significantly grow Ibsrela, maintain Exposa momentum, further advance our pipeline, and continue delivering strong financial results. We are moving with purpose, urgency, and discipline against these priorities, and we look forward to demonstrating continued progress as the year unfolds. To our investors, employees, and especially the patients, thank you for your continued engagement and support. We are encouraged by the progress we have made and excited about the opportunities ahead. We remain focused on disciplined execution and long-term value creation, and we appreciate your continued confidence as we move forward. We will now open the call for questions. Operator? Operator: If you would like to ask a question, you will be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you would like to ask a question, please press 1 on your phone now. Our first question comes from Roanna Ruiz from Leerink Partners. Please go ahead, Roanna. Roanna Ruiz: Yep. Thanks. A couple from me. First one, thought it was interesting you mentioned the Ibsrela demand increased despite the storms and seasonality. How should that flow through to the next quarters and in light of your current guidance? Michael Raab: Sure. I will ask Eric to comment a bit on it. For us, seeing what we all went through in the first quarter, which is normal seasonality and those two storms, seeing that continued growth in demand only strengthens our conviction in terms of where we are seeing this business grow, and we are very, very pleased with those results. Eric, anything to add? Eric Foster: Yeah. Thanks, Roanna, for the question. Very pleased with what we saw in terms of demand in Q1 and very similar to the patterns that we have seen in the past. We expect to continue to see quarter-over-quarter growth as we move forward. I feel very confident with the team that we have in place and continuing to invest in access and making sure that all patients that are written a prescription can get fulfillment. So I feel very comfortable about the strategy that we have in place and our ability to be able to continue the strong execution, and you should see that continue to grow as we move through the year. Roanna Ruiz: Great. And the other question I had, I was curious about any color you could share about OpEx throughout 2026. How should we think about this with the Phase 3 CIC study ramping up as well? Sue Hohenleitner: Sure. Yeah. Thanks, Roanna. Yeah. I would say that we have said before we are going to guide, and we are up to about $520 million in total OpEx, and that would be consistent throughout the quarter. So you saw in first quarter that we recorded about $122 million of that OpEx expense. So what I would see is a bit of a ramp up as we move through. As we continue to enroll the patients in the study, you will see more of those expenses come through the rest of the year. Michael Raab: And to be clear, that was all factored into the guidance that we gave, the expectation of the spend that we would have for CIC. Roanna Ruiz: Understood. Thanks a lot. Operator: Thanks, Roanna. Our next question comes from Joohwan Kim from Citi. Please go ahead. Joohwan Kim: Hi. This is Joohwan Kim on for Yigal. Congrats on the progress and thanks for taking our question. Maybe just a quick one from us. Have you tracked towards your December enrollment completion target for the Phase 3 CIC trial? Can you provide any color on the pace of enrollment relative to internal expectations so far? And are there any learnings from the IBS-C TEMPO enrollment experience that are helping you optimize recruitment? Thanks. Oh, interesting question in regards to TEMPO. Michael Raab: As I stated in my comments, we have all the pre-identified sites up and running, and that pace of enrollment of the sites was wonderful to see, and it was on par with what we expected out of the TEMPO program. As I also noted, the enthusiasm both by treating physicians and patients is evident, and that enrollment continues at pace. So we are very confident with the timeframe that we have shared where we would be able to expect both for it to be completed and the data to be shared. Joohwan Kim: Great. Appreciate it. Eric Foster: Thank you. Operator: Our next question comes from Dennis Ding from Jefferies. Please go ahead, Dennis. Dennis Ding: Hey, guys. Thanks for taking my questions. I had several questions around Ibsrela. So number one, Q1 had some seasonality, and on a quarter-over-quarter basis, it was a bigger step down relative to last year, which is totally fine because it is a bigger base. But in terms of the recovery, should we also expect a bigger recovery than what we saw last year as well? I believe consensus for Q2 assumes about a $30 million quarter-over-quarter recovery for Q2. Question number two, just specifically around the specialty pharmacy dynamic. Can you share if that shift away from retail is working out in terms of better fill and reauthorization rates relative to last year? The channel is about 30% of the mix, but how much higher can that go? And then I have one more. Michael Raab: Let me just quickly address some of those and I will ask Eric to comment. I think the Q2 recovery—rather than recovery, it is just a normal course of business. I think that term is an important one to think about. It is what we expect and what we plan for given the predictable dynamics that everyone sees in Q1. Now the surprise was the storms—the two storms, both the Mid-Atlantic one and the one in the Northeast—and that clearly had a meaningful impact in that sector of the country. And if you think about where many distribution centers are, they were smack dab in the middle of the Ohio River Valley where much of that was hit. So one cannot predict—we are not weather people, and they are wrong 50% of the time at least. So we do not try to predict storms, but it is one thing that is notable. I am very confident with the data that you see every week, that we are on the path to what we expected out of Q2. I do think, again, just to reemphasize, it is not a recovery, rather just a pattern of the business. I will ask Eric to comment a little bit more on that in terms of what they saw in the field. But the IPN, the Ibsrela Pharmacy Network, is a fundamentally important part of our strategy moving forward, given Eric’s comments in his opening statements. It is better for patients, and I will let him talk about the dynamics in terms of the shift. At this point, it is early for us to say what we think the ultimate potential percentage of the business that would go through that is. It is probably a little bit too much detail that will become evident through the data. That we know is imperfect, but it will become evident over time. Eric Foster: Yes. Thanks, Michael. And thanks for the question, Dennis. As far as Q1 goes, we had talked about the seasonality, and as Michael said, for us, we have the experience and the knowledge to know most of that is coming. What we were not aware of, obviously, were the storms. So we feel like the team planned accordingly. We were able to push through the temporary disruption there and, just like we saw last year, we really started to see the acceleration in the back half of the quarter, and we certainly see that, which gives us great confidence as we moved into Q2. With regards to the Ibsrela Pharmacy Network, we continue to be very excited about that opportunity and really to bring Ibsrela to patients that are prescribed Ibsrela. If we think about the fulfillment rate and your question around is there better fulfillment—absolutely there is when it goes to the Ibsrela Pharmacy Network. That is really the driver for us to make sure that patients that are prescribed Ibsrela can get on therapy. We will continue to work on moving business into the Ibsrela Pharmacy Network. We expect that to continue through the year. It is also important to note when that happens, there is an additional, on average, prescription or refill in that year. So it is really great for patients. You get a higher fulfillment rate, you get a better refill rate as those prescriptions go through the Ibsrela Pharmacy Network. Sue Hohenleitner: Yeah, and one thing I would add, Dennis—you kind of talked about the guidance—we were pretty overt about Q1 with kind of a soft guide, but that was all factored into our full year, and that is all factored into our year guidance. We are not going to provide similar color going forward. We felt like that was appropriate for Q1 just given the storms and some of the volatility, but I think as we go forward, as we said, we are going to continue to grow quarter over quarter. Dennis Ding: Okay. Perfect. And then as my follow-up. Lilly is running a Phase 2 with its GLP-1 agonist for IBS-C. Data might be in 2027. So I am curious how you are thinking about that study and the durability of the Ibsrela franchise over the long term in the 2030s, and you will be well north of $1 billion in revenue. Thanks so much. Michael Raab: Yeah. I mean, I think for us, what we need to do is follow the data, and anything that helps patients is a good thing. I think that is just a fundamental way that we—and I—look at this business. Anything that is going to help patients is the right thing to do. The realities are, if you look at the potential patients that could, should, or might be taking GLP-1s, it is a relatively small percentage who actually are versus those who would benefit from it. So I would not imagine there is going to be a massive degradation of the market, given the positioning that we have for Ibsrela in that market. I do not see that as a massive threat on the horizon. Is it better for patients if it works? Of course it is, and that is something we should all cheer. Dennis Ding: Perfect. Thanks so much. Michael Raab: Thanks, Dennis. Operator: Our next question comes from Christopher Raymond from Raymond James. Please go ahead, Chris. Christopher Raymond: Hey, yes, thanks. We have talked to some KOLs who indicate they are already using Ibsrela to some extent in CIC. Michael, I know you are not going to want to give too much color here, but just maybe in broad strokes, can you talk about what kind of CIC use you are seeing in the field? I mean, LINZESS, TRULANCE, Amitiza—they all have CIC on their labels already. Maybe second part of that question is would the competitive dynamic in this indication be maybe similar to what we have seen with IBS-C, or are you thinking something different? Thanks. Michael Raab: So yes. What is important about what you said is all the others have dual indications. Clearly, we have heard and understand what you have described as volunteer in your KOL clinician discussions. As you know, physicians, in the art of what they practice, can prescribe things off label. We cannot promote things off label, and we will not and do not. That is a fundamental part of this business, as everyone understands. If a physician feels it is appropriate for CIC, they should. What is really interesting—if you have not looked at Rome V, which was just published—the changing definition of CIC, functional constipation, IBS-C, which we know, given our experiences on the front lines, is a continuum of care. Understanding how the Rome Foundation has evolved its definitions is one of the fundamental reasons why we moved into the CIC program. It is a natural course. As we have spoken over the years, would we have loved to have both indications at launch? Of course. But as you know, I am cheap, and we did not have the money to invest in both indications. Now that we are in a place that we can, we are, to provide those benefits and try to eliminate some of the barriers in the way that physicians think about this and the further hurdles that the prior authorizations will put them through if it is an off-label indication. I agree with everything that is the genesis of your question, and what we are doing with the CIC program is specifically designed to address that, coupled with what has happened with Rome V. Christopher Raymond: Thank you. Michael Raab: Thanks, Chris. Operator: Our next question comes from Ashley Marie Aloupis from Piper Sandler. Please go ahead, Ashley. Ashley Marie Aloupis: Hi. This is Ashley on for Ali. Congrats on the quarter and all the progress made. Just two questions from us. You talked about this in your prepared remarks, but could you talk a little more about the Ibsrela pediatric trials and the workings of the potential six months of additional patent life and how meaningful those additional six months could be for Ibsrela? And then also, just wondering once the IND is filed, do you have any line of sight into timelines around getting 531 into the clinic and how quickly you plan to move if the IND studies are positive? Thank you. Michael Raab: We will work at pace if those studies are positive because it is the right thing to do. Fundamental again to what we do is we follow the data, and all this pre-IND work is really critical for us to understand. Let me remind you that when we created tenapanor back in 2009, it was based upon a huge amount of preclinical work that we had done to understand all aspects of where this molecule engages, certainly with animal models and ultimately into man. So we have good experience in this, and there are very tried-and-true approaches that one takes in order to make the decision to file or not to file an IND. The data tell us what the right thing is to do. With regards to the pediatric indication, this is tried-and-true practice that everyone does in the industry. One of the things that the FDA put in place was the Pediatric Research Equity Act to encourage companies to develop drugs for the pediatric population. Now, it is pretty hard—IBS-C—given different age groups, the inability or challenge to describe pain. It is subjective. So it is a harder population; it is a smaller population. But the mere operational effort to put this in place, primarily to show safety—one of the fundamental tenets of pediatric development—allows you flexibility to treat the younger patients if you demonstrate the safety that we expect to demonstrate, given our long history of utility of this molecule. So the benefit of that six months—you look at whatever peak it is that you have modeled, just look at each incremental month of value that that will generate, and that will tell you the value in your modeling of what those six months are worth. It is significant. Ashley Marie Aloupis: Got it. Thank you for the color. Operator: Our next question comes from Joseph Thome from TD Cowen. Please go ahead, Joseph. Joseph Thome: Hi there. Good afternoon, and thank you for taking my questions. Maybe a little bit of an extension of a prior question, but can you walk through the physician-type point differences between CIC and IBS constipation? If you are successful in CIC, would you need to go a little bit more into a primary care segment with your sales force? Or by the time they are presenting to a level where they may be in the GI office? Anything around that would be helpful. And then you mentioned about it a couple times, obviously, on the call. Can you talk a little bit about the company's willingness to maybe lever up the balance sheet, given what your expectations are for the growth of Ibsrela, to do something maybe a little bit larger in size? Michael Raab: Sure. Let me address the first one and ask Eric to comment too. As we said when we announced the EXCEL program, the CIC market is significantly larger than the IBS-C market. However, the vast majority of those patients are effectively treated with over-the-counter medications. So I think that is an important distinction as you look at the epidemiology in these populations as to what the differences are and not get over your skis in terms of what that market sizing might be. It is an important distinction that those who are not served by OTC meds are the ones that end up going and being referred to other offices. Eric, do you want to comment a little bit on what we would do in the field, if anything? Eric Foster: Yeah. Thanks, Joe, for the question. As you know, today we focus on high-writing GIs, APPs, and high-writing non-GI. That does put us in more of the primary care setting. I feel really confident about the targeting that we have right now for IBS-C, and you can see a lot of the great momentum that we have. With regards to CIC, I do think you are correct. As Michael mentioned, it is a bit of a larger patient population, and we do see and expect more patients to be going to their primary care. At some point, as we are continuing to look at that patient population and making sure that we have the right reach, we will make that decision at that time. Certainly, I can see that there is more utilization in the primary care market. That is something that we definitely will consider as we look at the right-sizing of the team as we get closer to product being approved. Michael Raab: And, Joe, a fundamental part of that is—as Eric has talked about in the past—we call on 50% of the HCPs today that write for IBS-C and, frankly, CIC-indicated drugs alike. That is the 14 thousand HCPs. The other 50% is about 182 thousand HCPs, and we are not going to cover them all. So it is going to be an optimization of those who might be writing a disproportionate amount for CIC, which you can find through the data. A little bit of a cautionary note not to take this as though we are going to double or triple the size of the organization, but rather an optimization as you have seen us do this year. With regards to levering the balance sheet, we are at such an incredible, pivotal time for the evolution of the company, where—not really reading between the lines—Sue has said explicitly we are going to generate more top line than expense. So that journey that we are on, that horizon, is not that far away. What we are trying to do—I will ask Sue to comment. I am not sure how much leverage is needed versus execution in the way we are doing, but certainly, we are not afraid of doing the right thing for opportunities that present themselves. Sue Hohenleitner: Yep. And as you heard, we already did do a refinance of our debt. We still have access to an extra $100 million of that loan. So we have got that. We have got plenty of options to do that if and when it is necessary or a great opportunity presents itself. Joseph Thome: Great. Thank you. Michael Raab: Thanks, Joe. Operator: Our next question comes from Laura Kathryn Chico from Wedbush Securities. Please go ahead, Laura. Laura Kathryn Chico: Thank you very much for taking the question. Three for me. First, I thought I heard Eric mention an expansion of the field manager level, and I am just trying to understand if that is more impactful on the depth of prescribing or the breadth of prescribing. Which of those two levers impacts hitting the upper range of guidance or kind of impacts the guidance swing there? I have two quick follow-ups. Eric Foster: Yes. Thanks for the question, Laura. I hate to say it, but both, actually. It is very hard getting the physician to write that first prescription, and so we want to make sure when they write the prescription that they have confidence that it will be filled. That is what the field reimbursement manager does. They work with the physician’s office to ensure, as they navigate the payer dynamics, that they are able to pull through and get that prescription filled. With regards to physicians as they continue to increase their depth of prescribing, that same confidence is important that not just the first one goes through, but subsequent ones. That team is really focused on helping prescriptions get pulled through, whether it is the first prescription or subsequent ones. I think you heard me say in my prepared remarks we saw an increase in writers as well as an increase in depth of prescribing as well. So we are having impact across both of them. That is why I go to both of them to say that it is important to make it happen across both. Michael Raab: Laura, when Eric first started talking about hiring this skill set, one of the things that really opened my eyes is a very simple example. If I am the salesperson, I worry that that script is going to be filled—that is the way you are going to compensate me. So if I am spending my time looking at Dr. Foster and whether or not that script is actually getting filled, I am not calling on Dr. Raab, because I am worried about that. Bringing on the field access managers allows the account-based directors to have confidence that they can drive the top of the funnel and that there will be those there to help pull through at the bottom of the funnel, resulting in compensation ultimately in incentive comp. I do not think I would ever imagine not having both in the launch of a drug going forward. Laura Kathryn Chico: Okay. Two quick follow-ups and kind of related to that. I think in the prepared remarks, I heard that the Exposa paid rate was also up. Just curious if you could quantify that. And then with respect to EXCEL, the site activation on the pre-identified sites has moved really rapidly. How are you monitoring—any conversation around quality checks that you can do to ensure you are getting sites to adhere to protocols and recruiting the right patients would be helpful—but also what are your assumptions around discontinuation rates? Michael Raab: Once the site is up and running—do we not pay any attention to it? No. You are right. The quality of the patients is really, really important. As you get the enthusiasm of startup, there is training and reminding people of why you started, and any clinical trial has screen failures that happen. Then the sites get better and better at identifying the patients. That is just a natural progression of clinical development and recruitment. Rajani— a couple weeks now onto the job—is into this with both feet and both arms, and we all feel very good about both the quality of the sites as well as, as those sites learn and get better at enrollment, that we see those failure rates begin to taper, which is something you factor into your projections of how you enroll. We all feel very good about what we have said, and ultimately the quality of the patients is going to be there, defined by our inclusion and exclusion criteria. So we feel very good about that quality that Rajani’s team and our CRO are following through with. In regards to your first question, what is important is, on a GAAP basis, of course, the year-over-year quarters look similar. It is so important—what Sue reminded everyone of—that $3.8 million return reserve reversal that we did in Q1 2025 should be excluded as you look at the base business that we have defined, which is a non-Medicare business, which grew by 19%. If you look at our sequential growth, even since we started this effort to not participate in TDAPA, because we believed what we are now seeing is ultimately what was going to be true, it is proving out. The growth that we are seeing in that non-Medicare segment, with all the challenges dialysis organizations are facing, further emphasizes the value of this program and the product for patients who need phosphorus management. It is an opaque and difficult business that we have chosen to partake in in the way that we have, but the numbers are showing that we are helping the patients that we anticipated that we would. Laura Kathryn Chico: Thanks very much. Michael Raab: Thanks, Laura. Operator: Our next question comes from Prakhar Agrawal from Cantor Fitzgerald. Please go ahead, Prakhar. Prakhar Agrawal: Hi. Thank you for taking my questions. Congrats on the quarter as well. Firstly on Exposa, maybe I missed this, but I did not hear you reiterate the long-term guide of $750 million. I know the speed is a little bit more conservative, but just wanted to check if you are reiterating that. You talked about investing in high-value opportunities as well. Has there been a change in the level of investment for Exposa this year and maybe in the future too? Secondly, maybe if you can talk about the gross-to-net for both products for Q1 and trends for rest of the year. And last question, given the investments you are making both on the R&D and SG&A, how should we think about the cash flow profitability? Thank you. Sue Hohenleitner: Thanks, Prakhar. That is a lot for me, so let us see if I can hit it all. In terms of the high-value opportunities with Exposa, yes, we ensure that Exposa continues to be a contributor. We do not necessarily tease out separate product P&Ls, but rest assured, we continue to ensure that all of the spending that is done—any investments we make behind those patients and that growth—makes it a financial contributor. In terms of the gross-to-net, you probably saw in what we filed we are a little over 36.4% GTN, and that is a blend. We do not necessarily split that out. What I would say is first quarter is going to be your highest quarter in terms of GTN, just given all the dynamics with copays and deductibles, etc. What we have always said before is it is about low-30s when you think about a blended total GTN rate for the year. You will see that high in Q1 and then taper off as we go into further quarters. Before I leave Exposa, yes, we will reiterate the $750 million, and I am reiterating that. So within the guidance, we have given the $1 billion for Ibsrela and the $750 million for Exposa. In terms of R&D and SG&A and cash flow, it is something that we are continuing to monitor. As you can see with the top-line guide being $520 million to $550 million and our OpEx only $520 million, there is a possibility we will get to cash flow positivity. But certainly, we want to continue to see how the year unfolds and make sure that we are hitting on all cylinders, and then we will likely come back with an update if it is appropriate on cash. Michael Raab: We appreciate the question of wanting to traject quarter to quarter, but we are not going to get into the practice of quarter guidance. I think the yearly guidance that Sue just went through is really important. Prakhar Agrawal: Thank you so much. Operator: Our next question comes from Matthew Caufield from H.C. Wainwright. Please go ahead, Matthew. Matthew Caufield: Hi. Thank you, guys. With the investor focus on sales execution, is there further granularity that you could share on Ibsrela growth between the new patient starts versus refill persistence trends? And then where things may stand presently for the total penetration among target prescribers there? Thanks for any color on execution overall. Michael Raab: I think that is getting into detail that we probably would not get into specifics on. You can begin to look through your script data in terms of NRx and TRx and tease that out to some extent with what you do. I recognize that it is going to be imperfect data. Suffice it to say, with Eric’s prepared remarks, that we are seeing both— with the other question that was asked—breadth and depth. We are seeing great refills, and we are seeing lots of new prescriptions coming through as well. Eric, anything to add? Eric Foster: [inaudible] Matthew Caufield: Thank you. Operator: Our next question comes from Julian Harrison from BTIG. Please go ahead, Julian. Julian Harrison: Hi. This is Andrew on for Julian. Congratulations on the results this quarter, and thanks for taking our question. On Ibsrela, which of the growth drivers would you say you believe still has the most room to grow: writers, new prescriptions, refill, or pull-through? Thank you. Michael Raab: I think Eric will probably say yes to all of the above. What is interesting is, for the 7 million prescriptions for IBS-C-indicated products that I referenced in my opening remarks, it is a very small percentage of the market one needs to penetrate in order to get to our guidance of peak. There is massive opportunity out there. Eric, any granularity around the specifics would be great. Eric Foster: Sure. I am very excited about all of them, as you list them. As we think about the Ibsrela opportunity, as Michael said, there are 7 million prescriptions written for IBS-C on an annual basis, and we continue to see that market grow. We feel very confident in the position that we have—winning position, sustainable over time—that we have had for the past three years. We continue to see an increase in writers, total writers, new writers, as well as depth of prescribing, and that is really important. What that tells you is physicians continue to have confidence in Ibsrela and look at it as a viable option for their patients that are in need. Of those patients, we know that 77% continue to have symptoms despite treatment with a secretagogue. Very healthy market, strong position for Ibsrela, continuing to grow writers as well as depth of prescribing, and we feel really good about the opportunity we have moving forward. When you think about the Ibsrela Pharmacy Network and being able to improve the fulfillment rate as well as the number of refills for patients, it really leads to success across the business in those important drivers. That is what gives us that confidence to the $1 billion in 2029 and beyond. Operator: There are no further questions at this time. This now concludes today’s conference call. Thank you for joining. You may now disconnect.
Suhasini Chandramouli: Good afternoon, and welcome to the Apple Inc. Q2 Fiscal Year 2026 Earnings Conference Call. My name is Suhasini Chandramouli, director of investor relations. Today’s call is being recorded. Speaking first today is Apple Inc. CEO, Timothy D. Cook. John Ternus will be joining after that for a brief set of remarks and he will be followed by CFO Kevan Parekh. After that, we will open the call to questions from analysts. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation, and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast, including risks related to the potential impact to the company’s business and results of operations from macroeconomic conditions, tariffs and other measures, and legal and regulatory proceedings. For more information, please refer to the risk factors discussed in Apple Inc.’s recently filed reports on Form 10-Q and Form 10-Ks and the Form 8-Ks filed with the SEC today along with the associated press release. Additional information will also be in our report on Form 10-Q for the quarter ended March 28, 2026, to be filed tomorrow and in other reports and filings we make with the SEC. Apple Inc. assumes no obligation to update any forward-looking statements which speak only as of the date they are made. I would now like to turn the call over to Tim for introductory remarks. Timothy D. Cook: Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Before we get into the quarter, I wanted to take a moment to talk about the transition we recently announced. I just celebrated my 28th anniversary of being here at Apple Inc.—15 years as CEO. In fact, this will be my 89th earnings call. I will always be proud of the impact Apple Inc. has had on our users’ lives and I cannot begin to express how grateful I am for our amazing teams. It is because of them that there is no company like Apple Inc., and I truly believe there never will be. This moment for the transition is the right one for a number of reasons. First, our business has been performing extremely well. The first half of this year was very strong, growing double digits year over year. Second, our roadmap is incredible. And most importantly, we have the right leader ready to step into the role. As I have said, there is no one on this planet I trust more to lead Apple Inc. into the future than John Ternus. John is a brilliant engineer, a deep thinker, a person of remarkable character, and a born leader. I know he will push us to go further than we think is possible in order to deliver the greatest products and services for our users. I have been so proud to call him a colleague and a friend and I will be even more proud to call him Apple Inc.’s CEO. Over the coming months, John and I will be working closely together to make sure this transition is perfectly smooth. I very much look forward to stepping into the role of executive chairman on September 1. As I have told John, I will be here to support him in any way he needs and in any way I can. I am incredibly optimistic about Apple Inc.’s future and I know we have the right team in place to deliver on the promise of this company. I also want to take just a moment to share my profound gratitude for our shareholders, especially our long-term shareholders, for believing in Apple Inc. and for your support over the years. It means a great deal to all of us. With that, I would like to bring John on the call for a moment to say a few words. John? Thanks, Tim, and thanks to everyone on the call. John Ternus: In my view, Tim is one of the greatest business leaders of all time. Stepping into the role of CEO is incredible, and it means a great deal to me to have Tim’s trust and confidence. I want to echo Tim’s sentiment about our shareholders, especially those who have been with us for many years. Thank you so much for your confidence in our company. As you know, one of the hallmarks of Tim’s tenure has been a deep thoughtfulness, deliberateness, and discipline when it comes to the financial decision-making of the company. And I want you to know that is something Kevan and I intend to continue when I transition into the role in September. This is an especially exciting moment for Apple Inc. As Tim mentioned, we have an incredible roadmap ahead. And while you are not going to get me to talk about the details of that roadmap, suffice it to say, this is the most exciting time in my 25-year career at Apple Inc. to be building products and services. There are so many opportunities before us, and I could not be more optimistic about what is to come. For now, let me simply say I am deeply grateful to Tim, to the executive team, and to everyone at Apple Inc., and I look forward to all of the important work ahead. And with that, let me turn it back over to Tim. Timothy D. Cook: Thanks, John. Now let me turn to the quarter. Today, Apple Inc. is proud to report $111.2 billion in revenue, up 17% from a year ago and a March record, which was above the high end of our guidance range despite constraints. Customer enthusiasm for iPhone has been extraordinary, with revenue growing 22% year over year to achieve a March record. Services reached an all-time revenue record, growing 16% from a year ago, while EPS set a March record of $2.10, up 22% year over year. We set March revenue records and grew double digits in every geographic segment, including strong double-digit growth in Greater China and the rest of Asia Pacific. We also achieved March revenue records in both developed and emerging markets and saw double-digit growth in nearly every emerging market we track, including India. We recently marked Apple Inc.’s 50th anniversary with celebrations in our retail stores and with users around the world. It was a special moment for us to reflect on the incredible journey we have shared with our users, to thank everyone who has been a part of it, and to look forward to writing the next chapter in our story of innovation. We have always believed that people who think different can change the world, and we have been proud to build tools and technologies that allow them to do just that. In March, we put an amazing showcase of human creativity and ingenuity in action with updates across iPhone, iPad, and Mac. Through an unforgettable week of innovation, we also unveiled MacBook Neo, giving us an opportunity to bring the power of Mac to more people than ever before. I will have more to say on that and all the things we delivered for our customers over the last few months. Now let us take a closer look at results from across our product line, beginning with iPhone. As I mentioned earlier, iPhone had an excellent quarter with $57 billion in revenue, a March record despite supply constraints. During the quarter, we welcomed iPhone 17e, the newest addition to what is already the strongest iPhone lineup we have ever had. It brings outstanding performance and core iPhone experiences at a remarkable value for everyone from enterprise teams to consumers. Across the lineup, this is the most powerful, capable, and versatile iPhone family we have ever created. That starts with the latest in Apple silicon for iPhone—A19 and A19 Pro—which include neural accelerators in the GPU to deliver a huge boost to AI performance. With incredible performance and battery life, and deep integration of Apple Intelligence, iPhone continues to set the standard for what a smartphone can be. Customers are capturing stunning photos and videos with our most advanced camera system ever on iPhone 17 Pro and Pro Max, including an 8x optical-quality zoom and the all-new Center Stage front camera, unlocking entirely new ways to frame, create, and share their moments. In fact, during their recent mission, Artemis II astronauts captured some truly otherworldly images of Earth and space using iPhone 17 Pro Max. Meanwhile, iPhone Air users are tapping into the pro-level performance in our slimmest iPhone ever. And with iPhone 17, we are seeing a strong response not only from customers upgrading from previous generations, but also from people choosing iPhone for the very first time. We have been enormously pleased with how the entire lineup has been received. In fact, the iPhone 17 family is now the most popular lineup in our history when looking at the launch through March. And according to IDC, we gained market share during the quarter. Mac revenue was $8.4 billion for March, up 6% from a year ago despite supply constraints driven by higher-than-expected levels of demand. We are delighted with the reception of what is the most advanced Mac lineup in our history. We set March records for upgraders and customers new to Mac. And according to IDC, we gained market share in the quarter. From Mac mini to MacBook Pro and everything in between, Mac is the best platform for AI, with Apple silicon delivering exceptional performance, industry-leading efficiency, and the ability to run advanced models locally in ways that simply were not possible before. It is so exciting to see how strongly users are embracing on-Mac AI capabilities. There is tremendous enthusiasm for MacBook Neo, which made its debut during March, opening up an entirely new way to experience Mac at a breakthrough price. We have also further improved MacBook Air—already the world’s most popular laptop—with M5, making everyday tasks faster and more responsive than ever. MacBook Pro reaches new heights with M5 Pro and M5 Max, delivering extraordinary performance and dramatically advancing what users can do with AI on a portable system. And for desktop users, Studio Display pairs beautifully with Mac, while the all-new Studio Display XDR takes things even further, bringing unmatched image quality and an extraordinarily immersive experience to pro workflows. Turning to iPad. Revenue was $6.9 billion, up 8% from a year ago. iPad continues to be a great choice for students, small business owners, artists, and so many others because it empowers entirely new ways to work, learn, create, and connect. It is not just about mobility. It is about versatility, delivering a uniquely flexible experience that adapts to whatever users want to accomplish. Today, our iPad lineup is stronger than ever, led by the arrival of the M4-powered iPad Air. With a remarkable leap in performance, it raises the bar for what users can do on iPad—from advanced creative workflows to powerful productivity and immersive learning. And with the addition of our latest Apple silicon along with the N1 wireless networking chip and C1X modem, users can stay seamlessly connected wherever they are. Across Wearables, Home, and Accessories, revenue for March came in at $7.9 billion, up 5% from a year ago. Apple Watch Ultra 3, Apple Watch Series 11, and Apple Watch SE continue to play an essential role in users’ lives, going far beyond fitness tracking to deliver meaningful insights and support for their health and well-being. From helping users stay active and reach their fitness goals to delivering powerful, science-backed health insights that can prompt meaningful conversations with care providers, Apple Watch is with them every step of the way. It is tremendously meaningful to see how Apple Watch continues to empower users to better understand their health, make more informed decisions, and in many cases change and even save lives. During the quarter, we introduced customers to a new level of audio experience with AirPods Max 2, delivering stunning sound quality and our most advanced active noise cancellation yet. At the same time, AirPods Pro 3 combine an incredibly immersive listening experience with intelligent features that adapt to how users move, train, and live. And whether it is a call across town or a conversation across continents, AirPods make it effortless to stay connected. AirPods can bridge languages too, thanks to Live Translation powered by Apple Intelligence. In addition to Live Translation, Apple Intelligence brings together dozens of powerful capabilities—from Visual Intelligence to Cleanup in Photos—that are seamlessly integrated into the moments that matter most to our users every day. And we look forward to bringing a more personalized Siri to users coming this year. What truly sets Apple Inc. apart is how Apple Intelligence is woven into the core of our platforms, powered by Apple silicon and designed from the ground up to deliver intelligence that is fast, personal, and private. This is not AI as a standalone feature, but AI as an essential, intuitive part of the experience across our devices. It builds on years of innovation—from the Neural Engine to advanced on-device processing—enabling capabilities that are not only incredibly powerful, but also respectful of user privacy. Increasingly, that same foundation is drawing AI researchers to our products as powerful platforms for building and running agentic AI, thanks to the unique combination of performance, efficiency, and on-device capabilities. When you combine this level of integration with our relentless focus on the customer experience, it becomes clear why Apple Inc. platforms are the best place to experience AI. Now let us turn to Services, which set an all-time revenue record with $31 billion. We saw double-digit growth in both developed and emerging markets and set new all-time revenue records across most of the Services categories. There is no better place to find celebrated storytellers than Apple TV+. Audiences are applauding the return of shows like Your Friends and Neighbors, Shrinking, and For All Mankind, while discovering new favorites like Widow’s Bay. Apple TV+ has also earned its place among the most decorated names in entertainment, with more than 800 wins and more than 3.4 thousand nominations in the six years since launch. This is a great time for sports fans on Apple TV+ too. Formula 1 season kicked off in March, and Apple TV+ subscribers in the US have one of the best views of the track. The new MLS season is also well underway, and subscribers in more than 100 countries and regions can watch every match with no blackouts. And Friday Night Baseball returned for its fifth year on Apple TV+ with a full season of marquee matchups. In Retail, we had a March revenue record and saw very high levels of store traffic throughout the quarter. From New York to Chengdu to Paris, it was wonderful to see stores around the world at the center of Apple Inc.’s 50th anniversary celebrations. We were also thrilled to open the doors to our sixth store in India. It has been wonderful to see how we have continued to grow in India in recent years, part of our larger efforts to connect with even more customers in emerging markets all over the world. At Apple Inc., we believe powerful innovation and uncompromising quality can go hand in hand with sustainability. Over the last year, we have reached new milestones in the environment, including the use of recycled content in 30% of the materials in all of our products shipped in 2025, the most we have ever had. That includes the use of 100% recycled cobalt in all Apple-designed batteries and 100% recycled rare earth elements in all magnets. We have also achieved our goal of removing plastic from packaging, with every Apple Inc. product now shipping in fiber-based packaging. All of this is a testament to the outstanding, forward-thinking, and innovative work of our teams. We are also making great progress in advancing American supply chain innovation, as part of our $600 billion commitment to the US. We were pleased to share recently that Mac mini production is coming to America later this year, expanding our factory operations in Houston with a brand new facility. In March, we were thrilled to welcome four new companies to our American manufacturing program to help manufacture essential materials and components for Apple Inc. products sold worldwide. These include sensors that support key iPhone features like camera stabilization and integrated circuits essential for features like crash detection and activity tracking. These efforts build on the progress we have made in the American program, including the work we are doing to advance an end-to-end silicon supply chain across the US. At TSMC’s Arizona facility, for example, Apple Inc. is on track to purchase well over 100 million advanced chips. As we are accelerating our long-standing support for US innovation, we are also investing in America’s workforce. We are looking forward to opening the doors to an all-new advanced manufacturing center in Houston later this year, which will provide hands-on training led by Apple Inc. experts and tailor-made for students, supplier employees, and American businesses. Whether around the world or in our own backyard, we are proud of the difference Apple Inc. has made to enrich lives and support the communities we serve. Looking ahead, we are delighted to welcome developers back to Apple Park for WWDC 2026. We cannot wait to share what we have been working on. From AI advancements to exciting new software and developer tools, it is going to be an incredible week. As always, we remain in relentless pursuit of even more powerful innovations, guided by our North Star—our users. As we celebrated 50 years of Apple Inc., we are even more excited and more optimistic about the next 50 years and beyond. With that, I will turn it over to Kevan. Thanks, Tim. Kevan Parekh: Good afternoon, everyone. Our revenue of $111.2 billion was up 17% year over year, a March revenue record. We saw strong performance around the world, with March revenue records in every geographic segment. Foreign exchange was about a 2.5 percentage point tailwind to the March growth rate. We also faced supply constraints on iPhone and, to a lesser extent, on Mac. We believe if we remove the favorable benefit from foreign exchange and add back the unfavorable impact from supply constraints, we would have had a higher growth rate for total company revenue for the quarter. Products revenue was $80.2 billion, up 17% year over year, driven by double-digit growth on iPhone, setting a new March record. Our installed base of over 2.5 billion active devices has reached another all-time high across all major product categories and geographic segments. Services revenue was $31 billion, up 16% year over year. We saw strong performance across the board, with double-digit growth in the vast majority of the markets we track. Company gross margin was 49.3%, above the high end of our guidance range, and up 110 basis points sequentially. Products gross margin was 38.7%, down 200 basis points sequentially. Services gross margin was 76.7%, up 20 basis points sequentially. Operating expenses landed at $18.9 billion, up 24% year over year. This was slightly above the high end of our guidance range due to a one-time expense in SG&A. Net income was $29.6 billion and diluted earnings per share was $2.10, up 22% year over year. Both net income and diluted EPS achieved March records and drove a very strong level of operating cash flow at $28.7 billion. Now I am going to provide some more details for each of our revenue lines. iPhone revenue was $57 billion, up 22% year over year, driven by the iPhone 17 family. iPhone grew double digits in the majority of markets we track, including the US, Latin America, Greater China, Western Europe, India, Japan, and Southeast Asia. The iPhone active installed base grew to an all-time high, and we set a March record for iPhone upgraders. According to a recent survey from Worldpanel, iPhone was a top-selling model in the US, urban China, the UK, Australia, and Japan. We have been extremely pleased with the positive reception of the iPhone 17 family. In fact, customer satisfaction for the iPhone 17 family in the US was recently measured at 99% by 451 Research. Mac revenue was $8.4 billion, up 6% year over year, driven by the strength of the recent product launches including MacBook Neo. We grew in both developed and emerging markets, with double-digit growth in many emerging markets, including India and Indonesia. As Tim mentioned earlier, we had a March record for customers new to the Mac, and this helped drive a new all-time record for the overall Mac installed base. And in the US, customer satisfaction for Mac was recently reported at 97%. iPad revenue was $6.9 billion, up 8% year over year, driven by the continued strength of the A16-powered iPad and the M5-powered iPad Pro. The iPad install base reached a new all-time high as iPad continued to reach new customers around the world. During the quarter, over half of the customers who purchased an iPad were new to the product. Many of these customers are in our emerging markets, where we grew iPad revenue by double digits, including in India, Mexico, and Thailand. And based on the latest reports from 451 Research, customer satisfaction was 98% in the US. Wearables, Home, and Accessories revenue was $7.9 billion, up 5% year over year, driven by strength in wearables and accessories. We were pleased to see strength in our emerging markets where we set a new March revenue record. The wearables installed base reached a new all-time high, with over half of the customers purchasing an Apple Watch during the quarter being new to the product. And in the US, customer satisfaction on Apple Watch was measured at 96%. Our Services revenue reached an all-time high of $31 billion, up 16% year over year. The strong performance was broad-based, with all-time records in both developed and emerging markets. And as Tim mentioned, we also set all-time revenue records in most of the Services categories. We are optimistic about the future of our Services business. With our large installed base of over 2.5 billion active devices, we have an incredibly strong foundation for growth opportunities. Both transacting and paid accounts reached new all-time highs in the quarter, as we continue to see more customers leveraging our Services offerings. And we continue to improve the quality and expand the breadth of our Services—from the expansion of features like Tap to Pay, now available in over 50 markets, to deeper support for enterprise customers. Building on this, we launched Apple Business, a new all-in-one platform that combines our hardware, software, and enterprise services, enabling companies to efficiently manage their deployments and scale their business. We continue to see more organizations in enterprise choosing Apple Inc.’s devices for performance and productivity. Marsh, a leading professional services firm, deployed a large-scale refresh of corporate devices to iPhone 17 as part of a commitment to security, alongside adopting Mac for internal AI development. With Apple silicon and its powerful unified memory architecture, leading AI developers like Perplexity are choosing Mac as their preferred platform to build enterprise-grade AI assistants that power autonomous agents and boost workplace productivity. Across the Mac lineup, customers are finding the right device for their needs—from MacBook Pro and MacBook Air to our newest addition, MacBook Neo, which delivers an unprecedented combination of quality, value, and industry-leading security that is resonating strongly in enterprise and education. Kansas City Public Schools, for example, is switching their high school students from Windows laptops and Chromebooks to MacBook Neo, completing their transition to an all-Apple district. And in India, leading enterprise software provider Freshworks deployed over 5 thousand MacBook Pro and MacBook Air to accelerate their AI development. Let us turn to our cash position and capital return program. We ended the quarter with $147 billion in cash and marketable securities. We had $5.8 billion of debt maturities and commercial paper remained unchanged at $2 billion, resulting in $85 billion in total debt. Therefore, at the end of the quarter, net cash was $62 billion. During the quarter, we returned $15 billion to shareholders. This included $3.8 billion in dividends and equivalents and $11 billion through open-market repurchases of 42 million Apple Inc. shares. Our repurchase activity at any time can be affected by a number of factors that we take into account, and as you are aware, we recently announced a CEO transition. Taking a step back, we plan to continue our capital allocation philosophy of, first, making all the necessary investments needed to support the business, and then returning excess cash to shareholders over time. Net cash neutral has been a valuable framework for our capital structure, and since 2018, we have significantly right-sized our balance sheet and reduced net cash by over $100 billion. As we move ahead, we are no longer providing net cash neutral as a formal target, and we will independently evaluate cash and debt. Capital returns will continue to be important to our overall approach by delivering long-term shareholder value. Accordingly, our Board has authorized an additional $100 billion for share repurchases, and we are also raising our dividend by 4% to $0.27 per share of common stock. This cash dividend will be payable on May 14, 2026, to shareholders of record as of May 11, 2026. As we move ahead into June, I would like to review our outlook, which includes the types of forward-looking information that Suhasini referred to. Importantly, the color we are providing assumes that global tariff rates, policies, and their application remain in effect as of this call, and the global macroeconomic outlook does not worsen from today. We expect our June total company revenue to grow by 14% to 17% year over year, which comprehends our best view of constrained supply. On iPad, keep in mind we face a difficult compare driven by the launch of the A16-powered iPad in the prior year. We expect Services revenue to grow at a year-over-year rate similar to what we reported in March, after removing the favorable year-over-year impact from foreign exchange tailwinds. Keep in mind, during March, FX was a 2.5 percentage point tailwind to the total company growth rate, and for Services, that impact was slightly more favorable. We expect gross margin to be between 47.5% and 48.5%. We expect operating expenses to be between $18.8 billion and $19.1 billion. We expect OI&E to be around $250 million, excluding any potential impact from the mark-to-market of minority investments, and our tax rate to be around 17%. With that, Tim and I will take questions. Suhasini Chandramouli: Thank you, Kevan. We will now open the call for questions. We ask that you limit yourself to two questions. Operator, may we have the first question, please? Operator: Certainly. We will go ahead and take our first from Erik Woodring with Morgan Stanley. Erik Woodring: Great, thank you very much for taking my questions, guys. And Tim, I will save the congrats for next quarter. But it has been a pleasure working together. I would love, maybe, Tim, if I could ask you to contextualize the supply constraints you alluded to in your prepared remarks, meaning how much did demand outpace supply for iPhone and Mac in March? And does your June guidance also reflect supply constraints for those segments, or is that an unconstrained guide as you see it today? And then a quick follow-up, please. Thank you. Timothy D. Cook: Hi, Erik. Thanks for your comments. We were constrained during March. This was primarily on iPhone and, to a lesser extent, on Mac. And as we talked about in the last call, the constraints were primarily driven by the availability of the advanced nodes our SoCs are produced on. If you look forward to June, the majority of our supply constraints will be on several Mac models, given the continued high levels of demand that we are seeing, and we have less flexibility in the supply chain than we normally would. For Mac in June, there are two factors that are driving the constraint. One is that on the Mac mini and the Mac Studio, both of these are amazing platforms for AI and agentic tools, and the customer recognition of that is happening faster than what we had predicted, and so we saw higher-than-expected demand. The second reason is that the customer response to MacBook Neo has just been off the charts, with higher-than-expected demand. And we set a March record for customers new to the Mac, partly due to the Neo. We think looking forward that the Mac mini and the Mac Studio may take several months to reach supply-demand balance. And so, hopefully, that gives you a view of both Q2 and Q3 on the supply side. Erik Woodring: Thank you very much for that color, Tim. And then, Kevan, I would love to turn to you and the surprise little announcement there talking about net cash—great path, but no longer providing this as a formal target. Could you maybe expand on that a bit? Are we thinking about any different type of capital return policy? It does not seem so, but maybe give a little bit more detail when you talk about making investments. Is that organic versus inorganic? Just tease that comment out a little bit more for us. Be super helpful. Thank you so much, guys. Kevan Parekh: Sure, Erik. Thanks for the question. Let me reiterate what we said, which is really more of a comment on the capital structure. Our goal of net cash neutral has really served us well and been a valuable framework for our capital structure since 2018. We believe we are at a stage where evaluating cash and debt independently is the right approach for us and allows us to make more optimal economic decisions around how we best utilize our debt and cash portfolios to support the business based on business factors and market conditions. We also believe we can manage this flexibility while also being very efficient and remaining disciplined. With all that being said, we remain very committed to returning excess cash to shareholders. As we talked about, our investment in the business comes first and foremost, and then we look to return excess cash to shareholders. We have a very good track record of being disciplined—we have returned over $1 trillion to shareholders from the start of the program, over $850 billion of which has been through share repurchases. And as part of that, we have increased our buyback authorization by another $100 billion, on top of the leftover capacity from the prior authorization. You can see the capital return piece is very important to us and important to our overall approach to delivering long-term shareholder value. Suhasini Chandramouli: Thank you, Erik. Operator, could we get the next question, please? Operator: Our next question is from Ben Reitzes with Melius Research. Please go ahead. Ben Reitzes: Thanks. I will ask two myself. First, there has been a lot of talk around agentic smartphones—the way, I do not even know what that means, but there are comments about AI on the edge and that agents could catalyze smartphones but also shift the smartphone form factor or maybe not. With the rise of agents, how would you like us to think about that? Does this mean there are new products coming, a totally new form factor? Or does it change the game? Anything high level you might want to say about that trend or potential non-trend? Thanks. Timothy D. Cook: Hi, Ben. We do not get into our future roadmap, and so I do not want to give too much info there, but I would just say that we are thrilled with how the iPhone is doing, growing 22% in the quarter and following up an incredible Q1 cycle—the strongest we have ever had in our history from the launch through March. We could not be happier with it. Ben Reitzes: Thanks, I appreciate that. I am sure we will hear a lot more. Then regarding constraints and whatnot—and, Tim, I may push you one more time—the big concern out there is margins after the June quarter given component trends and all these constraints. Is there some overarching philosophy you want us to think about? Do you or maybe Kevan see a lot of variability in the model, or is 47%–48% kind of a range you think you might be able to stay in? Is there just no visibility beyond June to answer this? Any comfort level there would be so helpful. Thanks. Timothy D. Cook: Ben, let me talk about memory specifically, which I think is the root of the question. I will go back to December for a moment and walk you through the chronology. In the December quarter, we really had a minimal impact due to memory, and you can see that in the gross margin results. We said it would be a bit more in the March quarter, and we did see higher memory costs in the March quarter, and they were partially offset by benefits from carry-in inventory that we had. For the June quarter—and what is embedded in the guidance that Kevan went through earlier—we expect significantly higher memory costs. They are also partly offset by the benefit of carry-in inventory. And while we do not give color beyond June, I can tell you that beyond the June quarter, we believe memory costs will drive an increasing impact on our business, and we will continue to evaluate this. As we have said before, we will look at a range of options. Suhasini Chandramouli: Thank you, Ben. Operator, could we have the next question, please? Operator: Our next question comes from Michael Ng with Goldman Sachs. Please go ahead. Michael Ng: Good afternoon, thank you for the questions. I have two as well. First, given the success of the MacBook Neo, could you talk about how it has helped drive penetration with new customer segments—whether education, value, or emerging markets? And then, how do you think about opportunities in underpenetrated markets more broadly, and how will your future product roadmap inform that strategy? Thank you. Timothy D. Cook: Right now, we are supply constrained on the MacBook Neo. We were very bullish on the product before announcing it, but we undercalled the level of enthusiasm. It is very much focused on getting the Mac to even more people than we were reaching before. We are very focused on customers new to the Mac and customers that have been holding on to their Mac for a very long period of time. We are doing well with both of those. And as Kevan alluded to in his comments, we are seeing school systems like the Kansas City Public Schools switching from Chromebooks and Windows PCs to the MacBook Neo. I am hearing anecdotally more and more of those stories, both at the school system level and at the individual consumer level. We could not be happier with how things are going at the moment. Michael Ng: Great, thank you, Tim. And for the second question, I wanted to ask about advertising within Services. I think Apple Inc. introduced new inventory to ads on the App Store earlier this year. Has that new ad inventory on the App Store been a notable contributor to the Services growth and outperformance in the quarter? And then could you talk more broadly about your ad strategy given the plans to also introduce ads to Maps this summer? Thank you. Kevan Parekh: Yep, Mike, thanks for the question. In advertising, we did see year-over-year growth in our advertising business. As you alluded to, we recently introduced additional ads across the App Store search results to provide developers with more ways to drive downloads on platforms that users trust. And this summer, in the US and Canada, Apple Maps will feature ads during key search and discovery moments, creating a new way for local businesses to reach customers and explore new places. Importantly, we believe it is possible to help businesses of all sizes grow via advertising while still delivering a great customer experience and respecting people’s fundamental right to privacy. Suhasini Chandramouli: Thank you, Michael. Operator, could we get the next question please? Operator: Our next question is from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Thank you so much. Tim, you noted higher impact from memory as you look beyond June. Clearly, you have a lot of scale, supply chain efficiencies, relationships from a long time. As you think about product and pricing relative to competition, do you think in such times of dislocation that Apple Inc. would be strategically more focused on share gain—where potentially you do not raise pricing and perhaps at lower ends of the portfolio where your competitors are struggling—or more focused on profitability? What is the right framework as you enter that period? And I have a follow-up. Timothy D. Cook: Wamsi, we will look at a range of options with memory costs increasing, and I really do not want to go beyond that at this point. Wamsi Mohan: Okay. As a follow-up, is Apple Inc. thinking about broader monetization in the agentic AI world? What parts of the stack do you think Apple Inc. will be focused on internally versus leveraging partners? As we think longer term, where will Apple Inc. invest more heavily over the next several years, and is this at all related to your net cash comments in terms of perhaps building out more infrastructure as we enter an AI-centric world? Thank you. Timothy D. Cook: We are clearly investing more. You can see that in the OpEx numbers. If you look a step deeper at R&D separate from SG&A, you will find that R&D is accelerating much higher than the company overall. We are investing in products and services, and we see opportunities in both. We could not be more excited about how the future is playing out. Kevan Parekh: And building on what Tim said, from the start we have believed AI is a really important investment area for Apple Inc., and we are going to be doing that incrementally on top of what we normally invest in our product roadmap. Suhasini Chandramouli: Thank you, Wamsi. Operator, could we get the next question please? Operator: Our next question is from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Good afternoon, everyone. First, going back to the iPhone performance—for a couple of quarters you have had 20%+ growth despite supply constraints, and the guide implies the momentum will continue in June. Could you double click on the levers driving this impressive iPhone growth despite supply constraints, and what is the durability of this growth? Timothy D. Cook: It is the iPhone 17 family that is driving it, despite the supply constraints we are experiencing. Customers love the design, performance, durability, the camera, Center Stage, and that Apple Intelligence is integrated across the platform. From where we are seeing the growth, it is amazing—we are seeing double-digit growth in the majority of the markets we track, from the US to Latin America to Greater China to Western Europe to India to Japan to Southeast Asia. We set a new March record for upgraders as well. Customer satisfaction for the 17 family in the US, as an example, is 99%. These numbers are just unheard of. We are thrilled with how things are going. Amit Daryanani: Thank you. And then, Tim, I think we have you for one more earnings call, but I would appreciate if you could share a bit about the upcoming transition. You have historically talked about the advice that Steve gave you when you took over—around do not ask what I would do, just do the right thing. What advice are you giving John to help him build on Apple Inc.’s strengths while shaping the next chapter for the company? Timothy D. Cook: Steve’s advice to me lifted a huge burden, and it served me well over the 15 years. For John, what I have told him is that one of the most important decisions he will make is where to spend his time. Spend it where the greatest benefit to the company and the users are. And never forget the North Star for the company. We are about making the best products in the world that really enrich other people’s lives. If you keep focusing on that and make your decisions around that, it will produce a great business, and we will be able to build more products and do it all over again. Thank you for the question. Suhasini Chandramouli: Thank you, Amit. Operator, could we get the next question, please? Operator: Our next question is from David Vogt with UBS. Please go ahead. David Vogt: Thanks for taking my question. Tim, coming back to the supply chain for a second—I do not think I heard you state in your prepared remarks or in response to a question that the iPhone is constrained in June. Can you walk through how you are thinking about your ability to secure not just SoC, but also memory? Are you thinking about using alternative sources of memory outside of your traditional partners? And what is driving the confidence that the iPhone is not constrained given the amount of share it sounds like you are taking? Then I have a follow-up as well. Timothy D. Cook: David, the constraint in March and June—the primary constraint—is the availability of the advanced nodes our SoCs are produced on, not memory. I do not want to predict our ability for supply and demand to match. Realistically, on the Mac mini and the Mac Studio, I believe it will take several months to reach supply-demand balance. We are not at the point where we are saying this is going to end anytime soon. It is not because of a problem per se, other than we undercalled demand, and there are lead times as you know. For this quarter—the June quarter—the majority of the constraint will be on Mac: Mac mini, Mac Studio, and MacBook Neo. It is all of those. David Vogt: Maybe on Services—relatively strong gross margins yet again. Are we getting to a point, given the product mix within Services, where it is increasingly more challenging to scale profitability? Or is there still low-hanging fruit in terms of volume leverage or lower losses in some categories that can continue to scale gross margin across the Services base? Kevan Parekh: David, as you know, our Services portfolio contains a wide range of businesses that have different business models and profitability profiles and are growing at different rates. At any given time, the relative performance of those can impact gross margin. In Q2 specifically, Services margin increased 20 basis points sequentially, primarily driven by mix. It is hard to speculate how that evolves over time, but we are encouraged by what we are seeing. We do have some Services that are improving in profitability as they gain scale. Overall, we are encouraged by the trajectory. Suhasini Chandramouli: Thank you, David. Operator, could we get the next question, please? Operator: Our next question is from Samik Chatterjee with JPMorgan. Please go ahead. Samik Chatterjee: Hi, thanks for taking my questions. Tim, last quarter you talked about Apple foundational models and a two-pronged strategy: the collaboration with Google as well as continuing to work on your own models. Can you give us an update in terms of balancing those two priorities? Do you feel like you need to double down and invest more to balance those side by side? A follow-up for Kevan after. Timothy D. Cook: It is a good question. We are investing more—you can see that in the OpEx numbers. R&D in particular has scaled rather significantly year over year. The collaboration with Google is going well. We are happy with where things are, and we are happy with the work we are doing independently as well. Samik Chatterjee: Great. Kevan, the sequential moderation in product gross margin this year is relatively muted compared to what we have seen over the last couple of years. Is it primarily mix, or was there an FX tailwind as well? How would we break it down versus what we typically see, and could you clarify the FX impact on gross margin for the quarter? Kevan Parekh: Sure, Samik. On products for Q2, product gross margin decreased by 200 basis points sequentially, driven by seasonal loss of leverage and higher memory costs, as Tim alluded to. If I zoom out to overall company gross margin, the sequential impact was +110 basis points, driven by favorable mix and lower tariff-related costs, partly offset by seasonal loss of leverage and higher memory costs. I want to turn it over to Tim to provide some clarity around the lower tariff-related costs. Timothy D. Cook: Thanks, Kevan. For March, the gross margin of 49.3% did include the impact of tariff-related costs. However, tariffs in March versus December were lower because we had lower product volume sequentially from Q1 to Q2, and there was the full-quarter benefit from a reduction in the IPEA tariff rates as well as the reduced global tariff rate under Section 122. In terms of applying for a refund of tariffs paid, we are following the established processes, and we plan to reinvest any amount we receive back into US innovation and advanced manufacturing. These would be new investments and would be in addition to our prior commitments in the US. Kevan Parekh: And one last point on your FX question: we did not see any sequential impact related to foreign exchange going from Q1 gross margin to Q2. Suhasini Chandramouli: Thank you. Operator, could we get the last question, please? Operator: We will go ahead and take our last question from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Congrats on the quarter. I wanted to ask about a few of the end markets. Tim, could you comment on what you are seeing specifically in China? From a competitive perspective, are you seeing advantages from supply constraints impacting some of your competitors? Any thoughts on the China market? And I have a quick follow-up. Timothy D. Cook: We are thrilled with the performance in Greater China. The first half of the year grew 33%. In March, revenue was up 28%—a quarterly revenue record for us. The performance is really driven by iPhone, which was also a March record. If you look at individual products, iPhone was the top-selling model in urban China. The Mac mini was the top-selling desktop in China, and the MacBook Air was the top-selling laptop model. We are doing well across the board. I was over there in March—the traffic in our stores grew by double digits. We were celebrating Apple Inc.’s 50th anniversary there. It was amazing to be a part of the community. I am really happy with how things have gone in the first half of this year. Aaron Rakers: And then similar question on the India market. How are you seeing the market in India evolve around the base of iPhones and the rising middle class—just the overall opportunity set in that large mobile market? Timothy D. Cook: I think it is a huge opportunity for us. We have been focused on this for a while. It is the second-largest smartphone market in the world and the third-largest PC market. Despite doing extremely well there for quite some time, we still have a modest share, which speaks to the opportunity we have. There are a lot of people moving into the middle class, and we have some great products for them, both currently and coming. In the majority of our categories—from iPhone to Mac to iPad to Watch—over half of customers are new to that product there. It speaks very well to growing the install base. Net net, I am over the moon excited about India. Suhasini Chandramouli: A replay of today’s call will be available for two weeks on Apple Podcasts, as a webcast on apple.com/investor, and via telephone. The number for the telephone replay is (866) 583-1035. Please enter confirmation code 2803309 followed by the pound sign. These replays will be available by approximately 5 PM Pacific time today. Members of the press with additional questions can contact Josh Rosenstock at (408) 862-1142, and financial analysts can contact me, Suhasini Chandramouli, with additional questions at (408) 974-3123. Thanks again for joining us today. Operator: Once again, this does conclude today’s conference. We do appreciate your participation.
Operator: Welcome to the Q3 Fiscal Year 2026 ResMed Inc. Earnings Conference Call. My name is Daryl, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Also, please note this conference call is being recorded. Later, we will conduct a question-and-answer session. I will now turn the call over to Sally Schwartz, ResMed Inc.'s Chief Investor Relations Officer. Sally Schwartz: I want to welcome our listeners to ResMed Inc.'s third quarter fiscal year 2026 Earnings Call. We are live webcasting this call and the replay will be available on the Investor Relations section of our corporate website later today. Our earnings press release and presentation are both available online now. During today's call, we will discuss several non-GAAP measures we believe provide useful information for investors. This information is not intended to be considered in isolation or as a substitute for GAAP financial information. We encourage you to review the supporting schedules in today's earnings press release to reconcile these non-GAAP measures with the GAAP reported numbers. In addition, our discussion today will include forward-looking statements including, but not limited to, expectations about our future financial and operating performance. We make these statements based on reasonable assumptions; however, our actual results could differ. Please review our SEC filings for a complete discussion of risk factors that could cause our actual results to differ materially from any forward-looking statements made today. I will now turn the call over to Michael J. Farrell. Michael J. Farrell: Thank you, Sally. Before we get into the details discussing our results for the quarter, I am sure all of you have had an opportunity to see our press release and our announcement that Brett will be retiring, and Aaron Blumer has been appointed our next chief financial officer here at ResMed Inc. On behalf of our ResMed Inc. Board and over 10 thousand ResMedians in 140 countries, I would like to thank Brett, who I have had the privilege to partner with for 26 years, including the last 55 quarters as a CEO and CFO team. Brett has been an integral part of my executive team that has delivered growth, expanded access, and improved hundreds of millions of lives. Over two decades as ResMed Inc.'s CFO, Brett has built a financial foundation that has allowed us to deliver strong growth, robust free cash flow, and best-in-class operating margins. Brett has also helped shape the company's culture, and his legacy is embedded in our impact on the lives of many millions of patients worldwide. Brett leaves ResMed Inc. in a position of strength with a very disciplined and global financial team. I am tremendously grateful to Brett for his service, his leadership, his friendship, and his commitment to ResMed Inc. I would also like to welcome Aaron Blumer to ResMed Inc. Aaron brings more than 17 years of global financial leadership, most recently serving as the CFO of Exact Sciences. He has a strong track record of driving strategic growth, operational excellence, and financial discipline across complex global organizations, including prior financial leadership roles at 3M and at Baxter. Aaron's international perspective will be invaluable here at ResMed Inc. as we continue to execute on our global 2030 strategy to accelerate our business and to deliver long-term value for our shareholders around the world. We look forward to introducing you to Aaron over the coming quarters. Okay. Now turning to the third quarter. We delivered another set of strong results, including 11% growth in headline revenue, or 8% growth on a constant currency basis. We delivered operating leverage leading to margin expansion both year over year as well as sequentially, resulting in 21% growth in non-GAAP earnings per share. A huge thank you to the global ResMed Inc. team for their steadfast dedication in serving patients in more than 140 countries worldwide. ResMed Inc. continues to build the world's leading digital health ecosystem, encompassing sleep health, breathing health, and healthcare technology delivered in the home. I would like to return to the three key themes that I have been highlighting over the past year. One, that ResMed Inc. is an operational excellence machine and an innovation machine. Two, that ResMed Inc.'s robust free cash flow and strong balance sheet position us to both invest in the business and return capital to our shareholders. And three, that ResMed Inc. remains a compelling investment opportunity, especially amidst global macro uncertainty. We just continue to deliver the results. I will address each of these three themes in my prepared remarks here before we go to Q&A. Our gross margin expansion in the quarter was strong: 290 basis points year over year and 50 basis points of gross margin expansion sequentially. These results demonstrate the operational excellence that is a ResMed Inc. hallmark. We have continued to execute on our pipeline of supply chain optimization initiatives. These efforts, along with our experience from past supply chain perturbations including COVID impacts, the major recall of a competitor, and semiconductor chip shortages, position us well to navigate the current geopolitical uncertainty and any other external impacts to our resilient global supply chain. ResMed Inc. also remains an innovation machine. We have continued the global rollout of our portfolio of novel fabric-based masks. These masks are designed to deliver an elevated experience for patients, and they are changing the basis of competition in mask technology. The AirTouch N30i and, more recently, the F30i Comfort as well as the F30i Clear have achieved strong early adoption combined with incredibly positive patient feedback and home care provider feedback. And now we also have real-world data that show that the AirTouch N30i drives 6% higher 90-day compliance than its silicone equivalent. Those of you that truly understand the clinical and business relevance of adherence know that those 600 basis points of extra compliance will mean a lot as this technology expands. Adherence is the single biggest driver of lifetime value for patients, for physicians, for HME providers, and for ResMed Inc. Watch this space as fabric technology expands its impact in our full face category with the F30i product lines, both the F30i Comfort and the F30i Clear. On the device side of our business, we have made further progress with the global rollout of the AirSense 11 platform, including most recently in market in Latin America, and just this month in our fast-growing China market. For our China market, as we have discussed before, we leverage a local digital ecosystem, intentionally separated from our global ecosystems, including integration with platforms such as WeChat that create a personalized patient engagement experience. This is an element of our broader strategy to scale our global ecosystem model encompassing devices, software, and data, yet also customized for ecosystem models that target local market needs. ResMed Inc. also continues to drive awareness in the sleep medicine clinical community. Our continuing medical education, or CME, programs include sleep medicine physician society-approved guidelines, including the benefits of CPAP, APAP, and bilevel therapy as the clinical gold standard, the frontline treatment for any patient diagnosed with sleep apnea. Our sleep apnea educational courses have now been completed more than 80 thousand times by more than 45 thousand unique clinicians. Surveys at the end of these courses show that 78% of these providers intend to change their clinical practices related to improving sleep health and breathing health based on what they learned. We are following up with these clinicians to ensure that their intentions can translate into actions that benefit patients on their screening, diagnosis, and prescription journey. Early feedback suggests more patients being assessed for OSA and higher numbers of OSA diagnoses are occurring. We see this in our VirtualOx numbers as well. We will remain laser focused on continuous improvement of the sleep apnea pathway to ensure patients who need CPAP, APAP, and bilevel therapy can readily access it and be treated for life. On the clinical research front, we continue to invest in and track important studies that provide new evidence in sleep health. Last quarter, I noted a study in JAMA Neurology where researchers found that early treatment of OSA with CPAP may reduce the risk of developing Parkinson's disease. Further, in the field of neurology and brain health, we are tracking an increased volume of clinical literature showing that sleep apnea is linked to higher risks of Alzheimer's disease, as well as the broader field of dementia. Specifically, a large population-based study recently published in the medical journal Thorax analyzed data from more than 2 million adults in the United Kingdom and found that obstructive sleep apnea was associated with an increased risk of all-cause dementia and vascular dementia. Notably, individuals with OSA who were treated with CPAP did not show an elevated risk of dementia compared with matched controls that did not have CPAP treatment. This is huge. Additionally, a meta-analysis published in the journal GeroScience showed that individuals with apnea have a 33% higher risk of developing dementia, and OSA was associated with a 45% increased risk of Alzheimer's disease. The growing body of evidence supports increased focus on screening, diagnosis, and treatment of sleep apnea as part of broader health and aging strategies. This is an area of rising cost and rising relevance for payers, providers, health care systems, patients, as well as their caregivers and loved ones. On the GLP-1 front, I would like to share some new data with you. We looked at patients on PAP who subsequently start GLP-1 therapy to see what happened to their PAP use versus a control group that only has PAP therapy. For this real-world analysis, we analyzed a cohort of n = 1.7 million de-identified patient records and focused on the clinical and business-relevant outcome of mask and accessory resupply. Our findings were that PAP patients who subsequently start GLP-1 therapy show higher PAP adherence rates than patients on PAP alone. Specifically, the two-year resupply rates are 5.1% higher, and the three-year resupply rates are 6.2% higher for patients who are on PAP and then start GLP-1 therapy versus patients on PAP alone. As highlighted by Eli Lilly's own clinical trials in this space, these two therapies are better together. This makes sense. Sleep apnea risk factors always include age, gender, craniofacial anatomy, as well as weight. I would say, therefore, OSA very often persists after even very significant weight loss and still needs to be treated. CPAP, APAP, and bilevel therapy remain the gold standard for treatment of OSA. And the reason is simple: because these therapies are the most efficacious. Period. Building on our ongoing real-world analyses in this space, and the ongoing growth of our own mask and accessories business over the last number of quarters and years, we continue to see that patients on a GLP-1 both initiate CPAP therapy more and stay on CPAP longer. As an update to our ongoing large-scale claims analysis, data that are built from a claims database of over 30 million patients, our specifically analyzed cohort includes n = 2.1 million de-identified patients. Our latest update to this analysis is that we are consistently seeing that patients who have scripts for both PAP and GLP-1 are 11% more likely to start on PAP therapy than patients who have a script for PAP alone. They are also more than 3% more likely to have a resupply event at the one-year time period, and more than 6% more likely to have a resupply event at the three-year time period. These data have remained consistent over the last years, as have our very strong masks and accessories business growth. The data are in sync. We believe GLP-1s are truly a megatrend, and a once-in-a-generation demand-gen opportunity for ResMed Inc. Both GLP-1s and wearables alike are driving more patients to talk with their doctors and ultimately, we believe this will lead to more patients coming into the ResMed Inc. ecosystem. In order to ensure that these patients receive the care they need, we are making meaningful investments both organic in our business and inorganic in capturing and channeling the increased consumer awareness. We want to educate the clinicians to manage the interest and questions that come to them, and we want to create life-changing healthcare technologies that people love. Watch this space for more investments and partnerships from ResMed Inc. in this exciting area of better helping the 1 billion people worldwide impacted by sleep apnea to find their way to screening, diagnosis, and ongoing therapy from ResMed Inc. This theme dovetails with my second message, which is that ResMed Inc.'s strong free cash flow generation and robust balance sheet provide us with significant flexibility to both invest in our business and to return capital to shareholders. We will continue to invest in our digital sleep health concierge capabilities, expanding the ecosystems to help patients quickly move from awareness through testing, all the way to being adherent on our therapy for life. I am excited to announce today that we are expanding our leadership across the broader sleep health market. This week, we signed an M&A deal to acquire Noctrix, a company with an FDA de novo classified medical device that treats restless leg syndrome, known in the medical community by the acronym RLS. RLS is the world's third most prevalent sleep disorder after sleep apnea and insomnia. RLS impacts approximately 7% of adults globally and around 17 million people in the U.S. alone. RLS has meaningful overlap with our core market of obstructive sleep apnea. RLS treatments from Noctrix are noninvasive, clinically proven, and drug free, just like our CPAP, APAP, and bilevel therapies. RLS prescriptions are written predominantly by sleep physicians, and the flagship product from Noctrix, called NIDRA, flows through the same HME/DME delivery channel that we here at ResMed Inc. lead in market share for our other sleep products. We expect to close this transaction on or around June 1, 2026. Brett will talk more about the expected impact to our financials in a few minutes, and we can discuss this strategic tuck-in acquisition in further detail during Q&A. I will just say this: its revenue growth rate is higher than ResMed Inc.'s, and its gross margin is higher than ResMed Inc.'s. We are very excited about this tuck in. The reach of our ResMed Inc. brand among sleep physicians and HME providers, as well as our national and international distribution channel strength, makes us the best owner of this scarce asset. The market and clinical need is incredible. Seven percent of the world's adult population need our help. Okay. With regard to our residential care software business, we continue our disciplined portfolio management approach and work, investing more in high-growth areas of the business and looking to find other solutions for the lower-growth areas of the business. We have made significant progress with our portfolio management work this quarter, and I remain confident that we will accelerate RCS revenue back to sustainable high single-digit growth with double-digit operating profit growth in fiscal year 2027. We will have further updates for you over the coming months and beyond. While investing back into our business is our first priority for capital allocation through R&D and sales and marketing, ResMed Inc. also returns significant capital to shareholders through our combination of dividends and share repurchases. During the third quarter, we returned $262 million to shareholders through this combination of our quarterly dividend and $175 million in share repurchases. As you have seen, we picked up the pace of our share repurchases in the last couple of quarters, and we will continue to deploy meaningful capital here. In concert with our ongoing investments, we delivered strong operating profit growth and robust free cash flow growth in the third quarter. ResMed Inc. remains a compelling investment opportunity amidst global uncertainty. This is my final, third point. During the third quarter, ResMed Inc.'s strong revenue growth, gross margin expansion, and disciplined investment approach generated 18% growth in non-GAAP operating income and $520 million in free cash flow—another quarter of above 100% free cash flow conversion. Whether you look back at the last 12 months, or at a compound annual growth rate across three years, five years, or even ten years, we have consistently been generating high single-digit revenue growth or higher, and earnings growth that steadily outpaced revenue growth. This track record delivered by 10 thousand-plus ResMedians combined with the enormous market opportunity we have in front of us underpins our continued confidence in our five-year outlook for high single-digit revenue growth and earnings growth higher than revenue growth. We have a clear and sustained leadership market position. We are committed to keep delivering for consumers, for patients, for physicians, for providers, for payers, and for our communities that we serve—and of course, for you listening to this call, our shareholders. With that, I will hand the call over to Brett in Sydney to go through a deeper dive into our financials. And then we will open the floor for your questions. Brett? Over to you. Brett A. Sandercock: Right. Thanks, Mick. In my remarks today, I will provide an overview of our results for fiscal year 2026. Unless noted, all comparisons are to the prior-year quarter and in constant currency terms where applicable. We had strong financial performance in Q3. Group revenue for the March quarter was $1.43 billion, an 11% headline increase and 8% in constant currency terms. Revenue growth reflected positive contributions across our device and mask portfolio, and in our software business. Year-over-year movements in foreign currencies positively impacted revenue by approximately $39 million during the March quarter. Looking at our geographic revenue distribution and excluding revenue from our residential care software business, sales in the U.S., Canada, and Latin America increased by 9%. Sales in Europe, Asia, and other regions increased by 7% on a constant currency basis. Globally, on a constant currency basis, device sales increased by 6% while masks and other sales increased by 12%. Breaking it down by regional areas, device sales in the U.S., Canada, and Latin America increased by 6%. Masks and other sales increased by 14%, reflecting continued growth in our mask portfolio and resupply as well as incremental revenue from VertuOx, which we acquired in Q4 fiscal 2025. Excluding the revenue contribution from VertuOx, Americas masks and other sales also grew at a double-digit percentage year over year. In Europe, Asia, and other regions, device sales increased by 6% on a constant currency basis and masks and other sales increased by 10% on a constant currency basis. Residential care software revenue increased by 4% on a constant currency basis in the March quarter, underpinned by robust performance from our MediFox Dan software vertical, partially offset by ongoing challenges in our senior living and long-term care vertical. During the rest of my commentary today, I will be referring to non-GAAP numbers. We have provided a full reconciliation of the non-GAAP to GAAP numbers in our third quarter earnings press release. Gross margin was 62.8% in the March quarter and increased by 290 basis points year over year and by 50 basis points sequentially. The increases were primarily driven by component cost improvements and manufacturing and logistics efficiencies, as well as a small positive impact from product mix and foreign currency movements. Our supply chain team continues to focus on our pipeline and productivity initiatives. Despite some of the current headwinds around fuel costs and emerging component cost pressures, we remain focused on making ongoing long-term gross margin improvements. Looking forward and subject to currency movements, we still expect gross margin to be in the range of 62% to 63% for fiscal year 2026. Moving on to operating expenses. SG&A expenses for the third quarter increased by 14% on a headline basis and by 9% on a constant currency basis. The increase was primarily attributable to additional expenses associated with our VertuOx acquisition and growth in employee-related expenses as well as marketing and technology investments. SG&A expenses as a percentage of revenue increased to 19.5% compared to 19% in the prior-year period. Looking forward and subject to currency movements, we still expect SG&A expenses as a percentage of revenue to be in the range of 19% to 20% for fiscal year 2026. R&D expenses for the quarter increased by 12% on a headline basis and 8% on a constant currency basis. The increase was attributable to increases in employee-related expenses. R&D expenses as a percentage of revenue decreased to 6% compared to 6.5% in the prior-year period. Looking forward and subject to currency movements, we still expect R&D expenses as a percentage of revenue to be in the range of 6% to 7% for fiscal year 2026. During the quarter, we recorded acquisition and portfolio review-related expenses of $6 million reflecting costs associated with the evaluation of strategic transactions including legal and professional fees for due diligence and related consulting work. These expenses have been treated as a non-GAAP adjustment in our Q3 financial results. Operating profit for the quarter increased by 18%, underpinned by revenue growth and gross margin expansion. Our operating margin improved to 36.7% compared to 34.4% in the prior-year period. Our net interest income for the quarter was $12 million, which includes additional net interest income associated with a ten-year Singapore dollar to U.S. dollar net investment hedge that was executed on February 2, 2026. We expect this net investment hedge will generate $9 million in net interest income on a quarterly basis going forward. As a result, we expect net interest income in Q4 fiscal 2026 will be approximately $15 million. During the quarter, we recognized unrealized losses of $10 million associated with the write-down of several investments in our minority investment portfolio. This reduced our Q3 fiscal 2026 earnings per share by $0.07. Our effective tax rate for the March quarter was 20.9%, compared to 20.1% in the prior-year quarter. As we noted in our last quarter call, the increase in our effective tax rate was primarily due to the impact of global minimum tax legislation introduced in certain jurisdictions that became effective from July 1, 2025. We still estimate our effective tax rate for fiscal year 2026 will be in the range of 21% to 23%. Our net income for the March quarter increased by 20%, and non-GAAP diluted earnings per share increased by 21%. Movements in foreign exchange rates had a positive impact on earnings per share of approximately $0.05 in Q3 fiscal 2026. Cash flow from operations for the quarter was $554 million, reflecting strong operating results and disciplined working capital management. Capital expenditure for the quarter was $34 million, and depreciation and amortization for the quarter totaled $59 million. We ended the third quarter with a cash balance of $1.7 billion. At March 31, we had $664 million in gross debt, and $996 million in net cash. We continue to maintain a solid liquidity position, strong balance sheet, and generate robust operating cash flows. As Mick discussed, we have entered into an agreement to acquire Noctrix Health for consideration of $340 million, which we expect to close on June 1, 2026. We will include Noctrix Health in our group results from the closing date. The current annual revenue run rate for Noctrix is approximately $24 million; we will report this revenue within our Americas devices category. For Q4 fiscal 2026, we expect Noctrix Health to reduce non-GAAP EPS by approximately $0.02. Today, our Board of Directors declared a quarterly dividend of $0.60 per share. During the quarter, we repurchased approximately 673 thousand shares under our previously authorized share buyback program for consideration of $175 million. We plan to purchase shares to at least the value of $175 million during 2026. In addition to returning capital to shareholders through a dividend and share buyback program, we will continue to invest in growth through R&D and tuck-in acquisitions. Finally, as you know, this is my last earnings call ahead of my retirement, and I would like to take this opportunity to thank you for your support over many years. For me, it has truly been a great honor and privilege to have worked for our investors over the last two decades. I will continue to be a huge advocate for the great company that ResMed Inc. is. Thank you so much. And with that, I will hand the call back to Daryl. Operator: Thank you. We will now open the call for questions. As a reminder, we will limit you to one question at a time so we can accommodate everyone on the call. If you have another question, you can rejoin the queue. Our first question comes from the line of David L Bailey with Morgan Stanley. Please proceed with your question. David L Bailey: Reduced component cost has been supportive of gross margins over past couple of years. I wonder if you could please talk to some of the changes you are seeing in component costs and freight at the moment and maybe also reference any contracting or supply chain changes you have made post-COVID and the volatility we have seen in more recent years? Michael J. Farrell: Yes, thanks, David. I will go first and maybe hand to Brett to talk about broader gross margin implications. It is a very good question. Obviously, we are seeing some geopolitical uncertainty in the Middle East impacting fuel rates potentially with oil and gas supply. One thing, and the good news for ResMed Inc. in terms of our logistics, is we go across the Pacific Ocean on sea freight through the Panama Canal to the East Coast, and we are not seeing any impacts from that geopolitical uncertainty impacting our core supply chain. But as you said, there are impacts on fuel, and we have done a very good job of going from air freight to the very, very vast majority of our work on sea freight. But there are some component costs we are looking at. I can tell you our pipeline of supply chain improvement opportunities is such that at this moment, we are not changing our guidance, which is that ResMed Inc. plans to have gross margin accretion through 2030 and double-digit basis points improvements each year from here to 2030, even amidst all the changes that are happening. Obviously, these changes happen daily and things continue to move and we will watch everything. But at this point, we still, as you saw, had very good gross margin accretion in the quarter, quarter to quarter and year on year. And we expect as we look to fiscal 2027, 2028, 2029, all the way through 2030, to be able to, through our great pipeline of work, still achieve gross margin accretion. It is more difficult given the geopolitical and external circumstances. With that, Brett, any thoughts? Brett A. Sandercock: You covered it well, Mick. The team has done a pretty good job over the last few years on components and improvements there. It gets tougher, obviously, in this environment, and realistically, we will see some cost inflation on components coming through. But if you think about it, and Mick talked about that productivity pipeline, there are a lot of other things we can do that will offset that. Think about platform standardization benefits, vendor management—which we have done a great job on—some longer-term contracts and improving those enormously, and improving resilience as well. Then think around execution on manufacturing: cycle times, asset utilization, logistics efficiencies, and freight optimization. There are many things that we can do that we think can certainly offset that, and our long-term objective is to increase gross margin over time. Operator: Thank you. Our next question comes from the line of Analyst with Jarden. Please proceed with your question. Analyst: Just a question on Noctrix. Just to confirm, it is growing faster and it has got higher margins—are you talking to gross margin? And any indication as to what that will do to your SG&A and R&D? And how does it get reimbursed, and is there any risk for that reimbursement to change over time? Michael J. Farrell: Yes, great questions. I will go first and ask Brett to jump in if he likes. Noctrix Health has a very novel technology—NIDRA is the product. It is a noninvasive nerve stimulation device that has excellent efficacy in treating restless leg syndrome, particularly moderate to severe restless leg syndrome. The current therapies for RLS are often pharmaceutical options—older drugs that have many side effects—and we think this is a huge opportunity for a noninvasive medical device with sleep doctors writing prescriptions and HMEs setting them up. So it is growing faster than ResMed Inc. and has higher gross margins than ResMed Inc. Obviously, they are in the early development cycle, and we will be investing in R&D. We will be investing in sales and marketing. I will just say this at a high level: this is not just about one product coming into the sleep health portfolio for ResMed Inc. We are the best owner of this asset. We can scale it faster than anyone. Our market access team and our knowledge of CMS, the DMACs, the DMEs, and where we can go to drive reimbursement further are going to be incredible. The startup team from Noctrix Health has done a great job of going payer by payer and getting reimbursement and getting this FDA de novo classified product into the market quickly. Brett told you the run rate that they are hitting on the current quarter; multiply that by four, and we expect to do better than that as they go into this year because they are growing faster than ResMed Inc., as I said earlier. So watch this space. We are going to help them get more market access, more reimbursement, and grow faster than they are. Most importantly, we are going to take care of a whole bunch of patients. Seven percent of the adult population worldwide has RLS, and in the U.S., 17 million people have RLS, and a very good portion of that are potentially addressable by this product. Brett, any further thoughts to the questions further down the P&L of Noctrix Health? Brett A. Sandercock: The only thing I would add is it is a strong growth trajectory, so we will continue to invest in SG&A and R&D. The guidance I gave earlier on EPS impact or dilution is a good estimate as we go forward, but we will update that with a bit more clarity next quarter. Operator: Thank you. Our next question comes from the line of Analyst with Barrenjoey. Please proceed with your question. Analyst: Mick, maybe just a question on combined Europe/Asia revenue growth. Again, another quarter of strong growth. It is now several quarters in a row that you have delivered robust growth rates, particularly in masks. Is this the same measures that you have spoken to in the last few quarters that is driving that growth that looks to be above market? Any color you can give us on particular contracts or countries, lumpiness in sales—just some color as to what is driving that strong growth rate, please? Michael J. Farrell: It is a great question. Our Europe, Asia, and rest-of-world category includes around 140 countries. Looking for highlights, I will say our team in Western Europe has done a good job of partnering with home care provider customers. In markets in Northern Europe where we have been able to achieve and continue on contracts with ongoing annual capabilities and growth, they have done well. In our Asia-Pacific markets, we have seen strong omnichannel approaches in China, Korea, Australia, and New Zealand, where the teams have subscription protocols, direct-to-consumer resupply opportunities, and leverage the HME/home care provider channel to drive resupply as well as re-PAP. We talk about mid single-digit growth in devices and high single-digit growth in masks as the general market. To your point, with robust mask growth, it looks like we are taking share. Why are we taking share and growing the market in masks? Look to the AirTouch N30i—our brand new fabric technology mask. It is the first in the world where you can put fabric on top of silicone at scale and mass production from a world-leading company in sleep apnea. As I said in my prepared remarks, this is changing the basis of competition, and it is not just about the N30i. The most recently released ones we just launched, the F30i Comfort and the F30i Clear in the full-face category—which is a higher-margin area—I think change the basis of competition in how mask therapy happens. Go to your channel checks, talk to patients, talk to providers, talk to respiratory therapists who do the setup every day. The comfort is incredible. On the devices side, we are leveraging macro trends from big pharma and big tech, and ResMed Inc. is doing a better job. We have set up re-PAP programs that are working in the U.S., and even in the tougher markets of Europe, Asia, and rest of world. Hard to cover 140 countries in three or four minutes, but that is the gist. Operator: Thank you. Our next question comes from the line of Analyst with UBS. Please proceed with your question. Analyst: Thanks very much for taking my question. We are increasingly hearing about the change in funding models—particularly Synapse comes up from time to time—and some caution amongst the DME customers of yours that this is going to be a challenge. What are you seeing on that front? Are there any trends that concern you? Michael J. Farrell: It is an interesting question because it gets to the evolution of our U.S. HME business. We had our HME advisory board here in San Diego with top HME customers across the U.S., speaking with our commercial teams in sales, marketing, and clinical about what they want over one, three, five years, and what their patients want: smaller, quieter, more comfortable devices; more cloud-connected devices; smoother pathways; and all the work we are doing with our VirtualOx home sleep apnea testing protocols and our Acrivon—Ectosense and NiteOwl—home sleep testing products to smooth the channel and middle-of-funnel work from prescription to setup. They did bring up questions around Synapse and what they are doing in their experiments. Over the last 15 years, a company called CareCentrix did similar utilization management; ultimately, UnitedHealth bought them. If you are looking at areas of waste and loss in healthcare, you go to the hospital and high-cost areas where there is a lot of waste, not lower-acuity care like ASCs and home care where ResMed Inc. plays. I do not think this is a huge threat. It might be something they work on for a while. Payers will find physicians want to work with an insurance company that takes care of patients in the right way. We have had utilization management approaches in France and Germany, so we can deal with any segment of the market that goes here. Employers, physicians, and others will choose based on Net Promoter Scores. OSA—particularly CPAP—is a very low-cost, low-acuity, high clinical and high economic return therapy. We can show the ROI for integrated payer-providers and for payers alone. We are working closely with payers to make sure this forms part of the ecosystem. It is not a big fear for the HMEs; it is manageable. Operator: Thank you. Our next question comes from the line of Analyst with MST. Please proceed with your question. Analyst: Good morning. On the fabric masks, Mick, when we do channel checks, we keep hearing that the price point is such that a traditional HME cannot make any profit on either setup or resupply. From a commercial perspective, it makes the compliance benefit irrelevant. Is this correct, or are we hearing the wrong thing? Michael J. Farrell: It depends on the payer landscape. There are 50 states and multiple payers per state, so you have a large matrix when you think about payers, what they pay, and where the correct price points are. We want to work with all the different models, and we price for what is right in terms of the extra cost that goes into those fabrics but also the extra value that we see. There is a 6% increase in adherence. For many parts of the country where there is margin at the current price points of an N30i, that 6% increase in adherence provides a for-profit reason to put that mask on—HMEs can run the spreadsheet themselves. The most important thing is that the patient is satisfied, and it is a better mask. If you get the patient over the line and they love it and it is more comfortable, and there is the potential for the HME and the patient to both sustain this, then that is there in many states and many payers. We are driving that forward. It will not be the case in every state and every payer. If your checks cover some below that line, that is not going to be many parts. We hope DMEs will help those patients find a way to cash-pay channels if that is the best mask for them. But we work with HMEs to make sure the economics are in line, and for the vast majority, we can make the economics work within the reimbursed environment. In Europe, Asia, rest of world, and cash markets, it is price elasticity; patients will pay for comfort. In HME-driven markets, our goal is that price points allow profit across the vast majority of customers; it will not be every customer because payers differ by state and payer. Operator: Thank you. Our next question comes from the line of Analyst with KeyBanc Capital Markets. Please proceed with your question. Analyst: I wanted to ask about competitive dynamics in the devices segment, mainly in the U.S. Thinking about one of the competitive launches that took place late in 2025—can you speak to the level of noise you have observed in the U.S. around that launch, and whether you have seen any level of market share shift? Michael J. Farrell: As the market leader, we look at every new entrant and technology. I would say we are productively paranoid. There has been no launch in the last 12 months that made us say, “We did not think of that.” But we do use competition to challenge ourselves—when was the last time we upgraded our AutoSet algorithm? There is new technology called AI. It is more difficult to adopt in the medical space, and we already have one FDA-cleared product in AI that we talked about in SmartCare last quarter. Watch this space from ResMed Inc. We are focused on smaller, quieter, more comfortable, more cloud-connected, and more intelligent therapies. We will bring out more intelligent therapies over time. As you saw in the devices number—very solid in the U.S., 6% growth—we are not seeing an impact. We look at new patient starts, new customer adoption, and all new technologies. There is no new competitive threat that we are worried about, but we are accelerating our own pipeline. Operator: Thank you. Our next question comes from the line of Anthony Charles Petrone with Mizuho Group. Please proceed with your question. Anthony Charles Petrone: Maybe one on primary care engagement—on the CME educational program you have, how often does that turn into a new prescriber? How often are these primary care physicians actually new to the CPAP world—they take an educational program, and then they begin writing prescriptions? What is the conversion rate there? And any updated chatter on the Philips return to the market? Michael J. Farrell: On PCP engagement, we have 80,000 CME programs completed by 45,000 unique clinicians. We track closely. We target PCPs who are already engaged at some level in home sleep apnea testing—maybe one referral per month or more over the last 12 months. We do not do pure evangelism with someone who has never engaged. After education, we look at change in referral volume—does it go from one per month to three to five, from five to seven to nine, etc. That is where we focus. Our VirtualOx data show a double-digit increase in home sleep apnea tests. The VirtualOx team is energized, and we are building partnerships to continue growth in primary care. It is less about brand-new greenfield and more about increasing volume with already-engaged PCPs—teaching signs and symptoms, the right questions, and the gold standard therapy. We are seeing volumes increase; you see it in VirtualOx numbers and in our device numbers growing at 6%, where the market might be a little below that. Regarding Philips, nothing new to add beyond what is broadly known; our focus remains on execution and serving patients. Operator: Thank you. Our next question comes from the line of Davinthra Thillainathan with Goldman Sachs. Please proceed with your question. Davinthra Thillainathan: A question on U.S. devices. Channel checks were suggesting some one-off events that may have held back growth, particularly to do with weather events. Any thoughts there? And with the oral GLP-1 rollout, how can that part of the portfolio grow over the next few quarters? Michael J. Farrell: We did not see a major weather event impact our U.S. devices in the quarter. There was seasonality from Q2 to Q3—with HDHPs and HSAs—Q2 devices growth was closer to 7%–8% and went to 6% in Q3. So some seasonality, but not weather-related. At 6%, we are at the high end of mid single digits—doing pretty well. On GLP-1 pills versus injectables, we are seeing a good flow of patients into primary care and into the diagnostics funnel. The conversion to CPAP setup—the middle of funnel—has more work to do. That is why we bought Somnoware, VirtualOx, and NiteOwl: to help with that flow and to support HMEs with higher volumes and virtual referrals. Our goal each quarter is to push 50–100 basis points higher when we can through demand generation, capture, and conversion. As injectables expand to pills, it will appeal to a broader population, and more patients will come through. This is more of a one-, three-, five-year tailwind than a one- to three-quarter phenomenon. This mile marker was good—we will keep building. Operator: Thank you. Our next question comes from the line of Jonathan Block with Stifel. Please proceed with your question. Jonathan Block: Going to continue down the same road a bit on U.S. devices. We have called out increasing ad spend from Eli Lilly and their Zepbound OSA brand campaigns—dontsleeponosa.com—and the broader population for the pills. When that Zepbound OSA patient walks into their PCP or sleep doc, are they walking out with GLP-1 and CPAP prescriptions? And how would you describe that patient’s behavior—are they getting that CPAP prescription filled, and what is their journey exiting the doctor? Michael J. Farrell: We have thought a lot about this and are analyzing it closely. We did not pay for the demand gen—big pharma did—and that brings in patients we might never have reached. Once at the PCP, especially those we target with high GLP-1 volumes and HST providers, that PCP is writing a CPAP prescription. Clinically and often legally, they should prescribe the lowest-cost, most-efficacious therapy. CMS and most payers have a 90-day adherence requirement—70% usage in any 30-day period within the first 90 days. When this approach was put in place 15–20 years ago, some saw it as a threat; ResMed Inc. saw a 90-day sprint opportunity to help a patient get to the most efficacious and reversible therapy. PCPs and sleep doctors know this. We do not get every patient adherent—our 87% day-90 adherence still means 13% do not get there—but we aim to maximize this once-in-a-generation opportunity. That is what we are educating PCPs and sleep doctors on. We are very focused on maximizing probability of setup and adherence. Importantly, the company making the GLP-1 publicly states that combination therapy is better, and their own clinical data show that. Our data on 2.1 million patients show that those with scripts for both PAP and GLP-1 are more likely to start and stay on therapy with higher resupply events at one and three years. We also analyzed patients who start PAP and then add a GLP-1—n = 1.7 million—and they also show higher adherence and resupply. The next phase is patients who receive both prescriptions at the same time; we are analyzing that now. We like what we are seeing and will keep optimizing. Operator: Thank you. Our next question comes from the line of Brandon Vazquez with William Blair. Please proceed with your question. Brandon Vazquez: You reiterated expectations next year and through 2030 for high single-digit growth and better leverage on the bottom line. From a high level, what are the growth drivers you see? Any new product launches as we go into fiscal 2027? And, Brett, what levers are there on a go-forward basis in 2027—more of the same with efficiencies, or anything else new we should contemplate? Michael J. Farrell: You know I do not release product pipeline ahead of launch, but I can talk about what is already out there: the N30i and its strong takeoff; the F30i Comfort and F30i Clear are doing really well at premium prices; our core masks are doing well; AirSense 11 rollout across Latin America—Brazil, Argentina, beyond—and the recent China launch in a fast-growing consumer-driven market where we are a premium and successful brand. Korea omnichannel, Australia, New Zealand, Singapore—all growing. I also talked about algorithms and how digital upgrades can also come with hardware upgrades—watch this space. Brett? Brett A. Sandercock: We will keep executing on driving top line with really good operating margins, so whatever we deliver on top line will fall through to the bottom line. It is important for us to keep executing on our strategy, and that is what we will continue to do into fiscal 2027. Operator: We are now at the sixty-minute mark, so I will turn the call back over to Michael J. Farrell. Michael J. Farrell: Thank you, Daryl, and thank you to all for joining us for our earnings call today. On behalf of the more than 10 thousand ResMedians in 140 countries, I am pleased to say we were able to deliver another strong quarter of performance and continue to build value for all of our stakeholders. Many of our ResMedians are shareholders, so well done to you as well. And, Brett—55 quarters—thank you for being a great partner and friend, and best wishes on your retirement. Welcome to Aaron Blumer—he is going to be an amazing, high-energy CFO who will take us to the next level and build on the amazing foundation that Brett has set up. Over to you, Sally. Sally Schwartz: Thank you, Mick, and thank you as well, Brett. Thank you to everyone who joined us today. We appreciate your time and interest. If you have any additional questions, please do not hesitate to reach out directly to InvestorRelations@resmed.com. Daryl, you may now close the call. Operator: Ladies and gentlemen, thank you so much for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and enjoy the rest of your day.
Operator: Hello, and welcome to ADT Inc. First Quarter 2026 Earnings Conference Call. Please note that this call is being recorded. You will have the opportunity to ask questions during the Q&A session. If you would like to ask a question at that time, please press star followed by the number one on your telephone keypad. I will now hand the call over to Elizabeth Landers, Vice President of Investor Relations. Please go ahead. Elizabeth Landers: Good morning, and thank you for joining us today to discuss ADT Inc.'s first quarter 2026 results. Speaking on today's call are Jim DeVries, our Chairman, President and Chief Executive Officer, and Jeff Likosar, our Chief Financial Officer. Following their prepared remarks, we will be joined by Omar Khan, our Chief Business Officer, and we will open the call for analyst questions. Earlier today, we issued a press release and an earnings presentation summarizing our results. Both are available on the Investor Relations section of our website. During today's call, we will reference certain non-GAAP financial measures. Reconciliation to the most comparable GAAP measures can be found in the earnings presentation. Unless otherwise noted, all financials and metrics discussed reflect continuing operations. Our remarks today also include forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act. These statements are subject to risks and uncertainties that are described in the earnings presentation and in our SEC filings. Actual results may differ materially. Please refer to our SEC filings for more details. And with that, I am happy to turn the call over to Jim. Jim DeVries: Thank you, Elizabeth. Good morning, everyone, and thank you for joining us today. I will focus my remarks this morning mainly on the key highlights from our first quarter. I will also build on the strategic update and longer-range outlook we shared on our last call in March. Then I will turn the call over to Jeff to walk through our financials and outlook. Let me start with a few key financial highlights. I am pleased to report that ADT Inc. delivered a strong start to the year. Our results were consistent with our plans, with particularly strong cash generation. Adjusted free cash flow, including swaps, was $414 million, and adjusted earnings per diluted share was $0.23, up 10% year-over-year. Our durable recurring monthly revenue was $359 million, flat versus prior year. Gross revenue attrition remained at 13.1% and our revenue payback period was 2.3 years. Cumulatively, these results reinforce the durability of our model and progress strengthening ADT Inc.'s business to prioritize high-quality adds and more efficient acquisition channels. Turning to our key initiatives. The strategic update we shared on our last call emphasized the consistency in our overall mission. We also outlined how we are reshaping and redefining the delivery of smart home security. Our mission remains clear: to protect and connect what matters most and to provide our customers with peace of mind. Our overall strategy remains anchored in three core differentiators: unrivaled safety, premium experience, and innovative offerings. As we described, during 2026, we are accelerating progress with investments in three key areas: product technology, service excellence, and customer acquisition. Together, these investments support our vision to deliver always-on security and convenience with split-second and proactive response, and solutions that evolve with our customers whether they are at home or away. First, on product technology. Our proprietary ADT Plus platform continues to gain traction. ADT Plus brings together professional monitoring with leading smart home devices including Google Nest and Yale products, enabling a more flexible and modern experience for customers. In the first quarter, approximately 30% of our new customer additions included ADT Plus. We expect to continue expanding penetration of our ADT Plus ecosystem and app to more channels including, most importantly, our third-party network of dealers who will begin transitioning to ADT Plus this summer. Dealers represented more than a third of our total gross additions last year, and as they adopt ADT Plus, we expect more than two thirds of new subscribers will be on our proprietary platform. We also expanded ADT Plus features in the first quarter with the launch of two new innovations that extend the platform's capabilities. LiveLite is the industry's first illuminated wireless yard sign that directly connects to the ADT Plus system and illuminates during an alarm event, giving first responders an immediate visual signal and letting potential intruders know a home is actively protected. MySafety is a personal mobile safety service in the ADT Plus app that provides customers with the same protection they know and trust from ADT Inc. at home, but while they are on the go, including seamless connection to ADT Inc.'s nationwide monitoring network wherever they are. We already have 35 thousand customer activations. With innovative features such as these, ADT Inc. is improving security and demonstrating our belief that safety is not just about intrusion detection; it is about awareness, visibility, and response and, most importantly, peace of mind. As discussed on our last call, we acquired Origin AI in February, which will add AI-driven ambient intelligence technology into the ADT Plus platform, creating a new layer of home intelligence. This privacy-first Wi-Fi-based sensing technology allows customers to understand what is happening in their homes without cameras or wearables. Over time, this will become an integrated part of the ADT Plus experience, enabling richer resolution and awareness while continuing to protect our customers' privacy. Concurrent with this acquisition, we also entered into a long-term technology licensing agreement with Barashore, reinforcing the global relevance and scalability of this platform and the practical use cases already deployed in Europe. Since closing the acquisition, we are rapidly progressing both technical development and commercialization plans, and during the first quarter, we completed the design of a smart plug that will enable integration into our core offerings. Key priorities over the next two quarters include initial manufacturing and pilots of these smart plugs, and technical development for integration into our ADT Plus platform for security and aging-in-place use cases, and integration into a third-party router. As we deepen our plans to deploy this sensing technology and work with the team, I am even more excited about the role these capabilities will play in our evolution to proactive peace of mind. Next, our second area of investment, service excellence. ADT Inc.'s best-in-class team of employees continue to deliver outstanding service and support for our customers. Alongside the AI-enabled features in our product offering, we are also increasingly using AI to deliver better service for our customers while delivering better economics for the business. We are deploying AI-powered virtual agents across both chat and voice interactions to improve responsiveness and consistency, enabling customers to get accurate answers faster while allowing our human teams to focus on the highest value customer interactions. As of the first quarter, all chat interactions and approximately half of our phone calls are initially routed through AI. Containment continues to improve, meaning more issues are resolved without any human intervention. These efforts are both improving the customer experience and beginning to structurally lower our cost base. Additionally, our unique combination of AI capabilities and human expertise have lifted our net promoter score. We are also seeing record levels of customer self-service powered by an expansion of AI use cases, enabling deeper customer engagement and a significant reduction in high-cost field service appointments. Importantly, ADT Inc. employees continue to handle situations where human expertise matters most, such as during emergencies, or when an on-site highly trained service technician is the best way to resolve a customer issue. And finally, our investment in customer acquisition. While ADT Inc. already enjoys the benefits of a very strong and trusted brand in a variety of routes to market, I am excited about several areas we will advance this year. One highlight is our expansion into e-commerce with the launch of ADT Blue, a new product line designed to appeal to more value-conscious and DIY-oriented customers. This launch includes lower-cost cameras, expanding our product portfolio and enabling lower price points to appeal to a different segment of customers. ADT Blue will debut on our own web in late May and then in additional e-tail channels, including Amazon, over the summer. We are excited to unlock these new routes to market and to begin targeting this segment of customers which we believe represents incremental TAM. We anticipate more volume from more price-conscious or DIY-oriented customers from this launch. And while some prospective customers may choose these lower-priced DIY solutions, we also envision converting a subset of them to our more traditional professionally installed solutions. Additionally, we are continuing to drive efficiency in our overall go-to-market approach, including rationalization of our marketing spend and our highest cost channels. So far, we have lowered third-party affiliate lead fees by $100 per installation, and we are working on efficiency changes to our dealer model. As I mentioned on our last call, these changes may temporarily impact subscriber additions, but they are designed to improve long-term efficiency. As we have shared previously, we will also continue to evaluate bulk account purchase options and potentially full acquisition opportunities in our industry at attractive economics. In closing, we remain focused on executing on these initiatives which we have outlined and positioning ADT Inc. for long-term value creation. I am confident in ADT Inc.'s outlook and our ability to deliver on our commitments for 2026 and beyond. I want to thank our employees, partners, and customers for their dedication and trust in ADT Inc. I am proud of our team's performance and excited for the opportunities ahead. With that, I will turn the call over to Jeff. Jeff Likosar: Thanks, Jim, and good morning, everyone. I will take the next few minutes to add some detail on our first quarter results and share an update on our outlook for the rest of the year and the second quarter. I am very pleased with our start to 2026, which was consistent with our plans and the outlook we shared in March. As Jim mentioned, cash flow remains a significant highlight, and in the first quarter, we generated $414 million of adjusted free cash flow including interest rate swaps, which was up $187 million, or more than 80%, versus last year. This result was driven primarily by lower cash interest, the timing of some payroll-related disbursements and other working capital items, and our overall profitability. We continue to enjoy a very strong capital structure and liquidity position with our $800 million revolving credit facility and $119 million of cash available at the end of the quarter. Notably, this was after funding the Origin acquisition and returning $161 million to shareholders. Earlier this year, our board authorized a $1.5 billion three-year repurchase program, and during the first quarter, we retired approximately 18 million shares at $116 million. We do not believe our current stock price reflects the intrinsic value of our business and have therefore deployed additional capital towards share repurchases in April. Our year-to-date repurchases total approximately 35 million shares at $230 million. Turning to earnings, adjusted EBITDA for the quarter was $674 million, up 2% versus last year, and adjusted earnings per share was $0.23, up 10%. This performance reflects the durability of our high-margin revenue and our overall efficiency across the business, allowing us to deliver solid results while also investing for the future. Our first quarter results also include favorable legal settlement loss recovery partially offset by an increase in our allowance for credit losses. In addition, earnings per share benefited from last year's share repurchases, enabled by our cash generation and our efficient capital structure. On the top line, we delivered first quarter total revenue of $1.3 billion, up 1%. Monitoring and services revenue was relatively flat with an ending RMR balance of $359 million. I will note our prior year results include the multifamily business we divested last October which represented approximately 200 thousand subscribers and $2.6 million of RMR. On a year-over-year basis, higher average pricing across our subscriber base largely offset the absence of multifamily revenue. Installation revenue in the quarter was $198 million, up 7%, reflecting a higher mix of outright equipment sales related to our transition to the ADT Plus platform. We added 161 thousand gross new subscribers with $10.1 million of RMR on lower cash SAC. We remain focused on delivering strong subscriber economics and returns on the capital we deploy, and have consequently continued to balance SAC spending with other uses of cash. Our overall capital allocation priorities remain unchanged. We are investing in the business where returns are compelling, both organically and via periodic acquisitions; we are returning capital directly to shareholders; and we are maintaining a healthy balance sheet with an objective of further reducing leverage. After several refinancing and repayment transactions last year, our weighted average maturity is approximately five years, and our cost of debt is currently around 4.3%. We remain very comfortable with our current leverage at 2.7 times adjusted EBITDA with net debt of $7.3 billion. Earlier this month, we repaid the remaining $75 million of our 2026 notes at maturity, with our next maturity in August. Before I conclude, I want to briefly reiterate the full year 2026 outlook we shared in March. We expect very strong adjusted free cash flow growth of approximately 20%, and revenue and adjusted EPS to be approximately flat to last year. This outlook reflects our ongoing prioritization of cash generation, disciplined subscriber acquisition spending, and share repurchase plans. It also incorporates planned investments benefiting future periods which Jim described earlier, along with expected tariffs. For the second quarter, we expect revenue and EPS to be slightly lower than the first quarter, due primarily to higher advertising spending with the ADT Blue launch along with other initiative investments. We also expect adjusted free cash flow to be $100 million to $150 million lower sequentially due to higher seasonal SAC spending, the timing of working capital flows, and tax payments. We are pleased with our strong start to the year and remain confident in our ability to deliver 2026 results, while also investing in initiatives that generate growth in future years. Thank you again for joining our call today and for your continued support. Operator, please open the call to questions. Operator: Thank you. We will now open the call for questions. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one on your touchtone phone. If you are using a speakerphone, we kindly ask you to lift the handset before pressing any keys. Please hold for a moment while we gather questions. Our first question comes from the line of Ashish Sabadra from RBC Capital Markets. Please go ahead. Ashish Sabadra: Thanks for taking my question. As you have improved the efficiency in the overall go-to-market approach, you talked about several things that you worked on, and also increased your upfront revenues that you are getting on these installations. How do we think about the customer acquisition cost trending over the next three to five years and the benefit to the free cash flow from that? Thanks. Jeff Likosar: Yeah. Thanks, Ashish. It is Jeff. We think there is meaningful opportunity. We, for some time, have been focused on reducing our cost of subscriber acquisition, including especially for more installation revenue as customers buy more comprehensive systems. What we are focused on especially this year is go-to-market efficiency, and there are several things we could highlight, but one I will highlight specifically is the transition, as we launch our ADT Blue platform, to e-tail type channels, which we believe will be more efficient methods of adding subscribers. And then the other that Jim alluded to in his prepared remarks is transitioning away from some of our highest cost lead sources and higher cost channels, and we think there is meaningful opportunity there over the coming years, which is reflected in the long-range guidance we put out where we said we were targeting getting to revenue payback more like 2.0 times or lower. Ashish Sabadra: That is very helpful color. And maybe just on the bulk account purchases as well as potential full acquisition opportunities, can you talk about the pipeline there? Thank you. Jim DeVries: Thanks, Ashish. I will share some perspective on the bulk front. As you know, we think about bulk acquisition and tuck-in M&A as an effective lever for growth in our business. We have executed bulks in the last six years. We did not do a bulk in Q1. We were unable to reach terms. We are looking for returns in bulk, which are generally with our dealer business, and if we cannot get those returns, we will not pursue the deal. We are almost always engaged with sellers. I expect that will continue, but for Q1, none of the opportunities we considered quite met our standards. But we are pretty consistently engaged. We are engaged now. And it will continue to be an option for us as a lever for subscriber adds. Ashish Sabadra: That is very helpful color. Congrats on the solid results. Thank you. Operator: Our next question comes from the line of George Tong from Goldman Sachs. Please go ahead. George Tong: Hi, thanks. Good morning. You shared some color now on your bulk account purchase strategy. If you look at your organic strategy for driving RMR additions, what are some of your top initiatives to fuel a return to stronger gross RMR additions growth? And then turning to free cash flow, you are guiding to 20% plus growth this year. Your multiyear framework calls for 10% plus growth. Can you elaborate a bit on what is driving the outsized growth this year and how long free cash flow growth can stay above 10%? Jim DeVries: I will comment and give you some color more broadly, George, and then zero in on your question. Some context: candidly, I would have liked to have seen stronger adds for the quarter. Dealer was a little soft relative to last year. Our multifamily business, as you know, was sold last year. State Farm adds are not coming in. We actually tightened our credit standards a bit. And as Jeff and I have been talking about, we have continued to reduce our reliance on high-cost channels. But we are making some investments that we do not think will yield immediate results, but they are good for the long-term health of the business. I will mention three of them. The first is around product technology. We are excited in particular about Origin and Ambient Sense and integrating that into ADT Plus, and then the subsequent commercialization of the product features associated with it. Second area is around AI investments. We are not just going to leverage AI in customer service, but begin to leverage AI in marketing and sales. And then Jeff just mentioned something that we are really excited about around new routes to market: e-tail, retail, new offerings targeted to the DIY-oriented customer. We are just in the second quarter getting started, and I think this will be an attractive opportunity for us to add subscribers. Jeff Likosar: Yeah. So maybe I will remind a bit about our approach to the overall year, which is focused especially on really strong cash generation as we work through the deployment of all of the initiatives that we have described. And that goes with, in our overall guidance for the year, flattish revenue and EPS growth, and our guidance reflects meaningful investments in the initiatives that we expect to drive those longer-range outcomes. As a result, we are not spending as much SAC this year as we otherwise might. We also, as we get into subsequent years, will likely have a bit more tax expense. So those are among the reasons why this year is stronger than what we have in our longer-range framework. And I will also mention, even though you did not ask specifically, the first quarter was exceptionally strong. It was largely consistent with our expectations, and that was to do with the timing of interest payments and the timing of some other working capital payments. We feel really good about our start to the year on cash flow especially and are well positioned to deliver what we suggested on a full-year basis. Jim DeVries: Thanks, George. Operator: Our next question comes from the line of Peter Christiansen from Citigroup. Please go ahead. Peter Christiansen: Thanks. Good morning. Thanks for the question here. Jim, I want to dig back into the question on more organic subs, you know, RMR growth initiatives. I would imagine, particularly in this next-gen iteration of your dealer strategy, that potentially gives some avenues at least regionally. If we think a regional scope, are there areas where ADT Inc., from this organic, less dealer-reliant avenue, can lean into certain regions to help improve share and gain RMR additions? Is there an opportunity there that could help accelerate overall RMR additions? Jim DeVries: I think so, Peter. And thanks for the question. I do not know that I would categorize any given region as particularly more attractive than others, but I would say that the opportunity for tuck-in M&A with large regional players and local players, as I was mentioning on an earlier question, is real for us in terms of adding gross subscribers. A roll-up strategy of sorts, I think, is something that is available. As you know, we have stuck with bulks and not buying complete companies, but I think the pipeline for both bulk and for M&A is an option for us, and it is available in just about every part of the country. Peter Christiansen: That is encouraging to hear. And then on attrition, stepping into incremental non-pays here, you know, it is interesting—consumer credit is going through a bunch of changes right now. Curious if we can get to that next level, see if there are any discernible trends that you are seeing in non-pay activity. K-shaped economy, higher fuel costs—those sorts of things are now at play when people think about consumer credit going forward. Just if you could dig into a next level there, and I know you mentioned that you are lifting your FICO thresholds, which is a smart idea. But is there anything else that you can do to navigate some of the changes that you are seeing more broadly in the consumer credit? Jim DeVries: Great question, Peter. I will share some context around your question related to attrition, and then Jeff will address the non-pay more specifically. As you know, attrition was flat for us at 13.1%. We had modest pressure from non-pay cancellations. They were just a touch higher than last year. Relocation cancels were flat, and voluntary cancels were meaningfully better than last year. I should mention small business, which we are keeping an eye on, was also flat to last year. And the sale of multifamily was actually a modest tailwind for us. A couple of things that are going well in the short term, and then I will mention a couple of things that are a little longer term that are reasons for optimism. Short term, NPS for us is coming in really about as high as it has been over my ten years here. All of the operating metrics—first call resolution, agency satisfaction, digital self-service—all of that going up and to the right. And so short term, I feel really good about our operations and our ability to retain customers. A couple of things longer term that are worth mentioning: you referenced the tightening of credit standards. That is in place and will bode well for us. A little bit of pressure on gross adds, but it will bode well from a retention perspective. Longer term, better product experience, deeper, more frequent customer engagement is something that Omar and the product team are working on. We are excited about leveraging AI. In a couple of weeks here, we are going to implement AI-driven call routing and begin to implement AI for churn propensity modeling. So I think all of those will be positive for us. It is not going to be this quarter, but it will bode well for us in the longer term. In terms of non-pay specifically, Jeff, do you want to share some perspective? Jeff Likosar: Sure. It is a topic, of course, we monitor very closely. We consider it very carefully. Fundamentally, it is part of our overall subscriber economic model. We recognize that we will suffer some nonpayment as part of that and are always looking at the right trade-off between our credit policy and the effect it might have on either (a) adds or, importantly, (b) installation revenue. So as we make refinements, the refinements we are making are both to whom we offer credit, how much credit we offer, and if we offer less, we likely, or in many cases, would still get the subscriber—just potentially with less installation revenue, which has a margin that goes with it. So we assess that against what we think might be the credit losses, and while we are not perfect at predicting them, we have gotten pretty good and a lot better at predicting them. And as we continue to make those refinements, it is with the lens towards optimizing overall subscriber economics and overall return on invested capital. And then I will mention, just because I mentioned in my prepared remarks, that we did record some higher allowance for credit losses. Part of the reason for that is as we transition to more of our transactions being outright sales to customers, it means we are recording the revenue earlier. And if we record the revenue earlier, under the accounting rules, we have to record an appropriate bad debt provision. So while we have seen some slightly negative trends, we think we have our arms around it and will continue to adjust to optimize both the short-term and long-term economics. Peter Christiansen: That is helpful. I did not realize the cost method accounting there. But, Jeff, thank you for that clarification. Thank you. Operator: Our next question comes from the line of Ronan Kennedy from Barclays. Please go ahead. Ronan Kennedy: Hi. Good morning. This is Ronan Kennedy on for Manav. Thank you for taking our questions. If I may, a multi-part on prioritization of the high-quality adds and more efficient channels. Gross adds still declined. How much of that volume decline is intentional versus underlying demand dynamics? And how are you quantifying that high-quality add? Is it the payback, the IRR, expected lifetime value, or just the credit? And how have those thresholds changed? And then on AI routing, I think roughly half of calls and 100% of chat—are you quantifying realized cost savings today, and how much incremental margin opportunity remains there? Jim DeVries: We will tag team this for you, Ronan. Good morning. It is Jim. I will start by reiterating just a bit on what I mentioned earlier for gross adds. I would have liked to have seen more adds in the quarter. So not all of it was intentional. Much of it was. We are about flat in direct and indirect installations. The reason why we are down tends to be mostly from dealer, and in fact one dealer in particular. We have a little bit of tailwind on the multifamily sale, but some of the changes that we made—the tightening of credit standards, and dialing down the reliance that we have on some of our higher cost affiliates—all of that is intentional. It is hard to give you a percent on how much was intentional and how much was not. I would say something more than half of our miss versus last year was intentional. But I feel good about those changes even in this year and getting on track with our direct adds. Jeff, did you have more? Jeff Likosar: Yeah. I would emphasize, we get the question also on attrition of parsing the individual components. It is difficult. We think of it as an overall ecosystem. And the main thing I would add or reiterate is that our first quarter was largely consistent with our plans. Our full-year revenue guidance was to be approximately flat. We were slightly better than that in the first quarter. The key driver of our revenue is monitoring and services revenue. The key driver of that is our overall RMR balance. So you could deduce, even though we do not specifically guide to RMR, that it was a pretty consistent outcome in aggregate and overall in consideration of all things, including the adds, including the attrition, and price escalations. So we feel really good about our start to the year. And even though, as Jim mentioned, we always want to have more adds, we were out of the gate very similar to the way we expected to be out of the gate through the first three months. Jim DeVries: I will add some context on AI, Ronan, and ask Jeff or Omar to jump in if they have more to add. There are three or four areas that we are focused on within AI right now. At the top of the list is containment and advancing our containment. Most all of the calls in the call center will be handled through AI this year. A couple of stats for you to demonstrate how quickly this is accelerating for us: our chat containment in Q1 was 45%, and by April, it is 60%. Call containment was 16% for the first quarter. By April, it is 25%. I am not sure that it will continue to be linear like that, but we have a fantastic internal leadership team, great partners in Siera, the Google team, and expect to continue to make real significant advances on the call center side of our business. Next up for us is transcription, analysis of calls; as you know from an earlier answer, we have churn propensity modeling on the docket. And then lastly, we are not just using AI for cost reduction; we are also implementing AI into our marketing and sales motion. Outbound calls, for example, for low-converting leads will now be done principally by AI. AI is involved in the pre-qualification process, just helping us to be much more efficient from a go-to-market standpoint. Jeff Likosar: Yeah. And to your question about quantification, while we have not specifically shared a quantitative target, I would tell you it is in the millions—many millions, even tens of millions if I count the benefit of reducing the quantity of truck rolls. We think it is more over time, and it is among the reasons in our full-year guidance we are able to overcome the headwinds from investments and from tariffs and, with flattish revenue, still have profitability or EPS in the flattish range. So a very meaningful contributor—AI and cost discipline and cost management more generally across the business. And our teams are doing a great job executing both AI and cost more broadly. Omar Khan: And I will add in just a couple of examples. Our product engineering group has led the adoption of co-pilot AI tools in our workflow. We have been extremely successful. As of last month, over half of our committed software code is being written by AI. So not only has that increased our velocity, it has also increased our capacity while holding our engineering headcount flat, and we anticipate that to continue as we adopt across the organization from an efficiency perspective. In addition to all the efficiency metrics that Jim, Jeff, and I are talking about, we are also using AI to engage our customers within ADT Plus. We are going to be rolling out Gemini AI features, and as you know, Origin's AI features will start to roll out within ADT Plus as well as other standalone solutions in the next year or so. Ronan Kennedy: That is all very helpful. Thank you very much. Appreciate it. Jim DeVries: Thanks for the question, Ronan. Operator: Thank you. Our last question comes from the line of Greg Parrish from Morgan Stanley. Please go ahead. Greg Parrish: Hey. Thanks, guys, very much. Congrats on the strong result. Trying to talk about DIY and ADT Blue rolling out here. This is not a channel you have been overly assertive in historically, right? The economics, you know, are not quite as good. Maybe just help frame for investors why now. Is DIY more profitable now? Do you have more avenues to convert them to do-it-for-me? Just from a strategic perspective, why the change in approach to DIY now? And secondly, I wanted to circle back—you made some comments on second quarter. If I heard correctly, Jeff, I think you said revenue and EPS down sequentially in second quarter. You called out higher ad spending, which explains the EPS part. I just want to double-click on the revenue part. Is there anything specific driving that? I mean, typically, second quarter is higher sequentially. Maybe there is some accounting nuance, like install recognition or something. But maybe just help us understand the revenue step down sequentially. Thanks. Omar Khan: Yeah, so I think for the first time we, as ADT Inc., have developed a hardware and software customer experience that is purpose-built from the ground up for DIY customers in terms of both how they buy, how they activate, and how they interact with the technology. We are taking this market opportunity seriously as a significant TAM opportunity, as has been demonstrated in the market already by other DIY camera-only and security providers that are having success in that market. Think for too long, we, as ADT Inc., have ceded this market where we feel like we have a strong right to play and to win, and we are committed to a long-term roadmap of enhancements to our offering. We are going to be bringing out additional products from a hardware feature perspective, as well as new AI features. And I think even more importantly, it is going to be one of the areas where we begin to integrate Origin AI sensing technology into the DIY offering to differentiate ourselves in the market and capture our fair share of the DIY market from a TAM perspective. Jim DeVries: Yeah. A couple of things I would mention, Greg. The first is, historically, because of some contractual obligations that we had with some of our suppliers, we were limited in how assertive we could be in this market. And now that those contracts have been renegotiated, the economics are different for us today and give us a little more elbow room in competing in this marketplace. And as Omar just mentioned, he and his team have built from the ground up a hardware and software set ready-made to compete economically in DIY. And you are right about profitability in DIY versus DIFM, but we think we can get a good return. Most all of the DIY subs will be incremental for us. And then, not unimportantly, part of our playbook will be to treat those DIY customers from a lifetime perspective and convert them, as their needs change or their interests change, to DIFM—to pro install customers—where the profitability is much higher. Jeff Likosar: You know, we do not expect revenue down sequentially. We expect our cash flow down sequentially is the most significant item I would highlight, and that is because of a combination of seasonal SAC spending and the normal course flows of working capital being less beneficial in the second quarter than in the first quarter, and the timing of tax payments, as an example. And then we are accelerating most of our investments. We have Origin, for example, for the full quarter, which we did not have for the full prior quarter; the ADT Blue advertising rollout; and some other engineering work across the business. So that is among the reasons that our EPS, along with the share count dynamics, in the first quarter on a year-over-year basis was higher than what we have said for our full-year outlook, but we do not expect revenue down quarter over quarter. Greg Parrish: Okay. Good. Maybe I misheard. Got it wrong, so I am glad I clarified that. Okay. Thanks, guys. Omar Khan: Thanks, Greg. Thank you. Operator: I will now turn the call over to Jim DeVries for closing remarks. Jim DeVries: Thank you, Janine, and thanks, everyone, for taking time to join us today. ADT Inc. delivered a solid quarter. We continue to feel good about the direction of the business. We are confident in our 2026 plans, both operational and the investments that we have been discussing and the impact that they will have for a stronger future. One last time, I would like to extend my appreciation to ADT Inc. employees and our dealer partners. Congrats on a very good start to the year. And thanks again, everyone, and have a great day. Operator: That concludes our conference call for today. You may now disconnect.
Operator: Good morning, and welcome to Air Products' Second Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Megan Britt. Megan Britt: Hello, and welcome to the Second Quarter Fiscal 2026 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, Chief Financial Officer. We have prepared presentation slides to supplement our remarks during the call, which are posted on the Investor Relations section of the Air Products website. During this call, we'll make forward-looking statements which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call, and in the forward-looking statements and Risk Factors sections of our reports filed with or furnished to the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we will refer to various financial measures, including earnings per share, capital expenditures operating income, operating margin, the effective tax rate, ROC and net debt to EBITDA on a total company basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. It's now my pleasure to turn the call over to Eduardo. Eduardo Menezes: Thank you, Megan. Hello, and thank you for joining our call today. Before we begin, I want to take a moment to express my appreciation to the entire Air Products team, especially the more than 3,000 employees of our direct operations and minority-owned joint ventures in the Middle East. During this period of uncertainty, our people have continued to show dedication, staying focused on safety, reliably serving our customers and supporting critical projects and operations. Now please turn to Slide 3. Earlier today, we reported results for the second quarter of fiscal 2026. We delivered a broad-based operating income improvement across our reporting segments. Earnings per share of $3.20 increased 19% compared to the prior year quarter on improved volumes, productivity and currency. We also experienced reduced headwinds from with volumes better than expected Q2 Aerospace. Our operating margin of 23.7% was also up compared to the prior year quarter, reflecting the strong underlying volumes, particularly in our on-site business as well as the continued benefit of cost productivity. Return on capital of 11.4% was in line with prior year and improved sequentially. Overall, we were able to improve our business performance during the first half of the fiscal year and effectively manage the market dynamics that have emerged due to the recent Middle East conflict. Moving to Slide 4. We remain focused on 3 key priorities for 2026, consistent with our strategic road map. On unlocking earnings growth, we are raising our full year earnings guidance which now implies an improvement of 8% to 10% at the midpoint of the full fiscal year. We expect EPS growth to be achieved primarily through our continued focus on pricing actions, productivity and new asset contributions. Additionally, we anticipate a more favorable operating environment in the second half for improved volumes in several key end markets, including refining, electronics and aerospace. On our second priority, we continue to make progress on optimizing our large project portfolio. On NEOM, negotiations on a marketing and distribution agreement with Yara are progressing in line with expectations. The project continues to make progress and is ready to produce renewable power that will be used in the commissioning of the hydrogen and ammonia plants. Notably, activities at NEOM have not been impacted by recent events in the Middle East. We continue to monitor the situation closely and prioritize safety. On the Louisiana project, we have set a high bar from moving forward where we required a reliable capital cost estimate and construction agreements that meet our project risk-adjusted return requirements. We are currently revealing construction bids from EPC firms and remain committed to reaching a go, no-go decision in conjunction with our partners by the middle of this calendar year. Finally, on our third priority, maintaining capital discipline. We are staying focused on our capital allocation, invest in growth projects and returning cash to shareholders. As we have previously indicated, we expect to reduce our capital expenditure by approximately $1 billion in fiscal 2026 and remain on track to achieve that objective. We are focused on investing in our backlog of traditional industrial gas projects and have strengthened our project pipeline in electronics and aerospace. In the electronics area, we are currently executing approximately $1 billion in ASU and hydrogen projects in Asia for several multiphase projects serving semiconductor and memory customers. We expect to add another $1.5 billion to $2 billion to backlog in the next 6 months, including the project we announced yesterday to build, own and operate multiple production facilities in both specialty gas supply systems for a new advanced fab with Samsung in South Korea. We also have announced our intent to build, own and operate a new ASU in Florida to further enhance our support for our space launch customers. Lastly, we remain committed to disciplined capital allocations that ensures that we are well positioned to continue our strong track record of returning cash to our shareholders. In the first half of fiscal 2026, we have returned $800 million to shareholders in the form of dividends. Please turn to Slide 5. As has been widely reported, recent events in the Middle East have resulted in curtailment of helium supply from Qatar. Helium is an important product line for our products with the largest end market sales in electronics, aerospace and medical. Air Products helium supply chain is very resilient with one, multiple sources in the U.S. in addition to our long-term partnerships in Algeria with Sonatrach and in Qatar with Qatar Energy. Two, a dedicated helium storage cavern in Texas, which has been operational for nearly 5 years. The cavern contains a significant volume, allowing us to provide high supply reliability to our customers when one of our sources is unable to produce as we are now experiencing. And three, a large helium ISO container fleet produced by our subsidiary, Gardner Cryogenics, which provides flexibility and responsiveness in managing supply flows during periods of uncertainty. Since the beginning of the conflict, we have activated our contingency plans, drawing product from the cavern and positioning our container fleet to bypass conflict-affected areas. We look forward to our partners in Qatar resuming normal production as soon as possible. But until we -- that can be achieved, we are well positioned to enable supply chain resilience through this current supply disruption. We are working very closely with our customers to meet our commitments to them and capture long-term volume growth in critical end markets. Moving to Slide 6 before Melissa shares detailed quarterly performance, I wanted to offer some additional context on end market conditions. Given the ongoing conflict in the Middle East, we are closely engaged with key customers in each end market. We are also working strategically beyond current events to fully participate in compelling end market growth. Entering the fiscal year, we have a relatively conservative view given muted outlook for industrial production and manufacturing growth. Now with our performance through the first half, we are more confident about a sustained level of industrial activity and the potential for continued volume growth in some areas. Though the ongoing conflict in the Middle East introduces some uncertainty, we expect a combination of favorable dynamics in core end markets and some new wins to support volume improvement. Looking at a few highlights. We see strong run rates across our refining customer base, particularly in the U.S. Gulf Coast where we serve a large number of complex refineries that can process heavy sour crudes and produce high-demand products such as jet fuel. We expect U.S. refineries continue to run hard, which will support higher on-site volumes. Moving to Chemicals. We are closely monitoring supply chain conditions that would impact volumes. In Europe, challenges securing feedstocks and high costs that customers cannot mitigate with pricing could have an impact on run rates. Beyond Europe volumes are relatively stable. Additionally, we expect to see stronger oxygen demand from our coal gasification customers in China where increased oil and LNG costs are supporting higher volumes. Electronics and aerospace continue to be bright spots. We have historically had a meaningful percentage of our sales in electronics and are benefiting from increased volumes in this end market due to a new asset onstream this year. The industry is in the midst of a historical super cycle period to satisfy AI demands with record CapEx expenditures projected between now and 2030. This expansion will generate expansion opportunities for industrial gas providers. Currently, we are working closely with our large long-term electronic customers in helium supply. Already with the long-term agreements signed during the last 6 months, we expect our hidden volumes to large electronics customers in Asia to more than double between 2026 and 2030. Finally, in Aerospace, we have continued to see volume improvement in launches, engine testing and manufacturing. We were very proud to be part of the recent NASA Artemis 2 mission where our products supply liquid hydrogen and liquid helium using our proprietary liquid helium pumps. We see a tremendous opportunity to continue to grow in the space area and our recently announced investment is expected to increase our participation of both NASA and commercial launches. Now I'll turn the call over to Melissa to discuss our financial results in greater depth and review our 2026 outlook. Melissa? Melissa Schaeffer: Thank you, Eduardo. Hello, and welcome to those joining our call today. Please move to Slide 7 for a high-level summary of our second quarter financial results. Sales were up 9%, while operating income grew 19% on volume, currency and lower costs, partially offset by price headwind. With respect to volume, we saw growth from on-site in part due to the increased production from our U.S. refinery assets and new assets coming on stream in Asia. We also lapped a major turnaround in our Europe segment. Merchant volumes were stable, including a modest improvement in helium. On price, the headwind from helium was partially offset by pricing from non-helium merchant products, particularly in the Americas and Europe. The base business once again delivered this quarter and operating margin expanded over 200 basis points to 23.7%, despite a 50 basis point headwind from higher energy pass-through. We have seen margin expansion in part due to our productivity initiatives. We have recognized approximately $50 million in savings year-to-date from head count reduction, which is on track with our plan for the year. Earnings per share of $3.20 grew 19% from the prior year. and exceeded the top end of our guidance range due to stronger on-site volume and better-than-expected helium volume from space launches. Return on capital of 11.4% was in line with prior year, and up 40 basis points sequentially on strong base business performance while we execute our project backlog. Moving now to Slide 8. Our second quarter earnings per share of $3.20 increased $0.51 or 19% from prior year. We continue to see helium headwind driven by lower price. In line with our guidance, currency was favorable 3% as the U.S. dollar weakened against our key currencies. The base business remained resilient in an uncertain macroeconomic environment. The growth from our on-site volume, non-Helium pricing, continued progress on our productivity initiatives and lower depreciation was partially offset by fixed cost inflation and planned maintenance outages in the Americas. In addition to the strong base business performance this quarter, we also saw improved accrete affiliate income, primarily in Mexico. Moving now to Slide 9. I'll provide an overview of our results by segment. You can find additional details of the quarterly segment results in the appendix. For the second quarter, Americas operating income growth of 2% was primarily driven by on-site volume. Merchant volume was also up, including helium supplied for the space launches. Additionally, non-Helium merchant price contributed to the results. This improvement was partially offset by prior year income from a onetime customer contract addendum, lower price in helium and higher power costs and maintenance turnarounds in the quarter. Operating income grew 25% in our Asia segment, primarily due to continued productivity improvements and favorable on-site and helium volumes. We saw a modest contribution from our new assets as they continue to ramp up, which we expect to further contribute in the second half of our fiscal year. Additionally, reduced depreciation from certain gasification assets classified as held for sale also benefited our results. This improvement was partially offset by a headwind from helium pricing. Europe operating income increased 8% due to the favorable on-site volume, including a prior year turnaround, as well as favorable currency and non-Helium price. We saw higher costs in the segment, including depreciation and fixed cost inflation as well as helium volume and pricing headwind. In our Middle East and India segment, operating income improved on lower cost, while equity and affiliate income was slightly positive. Lastly, the Corporate and Other segment results improved due to lower sale of equipment cost headwinds as well as continued strong productivity. Moving now to Slide 10. Our base business continues to generate stable cash flow as we execute on our project backlog for both energy transition and traditional industrial gas projects. We remain on track to reduce capital spend by more than $1 billion relative to the prior year. Additionally, through the first half of the fiscal year, we returned $800 million in cash to our shareholders in the form of dividends. As it relates to our leverage, our net debt-to-EBITDA ratio is 2.2x. We are committed to bringing the company back to an A/A2 rating over the long term. Please turn to Slide 11, where we will review our outlook. With a strong first half and outperformance in the market volume, we are raising our fiscal full year guidance to $13 to $13.25 or 8% to 10% growth from the prior year. However, we remain cautious given uncertainty around the macroeconomic environment, especially in Europe and Asia. In the second half, we expect to see benefits from continued non-Helium pricing actions and progress on our productivity initiatives, while new assets ramp up. We still expect helium to be a headwind due to lower price while we look to capture long-term volume commitment. Specific during the third quarter, we expect to deliver earnings per share in the range of $3.25 to $3.35, representing a 5% to 8% growth from the prior year. For capital expenditures, we are maintaining our guidance at approximately $4 billion for the fiscal year. Now we'll open the call up for questions. Operator? Operator: [Operator Instructions] We'll take our first question from John McNulty of BMO Capital Markets. John McNulty: Since the last call, obviously, the Middle East conflict has hit a lot of kind of things that may have changed. I guess maybe -- we can start with one on the project. So NEOM, can you give us an update on the progress there as well as at this point, given the spike in gray ammonia prices concern about industries maybe being beholden to oil, can you tell us if the demand environment has changed all that much for your green ammonia project? Eduardo Menezes: Thank you for the call. Yes, I would say, starting from NEOM, the project, as you know, is on the West Coast of Saudi Arabia. So it has not been affected by the conflict at this point. Of course, we are taking a lot of precautions on the safety side, but we have all the materials in hand. We have the people on site, and the project is continuing normally in the, I would say. And in terms of the progress, we are basically done with the renewable power side. We just energized the substation using the grid power. The next step is to basically connect the solar park and start commissioning using our own renewable power. So it's progressing as expected over there. I would say that in terms of the ammonia price, everyone can see what is happening in the ammonia market. I think prices are getting very close to $1,000 a ton. Of course, that creates some speculation on projects and so forth. But I would say it's too early for us to understand the demand for green ammonia and the impact they're going to have in prices in the long term. Again, this is -- we consider that a temporary effect that will go for a few months. But I think in the long term, it's clear that there is some advantage to be disconnected from natural gas from some areas of the planet. So the U.S. supply of natural gas will be a winner on that perspective. And I think green ammonia produced by clean power in places like Saudi Arabia, we also can benefit from that, but it's a little early to say that. John McNulty: Got it. Okay. Fair enough. And then maybe just as a follow-up, I guess we were a little bit surprised given what's going on in the helium markets to see that you still expect about a 4% drag on EPS in 2026. Admittedly, we get, look, some of these are contracts that are multiyear and even the ones that reset last year, were going to be a drag. But I guess we're a little bit surprised to not see some updraft in contracts that might be getting signed now or on the minimal part that you have that's tied to spot. So I guess, can you help us to think about what's going on in the helium markets and maybe why that's still pretty much the same drag you expected it to be at the start of the year. Eduardo Menezes: Yes. I would say that to start with helium market, it was structurally long before the war. And of course, with Qatar representing 1/3 of the world's volume of helium the market is short now, but we all expect that we'll return to the original state in a few weeks, a few months after the crisis is over. So this is a temporary period that we have here. As I described in the prepared remarks, Air Products has a very resilient system that was designed to basically be able to continue to supply our customers in the case of interruption in one of our sources like we're having today. It's designed basically for Air Products volumes, not for the entire market. So we may have a little more volume than we had before when we push our cavern. But it's not that significant and really doesn't allow us to supply the volumes that are not present in the market today. So of course, we are trying to sign longer-term agreements. That's the objective. I think we also made a comment that this didn't start with, the conflict started before that. We were trying to sign these long-term agreements. We made the point to say that our volumes for helium in Asia for electronics will more than double in the next 4 years. In fact, I expect to be more than that. And so we are focused on that, focused on signing these long-term agreements. We may have a little gain here and there on the spot market. But it's -- at this point, it would be wrong for us to include that in the forecast, not knowing when the market will come down or come back to normal conditions. Operator: We'll take our next question from Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: When you think about the Darrow project, you spoke about making a go, or no-go decision. Is it possible that, that project could be downsized? In other words, does it make sense to make half as much ammonia given that you've already invested in equipment that you may be able to use, and then what that may do is limit the inflationary factors in building a facility. Is that a possibility? . Eduardo Menezes: Yes. We look at all that. It's a little more complicated than that. This plant, I would say there is like 3 different process units. You have the air separation plants, you have the hydrogen generation units and you have the ammonia plants, the ammonia trains, and we do not have exactly 2 trains for each process area. We have one of the process areas that we have 3 trains, which makes it very difficult for us to only execute half of the project. So I would say that this would increase the cost significantly because we would need to build a plant larger than the 50% and would make the economics even more challenging than it is to build the entire facility. Jeffrey Zekauskas: Okay. And then secondly, year-over-year, your average prices were down 1%. If we excluded helium, what would your prices have been? Would they have been up 1%, 2% for the company as a whole? Melissa Schaeffer: Yes, sure. Thanks, Jeff. I'll take that question. So from a non-Helium merchant perspective, pricing actually would have been up about 2%. Half of that we would have seen in the Americas and half of that in Europe. Asia and from a non-Helium perspective, was largely flat. Operator: We'll go next to John Roberts with Mizuho. John Roberts: I'm here for the Yara discussions. Are you and Yara basically on the same page with respect to the risk around CBAM, so that it's not a key issue to getting closure on your discussions or is that a key thing that we need to continue to watch here? . Eduardo Menezes: I think I mentioned that before, the CBAM is not part of our agreement. Our agreement is a U.S. agreement for hydrogen and nitrogen, so it's more a question for Yara. But I think we -- I mentioned that in the last question, the crisis now is making clear to everyone that the big advantage that you have is to be connected to the U.S. natural gas supply, and I think this is much bigger than the CBAM discussion. But I believe from everything I heard from Yara that they understand what the possibilities are in terms of CBAM and that's not part of our discussions with them. John Roberts: Okay. And then secondly, do you have any material customers in Asia that are down because of raw material supply constraints, either refineries or chemical plants that are taking downtime because they can't get feedstock. . Eduardo Menezes: No, not really. We -- our biggest supply for these sectors are in China. And I would say that China is basically replacing a lot of LNG with the coal facilities that they have. And in fact, we have seen a significant increase in oxygen volumes for this type of plants in China. Operator: Well, next to David Begleiter with Deutsche Bank. David Begleiter: Eduardo, on Darrow, mentioned a high bar for that project. So is the base case still it does not move forward? And if it does not, do you have projects that you could pivot to in short order with that capital? That's my first question. Eduardo Menezes: We... Melissa Schaeffer: Yes. So maybe I could take that one, absolutely. So from a Darrow perspective, I think Eduardo has said before that it is, in fact, our base case that we would not move forward. But we need to review the economics as we get the bids in from the construction party that we're talking to. And then we'll make an economic decision on if we move forward from that. From a capital perspective, we just announced the Samsung project. That is one that we see a significant area of growth in electronics that could quickly replace that capital that we were going to spend on Darrow, and we continue to be very bullish on the electronic space over the next couple of years through the hyper cycle. So again, we have a base case of Darrow of not moving forward at this point in time, but we're reviewing the economics. And again, we are very bullish on other growth opportunities if Darrow does not move. Eduardo Menezes: Yes. And I just want to make a point here. When I say base case that for Darrow to move forward, we need to reach an agreement. So until you reach an agreement, the base case is that do not -- you don't have an agreement today. But we're working on that, and we'll see what the result will be in the next 3 months. But today, we do not have an agreement yet to move that project forward, as you know. . David Begleiter: And just on the Americas margins, they were, I think, lower than 3 years. You mentioned power cost turnaround expenses. Would you expect margins to recover nicely in Q3 versus Q2 given those headwinds? Melissa Schaeffer: Yes. So when you think about margins in the Americas, one thing you obviously need to consider is the energy cost pass-through, which obviously affects margins, right? So we've seen very strong contributions in our HyCo assets, which has an impact from an energy cost pass-through. But we do expect once the energy cost to subside, then yes, our margins would continue to improve. We are continuing to see strong productivity there, which obviously will also contribute to a healthy margin moving forward. Operator: We'll take our next question from Duffy Fisher with Goldman Sachs. Patrick Fischer: Just a question on the coal gasification plants in China. So one, in the quarter, how much was the benefit from the reduced D&A for moving it out of the segment? And then two, I think you've talked about those being collectively net breakeven on an income basis since they're extensively coal to oil or synthetic oil at the end of the day. I would imagine they're much more profitable now and they're probably paying you the regulated percent where I think before you were saying that they were shorting you on paying. So can you just talk about how the economics of those plans have changed within your P&L? And does that continue to get better from here as long as oil stays above $100? Melissa Schaeffer: Yes. Duffy, thanks for the question. And so yes, we have put 2 of our coal gasification assets held for sale in China. The impact to the quarter is a little bit of twofold. So let's say, around 1%, 1.5% as far as the cancellation or the stop of the depreciation. And then you're absolutely right. Coal and methanol, it has improved from an economic perspective. So we are collecting on past dues that we did not have in our previous results because we are being prudent and fully reserving those items. And that collection is really about a 1% to 1.5% tailwind for us as well. But we are actively pursuing the sale of those assets, and we will continue to do so. Patrick Fischer: Great. And then, Eduardo, if you could maybe just pontificate a little bit. When do you think under 2 scenarios that your helium pricing stops being negative? One, if there's a fairly quick resolution with Qatar and two, if this stays semi-permanent what do you think happens with your helium pricing? Basically, when do we see the inflection that helium stops being a negative on price? . Eduardo Menezes: Yes. We were expecting helium to bottom by the end of this year. We still expect that to be the case. You need to remember that it's all a function of what we are comparing with, right? So we started from a very high price level. And we're working on signing these long-term agreements. Our agreements are on average, between 3 and 5 years. But more recently, we have been signing agreements even longer than that as people get more concerned with reliability of supply, right? So the system that we have with the cavern that we can bring product to the cavern, store as a gas and then take the gas as liquid and bring to one of our facilities to liquefy. It's very reliable, but it has a cost, right? So you just think about the just in inventory. We have hundreds of billions of dollars in helium in our cap. So this system has a cost. It is much harder to get value for that cost when the market is long. The conversations are much -- it's not easy, but it's a little less difficult to get these long-term agreements right now, and that's what we are focusing on. Operator: We'll go next to Chris Parkinson with Wolfe Research. Christopher Parkinson: Melissa or Eduardo, just the way your second half guidance kind of just works out, it implies a fairly low single-digit growth rate in terms of EPS for the fourth quarter. Is that -- is there something else going on there? Is there something we should be monitoring in terms of turnarounds, hydrogen demand, you already went over helium, baseline merchant pricing. I just -- or is that just, hey, we want to see how the year turns out -- the fiscal year turns out just based on the degree of uncertainty out of the Middle East? Melissa Schaeffer: Chris, thanks for the question. So we have raised our guide, increased about 10% or $0.10 from the mid, right? And so if you think about the strong first half that we had, if we build on that, first, we look at market volumes, right? We do expect some continued market volume improvements largely in the Americas, like we saw in the first half. We also have new asset contributions that we look to continue to increase, both in the Asia and Americas that will see some contributions continue to increase in the second half. However, we do remain uncertain about the macroeconomic environment, especially in Asia and Europe. Additionally, we're closely monitoring our customer supply chain conditions with impact on the Strait of Hormuz. And finally, we do have a turnaround that we moved from Q2. We're expecting in Q2 that will move and spread between Q3 and Q4 so that will have a bit of a headwind for us as well. So we do have some green shoots in the Americas from a volume perspective, new asset contributions, but we do want to make sure that we're monitoring closely on the macroeconomic environment in Asia and Europe as well as, again, additional turnarounds. Christopher Parkinson: Got it. And just as a quick follow-up, in the Samsung release from yesterday, you used the phrase, the greatest investment -- the largest investment in the semiconductor industry, I believe to date or something along those lines. Is that -- just to confirm definition here, considering you, I believe, did $900 million to build some in TSMC, does that imply that the multi-stages for Samsung would be in excess of that amount. Is there any more framework you could perhaps add? And also, just a quick kind of side note, is this something you expect to be more consistent in terms of bidding activity over the next 12 months or so? Eduardo Menezes: Yes. I think the message is exactly how you described. It is the largest investment we ever made in the electronics side, and we're not going to disclose the number, but the reference that you made through a previous project is correct. So that's all I can say about that. This is probably the largest site for electronics in the world today. Air Products was the first supplier for that site on the Phase 1 and the phases are getting larger in terms of industrial gas consumption. So this is the fifth phase of the site and the volumes we're going to supply under this agreement when it's completely built is approximately 3x larger than what we did in Phase 1. So that gives you an idea. So it's a very significant project for us. We are very proud to have reached this point with Samsung. And -- but it's just a start of probably a 4-year construction that we have to do in the multiple phase projects like that things. And on your other question about -- I'm sorry, the other question about the -- what we expect in terms of bid activity. As we said, there is a -- I've seen numbers in excess of $0.5 trillion of CapEx being spent by semiconductor and memory manufacturers. And of course, there is a lot of projects in industrial gases. They are growing in volume, and we're working hard to get our fair share of that. Operator: We'll go next to Vincent Andrews with Morgan Stanley. . Vincent Andrews: Just looking at Slide 17, corporate and other the operating income hit was a lot less year-over-year and sequentially. You called out lower changes to sale of equipment project estimates. Can you just give a little detail on that? And then also help us understand whether this is a good run rate for the rest of the year? Or is there just some lumpiness? And maybe the back half will be a little bit higher in the run rate will sort of mean revert higher. That's my first question. Melissa Schaeffer: Yes. Thanks, Vincent. So speaking to our Corporate and Other segment, it is a bit of a mixed bag. But you are correct that the vast majority of the improvement was the prior year cost increase that we saw on a sale of equipment project, again, which is a percentage of completion projects, so increased costs go to the bottom line. So it was a bit of a function of a prior year aspect. However, we do continue to have strong productivity in our Corporate and Other segment as well. So we will continue to see that flow through from a year-on-year perspective as we continue to reduce head count and rightsize the organization. Vincent Andrews: Okay. Maybe you could just give us a little sense of what that number should look like in the back half. And then I'd also ask, on the tax rate, it came in a bit lower than we thought for the quarter. It was down about 1 point year-over-year and about 0.5 point sequentially. So is this 18-ish percent, is that what we should be using for the back half? Melissa Schaeffer: So yes, thanks for the follow-up there. So from an ongoing perspective, I think that the run rate that we had this quarter should be consistent with what we see in corporate for the rest of the year as we should not have any more sale of equipment headwinds. So that comp will continue to flow through for the rest of the year. From a tax rate perspective, yes, 18 is the number that we should be forecasting against. We did have some U.S. investment tax credits and increased estimates for a Dutch investment incentive that reduced our ETR for this quarter, but we should see that flow through the rest of the year. Operator: We'll go next to James Hopper with Bernstein. James Hooper: First question. Can you talk about -- a little bit about the pricing dynamics for the non-helium gases through the rest of the year? Obviously, you mentioned that plus 2 from Europe and Americas. But will the kind of come in inflation mean that your Asian pricing assumptions has changed also? Eduardo Menezes: I'm sorry, I didn't get the last part. What assumptions do... Melissa Schaeffer: For Asia. Eduardo Menezes: The Asia, yes. Asia is a little different. I think the dynamics there is China is a hypercompetitive market. I think every Western company will tell you that the PPI, CPI is negative for the last several years, and it's a really difficult file to keep your prices stable in China. Outside of that, I would say, in Europe and the U.S., we consider the pass-through a separate issue. I would say that in pricing, we continue to make progress. And our goal is always to be able to pass inflation to that we experienced in our business to prices. So I expect that to continue to be the case in the near future. And with helium, of course, subsiding the effects year-over-year, as I said, by the end of the year, we hope that the helium headwind in pricing will be done as well. James Hooper: And then just in terms of the follow-up, Slide 6. Can you -- I thought it was very useful. Can you just give us a few indications of where you expect the biggest kind of shifts in your end markets to come from the second half versus the first half? For example, in chemicals. Are you seeing any European volume improvements based on some of the kind of Asian supply outages? . Eduardo Menezes: Yes. In Europe, as you know, they benefit in terms of pricing from the absence of the Middle East supply in the market. But on the other hand, they are suffering from cost inflation on oil and natural gas. So it's a difficult dynamic. I don't think the European industry is structurally changing the issues that they have, the chemical industry. I think they will be back when the conflict is over. But I think in this window now, we are basically seeing things a little stable, but Air Products is not a very large supply of the chemical industry in Europe. So you probably can find -- get better answers from other companies on that. I would say the segments in general, as I said, electronics is a big bright spot for us. We are working to capture that. Same thing with aerospace energy in U.S. because of our connection in the pipeline system in the Gulf Coast with refineries, this is running at record levels at this point. So our hydrogen volume never been so high as it is right now. So that's going okay. And the auto segments like food and medical, they are very stable, and they are less cyclical than other segments here. Operator: We'll take our next question from Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Can you speak to your degrees of freedom on the supply side of the helium market? I appreciate you have large inventory buffer and you're taking steps to maintain highly reliable supply. But in the scenario where we have a prolonged conflict, what are you doing differently? How much might you be able to increase sourcing arrangements and liquefaction? Maybe you could just kind of frame out how you're operating today versus 2 or 3 months ago. Eduardo Menezes: Yes. I would say, Kevin, most of our flexibility comes from the position that historically we have in Kansas in area that we are on, we were connected with the BLM. We're still connected, but we get very low volumes there. We have some other private volumes that we are able to liquefy in our plan, but we have access liquefaction capacity. And our project with the cavern was connected to that. So the constraint that we have is really the ability to move the products from Texas to Kansas and then the second constraint would be the liquefaction capacity that we have over there. So we are working to maximize both points to eliminate these constraints. It is not an easy supply chain because you have to -- from East Texas to Kansas, like 900 miles one way. but we are working on that to maximize that. But we can probably cover one of our sources being down. As you know, in Qatar, we are connected to, which is a different source. It's not the LNG source is the local natural gas grid there. So we are able to replace that, but not much more than that. So I would say that the design was for -- to cover our customers. And if this thing gets prolonged for a long time, it will be a tough time for the market. But I would say that at the end, the customers that need the product the most, I think the market will find a way to keep them supplied. That's my guess at this point, but I can only talk about products in our supply. Kevin McCarthy: Very helpful. If I may ask a second question. Can you speak to what you're baking into your financial guidance for volume growth in the back half of the year? I think your 4% number in the fiscal second quarter was the best in 3 years. And it seems as though some of the impetus behind that is to do with the energy market changes, right? Refinery hydrogen and maybe some gasification as well. But I think PMIs have been broadening and improving. So how are you approaching the back half in terms of call it, nonenergy-related demand trajectory? Eduardo Menezes: Yes, Kevin, we had a lot of debate on that on how to set our guidance. And as you imagine, it's not an easy situation, right? We -- the conflict -- we are in the middle of this conflict. What we have now is a ceasefire, right? So no one can tell you what the situation will be 1 month from now, 2 months from now, what the oil prices will be, what will happen in the LNG market, what will be the energy prices in Europe and so forth. So in the absence of clarity on this point, what we did was basically, we adjusted the guidance based on the beat that we have in the second quarter. And at this point, it would be premature for us to change what we forecast before for the second half of the year. I hope that will be better. But again, anything can happen, right? We didn't expect this conflict to happen. I don't think anyone did. And when the impact we've seen in helium, for example, was not one of the scenarios we expected. We had a scenario of one of the Qatar plants being down for technical reasons. That always happen, but we never had a scenario that 3 plants will be down at the same time because this trade is closed or because one of these facilities impacted by the war. We understand that one of these facilities trying to bring it back to production. The one that we have connected is supposed to come back in a year -- in the next few months. Of course, there is the issue of how we move that product considering the logistic issues that you have right now, but there is a lot of uncertainty in the market. And based on this uncertainty, we decided that the prudent thing to do was to keep our second half of the year guidance that we had before. Operator: We'll go next to Patrick Cunningham with Citi. Patrick Cunningham: Just on Helium, just additional follow-ups there. If the supply disruption persists, would you need to put customers on allocation? How long does it take alternative supply sources to get qualified with some of the larger semiconductor customers? . Eduardo Menezes: Again, we -- from the products perspective, we have the inventory, and we're working to replace the volumes that we were taking from Qatar. In fact, the plant that supplies in Qatar was down since December. So we were not taking product from Qatar since December. So it didn't change the conflict didn't change that much. The situation that we have, and we have enough product to supply our customers, and that will be our position going forward. Patrick Cunningham: Understood. And could you provide an update on the Alberta project in terms of offtakes timing and any update to costs? Eduardo Menezes: There are no updates on the project. We continue to find a way to improve the conditions. There is some -- on the regulatory side, there is things that are moving in Canada. We're trying to understand exactly what the final regulation will be and the impact that we have in the project, and we have been working with the government of Canada and the government of Alberta to try to improve the conditions the best we can for this project. Operator: We'll go next to Josh Spector with UBS. . Joshua Spector: I was wondering if you could give us a size of what your backlog is now for profit contributing projects, considering you've signed a few more versus where you were at 6 months ago. Can you help us think about what comes online over the next few years or just a total number for us to be thinking about? Melissa Schaeffer: So we look at our backlog in a pretty consistent way, right? So this is things that are contributing, have been approved by the Board, but one thing, obviously, we have talked about is the NEOM project that has been variability in the impact of that as we lead up to the 2030 when CBAM and RFNBO is fully in ramp. But right now, again, the backlog is $9 billion. I do feel positive about the growth in the electronic space that we'll see continued contributions and winning our fair share of projects in that space. And we've given the 5-year forecast. Previously that shows our mid- to high single-digit growth from an EPS perspective, both from contributions on the base and market growth as well as new assets coming on stream. And as I've mentioned previously, we have 2 new assets that will be contributing to the back half of this year, and we see that continuing as far as contributions similar throughout the rest of the next 5 years. Joshua Spector: Okay. Appreciate that. And maybe I should have qualified and said, excluding NEOM, Darrow and all the projects that you guys have highlighted is nonprofit contributing. What does that trim that $9 billion down to? Melissa Schaeffer: So we have a little over 2.5 in our, what we would call our traditional industrial gas backlog. A significant portion of that is in the electronics space. . Operator: We'll go next to Mike Sison with Wells Fargo. Michael Sison: There's a relatively sizable IPO coming at the summer in space. Just curious if you could give us your thoughts on your business in that sector, how big is it and where are you positioned? Eduardo Menezes: Yes. It's a segment that is growing very fast, as you know, from the news, it's the situation basically changes every week or every day with the commercial launches. Air Products has a very traditional business in aerospace. We work with NASA since the 60s, and we are a large supplier of hydrogen, liquid hydrogen, liquid helium to the traditional space program, and we are working now to increase our share with the commercial launches. You see forecasts that are -- go from extremely high to out of this world volumes in the segment and I think like everyone else, we need to see how this will develop and if they're going to really get to the point that they will launch a rocket every day. So we are trying to make some investments on the areas to try to grow our participation in the traditional separation gases for the segment, but I cannot give you more specific information on that at this point. Operator: And at this time, there are no further questions. Eduardo Menezes: Thank you. So I would like to thank everyone for joining our call today. We appreciate your interest in Air Products, and we look forward to discussing our results with you again next quarter. Have a safe day. Thank you. Bye-bye. Operator: This does conclude today's conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Aflac Incorporated First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to hand the call over to David Young, Senior Vice President of Capital Markets. Please go ahead. David Young: Good morning, and welcome. Thank you for joining us for Aflac Incorporated's First Quarter 2026 Earnings Call. This morning, Dan Amos, Chairman, CEO of Aflac Incorporated, will provide an overview of our results and operations in Japan and the United States. Then Max Broden, Senior Executive Vice President and CFO of Aflac Incorporated, will provide more detail on this quarter's financial results, including our capital and liquidity. These topics are also addressed in the materials we posted with our earnings release, financial supplement and quarterly CFO video update on investors.aflac.com. For Q&A today, we are also joined by Virgil Miller, President of Aflac Incorporated and Aflac U.S.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Driisland, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release with reconciliations of certain non-U.S. GAAP measures and related earnings materials are available on investors.aflac.com. I'll now hand the call over to Dan. Dan? Daniel Amos: Thank you, David, and good morning, everyone. We're glad you've joined us. Although we have just 1 quarter under our belt, the first quarter marked a good start to the year. Aflac Incorporated reported net earnings per diluted share of $1.98 and adjusted earnings per diluted share of $1.75. These results reflect our focused execution of our strategy, thus creating long-term value for our shareholders. Starting with Japan, as you will recall, last year, Aflac Japan implemented a marketing and sales transformation, which helped deliver the strong results and sales momentum we saw in 2025. And again, in this quarter, this transformation was a major strategic initiative driven by Aflac Japan's corporate strategy and marketing and sales team. I would highlight the leadership of Deputy President, Shinsuke Mary Moto, first Senior Vice President, Mitchiero Eto; and Chief Marketing Officer, Yumi Saito, working together with Executive Vice President, Yoshizumi, to make it happen. As a cohesive management team, they delivered strong results. I'm excited [indiscernible] and innovation that they have produced and will continue to bring to the organization moving forward. With this in mind, I am pleased with Aflac Japan's sales increase of a 25.5% increase for the first quarter. These strong sales results were driven largely by our newest medical product, Onsen Tallett and Miraito, our latest cancer insurance product. As part of our ongoing strategy, we continue to emphasize and promote the importance of third sector protection to new and younger customers with our innovative first sector product, [indiscernible]. The value of our policies resonates with millions of policyholders, and this reinforces how Aflac's overall strategy is effective and reputation is important. By maintaining strong persistency while adding new premium through sales, we seek to offset the impact of lapses and reissue as well as policies reaching paid-up status in the future. Maintaining strong persistency continues to be important to the future of Aflac Japan. Our broad network of distribution channels, including agencies, alliance partners and banks continually leverage opportunities to help provide financial protection to Japanese consumers. For the quarter, all of our distribution channels generated increases in sales, which is significant considering that we prioritize being where the customer wants to buy insurance. We will continue to evaluate the needs of each channel and support those needs as we work together to provide Japanese citizens with financial protection. Turning to Aflac U.S. I am encouraged by the 2.9% year-over-year increase in sales and the momentum we are seeing within all areas of our group business especially our group voluntary products. More importantly, we maintain strong premium persistency of 79.3% and increased net earned premium of 3.5% for the quarter. We continue to focus on driving our profitable growth with strong underwriting discipline and maintaining strong premium persistence. We believe this will continue to drive net earned premium growth. At the same time, Aflac U.S. has continued its prudent approach to expense management and maintaining a strong pretax margin as Max will expand upon shortly. Across Japan and the United States consumers are feeling the increasing burden of out-of-pocket medical expenses. That's where we step in. Our management teams, employees and sales distribution partners are united to be there for the policyholders when they need us most. As the pioneer in cancer insurance and a leader in the industry, our team and sales partners show up every day to help ease the burden, providing financial protection with genuine compassion and care. As an insurance company, our primary responsibility is to fulfill the promises we make to the policyholders while being responsive to the needs of shareholders. We generated strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management. We continue to be pleased with our investments producing solid investment income. Our financial strength is the foundation that backs up our promise to our policyholders balanced with the financial flexibility and tactical capital deployment. I am very pleased with the company's financial strength, which supports our capital deployment. We treasure our 43 consecutive years of dividend increases and remain committed to extending this record. Combining share repurchase and dividends, we delivered $1.3 billion back to the shareholders in the first quarter. In doing so, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry. In today's complex health care environment, Aflac stands out as a trusted partner, combining relevant products, financial strength, a powerful brand and broad distribution to help consumers manage the financial strain of out-of-pocket medical expenses. The ongoing foundational strengths of our business and our capacity for continued growth in Japan and the United States, 2 of the largest life insurance markets in the world, support our leading position and build on our momentum. I will now turn the program over to Max to cover more details of the financial results. Max? Max Broden: Thank you, Dan. For the first quarter adjusted earnings per diluted share increased 6.6% year-over-year to $1.77, excluding effect of foreign currency in the quarter. In this quarter, remeasurement gains on reserves totaled $82 million, reducing benefits, with $23 million or $0.04 per diluted share above plan. Variable investment income ran $14 million or $0.02 per diluted share below our long-term return expectations. Adjusted book value per share, excluding foreign currency remeasurement increased 0.2%. The adjusted ROE was 12.8% and 16.4% excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as solid. Starting with our Japan segment. Net earned premiums in yen terms for the quarter declined 3.8%. Aflac Japan's underlying earned premiums, which excludes the impact of reinsurance, paid-up policies and deferred profit liability, declined 1.3%. We believe this metric provides a clearer insight into long-term premium trends. Japan's total benefit ratio came in at 62.9% for the quarter, down 290 basis points year-over-year. We estimate the impact from reserve remeasurement gains exceeding plan to be approximately 70 basis points. We continue to have favorable trends in cancer and hospitalization. While persistency was down, it remains strong and in line with our expectations at 92.8%. We continue to see an uptick in lapse and reissue on our cancer insurance product. Lapses on our first sector savings block remained low and in line with previous periods despite the increase in yen interest rates. Our expense ratio in Japan was 19.5% for the quarter, down 10 basis points year-over-year. For the quarter, adjusted net investment income in yen terms was up 4%, primarily driven by higher U.S. dollar fixed rate income on higher volume and higher variable net investment income compared to last year, partially offset by lower dollar-denominated floating rate income due to lower volume and rates as well as reduced call income. The pretax margin for Japan in the quarter was 35% and up 320 basis points year-over-year, a very good result. Turning to U.S. results. Net term premiums were up 3.5%. Premium persistency remained solid at 79.3%. Our total benefit ratio came in at 47.2%, 50 basis points lower than Q1 2025, driven by favorable incurred claims for individual voluntary benefits products and group disability. We estimate that reserve remeasurement gains impacted the benefit ratio by approximately 230 basis points in the quarter, which is about 80 basis points above plan. Our expense ratio in the U.S. was 38.3%, up 70 basis points year-over-year, primarily driven by higher DAC amortization and commissions along with timing of advertising and investment spend. Adjusted net investment income in the U.S. was down 0.5% for the quarter, primarily driven by lower short-term rates, offset by higher variable net investment income. Profitability in the U.S. segment was solid with a pretax margin of 20.4%, a 40 basis points decrease compared with a strong quarter a year ago. Corporate & Other reported breakeven pretax adjusted earnings, down from a $43 million gain last year, driven by lower adjusted net investment income, higher interest expense and operating costs and runoff impacts from closed blocks of business. Adjusted net investment income was $17 million lower than last year due to a combination of lower hedge benefits, partially offset by lower volume of tax credit investments. Our tax credit investments impacted a net investment income line for U.S. GAAP purposes negatively by $5 million in the quarter with an associated credit to the tax line. There were no benefit in first quarter earnings from tax credit investments. We are pleased with the overall performance of our investment portfolio. During the quarter, we recorded $19 million of charge-offs on our loan portfolio. Additionally, we did not foreclose on any properties in the period. We recorded $24 million of impairments on our real estate owned portfolio to reflect the continued depressed valuations in the commercial real estate markets. However, we continue to believe that the current distressed market does not reflect the true intrinsic value of our portfolio, which is why we continue to manage them through this cycle and maximize our recoveries. For U.S. statutory, we recorded $12 million of impairments on invested assets and a $1 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On our Japan FSA basis, securities impairment reversals led to a net realized gain of JPY 66 million in Q1. And we booked a valuation allowance of JPY 201 million related to transitional real estate loans. This is well within our expectations and has a limited impact on regulatory earnings and capital. Effective March 31, Aflac Re Bermuda entered into a transaction in which it assumed a block of whole life annuities from Japan Post Insurance. This transaction itself is immaterial to Aflac Inc.'s financials, but it marks a strategic milestone as we expand our reinsurance franchise, targeting the Japan market. Aflac Inc. unencumbered liquidity stood at $3.4 billion, which was $2.4 billion above our minimum balance of $1 billion at the end of the quarter. Our adjusted leverage was 21.2% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 65% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program protecting the economic value of Aflac Japan in U.S. dollar terms. Our capital position remains strong. We ended the quarter with an estimated regulatory ESR of 227%. If including the undertaking specific parameter, or USP, this would add 16 points to the regulatory ratio and results in an ESR with USP of 243%. We estimate our combined RBC to be approximately 560%. These are strong capital ratios, which we actively monitor, stress and manage to withstand market volatility and credit cycles as well as external shocks. Given the strength of our capital and liquidity, we repurchased $1 billion of our own stock and paid dividends of $315 million in Q1, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in the way we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. I will now turn the call back over to David. David Young: Thank you, Max. [Operator Instructions]. Operator: [Operator Instructions] And our first question comes from Tom Gallagher of Evercore ISI. Thomas Gallagher: First question is just on capital generation. Max, can you talk about -- can you help quantify how much benefit you got from that external reinsurance deal? And were there any ESR headwinds that emerged in Japan that might have been impacted? Max Broden: So the the reinsurance transaction we executed in the first quarter with an external party. The impacts to capital were relatively small. This was a relatively small block in the scheme of -- compared to the overall enterprise. So it wasn't really meaningful to either the ESR or FSA earnings in the quarter. And in terms of the movements in the ESR, as you recall, we're down a little bit compared to the full year. The main driver of that is subsidiary dividends being moved up from Aflac Japan to the holding company in the quarter. Other than that, you have our sensitivities and they work pretty well in terms of estimating the other impact. Obviously, higher yen rates has a slightly negative impact to the ESR because of the increased capital charge associated with mass lapse risk. At the same time, you also saw a little bit of a yen weakening that is benefiting the ESR. So relatively small impact from capital markets inputs to the ESR. Thomas Gallagher: Okay. And then my follow-up is just can you -- I think there was a change in the lapse and reissue activity during the quarter, normally, it's much older policies, and it was less so this quarter. Can you talk about what does that mean for -- from an IRR perspective for Aflac when there's somewhat younger customers that are doing lapse and reissue? Are those still positive IRRs when you think about your economics? Max Broden: Thank you, Tom. So when you have a policy that is a little bit shorter in its duration because that policy is now lapsing and now moving into a new policy, what tends to happen in that scenario is obviously the policyholder is doing this for -- in order to get a better coverage. And once you have gotten that better coverage, you're probably more likely to improve the persistency post the lapse and reissue activity. So when you think overall, we think when we analyze this through the totality of the overall block, relatively minor impacts on the IRRs. There will be -- if you take a snapshot of one specific policy that just lapsed, obviously, that IRR is a little bit lower than originally assumed, but we now think about that new policy it is moving into, the duration of that policy is likely to be longer, and that might actually improve the IRR of that new policy that is being written. So that is sort of working a little bit as a balancing impact. So the overall impact to IRRs across the whole in-force is expected to be quite minor. Operator: The next question comes from Ryan Krueger of KBW. Ryan Krueger: I had a question on the Japan benefit ratio. It's towards the high end of your target in the quarter and a little bit above, I guess, excluding favorable experience. Can you just talk about the key drivers of expected improvement in the benefit ratio as the year goes on towards the 60% to 63% outlook? Max Broden: Yes. Thank you, Ryan. So when we think about the different drivers being underlying experience, that being the lower net premium ratio established in the third quarter of last year and then also different types of lapse activity, we would expect going forward, the favorable experience that we didn't have in this quarter, and we've had for a long time. We think that we will continue to generally have those trends in place. When we think about the net premium ratio, that has been set more or less, and that's more driven by mix of business as it relates to the current year benefit ratio. And obviously, we will update our net premium ratio with our long-term assumption unlock in the third quarter of this year. Then the last piece being the mix of lapsation. We did have a mix in this quarter with a little bit less of old age cancer and a little bit higher lapsation of more recently issued policies. And when that happens, you naturally have less of an impact on the reported GAAP benefit ratio because the younger policies have less of a reserve being built up relative to old policies. Especially old policies with a CSV could have quite an impact on the reported benefit ratio given the release of those reserves. So as we then think about these impacts and trends running through our results for the full year, we still feel very confident with the outlook range that we gave at the beginning of the year of 60% to 63% for the Japan benefit ratio. Ryan Krueger: Great. And then you did -- I know it was smaller as a starting point, but on the first third-party Japan reinsurance transaction, but could you talk a little bit about how big of an opportunity you think that is perhaps for Aflac, I guess, over time? And could that move the needle some on your growth in Japan? Max Broden: Well, these transactions, while this one was a relatively small transaction, could be material to us over time. These can be pretty sizable blocks when executed and they would then be immediately accretive to our earnings profile. So Japan, obviously, is a very sizable market. I don't think that we will target the whole market. We will be selective in the way we approach it, both in terms of the target niches and also the type of products and risks that we go after. But it's obvious to us that we think that we have a balance sheet that is quite attractive for counterparties to transact with a AA rating. We think that we have a certain expertise in how to navigate and transact in the Japanese market, and we now built a platform that is ready to do so. So we do think that adding also some risks, i.e., that being mortality, longevity risk and spread risk to our balance sheet can be quite attractive to us from a risk management standpoint as well. So there are many factors at play that makes this quite attractive from a financial standpoint for us. So I think this will be -- it will take time for this to build up. But over time, we certainly expect that this would be material to the company. Operator: The next question comes from Les Carmichael of Wells Fargo. Wesley Carmichael: First question on Japan cancer sales Miraito, do you expect sales to sequentially improve in the next quarter relative to the first quarter? I know it's competing a bit now with the new medical product. Koichiro Yoshizumi: [Interpreted] This is Yoshizumi from Aflac Japan. Medical cancer insurance merits momentum is continuing, and we expect the 2026 sales to be equivalent to the 2025. We have created a system whereby the entire 3 products, starting with the cancer reinsurance Miraito, medical insurance and [indiscernible] and Sumita to be sold concurrently. Wesley Carmichael: Appreciate that. And then second question just was on the corporate segment. I know there was breakeven in the quarter, maybe a little bit of impact from tax credits, but it's bounced around a little bit. I was wondering, Max, is there any help you can give us with an expected run rate of earnings power there? And I realize there's a few moving pieces. Max Broden: Yes. So you tell me where short-term rates are going to go and I give you the answer is a little bit of the -- how this works. The main driver that is swinging our Corporate and Other segment around is the net investment income that we generate on our cash and liquid assets. So obviously, depending on how much capital we hold at the holdco times the short-term rates, to some extent, drives that. The other component to it is we -- this is where we hold our internal -- sorry, all our reinsurance treaties and because these are runoff blocks, there's a natural decay roughly about 8% per year. So that also drives down the earnings contribution year-over-year unless we add and do more either internal or external transactions adding to the earnings of that segment. So as we go into Q2 right now, I would say that I would expect this segment to be slightly negative in terms of pretax earnings given current volumes and rates and what we see from our reinsurance blocks. Operator: Next question comes from Joel Hurwitz of Dowling & Partners. Joel Hurwitz: Max, I wanted to go back to the external reinsurance transaction that you did with some of your first-sector business in Japan. If I look at the ceded premiums and the tick-up quarter-over-quarter, it looked like you had like a 1.5 point impact to net earned premium. Should we think that the earnings impact is similar to that premium impact over time? Or is there another way we should you thinking about earnings impact from that deal? Max Broden: So on that transaction, it negatively impacted our Aflac Japan earnings in the first quarter by mid-single-digit U.S. dollars in millions. That transaction or that block of business will initially have a negative impact along those lines for the next couple of quarters, but then over time, it will go towards more of a zero impact. So in the near term, we expect a negative earnings impact from that ceded business and that it will go closer to zero over time as those policies reach paid-up status. Joel Hurwitz: Got it. That's helpful. And then switching to the U.S. There were some headlines in the past month that a state regulator was forcing rate cuts on some of your products. Are you seeing pressure from other states? And just how should we think about a potential impact to top line earnings in the U.S.? Virgil Miller: Joel, this is Virgil. No, we're not seeing any additional pressure like that. As a matter of fact, in the U.S., I'm pleased with how we are looking going forward with the year. It's still we're still being consistent and balanced with our approach, but we're really seeing no material impacts at all. Operator: The next question comes from Suneet Kamath of Jefferies. Suneet Kamath: Just wanted to start on strategy maybe with Dan. So this reinsurance opportunity in Japan sounds interesting, but I guess another read could be sort of it's an indication that maybe the core business over there has less growth than maybe it previously did, and you're looking for other opportunities to sort of stimulate growth. So just curious, is that not the right read of this? Daniel Amos: No. What I would say is that we're always looking for opportunities. We -- our position on reinsurance was as we've taken a slow methodical approach by starting by doing a reinsurance with another company, then we ended up taking it internally. And what we've seen is success in the reinsurance business for us. And now the next thing is to do a deal with our biggest and closest partner, Japan Post, and then from there, we'll see where it goes. We still believe there's a lot of opportunity to grow our business in Japan. And so this is a natural fit for us that we'll continue to watch. But what I like is evolution, not revolution. And so we continue to methodically take this on and continue to grow the business. Suneet Kamath: Got it. Okay. And then I guess for Virgil, last quarter, you gave us some good color in terms of the mix of sales, sort of the group business versus kind of the core agent business. Just wondering if you could give us an update on what happened here in the first quarter, and how you think things will trend for the balance of the year? Virgil Miller: Yes. Thank you. So as mentioned [indiscernible], overall, I'm pleased with the quarter. It's consistent as now the color I gave on the group business, I'll give you some more insight, very similar. So in the quarter, if you look at what we found is group products, that would include our [indiscernible] vision line, our Core VB, and then you look at what we've been doing now with our group life and absence disability. If you add those 3 categories up, we were up about 12.4% for the quarter. What we've been calling by the bill, this is the investment we made with the [indiscernible] property. What we made, we will call them a plant, let's just call it group life absence and disability, and then with our direct-to-consumer platform that we refer to as consumer markets. When you add the 3 of those to -- those 3 entities up to buy the bills, we were up 25% for the quarter. So strong performance, very, very pleased with those. If you look at the [indiscernible] property, I fell on the sword maybe a couple -- over a year ago and tell you that we were going to invest in improving that business and get it back going. So we're up 52% for the quarter. Strong performance. I believe that the -- you'll continue to see solid performance in those categories. And again, I am pleased with how we're trending. And overall, you add in a point of the fact that we still have consistent, strong persistency, 79.3%, and that is how you're seeing, though, the overall increase in our premium income at 3.5%. If you look at the premium income, since the pandemic, we've seen steady increase. And now I'm pleased with where we're sitting with that metric. Suneet Kamath: But is the core business, like the agent business shrinking still? Or like what's going on with that piece? Virgil Miller: Yes. That's why you don't see the overall tremendous growth that you've seen in just the group space. That particular business, we've got some investments we're doing right now to try to get growth out of that business, but what you're seeing right now is slightly down to flat. What's going to improve that is I'll continue to focus on recruiting agents and then making sure that we convert those agents. So in the first quarter, we had a 16% conversion rate of new agents. That's where I continue to focus, and we continue to have strong productivity. The productivity with our agent group was about 8%. So that's how we continue to focus. But you're right, we're not seeing growth out of our core traditional business. We've also invested in improving and enhancing our enrollment process. What it really means is we've made it easier for new agents to be onboarded and have given them tools where they can go out and sell quickly and get going. We all know that when you're in a market where you're having people come on that are getting paid commission, the best thing to do is get money in their hands as quickly as possible and get some accounts in the book. There's a metric that much behind the scenes, call it, new agent success. And what that really measures is can we get an agent to produce about $25,000 in the first 3 months and add 3 new accounts, and that metric is up also 8%. So I think we're heading in the right direction. But with the market going toward group product and then group product continuing to go toward the smaller employee groups down now to 100 and some below 100 lives, we just had to continue to make sure that we are putting innovative product and technology, and that's what we're investing in. Operator: Next question comes from Jack Maton of BMO Capital Markets. Francis Matten: Just a follow-up on the U.S. business. I guess just given there's been some kind of incremental impact from inflation and higher gas prices in recent months, is Aflac seeing anything changing around consumer behavior for voluntary products or regarding agent recruiting? I mean it sounds like you just like your persistency has been stable so far. But just wondering if there's any other perspective you offer. I think one of your peers caught out somewhat lower VB persistency. Virgil Miller: Thank you for the question. Now you can see our persistency has maintained consistent and actually, we had been showing steady increase. So that 79.3% is strong. So we haven't seen an impact of that. Recruiting is tough in the market. It's not easy, but however, I can tell you that we're going to be on track to recruit about consistent with what we've been for the last 2 or 3 years. We've been at that 10,000 to 11,000 range now. That's what I expect to see again this year. But again, the focus would be on taking those and making sure we convert and making sure we maintain those going forward. But we're not seeing any material impact that that's worthy of calling out. Francis Matten: Got it. That's helpful. And then maybe just a follow-up on the Japan business growth outlook. I mean, Aflac has been seeing very strong sales growth following the marketing transformation you all did and some of the new product introductions over the past year. But that underlying earned premium growth rate still hasn't going to tick higher. So just wondering what, if anything, you think would need to change that inflection to occur? Daniel Amos: Yoshizumi? Well, I'll take it, I guess. Go ahead. Koichiro Yoshizumi: [Interpreted] Excuse me, could you say that question once again, please? Francis Matten: Yes. I mean just in light of the strong sales growth that Aflac side over the past year or so, it's been impressive, but the underlying kind of earned premium growth rate still hasn't picked higher. So just wondering what would need to change for that inflection to occur? Max Broden: Maybe I can kick it off and maybe Aflac add to the answer. If you look at the profile of earned premium, we are currently sort of running a relatively predictable lapsation in about roughly JPY 90 billion right now. And that means that in order to get back to earned premium growth, that's the kind of sales level that you basically need to get to in order to achieve 0 or flat in-force period-over-period on an annual basis. So that's what we need to get to. Obviously, Aflac Japan has a strategy that they're executing on. And in that, we have a line of sight of getting to that level. Over time, we do expect to get to both flat and into the growth mode as it relates to earned premium as well. But for the time being, we have been sort of hovering in this range of negative 1% to 2% on the underlying earned premium, and that's what we expect for the full year. Masatoshi Koide: [Interpreted] This is Koide speaking from [indiscernible]. Our midterm management strategy is to grow the new business. And by doing so, we aim to stop the stagnation of the earned premium. Operator: The next question comes from Wilma Burdis of Raymond James. Wilma Jackson Burdis: Aflac has been declining again. Does Aflac have plans to raise any debt? And if so, could you talk a little bit about uses of capital? I think in addition to that, you have quite a bit of excess capital. So maybe just talk a little bit about that. Max Broden: Yes. Thank you, Wilma. So leverage down to 21.2%. That is partially a function of the yen-dollar exchange rate. As you may recall, we hold about 2/3 of our debt denominated in yen and 1/3 in U.S. dollars. And this is a part of our enterprise FX hedging program that we run in order to neutralize the impact from the yen-dollar exchange rate to the overall enterprise. What that means is that as we operate within the leverage corridor of 20% to 25%, we have significant benefits from borrowing in the yen, that being from a lowering risk standpoint as it relates to FX to enterprise, also accessing a broader investor base and also accessing lower interest rates, all of those very beneficial to us. But what it also means is that it does expose our leverage ratio to volatility in the yen-dollar exchange rate. So we need to stress test that and make sure that we can -- we don't necessarily breach the leverage corridor even in a significant yen strengthening scenario. So that's why we always sort of stress test that under different scenarios, especially when we are looking to add new debt to our capital structure. At this point in time, we don't have any real plans to increase our leverage per se. We have significant capital and liquidity at the holding company in order to deploy that into our operations and also back to shareholders. And we have significant flexibility across the company as it relates to the capital that we hold inside of the regulated entities. And layer on top of that, the ability to then also utilize reinsurance to both create in the near term, more capital and eventually further liquidity available to the holding company gives us -- puts us in a very strong position to execute whatever plans we want to execute on. Wilma Jackson Burdis: Aflac has so much excess capital. That's really the #1 question I get is there what can you do with that? Is pursuing these external reinsurance deals something that you think you could deploy more sizable amounts of capital? And if so, what would you look for in a larger deal? Max Broden: So as it relates to our external reinsurance strategy, that is something that will consume capital. That being said, I don't expect it to be consuming that much capital that we would alter our capital deployment back to shareholders as we have pursued over the last couple of years. This is more as an add-on strategy. And if we can do that at good IRRs and grow our overall business and earnings power, we think that, that can be quite beneficial overall to the company. And certainly, also, it would diversify our earnings stream a little bit and also diversify the risk profile of the company, all of those being ultimately positive. Operator: The next question comes from Pablo Singzon of JPMorgan. Pablo Singzon: So first on the U.S. benefits ratio, sort of the reverse of Frank's question. So 1Q was much better than your outlook. Is there any reason why the benefit ratio should increase from here? Or basically, is your view that claims are just too good in 1Q? Max Broden: Thank you, Pablo. So the benefit ratio guidance for the full year remains 42% to 52%. In the first quarter, we did benefit from remeasurement gains that was over and above our internal expectations by about 80 basis points. So on an underlying basis, if I add back those 80 basis points, puts our first quarter underlying benefit ratio spot on 48%, i.e., at the very low end of the full year range. In this quarter, we did benefit both from favorable experience on cancer, but we also benefited from a low benefit ratio on our group disability block as well. This is something that can be quite volatile from quarter-to-quarter. So I would keep that in mind. So while we're very encouraged by the start of the year, we still think that 48% to 52% is a good range for the full year for our U.S. benefit ratio. Pablo Singzon: And then my second question, other group insurance companies have started talking more about [indiscernible] family. Can you talk about your current involvement in the product? Today, I think you will see admin services. And if there are goals are intended to eventually start fully ensuring risk at some point in the future? Virgil Miller: This is Virgil again. So yes, let me just give you a little bit more color on our overall block and what we do. Of course, our focus is on the administrative service portion. We provide services for more than about 3 million constituents out there. The main thing we talk about is the services we provide for the state of Connecticut. We want and add it now in the state of Maine, but we also oversee and provide services for other entities, other business entities. Inside those business entities, though, if you look at that, we do provide insurance coverage also. So we get about -- approximately about $40 million in premium on that side of the business is not material to our overall U.S. block. But from an administrative services fee, we get probably about $90 million from that side. So it kind of gives you a little bit more color into the size and again, is providing services about more than 3 million constituents overall. Overall, this has been very good for our overall book of business. We've been able to demonstrate that we are certainly serious and a player in this space. We provide high touch, very high standard of service. It's excellence that we provide, and we have been able to achieve and get good feedback from where we're providing those administrative services. And we look cautiously to expand where necessary out of the market because it's been a good business for us. Operator: The next question is a follow-up from Tom Gallagher of Evercore ISI. Thomas Gallagher: Just wanted to try and tie a few things together from different responses I heard to make sure I am understanding this correctly. Max, the number to get to flat premium growth in Japan you said would require around $90 billion of yen sales for the year. Did I understand that part correctly? Max Broden: Yes, you did. Thomas Gallagher: Okay. And then I think the earlier response on the expectation for Japan sales for '26 was the same level as '25, which was JPY 74 billion. So that would leave you about JPY 15 billion, JPY 16 billion short. Is that the right math to think about here? Daniel Amos: Well, let me just say, this is Dan. I think the number will be higher than last year's number. Thomas Gallagher: Got you. So Dan, you expect -- and if you wouldn't mind opining a little bit further on that, Dan. What are you thinking overall relative to JPY 74 billion was the baseline for '25? How do you -- what's your best guess for how that emerges in '26? Daniel Amos: Well I would say closer to JPY 80 billion. That's what I'd like. I'm not going to say that the company won't be satisfied with a little less, but I'd like JPY 80 billion. Virgil Miller: You want me talk a little bit about the product, Dan? David Young: Yes, go ahead. Virgil Miller: Yes. Just to say, you can see just looking at consistency now with the growth we're seeing in the new cancer product. You can also see though that [indiscernible] Pallet, the medical product we introduced to the market, has come out strong in Q1. So we are very encouraged by the new sales of those 2 products. And then we continue to be focused on [indiscernible]. [indiscernible] came out very strong for us, but we still -- we're adjusting our rates were necessary, and we've still been a major player in there. So when you combine those 3 things, I think that's what has us all encouraged about what we're seeing with Aflac Japan. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Young for any closing remarks. David Young: Thank you, Andrea, and thank you all for joining us this morning for our call. If you have any additional questions, please reach out to the Investor and Rating Agency Relations team. We'll be happy to follow up and we look forward to talking to you soon. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Good morning. My name is Victor, and I'll be your conference facilitator today. Welcome to T. Rowe Price's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded and will be available for replay on T. Rowe Price's website shortly after the call concludes. I will now turn the call over to Linsley Carruth, T. Rowe Price's Director of Investor Relations. Linsley Carruth: Hello, and thank you for joining us today for our first quarter earnings call. The press release and a supplemental materials document can be found on our IR website at investors.troweprice.com. We'll start the call with our Chair CEO and President, Rob Sharps and CFO, Jen Dardis discussing the company results, after which [ Glenn August ], CEO of OHA, will provide an update on our alternatives business. Then we'll open it up to your questions at which time will be joined by Head of Global Investments, Eric Veiel. We ask that you limit it to one question per participant. I'd like to remind you that during the course of this call, we may make a number of forward-looking statements and reference certain non-GAAP financial measures. Please refer to the forward-looking statement language and the reconciliations to GAAP in the supplemental materials, as well as in our press release and 10-Q. Discussions related to the funds is intended to demonstrate their contribution to the organization's results and are not recognitions. All investment performance references to peer groups on today's call are using Morningstar [indiscernible] for the quarter that ended March 31, 2026. Now I'll turn it over to Rob. Robert Sharps: Thank you, Linsley. Before I get started, I'm pleased that [ Glenn August ], CEO of OHA and member of our Board, is with us today. He will provide an update on our Alternatives business and the opportunities we see across wealth, insurance and the broader institutional market. We will hear from Glenn after Jen's update on our financial results. After a relatively stable first 2 months in the quarter, markets declined in March in response to the conflict with Iran, which pushed energy prices sharply higher and introduced additional uncertainty into global economic growth expectations. Though these declines have reversed in the early part of the second quarter with the market recently reaching new highs. With recent volatility and broadening of markets, our active management approach, [ rooted ] in strong fundamental research and a consistent long-term focus, positions us to take advantage of the opportunities this climate brings. While we continue to face outflows in our equity and mutual fund businesses, our teams are making progress in stabilizing flows and are advancing innovative strategies, new vehicles and compelling solutions to meet the needs of our clients. Around half of our funds outperformed with [ 39, 56, 43 ] and 59% of our funds beating their peer group medians on a 1-, 3-, 5- and 10-year basis. On an asset-weighted basis, our long-term performance remained strong with 71%, 46% and 78% of our funds outperforming on the 3-, 5- and 10-year basis. However, the 1-year time period remains challenged. Across our equity funds on an asset-weighted basis, 63% outperformed for the 3 year and 73% for the 10-year time periods. Performance was softer for the 5-year, with 41% of fund assets outperforming and 21% for the 1 year. Our fixed income funds continued to deliver strong performance. On an asset-weighted basis, over 3/4 of the funds outperformed for the 1-, 3-, 5- and 10-year time periods. In our target date franchise, long-term performance remains strong. with 94%, 54% and 98% of fund AUM outperforming their peers on a 3-, 5- and 10-year basis. The 1-year performance remains challenged with only 8% of AUM outperforming, but the most recent quarter had strong performance with 86% of AUM outperforming peers. Last quarter's strong performance was driven by security selection and our active equity strategies, as well as our tactical asset allocation decisions. We advanced a number of important initiatives in the first quarter that strengthen our ability to deliver outcome-oriented solutions and expand our distribution relationships. A few examples of this work include, our target date franchise continues to resonate in the market with notable growth in blend and hybrid products. Our collaboration with Goldman Sachs is progressing with momentum building in model portfolios and product development advancing for the launch of an interval fund and Target Date sister series later this year. Our ETF and SMA businesses continue to grow. We launched 2 ETFs this quarter, bringing our line up to 32 ETFs. 8 of the 32 ETFs had scaled to [indiscernible] $1 billion in AUM at the end of March. Our ETFs generated over $2.8 billion in net flows in the first quarter. As of last week, our ETF assets under management surpassed $25 billion. We are also developing plans to launch our first ETFs in Europe. Our SMA platform expanded to 42 offerings with more than $17 billion in AUM and over $900 million in net flows in the [indiscernible] quarter. We closed our first T. Rowe Price managed CLO in early April, extending our floating rate capabilities into larger markets and diversifying our opportunity set. We advanced our partnership with First Abu Dhabi Bank from planning into execution, with preparations underway across marketing, training and client support for a targeted mid 2026 launch. We are making progress in our partnership with [ Aspida ] for which we manage both public and private assets totaling over $0.5 billion at the end of March. Our experience with Aspida is informing our approach to the substantial opportunity in insurance more broadly. We also formalized a new operating arrangement with OHA, and are excited about our ongoing collaboration and the capabilities their team brings to the overall T. Rowe Price business. None of this progress would be possible without the exceptional talent and dedication of our associates, whose focus on clients and disciplined execution drives us forward. And now Jen will share an update on our financial results. Jen Dardis: Thank you, Rob, and hello, everyone. I'll review our first quarter financial results before turning it over to Glenn. Our adjusted earnings per share of $2.52 for Q1, 2026 is up 3% from Q4, 2025, and up 13% from Q1, 2025. The increase from the prior year was driven by higher revenue growth from higher average AUM, while lower expenses drove the increase in EPS from Q4, 2025. A lower tax rate and a reduced share count also contributed to the increase in this quarter's adjusted EPS. As previously reported, we ended the quarter with $1.71 trillion in AUM, and $13.7 billion in net outflows. Our average AUM of $1.78 trillion remained nearly flat from the prior quarter after [indiscernible] the period and is up 9.6% from Q1, 2025. Multi-asset, fixed income and alternatives all delivered positive net flows for the quarter, while equities, particularly U.S. growth-oriented strategies remained in outflows. Our Target Date franchise continued to deliver solid growth with $4.9 billion in net inflows, driven by the sustained momentum in our blend products. International bond and U.S. equity research also had strong net flows in the quarter, and our ETF and SME businesses were positive was $2.8 billion and $962 million of net inflows, respectively. Moving to the income statement. Our Q1 adjusted net revenue of over $1.8 billion was up 5% from Q1, 2025, driven by higher investment advisory fees and accrued carried interest. Investment Advisory revenue for the quarter was almost $1.7 billion, up 5.3% from Q1, 2025, and down 3.2% from Q4, 2025. The decrease over the prior quarter primarily reflects the decline in our effective fee rate, as well as 2 fewer days in the quarter. Our Q1 annualized effective fee rate, excluding performance-based fees of 38.4 basis points is down from Q4, 2025. From an investment strategy basis, the effective fee rate decline is driven by the growth of our Target Date franchise, including the [ Blend ] series and outflows from our higher fee equity strategies. On a vehicle basis, the growth of trust and separate accounts, coupled with outflows from the mutual fund vehicle are also compressing effective fee rate. These ongoing trends align with the current demand for and our investment in solutions-oriented products and lower fee vehicles. Our Q1 adjusted operating expenses, excluding accrued carried interest were $1.14 billion, a 1% increase from Q1 2025, and a 7% decrease from Q4, 2025, as certain expense categories run seasonally higher in the fourth quarter. Adjusted operating expenses in both the current and prior quarters also reflect cost savings delivered through our ongoing excess management program. We continue to expect 2026 adjusted operating expenses, excluding carried interest expense, to be up 3% to 6% over 2025 [indiscernible] $4.6 billion. While it's still too early to narrow our guidance, our expense forecast, which includes our investment in strategic priorities and market-driven expenses, remains comfortably within this range even with the market volatility experienced year-to-date. Following the outsourcing of certain technology capabilities in connection with our expense management program, we have reclassified third-party technology-related costs from G&A to technology, occupancy and facilities costs to better reflect the nature of the expenses. Page 20 of the supplement includes recasted operating expense categories, reflecting this change for 2025 and 2024. Turning to capital management. Our balance sheet is strong, with over $4.1 billion of cash and discretionary investments. Returning capital to our stockholders continues to be a priority, highlighted by our 40th consecutive annual increase in the quarterly dividend to $1.30 per share. During Q1, we leveraged periods of market dislocation to increase our level of stock buybacks, purchasing $340 million worth of stock, largely toward the end of the quarter. As of March 31, we had 214.9 million common shares outstanding. And now I'll turn it over to Glenn. Unknown Executive: Thanks, Jen. As everyone knows, we are in a particularly dynamic period for the credit markets. So I am particularly pleased to join today's call to share my perspectives on the current environment and discuss how OHA is seizing on the opportunity. First, I'd like to provide a quick overview of OHA. For more than 30 years, OHA has been one of the leading credit-focused alternative asset managers. We invest across four main strategies. First, private credit comprised mainly of senior direct lending and junior capital for larger corporate borrowers. Second, opportunistic credit with a focus on distressed investments, special situations and real assets. Third, structured credit, which is primarily OHA-managed CLOs and third-party CLO debt and equity. And finally, liquid credit, which is leveraged loans, high-yield bonds and multi-asset credit. Our client base is global and predominantly institutional. We mainly serve pension funds, sovereign wealth funds, endowments and family offices. In fact, we manage capital for 7 of the 10 largest U.S. state pensions, 8 of the 10 largest global sovereign wealth funds, as well as many of the largest insurance companies. While the institutional market is the core of our business, we also have a growing presence in the wealth channel, which I will comment on later. Geographically, North America is currently our largest market with nearly 60% of our capital, where we also have a large investor base across Europe, the Middle East and Asia. As of March 31, we have $112 billion of total assets under management, which includes committed capital and leverage, up meaningfully from approximately $88 billion at year-end 2024. The recent volatility we have witnessed across financial markets has been driven by a confluence of factors. First, market was shaken by the [indiscernible] risks that emerged in Q3, Q4 last year on several high-profile frauds [indiscernible]. This led to broader concerns that the easy financial conditions of the past several years may have resulted in [indiscernible] underwriting standards and that further issues could emerge. At the start of this year, markets were [indiscernible] by rapid AI advancements that resulted in concerns at disruption risk among the incumbent software providers. These concerns were most acute in the syndicate and private loan markets, which have financed a number of large software deals in recent years. This, in turn, created a flurry of negative headlines and elevated redemption activity in non-traded [ BDCs ]. The Iran war [indiscernible] another driver of uncertainty and geopolitical risks. The war has disrupted global trade, upended energy supplies and caused a massive spike in energy prices. This has resulted in renewed inflation concerns and a recalibration [indiscernible] Fed strategy. The combination of all these events has resulted in heightened volatility across markets. However, in our view, market fundamentals generally remain positive, and the economy has again shown [indiscernible] macro and geopolitical shocks. And while the impact of AI disruption will create winners and losers, these dynamics will play out over time. The strong rebound in equity markets reinforces that risk appetites remain healthy and that investors are willing to look beyond the current set of issues. Ultimately, we believe the challenges in the credit markets, including AI risk are idiosyncratic, not systemic. We also believe that the current market backdrop is creating opportunity for OHA to show greater differentiation among managers. We have been engaging with our clients throughout the period. In general, they are continuing to seek the benefits of alternative and private market investments to complement other exposures in their portfolios. We are seeing significant interest across our product suite, and we are engaged in constructive dialogues on how to capitalize on the current opportunity set. We believe there is a distinction to be made in the behavior of institutional clients versus individual investors. Institutional clients have a longer time horizon and they are viewing the current environment as an opportunity to lean in. Meanwhile, individual investors have shown to be highly sentiment driven and more reactive to negative headlines. Request for liquidity across non-traded BDCs, which [indiscernible] products have increased meaningfully across the industry with many vehicles receiving requests in excess of the 5% quarterly limit. However, it's important to put these developments in context. Retail products only represent approximately 20% of the broader corporate private credit market and the liquidity mechanics exist in these vehicles to prevent an asset liability mismatch. That, combined with the cash flow generation of the underlying investments is therefore unlikely in our opinion, to result in widespread for selling of BDC assets. While the retail segment is a relatively small part of OHA's overall business today, we and T. Rowe Price jointly [indiscernible] as an important growth opportunity, and we currently have two co-branded wealth products. OCREDIT is our perpetual nontraded BDC with approximately $3 billion of investments at fair value as of [indiscernible] The fund was launched in 2023, generated regular distributions and has had zero defaults since inception. In fact, the fund had redemptions well below the 5% limit during the first quarter and generated positive net flows for the period. Our second product for the wealth channel is [ OFlex ], a new multi-strategy credit interval fund that was recently registered. This strategy has exposure to various asset classes, including private credit, structured products, special situations, and liquid credit among others as part of its mandate. On the insurance front, T. Rowe Price invested in a strategic partnership with [indiscernible] in early 2025, and [ TRP ] and OHA now manage certain public and private assets on behalf of Aspida, a $30 billion life insurance and annuity platform. This partnership is 1 example of OHA's growing presence in the insurance market, and the broader convergence of asset management and insurance. We have seen interest from many insurance clients for private credit CLOs and asset-backed strategies as well, and believe this sector represents another growth opportunity. I believe that OHA is well positioned for the current market environment. We have a 30-plus [indiscernible] record of generating attractive results for our investors across multiple economic cycles and market environments. We also have demonstrated the ability to introduce innovative products that provide solutions for our clients and allow us to capitalize on compelling investment opportunities. One example is [ OLED ], fund focused on senior direct lending. In Q4 2025, we held the final closing with a total of $17.7 billion in capital. This was the largest single fundraise in our firm's history. [indiscernible] contributed to 2 consecutive years of record fundraising at OHA with nearly $40 billion of capital raised in 2024 and 2025 combined, including leverage. In aggregate, we currently have over $30 billion in dry powder across our various strategies. This positions us exceptionally well to be front-footed and opportunistic in deploying capital in an environment where spreads have widened, liquidity premiums have increased and documentation and terms are more favorable for lenders. We also are confident in our existing portfolios. We have always utilized a highly selective and disciplined investment approach, characterized by robust underwriting and a focus on downside protection. This rigorous approach has led to investments in resilient portfolio companies that have generally been faring well in the current environment. We are excited about being a part of T. Rowe Price and the collaboration between the teams at OHA and T. Rowe Price continues to deepen. [ TRP's ] distribution platform, including its retirement wealth and institutional channels, has been an important accelerant for OHA's growth, and we're still in the early innings. The Goldman Sachs strategic collaboration announced last September further expands OHA's opportunity set with co-branded target date strategies, model portfolios and multi-asset offerings, incorporating private investments, all in development, several of which are expected [indiscernible] mid-'26. These partnerships position our investment capabilities in front of an even broader set of investors. None of this happens without the exceptional people at OHA. We have 435 professionals across 6 global offices with deep continuity across our leadership team. Our culture of close collaboration, fundamental underwriting and deep partnership with our clients and our borrowers is what has driven our results for more than 3 decades, that's what will continue to drive them in the future. I'm excited about the opportunities ahead. Thank you. We will now take your questions. Operator: [Operator Instructions] Our first question will come from the line of Dan Fannon from Jefferies. Daniel Fannon: Glenn, I appreciate your comments and I was hoping you could expand upon a few topics, specifically on the deployment opportunity you're seeing today with spreads being a bit wider, maybe some less competition, if you could talk about that. And then also, you talked about some of the challenges private [indiscernible] seeing. But could you discuss what OHA's exposure is to software and some of this AI disruption that's clearly an overhang here? Unknown Executive: Sure. Thanks for the question, Dan. I'm delighted to be part of this call. The market clearly has widened in spread based on kind of classic supply-demand dynamics with demand a little lower were meaningfully lower in the wealth channel, the spread widening on new deals is probably in the neighborhood of 25 to 50 basis points, and it could widen out. On the other side, the supply of new deals, the private equity market has been relatively quiet during this period given the given the [indiscernible] disruption. And so I think that the market is waiting, I think, for the war to be over to see more deal activity, and I think we'll see a lot more interest in. With regard to the AI disruption, what I'd say is that we've been doing software credit for 40 years. We have $40 billion track record over a 9% unlevered return. And I think there's real differentiation in the credit space in software. We've avoided ARR loans, we've avoided technology risk. Excuse me, we focus on [indiscernible] mission-critical software and contractual recurring revenue models. And so we feel very well positioned. Operator: Our next question will come from the line of Ken Worthington from JPMorgan. Kenneth Worthington: So credit spreads late last year were at record, or near record tight levels. And while spreads, as you've mentioned, have widened a little, they're still very narrow by historic standards. Can you give us a sense of what a turn to normal spreads over the course of, say, a year might do to returns? To what extent are institutional and wealth investors prepared for a return to normal in credit spreads. And if we're in a more normal spread environment, how are Oak Hill products positioned to perform relative to peers? Unknown Executive: So credit spreads have moved over the decades. I've been doing this now for almost 40 years, as I said. And while credit spreads are narrower today, they're actually in line with historic averages. Again, you need to separate out the moments of wide -- spread widening during a period like COVID, or during the [ GFC ] and the credit quality underlying today's leverage finance market is better than it was. If you look at the high-yield market as an example, over 55% of the market is BB today. And so you really need to do that adjustment on credit spreads. And you also need to look at the backdrop of the public equity market, which is at record highs. And so from our perspective, the deals are getting done today with 50% to 60% equity cushion. The credit spreads are reasonable. So I don't see necessarily a return to spread widening. And in fact, we're seeing a lot of institutional demand from around the world who basically look at the opportunity to say, if I can make 300 to 400 basis points in the liquid credit market or 500 basis points in the private credit market off of today's absolute rates, that's a very attractive risk-adjusted return profile. So I don't see -- I don't have a major concern of a moment here of spread widening in general. Operator: And our next question will come from the line of Michael Cyprys from Morgan Stanley. Michael Cyprys: I was hoping to ask about ETFs and the success that you're seeing there. I was hoping maybe you could help unpack how much of your ETF growth is coming from new client acquisition versus migration from existing mutual fund assets? And then more broadly, if you can just update us on your ETF strategy, how you're finding success and some of the key initiatives as you look out over the next 12 to 24 months? I think you mentioned Europe as well. Robert Sharps: Yes, thanks for the question. Growing our ETF platform is one of our top priorities. Our data shows that we're both reaching new clients and serving existing clients, which does include some direct switching. It's pretty clear that much of the flow into active [ ETFs is ] coming from investors that historically used open-ended mutual funds. Regardless, we believe that a significant portion, and I'd go as far as to say a majority of our ETF business is coming from investors that we would not have reached with traditional open-ended funds. In terms of our product strategy, we have 3 core tenets. The first is making sure that we have compelling active ETF offerings that cover all of the Morningstar categories. The second is providing key components for asset allocation models, both proprietary models, as well as home office models given the increasing role that models are playing in overall active ETF flows. And then finally, developing innovative and new strategies to deliver our evolving investment capabilities. We're also exploring both mutual fund ETF conversions and over time, ETF share classes in certain of our mutual funds. And I think we're making substantial progress. Real time, we're over $25 billion in AUM. We now have 32 tickers across asset classes, representing versions of many of our most broadly placed strategies on wealth platforms across equity and fixed income, so think large cap growth, capital appreciation, municipal bond. Sector-oriented offerings, leveraging our deep research in areas like technology, health care, natural resources, but also unique offerings, things that we haven't offered in open-ended fund, such as [ Active core ], capital appreciation, premium income, innovation leaders. So as the scale and build compelling track records, we're going to invest in our ability to support our clients, emphasizing gaining placement on more platforms, earning more focused less recommendations at the home office, while also providing more focused sales support in the field to help advisers serve their clients. And again, we're really focused on the role that our active ETFs can play in models going forward. So we think we have a really big opportunity there. And I'll see if any of the rest of the team has anything to add. Operator: Next question will come from the line of Glenn Schorr from Evercore ISI. Glenn Schorr: [indiscernible] big picture one first. We have end markets at all-time highs in a really strong April. I heard all Glenn's comments on the credit side with wider spreads and some interesting opportunities. So my biggest question is you could spill in a little, hey, what's going on in April so far? What have you seen? But the big part of it is what is the institutional pipeline shaping up to be? Are we -- should we expect to see really big reallocations in client portfolios? Or is that more of a slow-moving train? Robert Sharps: Yes, Glenn, thanks for the question. I would characterize the institutional pipeline more as the latter. I mean, I think institutions are very deliberate with regard to their underlying asset allocation and the construction of their overall portfolio. They tend to be relatively disciplined with regard to rebalancing. And I would say that that's true not only for traditional institutions, sovereign wealth funds, line benefit tons of plans, endowments foundations but also a number of the large wealth platforms that we serve where they have home office models. They have a very disciplined approach to making sure that their clients have balanced portfolios with attractive risk reward in certain instances, employing tactical asset allocation. I have not seen any -- kind of any significant shift in the nature of interest of the institutional pipeline based on the market dynamic. What I would say is that the equity markets, in particular, feel like there is a new dynamic where you have return from parts of the market away from the hyperscalers where energy has performed well, where sectors that are exposed to the AI infrastructure build-out, whether it's semiconductors in technology, or areas like power, or kind of certain componentry have really, really benefited from the accelerating CapEx of the hyperscalers and of the AI-oriented firms. So it's a dynamic where the market is broadening. We've seen better performance from some cyclical areas of the market. We've seen better performance from some different parts of the market cap spectrum. And my sense is that, that can really play to our strengths given the depth and breadth of our research coverage across equities and our active approach. Unknown Executive: Yes. The only thing -- I agree with what Rob said. The only thing I would add is we did see a trend towards non-U.S. assets beginning back at the end of last year. There was a bit of a pause on that trend. But I think that is something that has picked back up again in the most recent sort of [ 4 or 5 weeks ]. Robert Sharps: [indiscernible] to make one comment on the credit front on the institutional side. I will tell you that during this period over the last couple of months with all the [indiscernible], we are getting incredible inquiry from around the world from our largest institutional investors. Many have come to us asking to make proposals on dislocation funds. If the market softens a little bit more, many are allocating capital to us right now. And so it is just the juxtaposition of where the institutional market is versus the retail/wealth market is really striking to me. Operator: Our next question will come from the line of Alex Bond from KBW. Alexander Bond: Glenn, maybe a question for you on how you're thinking about the path forward in terms of retail offerings. You mentioned you think this is an important growth area, an opportunity for OHA despite what's going on in terms of the elevated redemption requests across the industry at the moment. Are there additional products in the prospective pipeline that maybe you can speak to? And also, are there certain areas in the retail space where you feel like OHA can really stand out and provide a unique offering. Robert Sharps: [indiscernible] I think that OHA story is still in the process of being told in the wealth channel, and we've made a lot of progress over the last couple of years. We [indiscernible] of the Year award. We -- T. Rowe has made additional investments in our distribution team. And I do think the whole story of OHA being one of the world's leading alternative credit managers for the institutional market, as I mentioned in my prepared remarks, having gated the top 10 sovereign wealth funds, having 7 of the top 10 U.S. pension plans. We manage capital for the largest investors in the world. And I think we are out there telling our story. And there was a perspective in the market that there was very little differentiation between managers. And I think when you look at the BDC market today, both public and private, you're starting to see that differentiation. And so I'm actually quite excited about our ability to tell our story and to show what has basically been nearly 4 decades of differentiation in credit selection. And I do think there will be different performances by the different managers. In terms of new products, we're excited about our [ OFlex ] product which is an interval fund and a multi-strategy fund across the credit spectrum, not just senior direct lending, we think investors are looking for ways to add to their exposure in the interval fund format is exciting. We're certainly in development with T. Rowe and at OHA internally about thinking about other products to add to the channel. And I do think that we will ultimately, together with T. Rowe build a global brand in the wealth channel, that we are building today, and we're looking forward to build meaningfully, and I'm excited about that. Unknown Executive: I would just add that I'm really optimistic about our opportunity to continue to work with Glenn and his team to grow our presence in alternative credit and alternatives more broadly across channels. I think we have a very big opportunity in wealth. I'm excited that [ Bill Cashes ] joined us to lead our alternatives effort in the wealth channel. I also see substantial opportunity in insurance and retirement. And while OHA is certainly front and center, and deeply involved with our collaboration with Goldman Sachs, I think across OCREDIT, [ OFlex ], other things that we have the option to develop with OHA, we have a product road map with Goldman with our interval funds with models, as well as delivering our own late-stage venture capability that's really beginning to build out our alternatives offering and giving us the opportunity to engage with and support our wealth partners as they incorporate more private market alternatives into their solution set, from ultra-high net worth to all the way down ultimately to mass affluent. Operator: And our next question will come from the line of Ben Budish from Barclays. Benjamin Budish: Maybe Jen, if you could give us a little bit color on the expense outlook for the year. It looks like in the first quarter, at least you came in pretty below what the Street was expecting. Just anything you could share on the shape of expenses? What does the recovery in markets mean for comp in Q2? Just anything else that would kind of help us as we're fine-tuning our models here. Jen Dardis: Yes. Thanks for the question. I think typically, what you'll see is Q1 expenses will be softer than Q4 because our compensation -- our year-end compensation is struck in Q4. So that's one impact that we'll typically see coming from Q4 into Q1. The other thing I would say is we came into Q1 with some tailwinds from our expense management exercises. So things that we executed either at the late part of Q4, or the early part of Q1 where we saw some [indiscernible] related to that. Those are things like some realignment within our marketing teams continued execution against our sourcing strategy, where we've looked at certain capabilities where we can leverage vendors and also rationalization of our real estate footprint. Offsetting that, as we go forward for the balance of the year, setting into the 36% expense guide range is our continued investment in strategic initiatives. So I expect we'll see some of that pick up through the year as we absorb some of these tailwinds in Q1. Robert Sharps: Yes. I would just add that we are very focused on driving efficiency but also committed to investing in our business and particularly our strategic areas of focus. Retirement-oriented outcomes and solutions, modern portfolio of building blocks with ETF, SMA and interval funds and developing advice capability for our individual inter and retirement plan services businesses. So I feel like we've got a lot to do. I feel like we have the capacity to drive efficiency to self-fund a significant portion of that. But we're really focused on investing in growth areas to drive the business forward. Operator: Our next question will come from the line of Brennan Hawken from BMO. Brennan Hawken: Glenn, I'd like to circle back on the question around software and AI disruption. It was pretty standard disclosure for all [indiscernible] disclosed the software exposure across the portfolio. I don't think you talked about it aside from talking about your comfort. So it would be great to get that number. And also, just more importantly, process-wise, AI is not new. The disruption in the public market sort of concern about it is far more elevated than it had been. But I'd be interested in hearing about how you integrate the assessment of AI risk into your underwriting process? Because usually, the exposure to potential disruption goes way beyond software and tech is really an integral part of a lot of private equity portfolios. So I really think that understanding the process would be really helpful here. Robert Sharps: Happy to do that. So first, with regard to your first question on allocation. We are basically in line with the market. The market has been in the neighborhood of 15% to 20% allocation to software credit. There's a broad range. There's also, what I would say, to your point, software and AI disruption as a theme is much broader than what's going on in software. And I share your view that there's been all this attention on the private credit markets, but the reality is if you look at software equities, they've gone down dramatically. If you look [indiscernible] EM stock, which went down $80 in a 6-week period because of an [indiscernible] threat to its [ cobalt ] business. So -- so to our perspective, AI disruption is a major, major theme, and it didn't just happen overnight. Although it seemed like in February with [indiscernible] issuing its new [indiscernible] version, there seem to be a lot more attention to it. In terms of the underwriting, I want to just take a step back from the beginning question of this call and add [indiscernible] a bit here. So I mentioned that we've done software investing for [indiscernible] for basically 20 years, $40 billion of capital. And it really has all been about a theme of large-cap mission-critical players that are really embedded. And if you look at our portfolios versus many of our peers, they're very, very differentiated. We averaged probably $300 million to $350 million of EBITDA in our companies. We are senior -- the senior positions at 40%, [ 35%, 35% ], 40% loan to value. They're actually performing quite well today. And again, one of my comments I often make is that proving against a hypothetical and the future product that might come out in a few years is a challenge. But we feel like we have very, very good businesses. And so we are continually underwriting and reunderwriting. We have AI risk management -- risk management tools in terms of rating each one of our companies. And to your point, it's not just software. It's what happens in a bunch of the services sectors like accounting, other areas. And we continuously we underwrite our [ Oak Hill's ] track record over 4 decades is having extremely low default experience, our credit selection as example, in the bank loan area over 25 years in our CLO business. We averaged about 30 basis points of default rate for the market that was [ 2.25% ]. So the reason why we believe large institutional investors have chosen us to be one of their major credit partners is because of the rigor of our underwriting process. Unknown Executive: Yes, we see that, that was a big part of what attracted T. Rowe to OHA when we first engaged over 5 years ago. And I think they have deep fundamental research capabilities and are extraordinarily exacting in their credit underwriting process. And I think that's really aligned with T. Rowe Price's culture and our focus on fundamental expertise. Operator: And our next question will come from the line of Patrick David from Autonomous Research. Patrick Davitt: You mentioned an aspiration to being bigger in alternatives and some of your competitors have been successful in becoming more relevant there inorganically. So could you update us on your appetite to use your strong balance sheet position to get aggressive with M&A and accelerate that shift? Unknown Executive: Yes. We have said that the industry is consolidating, and we believe that we'll participate in that consolidation over time to the extent that we find the right opportunities, the right opportunities have to have cultural fit. They have to bring additional capabilities to us, or allow us to reach new clients or, kind of, have deeper relationships with our existing clients. And from an alternative perspective, I think we've talked pretty consistently about [indiscernible], about partnership and about organic options to develop our -- the breadth of our capabilities. So we continue to evaluate opportunities across each of those and have ultimately have aspirations, not only to be bigger but to be excellent in alternatives, to deliver differentiated investment outcomes and capabilities to partners across the different channels. Robert Sharps: Yes. I might just add that clients ultimately, whether it's the wealth channel, the institutional channel, the insurance channel, they want to have deeper, stronger relationships with firms that offer multiple products. And what we've seen over the years as we've grown our product capability to OHA, we do more with the largest clients in the world. And so again, whether it's buy, whether it's build, whether it's team lift-outs, to add additional capabilities, I think that we will look to do that over the next number of years [indiscernible] our platform. But not growth for growth's sake growth, because we think we can service our clients better and add to our capabilities. Unknown Executive: And to the broader question, just with regard to capital allocation, I mean, as -- we reported [indiscernible] noted, we purchased $340 million worth of T. Rowe Price stock in Q1. Year-to-date, we've repurchased over 4 million shares for just under $400 million. And you'll note that that's a higher pace than we've had in recent history, and I think that reflects the value that we see in our share price. We do have the capacity to deploy a significant amount of capital both from ongoing cash flow as well as from our balance sheet, and we're constantly evaluating our options. In addition to M&A, include more share repurchase or investing in our business in multiple different ways, including through seed and co-invest. And at a high level, we're going to be opportunistic and selective, but we should be active in each of those areas. I don't see any need for our cash levels to build from here. But look, I do feel strongly that having significant deployable capital has real value. And that value kind of often manifests itself during periods of market stress and dislocation. So they will evaluate opportunities to deploy capital. We acknowledge that we have significant cash. And we're going to be really judicious with regard to ultimately how we deploy that. Operator: And this concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Hello, and thank you for standing by. My name is [inaudible] and I will be your conference operator for today. At this time, I would like to welcome everyone to the InterDigital, Inc. first quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on the telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Raiford Garrabrant, Vice President of Investor Relations. Sir, please go ahead. Raiford Garrabrant: Thank you, [inaudible], and good morning, everyone. Welcome to InterDigital, Inc.'s first quarter 2026 Earnings Conference Call. I am Raiford Garrabrant, VP of Investor Relations for InterDigital, Inc. With me on today's call are Liren Chen, our President and CEO, and Rich Brezski, our CFO. As in prior calls, we will offer some highlights about the quarter and the company, and then open the call up for questions. For additional details, you can access our earnings release and slide presentation that accompany this call on our Investor Relations website. Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs and plans. Expectations are not guarantees of future performance and are made only as of the date hereof. Forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those described in the Risk Factors section of our 2025 Annual Report on Form 10-K and in our other SEC filings. In addition, today's presentation may contain references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the supplemental materials posted to the Investor Relations section of our website. With that taken care of, I will turn the call over to Liren. Thank you, Rich. Good morning, everyone. We will now open the call for questions following our prepared remarks. Liren Chen: Thanks for joining us today. We have made a very strong start to 2026 with continued momentum across our licensing programs, our research and innovation pipeline, our standards development leadership, and our patent portfolio growth. Revenue, adjusted EBITDA, and EPS were all above the top end of our guidance. Our annualized recurring revenue is now at $567 million, up 13% year-over-year. In licensing, we have a productive quarter with six new agreements. We renewed our agreement with Xiaomi through bilateral negotiation. Xiaomi is the world's third-largest smartphone manufacturer behind Apple and Samsung. This renewal helped drive annualized recurring revenue in our smartphone program to a record $492 million. With the Xiaomi renewal, we now have eight of the top 10 global smartphone manufacturers under license, covering approximately 85% of the market. We also have the world's top three smartphone vendors under license through the end of the decade. Our success in our smartphone program provides a strong base from which to drive additional growth. In consumer electronics, at the start of the year, we completed a new license with LG Electronics. LG is one of the top global TV manufacturers, and the new agreement was reached through our joint TV licensing program with Sony. We also renewed our license agreement with Sony itself, which is one of our long-term licensees, added a new agreement with Buffalo Americas, and new agreements with DTV manufacturers related to our extensive video portfolio. All these deals were done through bilateral negotiations. Overall, the total contract value of the agreements that we have signed since 2021 is about $4.7 billion. In our video services program, we continued to make good progress during the quarter. We were awarded our fourth injunction against Disney by a German court, which ruled that Disney infringed an InterDigital, Inc. patent related to EVC compression technology. We are also moving forward in our enforcement action against smartphone manufacturer Tencent. In late March, a court in Brazil awarded us an injunction against Tencent after the court ruled that Tencent infringed our two 5G patents in suit, and that our licensing offer to Tencent was fair and reasonable. Combined with our Disney cases, this makes six out of six wins in our recent patent injunction proceedings. In Q1, we also launched a multi-jurisdictional enforcement action against TCL and Hisense, two of the world's largest TV manufacturers. As I mentioned before, we always prefer concluding license deals through bilateral negotiation, and most deals do get done this way. But we will vigorously pursue fair value for decades of investment in our research, and defend the value of intellectual property, which will allow us to continue to invest in the next generation of technology that benefits the whole industry and consumers worldwide in the future. Throughout our history, when we enforce our IP, we have a strong track record of ultimately reaching agreements that are effective for both parties. Our research engine and our leadership in global standards continue to be a major competitive advantage for us. During the quarter, one of our top wireless engineers was re-elected to a chair position within 3GPP, the standards body leading the development of six g. We are already actively contributing to six g technology research and this re-election demonstrates we are ideally positioned to lead the development of six g standards, which are expected to be routed in 2029 with wide commercial deployment in [inaudible]. With this re-election, we remain one of the only three companies in the world to hold multiple chair positions within 3GPP. Since the start of this year, seven of our engineers and standards leads have been re-elected or appointed to new leadership positions in standards-related organizations, broadening total standards leadership roles to more than 110 positions. In the quarter, we also named our 2026 Inventor of the Year, Samir Ferdi, who is a senior engineer in our wireless lab. Samir is a key contributor to cellular standards and one of our most prolific inventors. Inventor of the Year is one of the most prestigious awards we make each year and it speaks to the culture of innovation at InterDigital, Inc., and how our success as a company is built on the work of our inventors and the quality of their research. The cellular wireless industry is moving towards six g, and our research team is at the center of that transition. At Mobile World Congress in March, we were at the heart of several of our demonstrations, including the development of AI-native networks, new imaging sensing and communication, and a showcase of the world's first collaborative cellular and Wi-Fi sensing demonstration using a prototype six g architecture. In our video research, we launched our Haptic Excellence Center in partnership with gaming technology company Razer. This initiative brings together InterDigital, Inc.'s expertise in immersive media with Razer's leadership in gaming and immersive hardware to advance haptic technology as a core component of the video experience. With haptics well established in gaming, we are now actively expanding it to new use cases. For example, at Mobile World Congress, we partnered with Razer to demonstrate how haptic-powered technology can make streaming TV shows and video at home an even more immersive experience. With more than 4 billion haptic-enabled devices already in use, this is an important area of research and we believe it is a significant opportunity for us. Staying with video, we have developed a new energy-efficient video streaming technology, which expands our work in reducing the energy footprint of video-driven devices and services. As video consumption grows across networks and devices, making that delivery more energy efficient is the kind of impactful research that our team does so well. When we combine our foundational research across wireless, video, and AI with our leadership in global standards, we believe the readouts speak for themselves in the quality and reach of our patent portfolio. In the latest European Patent Office ranking for patent applications in 2025, we are ranked among the top five U.S. companies alongside Qualcomm, Microsoft, and Auspic. Our portfolio is also consistently recognized as among the highest quality in the world. For our fifth year in a row, we were included in LexisNexis Innovation Momentum: The Global Top 100 report, which analyzes companies’ patent portfolios according to the quality of their innovation. This ranking reflects the sustained investment we make in our research, and the discipline of our patent team in transforming that research into a world-class portfolio of IP assets. Before I finish, I want to highlight that we have recently been promoted to the S&P MidCap index, a clear reflection of the growth we have delivered in recent years. With that, I will hand it over to Rich, who will talk you through the quarter’s financial performance in more detail. Rich Brezski: Thanks, Liren. I am pleased to report that we delivered another strong quarter to start 2026, with revenue, adjusted EBITDA, and EPS all above the high end of our guidance range. The upside was driven by new licenses signed during the quarter. Total revenue for the quarter was $205 million, above our guidance range of $194 million to $200 million. Total revenue included $64 million of catch-up revenue. Annualized recurring revenue, or ARR, for the quarter was $567 million, including a record $492 million of smartphone ARR. It is worth noting that our smartphone ARR is based in part on a guaranteed level of revenue under a hybrid agreement. Under this agreement, there is a guaranteed fixed fee, and additional royalties will become due if our customer’s shipments exceed a certain volume. Adjusted EBITDA for the quarter was $112 million, above our guidance range of $101 million to $110 million. Our adjusted EBITDA margin of 54% was above the midpoint of our guidance. GAAP diluted EPS for the quarter was $2.14, above our guidance range of $1.61 to $1.86. Non-GAAP EPS for the quarter was $2.57, above the midpoint of our guidance range of $2.39 to $2.68. Cash from operations was $16 million, even as cash due from new agreements drove a $139 million increase in accounts receivable. We expect collections of these new accounts receivable will drive strong cash flow in Q2. As Liren said, we have signed new agreements with total contract value of $4.7 billion over the last five years. This demonstrates the strength of our IP-as-a-service model. The long-term fixed-fee nature of most of these agreements provides visibility into our business, supports ongoing investment in research and portfolio development, and helps us pursue further growth across our licensing programs. Consistent with our capital allocation priorities, we continue to maintain a fortress balance sheet, invest for growth, and return excess capital to shareholders. During the quarter, we paid down $88 million of our debt and returned $26 million to shareholders. Even with these distributions, we ended the quarter with cash and short-term investments in excess of $1 billion. And after accounting for additional repurchases in April, we have $108 million remaining on our share repurchase authorization. We have a portion of our license agreements come up for renewal every year-end. Our ability to renew many of those agreements and add new agreements in Q1 demonstrates the resilience of our model and the opportunity we see to drive additional ARR growth over time through renewals, new agreements, and enforcement outcomes. Looking forward to Q2, we expect revenue from our existing contracts will be in the range of $139 million to $143 million, which is generally consistent with our Q1 ARR. Again, these revenue expectations are based only on existing contracts, so any new agreements and/or enforcement action results over the balance of the quarter would add to these expectations. But based only on existing contracts, we expect adjusted EBITDA of $67 million to $73 million, or an adjusted EBITDA margin of about 50%, diluted EPS of $0.80 to $0.97, and non-GAAP diluted EPS of $1.41 to $1.60. We are maintaining our full-year guidance at the levels we issued on our Q4 earnings call. For full-year guidance, we continue to think about our results through a multi-path approach, with different combinations of new agreements and enforcement outcomes that can deliver financial results within those ranges. With that, I will turn it back to Raiford. Thanks, Rich. Raiford Garrabrant: Before we move to Q&A, I would like to mention that we will be attending a number of investor events in Q2, including the William Blair Growth Stock Conference in Chicago, the Needham Tech Conference in New York, the J.P. Morgan Tech Conference in Boston, and the Evercore TMT Conference in San Francisco. Please reach out to your representatives at those firms if you would like to schedule a meeting. We will now open the call for questions. Operator: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star then the number one on the telephone keypad. That will be star one on the telephone keypad. We kindly ask for participants to ask one question and one follow-up. We will pause for just a moment to compile the Q&A roster. First question comes from the line of Arjun Rohit Bhatia from William Blair. Your line is now open. You may ask your question. Arjun Rohit Bhatia: Perfect. Thank you so much. Liren, maybe if we can just start, I would love to get a little bit of the, you know, sort of a state of the union on where we are in the streaming opportunity. We have seen positive results in the litigation against Disney. But I am curious what all the injunctions mean for Disney. Have they had to alter their service? And if you could just give us a sense of what your expected timeline is from here, that would be great. Liren Chen: Hey, Arjun. Good morning. Regarding Disney, as you are aware, we filed a multi-jurisdictional injunction and patent litigation process in February. We are roughly a year plus into it, and so far, we have five patents being decided by courts in Brazil and Germany, and we won five out of five. Not only were our patents found to be infringed, the courts issued injunctions against them in each of the cases. Regarding what is needed to address each case, it is a case-by-case basis. Sometimes they claim to have workarounds; some of them we are in the process of enforcing. So it is hard to tell directly how everything will play out. It is also worth noting that we have at least half a dozen more patents coming to trial, including the cases we have in the UPC that are coming in May, June, and July of this year, so it is really coming up in the coming months. We also have cases in the United States pending against them. We feel very strong about where we are, and so far, five out of five is an extraordinary win. Arjun Rohit Bhatia: Okay. Perfect. That is helpful color. And maybe going to the smartphone side, you have a long-term target out there for $500 million in smartphone revenue. From your ARR base, you are essentially there already. So where do we go from here? It seems like there is obviously upside as the six g cycle kicks in, but that is maybe still a few years away as you pointed out. So what should we look out for in terms of catalysts or additional potential outcomes to watch for in the smartphone business through 2026 and 2027? Liren Chen: Hey, Arjun. As I said in my prepared remarks, we have so far licensed eight of the top 10 smartphone vendors, with ARR about $492 million and about 85% of the market under license. As you pointed out, we are very close to our $500 million ARR target, and we do expect to license the remaining unlicensed customers. Frankly, once we license them, we will double-check where we are. It is also important to note that not only are we very close to the ARR target, but the top three customers we have in the smartphone space—frankly Apple, Samsung, and Xiaomi—are all licensed to the end of the decade. So we really have multi-year runway with those major customers under contract. We feel very strong about that program, and we will provide priority updates as we add new customers. Operator: Thank you. Again, if anyone would like to ask a question, simply press star one on your telephone keypad. That will be star one on your telephone keypad to ask a question. Next question comes from the line of Anja Soderstrom from Sidoti. Your line is now open. You may now ask your question. Anja Soderstrom: Hi, and thank you for taking my question. I have some modeling questions. In terms of the licensing expense, it went up quite a bit in the first quarter. How should we think about that? Rich Brezski: Yes, the licensing expense did go up quite a bit in the first quarter. There was a significant amount of catch-up revenue on the revenue line related to our new consumer electronics agreement with LG, and with that comes some corresponding revenue share tied to that catch-up revenue. So that was the primary driver. If we are looking year-over-year, there was also some increase in our enforcement costs. Anja Soderstrom: Thank you. And then as you start to expand your licensing portfolio, how should we think about the fixed-fee portion of your revenue? Rich Brezski: Certainly in smartphone, and also in consumer electronics, the largest customers tend to prefer fixed-fee agreements. That has been our experience. Going forward, as we look to grow in video services, we are not sure exactly what form those contracts will take, but we are going to make sure that we get the right value through whatever form. Anja Soderstrom: Okay. Thank you. That was all for me. Operator: Thank you. Again, if anyone would like to ask a question, please press star one. Next question comes from the line of Scott Wallace Searle from ROTH Capital. Your line is now open. Scott Wallace Searle: Hey, good morning. Thanks for taking the questions. Maybe just quickly on the renewals front, I think in the K it was about $31 million of expiring contracts at the end of 2025. I am wondering where we are through the first quarter—there were a number of different deals. How much of that has been recovered at this point? I am sure you are in negotiations with all of them. And second, to follow up on the earlier comment related to smartphones, most of your deals are fixed fees, but it seems like some of them have royalty-based minimums. I am wondering, given the headwinds that you are seeing from a macro standpoint in the marketplace really affecting the lower end of the marketplace, how much exposure do you have on that front to unit volume softening in 2026 versus the fixed-fee deals, which I think you have as part of these three larger customers that were constituting the majority of the volume? Rich Brezski: Yes. So, Scott, I will take the first part of your question, and then maybe Liren will address the second. On the expirations for the end of 2025, we have renewed roughly two-thirds, or maybe a little more than two-thirds, of what has expired so far. And again, Liren mentioned a key part of that was our renewal of Xiaomi, the third-largest smartphone customer in the world. Liren Chen: Hey, Scott. Regarding your second part of the question, as you are aware, historically our largest customers tend to prefer fixed-fee agreements. I think our disclosure for the prior quarter was that 94% of revenue came from fixed-fee agreements. It is also worth noting, in Rich's prepared remarks and also in our 10-Q filing, we mentioned a hybrid agreement that gives us guaranteed payment and upside if shipments exceed a certain threshold. While we cannot identify which contract it was due to confidentiality, this is a way for us to deal with certain amounts of market uncertainty as well as the difficulty of projecting volume over a long period of time. We feel that is fair to both parties and allows us to capture upside when the market rebounds over time. Scott Wallace Searle: Thank you. And if I could, Liren, maybe just to follow up, in terms of some other markets that you are thinking about, at Mobile World Congress you continued to feature a lot of different technologies from haptics and sensing as it relates to six g as well as AI. Any high-level thoughts you have in terms of timeline and monetization opportunities within some of those markets? Thanks. Liren Chen: So six g, as I mentioned here—and this is shared by some of our peer companies in the industry—we expect six g to be finalized and standardized by 2029, with smaller deployments also in 2029. We do see wide adoption of six g in 2030, and frankly that adoption is projected to be pretty fast. As I said in my prepared remarks, we feel we are leading six g standard development. We identified a few things in the Mobile World Congress demonstrations, including native AI integration and sensing as well as communications in those demonstrations. Regarding other collaboration, I highlighted a couple of things in my prepared remarks. We are working quite a bit in haptics research, and we also did a joint excellence-in-research initiative with a leading gaming company. What we are trying to do with Razer is not only to enable Razer haptic devices for Razer devices, but to build an end-to-end gaming as well as entertainment experience, including streaming video. We are really excited about this opportunity. We also feel we are one of the very few companies who can combine connectivity, AI, and video experience and be able to introduce them into the standards process. It is also a major competitive advantage we have. Some of the use cases, honestly speaking, will take time to play out. Operator: Thank you. That will conclude our question and answer session, and I will now turn the call back over to Liren Chen. Liren Chen: I was appointed to the CEO role for InterDigital, Inc. almost exactly five years ago. Since then, we have strengthened InterDigital, Inc.'s foundation, driven growth across different businesses, and built an even stronger pipeline of innovation for future growth. I would like to take the opportunity to thank our employees for their continued dedication and all their contributions to what has been a period of historic success for the company, and for positioning the company to deliver even more shareholder value going forward. Thank you. Operator: Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning. And welcome to Blue Owl Capital Inc.'s First Quarter 2026 Earnings Call. During the presentation, your lines will remain on listen only. After the presentation, there will be a question and answer session. To ask a question, please press star 1 on your telephone keypad. I would like to advise all parties that this conference call is being recorded. I will now turn the call over to Ann Dai. Ann Dai: Thanks, operator, and good morning to everyone. Joining me today are Marc S. Lipschultz, our co-chief executive officer, and Alan Jay Kirshenbaum, our chief financial officer. I would like to remind our listeners that remarks made during the call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in Blue Owl Capital Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the shareholder section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any Blue Owl Capital Inc. fund. This morning, we issued our financial results for the 2026 reporting period, including fee related earnings, or FRE, of $0.25 per share, and distributable earnings, or DE, of $0.19 per share. We declared a dividend of $0.23 per share for the first quarter payable on May 27, 2026 to holders of record as of May 13, 2026. During the call today, we will be referring to the earnings presentation, which we posted to our website this morning, so please have that on hand to follow along. With that, I would like to turn the call over to Marc. Marc S. Lipschultz: Great. Thank you so much, Ann. As we highlighted this morning in our results for 2026, we operate three differentiated platforms at scale, each of which has contributed to Blue Owl Capital Inc.'s expansion. Revenues increased by 13%, fee related earnings by 14%, and distributable earnings by 11% compared to 2025 against a backdrop of geopolitical uncertainty, interest rate volatility, and increased attention to private credit. Our financial results reflect stability, driven by our durable capital base, and growth driven by fundraising and ongoing capital deployment. We raised $57 billion of capital over the last twelve months, our second highest capital raise since inception, and $11 billion in the first quarter, which represents approximately 14% annualized on our AUM at the end of 2025. These fundraising results reflect investor interest across client channels and across our credit, real assets, and GP strategic capital platforms. In recent months, we spent time with clients and other stakeholders addressing the questions that have arisen around private credit. Our approach has been straightforward: answer those questions with facts across the business. Fundamental performance remains strong, portfolios remain strong, and the portfolios continue to behave in line with the discipline with which they were built. Compared to the last quarter, there is certainly more uncertainty in the macro and geopolitical landscape, and investors across all asset classes are faced with more questions than answers about the near-term environment. As we have observed in the past, times of heightened volatility and uncertainty tend to favor those with patient capital and longer duration, and market share has moved towards private players during those periods in the past. While we continue to see a healthy balance between the public and private markets, momentum has shifted in our direction in recent months, offering attractive investment opportunities that we are selectively leaning into. As it relates to fundraising, we continue to see good interest from a broad range of investors across an increasingly diverse set of strategies, resulting in $11 billion raised across equity and debt platform-wide during the first quarter. Institutional capital represented two-thirds of total equity raised for the first quarter, or $6.1 billion. These inflows came from approximately 80 institutional investors, with 47% of those commitments coming into our credit platform, 40% in real assets, and 13% in GP strategic capital. We received commitments from 33 new institutional clients during the quarter, and 14 existing Blue Owl Capital Inc. investors committed to new strategies, further deepening these relationships. We took in capital from institutional investors across every major market, with an increasing amount coming from non-U.S. investors over the past few years. In our private wealth channel, we raised approximately $3 billion of equity in the first quarter, primarily across net lease, direct lending, alternative credit, and digital infrastructure, highlighting that individual investors continue to allocate to alternatives. In particular, demand for real asset strategies has been solid, with over $7 billion raised in wealth for real assets over the last twelve months, a 2.5 times increase from the prior twelve-month period. Taken together, our fundraising results in the first quarter highlight three major takeaways. First, institutional and individual investors continue to allocate to products and strategies across the Blue Owl Capital Inc. platform. We think this speaks to our ongoing education efforts with investors through the years, and the differentiated returns we have generated as a result of rigorous underwriting, deliberate and thoughtful product construction, scale benefits, and ultimately long-dated strong performance. Second, the evolution and diversification of Blue Owl Capital Inc.'s platform has been and will continue to be an important driver of fundraising and earnings. As you can see on slide five in our earnings deck, today, direct lending represents only 37% of Blue Owl Capital Inc.'s AUM. To put this in context, real assets is now 27% of AUM, and GP strategic capital is 22%. Nearly three-quarters of equity capital we have raised over the last twelve months has been outside of direct lending. Alternative credit and net lease have grown their AUM by roughly 40% year-over-year, reflecting strong interest in these asset classes. Our digital infrastructure strategy, which is approximately 6% of AUM today, has significant runway ahead as we face unprecedented demand for data center capacity and continue to work closely with some of the largest, most innovative, and best-capitalized companies in the world. In fact, just a couple of months ago, Amazon announced a $12 billion data center campus with investment from Blue Owl Capital Inc.'s digital infrastructure funds and development by Stack Infrastructure, our scaled designer, developer, and operator of sustainable digital infrastructure. This marks the fourth data center project above $10 billion announced in less than eighteen months for which Blue Owl Capital Inc. will play a critical role. We held the final close of the first vintage of our GP-led secondary strategy, BOSE, during the quarter, above target at approximately $3 billion. We think this is a great outcome for a first-time fund, and it makes us a market leader in dedicated capital raised for GP-led secondaries. And as it relates to fundraising channels, institutional investors drove 67% of total equity capital raised in the first quarter, and in private wealth, nearly 70% of flows came from real assets, GP strategic capital, alternative credit, and GP-led secondaries during the first quarter. These strategies themselves constituted about 60% of private wealth flows over the last twelve months. These figures highlight an increasingly diversified set of high-quality in-demand strategies that offer investors significant income and downside protection. Finally, it is worth keeping the recent attention on our nontraded BDC flows in perspective. While the level of debate around private credit has resulted in elevated industry-wide redemption requests, the actual impact to Blue Owl Capital Inc.'s revenues and earnings for the first quarter was quite modest. During the quarter, net outflows of roughly $170 million from OCIC and OTIC were less than six basis points of our beginning-of-period AUM. As a reminder, these two funds collectively comprise less than 17% of our total AUM. For OCIC, redemption requests were concentrated, with 1% of investors representing a majority of tenders, and approximately 90% of the investor base elected not to tender at all. Generally, requests have been more investor-led than adviser-led, highlighting continued strong support from our partners in what we believe has been a headline-driven, not fundamental-driven, redemption environment. Notably, gross repurchases for our net lease nontraded REIT, Orent, were less than $134 million compared to inflows of $1.1 billion, resulting in net inflows of approximately $1 billion for the quarter compared to about $8 billion of fee-paying AUM at the end of 2025. Moving on to performance, which remains resilient across credit, real assets, and GP strategic capital. Our strategies have delivered attractive absolute returns and, on a relative basis, have generally outperformed their public indices since inception through a wide range of economic and market environments. To give a few examples, our direct lending strategy generated gross returns of 8.5% over the last twelve months and, more specifically, our largest nontraded BDC, OCIC, has delivered an attractive 9.1% annualized return over approximately five years since inception, demonstrating durability across a range of market environments. Over this period, Class I shares of OCIC have outperformed leveraged loans by more than 300 basis points, high-yield bonds by approximately 500 basis points, and traditional fixed income by approximately 900 basis points. In alternative credit, gross returns of 11% over the last twelve months have compared favorably to leveraged loans as well, outperforming by more than 600 basis points. Our net lease strategy has returned 14.7% over the last twelve months, outperforming the FTSE REIT index by over 1,100 basis points, and 1034% across funds three, four, and five. These funds are top quartile of DPI, and we were honored recently to be named the top large buyout firm in 2025 by HEC Paris Dow Jones in a category of nearly 700 firms, which we think recognizes our outstanding performance across these key metrics. I mentioned earlier that we were seeing the market move our way as a result of volatility, and GP stakes is a good example of this. Not only is fund performance strong, but we have substantial dry powder, and the pipeline continues to grow for this business. To bring this back to where I started: performance remains the clearest measure over time. What matters most in periods like this is whether the portfolios are behaving as expected, whether the underwriting is holding up, and whether the structural protections in the business are doing the work they are designed to do. On those measures, the quarter reinforced the stability and durability of the business, supported by continued growth and strong underlying fundamentals. We plan to continue communicating with our stakeholders transparently and candidly, and look forward to speaking with all of you in the weeks and months to come. With that, let me turn it to Alan to discuss our financial results. Alan Jay Kirshenbaum: Thank you, Marc, and good morning, everyone. Today, we reported another quarter of solid earnings growth and broad fundraising across the platform. As Marc noted, during the first quarter, we raised $11 billion of capital across a diverse set of products and strategies. As you can see on slide 14, while the first quarter is typically a seasonally lighter quarter for fundraising, we continue to see fundraising across a broader and more diversified platform, driven by ongoing diversification across products, strategies, and investor base. Compared to the first quarter of last year, equity capital raised grew by 35%. Staying on the theme of 1Q 2026 results versus a year-ago quarter, management fees are up 13%. You can see on slide 10 that we broke out management fee offsets this quarter, which we think helps investors get a better sense of the core trends across our business. FRE grew 14% and DE grew 11%. We modestly increased our FRE margin, expanding to 58.4% for the quarter versus our FRE margin for 2025 of 58.3%. AUM not yet paying fees increased to $30 billion, representing approximately $350 million of expected annual management fees once deployed. This is equivalent to approximately 14% embedded growth off of our 2025 management fees. Turning to our platforms, in credit, the $4 billion of equity capital we raised during the first quarter included about $1 billion raised in our nontraded BDCs, and over half a billion dollars raised for each of GP-led secondaries, alternative credit, and liquid and IG credit. During the quarter, we held the final closes for both our GP-led secondary fund, BOSE, and our alternative credit opportunities fund, ASOP 9, around $3 billion each, with both closing above their targets—strong outcomes in the current environment. In direct lending, last twelve-month growth and net originations were $39.4 billion and $8.2 billion, respectively. Repayments in the portfolio were $6.4 billion for the first quarter and over $27 billion in 2025, highlighting significant liquidity in our direct lending funds just from repayment activity alone. As Marc mentioned earlier, the market conditions that create volatility in public markets also tend to result in spread widening and a decline in available capital across asset classes. We are beginning to see this in the origination pipeline, with spreads at least 50 basis points wider. More importantly, the portfolios continue to behave in line with the discipline with which they were built. We have included some additional slides and disclosure in the supplemental information section of our earnings presentation. Slides 24 and 25 show a series of KPIs for each of our BDCs as of December 31, which we will update through March 31 in our investor presentation. Slide 26 compares some of these KPIs with the leveraged loan and high-yield markets. And finally, slide 27 compares the performance of our BDCs to the leveraged loan and high-yield markets. Now to run through some of these here: in direct lending, underlying portfolio company growth has remained healthy, with no meaningful adverse movement in metrics such as our watch list, nonaccruals, amendment requests, or revolver draws. Our average annual loss rate remains a very low 12 basis points, an important factor in driving our continued outperformance to leveraged loan and high-yield indices. On average, our borrowers have delivered last twelve months revenue and EBITDA growth in the mid to high single digits. In our tech lending portfolio, we have continued to see higher growth compared to our overall diversified lending portfolio, with LTM revenue and EBITDA growth in the high single-digit to low double-digit range on average. LTVs have picked up modestly, incorporating moves in public comps and broad-based spread widening. As a result, LTVs are, on average, in the low forties across our platform and in the tech lending portfolio, continuing to illustrate meaningful equity cushion below our senior secured positions even in the face of compressed equity market multiples. And outside of direct lending, we deployed an additional $2.8 billion on a gross basis across our other credit strategies in the first quarter. And as Marc mentioned, the opportunity set is expanding across the risk-reward spectrum, and we are engaging where the risk-adjusted return is compelling. In real assets, net lease contributed about $3 billion of the $4 billion of equity capital raised in the first quarter, roughly split between the wealth and institutional channels. In total, we have reached $5.8 billion raised for the latest vintage of our net lease flagship and continue to expect to hit our hard cap of $7.5 billion by the end of this year. For Orent, our nontraded REIT, over $200 million of the $1.1 billion raised in the first quarter came from 1031 exchange structures, and Orent experienced its lowest percent repurchase quarter in seven quarters. Deployment in real assets continued to accelerate, increasing more than 100% year-over-year to approximately $20 billion over the last twelve months, supported by the completion of build-to-suit projects in net lease and new commitments in digital infrastructure. In net lease fund six, we have fully committed the fund and have reached two-thirds of capital called, with visibility to be virtually fully called by this summer, in line with our prior expectations and within three years of its final close. Our net lease pipeline remains around all-time highs with $50 billion of transaction volume under letter of intent or contract to close. In digital infrastructure, we are also seeing a substantial pipeline of over $100 billion and have now called over 75% of the capital in fund three, just a year after its final close in April 2025. We continue to be on track for an initial close of the next vintage of our flagship fund in the back half of this year. In our real assets platform, we now manage $85 billion of AUM, up 27% over the last year, and specifically for net lease, up 38% year-over-year. We are seeing these strategies resonate with investors looking for income-oriented returns backed by mission-critical assets and investment-grade counterparties across logistics, manufacturing, healthcare, and data centers. In GP strategic capital, we raised $900 million primarily in our flagship vehicle and co-invest during the first quarter, with the total raised in our sixth vintage approaching $10 billion inclusive of co-invest. In March, we made an investment into Atlas, a leading investment platform with a differentiated owner-operator model within the industrial, manufacturing, and distribution space, and we continue to see a robust pipeline for deployment in our latest flagship fund, which is now about 40% committed on our target. Finally, I would like to offer some high-level thoughts on a few items. First, we remain focused on disciplined expense management. We demonstrated FRE margin expansion in 1Q, and continue to see a path to achieve our goal of 58.5% FRE margins for 2026. We declared our quarterly dividend, which we had announced on our last earnings call. We remain committed to paying out our $0.92 dividend for 2026. Our business is broader and more diversified than it was even a few years ago, and we will continue to measure ourselves by performance, portfolio behavior, and the consistency of our results over time. Thank you very much for joining us this morning. Operator, can we please open the line for questions? Operator: We will now open the call for questions. Thank you. Star 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. We ask that you limit yourself to one question, and please rejoin the queue if needed. Thank you. Your first question comes from Craig Siegenthaler with Bank of America. Your line is open. Craig William Siegenthaler: Good morning, Marc, Alan. Hope everyone is doing well. My question is on the $6 billion of institutional fundraising in the quarter. Can you help us size the credit inflows and also which specific funds saw the inflows? I saw your broad comments on direct lending and strategic equity. I was hoping to get a little more detail on the fund, help us think about the fee rate dynamics, and also the sustainability too. Thank you, guys. Marc S. Lipschultz: Sure. Thanks, Craig. You as well. We continue to see flows come through up and down across our credit platform. We continue to see flows into direct lending products like ODL and SMAs. We certainly had about $1 billion come into our nontraded BDCs, OCIC and OTIC, so we saw inflows there. We continue to see, as you noted, ASOP 9; we did our final close. Alt credit continues to grow in line with what we talked about last quarter. Continued very strong growth from the alt credit business. Alan Jay Kirshenbaum: So it is really coming through up and down the board there. Marc S. Lipschultz: One add-on, which I will call more qualitative. We are noticing institutions are observing that direct lending and credit at large is actually working very, very well. In contrast, perhaps, to what the sentiment is in the air, I think institutions are actually seeing that this is an appealing time to look at credit. In fact, some who perhaps had paused credit might be very well coming back. Remember, spreads are starting to widen again, and these moments in time, as I commented a moment ago, when markets are like this, generally speaking, have tended to favor opportunities in private markets, and I think institutions know that. Ann Dai: Thank you, Craig. Thank you. Operator: Your next question comes from Bill Katz of TD Cowen. Your line is open. William Raymond Katz: Thank you very much. I appreciate the extra disclosure. Super helpful. Just coming back to wealth—excuse me—wonder if you could provide a little more color. You mentioned that a lot of the redemptions were driven by investors rather than financial advisers. Can you give us a sense of what you are hearing from the gatekeepers around a couple different dynamics here? Number one, how they are thinking about maybe the appetite for direct lending given spreads are widening out. Where are you seeing the flows going if they are in fact leaving direct lending, on-listing in your ecosystem and just moving to other vehicles like Orent, etc.? And then I think you mentioned that spreads are widening out a little bit. Can you give us a little bit of an update on maybe gross and net deployment into the new quarter? Thank you. Alan Jay Kirshenbaum: Sure, Bill, thank you for the question, and thank you for your feedback on the added disclosure. When we are on the road, we talk to folks. Folks have asked for added disclosure, and we want the opportunity to show the markets what we are seeing in direct lending, as Marc just commented on a minute ago. So there is a little in your questions I want to unpack. First, our discussions with financial advisers, generally speaking, they want the products to work as designed: 5% tenders per quarter, not more. The reason for the 5%, and the reason clients want us to keep it, is so that shareholders benefit from the asset class and the illiquidity premium that they are receiving. And as we pointed out, back to your comment, in our earnings presentation and the supplemental information, that has worked as designed. Our products have meaningfully outperformed the public loan markets. With these structures, the assets are matched duration with the structure, and better. What do I mean by that? For example, paydowns in OCIC were almost $3 billion this quarter, regular-way paydowns, versus the gross redemptions at $1 billion this quarter. So we are three times covered. That is before we talk about fundraising inflow or the DRIP, or liquidity at the BDC drawing on committed debt or cash on hand. Just level setting on all this: because of the anxiety around private credit—and we understand that—the industry is going through another period of softer inflows and higher redemptions. But periods of softness in certain asset classes are natural, and your question is exactly that. What is also natural is that sentiment tends to move to other asset classes, which as a diversified manager like ourselves, we are well positioned to benefit from. I talked last quarter—now shifting to those other capabilities. I talked last quarter in the Q&A session about some of the attributes for what it takes to be successful in the private wealth channels and how we go about expanding and continuing to grow in environments just like this. We have large, high-quality, and most importantly, well-performing products. We have a diversified suite of capabilities, as I just mentioned, which makes us really well suited to capture shifting sentiment like what we are seeing now. The track record of our non-direct lending capabilities supports exactly what I just said. Orent delivered an 11% return last year and is up 2.5% in 1Q. OwlCX, our interval fund—our alternative credit product—is 11% over its first year and up 2.2% in January. ODiT, which is newer—we just launched that at the end of last year—is up 2.3% in January. We have significant scale in these products. OwlCX is the smallest at about $2.5 billion of AUM. Not leaving off, of course, our nontraded BDCs; they continue to demonstrate strong performance. OCIC has delivered a 9.1% annualized return since inception, over about five years, which is meaningfully outperforming the leveraged loans market, high-yield bonds, and traditional fixed income. Strong returns, scale, and a diversified suite of products are what is needed to broaden to other channels and markets, new geographies. We have talked in the past about model portfolios, 401(k)s, the resources we have dedicated to private wealth globally, the new product origination capabilities, and deep focus on emerging trends and opportunities. We have scaled distribution across all channels. Our business is an industry leader in a market where there is massive opportunity and significant barriers to entry. This is not easy to build. Thank you, Bill. Operator: Your next question comes from Brennan Hawken with BMO Capital Markets. Your line is open. Brennan Hawken: Good morning. Thank you so much for taking the question. I had a couple questions on fee rates, both in credit and real estate. First in credit, excluding Part I—so excluding that noise—the underlying fee rate went up eight basis points quarter-over-quarter. I believe you had a solid fundraising in BOSE, and I think that is in that segment. Were there catch-ups in that, and maybe could you quantify that, or maybe some other onetime-type items or any noise? And then the real estate fee rate also looked better than expected. Was there any noise in that business as well? Thanks. Alan Jay Kirshenbaum: Of course. Thanks, Brennan. Appreciate the question. For credit, we did have some BOSE onetime catch-up fees. Overall, management fees were up a little, Part I fees were down a little. Management fees were driven by the BOSE onetime catch-ups, but also things like ASOP 9—I just mentioned that. The interval fund continues to grow, and so that is what I would point to for the fees in credit. There is always some mix shift when you look at fee rates quarter versus quarter. Nothing in particular that I can think of that I would flag for real assets. Operator: Your next question comes from Mike Brown of UBS. Your line is open. Michael Brown: Hey, good morning. Thanks for taking my question. Dry powder certainly represents an embedded growth opportunity here for you guys, and certainly positive that spreads are widening. How should we think about the timing and phasing of deployment here? And as you think about—just give us a quick update on April. How has activity been in the month of April? And then when we think about software and tech, are those areas that you will lean into—are opportunities attractive there—or is that an area that you will pull back from as you think about deployment? Thank you. Marc S. Lipschultz: Let me start with the latter, and then Alan can share a few comments on how to think about deployment of that $30 billion or so of dry powder. Let us talk about the ecosystem first. At the highest level, the overall M&A environment is fairly tepid right now. It is active, and therefore, our business is active. We are seeing a nice number of opportunities to invest in. Most importantly, we like what we are seeing, and we like them at higher spreads, and we like them in an environment like this to originate. These are the kinds of environments where we are perfectly happy to be in a position with a good amount of capital to deploy selectively and certainly happy to continue. This is, of course, the feature of the business: loans get paid back. They are getting paid back regularly. Alan just talked before about the many billions of dollars that have gotten paid back. When those come back in—and generally speaking, those are at lower spreads—and we put them back to work at higher spreads, that is a really good thing for our investors. That is the environment we are in in aggregate: a bit of that rotation out of some of the lower spread product into higher spread product. That is a good thing. In terms of activity, it is probably a little more about geopolitics overlaying the market than it is anything else. I would not claim to know when that air clears and when the M&A environment picks up steam as a result. Activity is perfectly healthy, and so we are going to continue to deploy at a steady pace in lending. Frankly, in other areas of the firm, we are seeing tremendous acceleration in deployment. You have seen this sort of pipeline in triple net lease and in data center digital infrastructure in particular; the pipelines are just so compelling, as are, fortunately, the risk-return. I think we all saw overnight the big tech announcements, and there were a couple consistent themes. There are some pretty good numbers, but most notably, just about every single company talked about increasing their CapEx even more. That just flows directly to our digital business and our triple net lease business. It does depend by area. In our GP stakes business, this is a good time for what is happening. We are seeing people return. Remember, there was a time when lots of people thought they were going to become public companies. There was a time when the M&A market was extremely active. That is not the current moment. That brings people back to, how do I continue to finance a great business? How do I continue to fund their growth? We should look at the credit market right now as the M&A market is fine, and we are going to be following, really, no particularly greater or lesser than the overall M&A market activity levels. I expect as the air clears in the world, we will see those accelerate again. There is certainly plenty of dry powder in the hands of private equity firms, as we all know. We are seeing a really robust pipeline, particularly in real assets, and accelerating engagement around GP stakes. I would say the path ahead looks pretty appealing as we look into the back half of the year. Alan, any comments on pacing? Alan Jay Kirshenbaum: Really well said. On pacing, I would think that what we saw in credit is a good environment, as Marc just said, to lean in selectively on the right opportunities. Markets are functioning well. On the other side, we were paid down on over $7 billion of loans across the credit platform, so hard to tell how that will play out any given quarter on a net basis. In real assets, we continue to see very strong deployment there—huge pipelines. You should expect us to continue to draw down on products like Net Lease 6. I mentioned that is fully committed. We think that will be fully drawn by this summer, so pacing is going well there. Marc commented on GP 6—we actually have six really interesting investments in the pipeline, five of which are new investments, one is an add-on—so we are really excited about that as well. Ann Dai: Thanks, Mike. Operator: Your next question comes from Glenn Schorr of Evercore ISI. Your line is open. Glenn Paul Schorr: Hi. Thanks a lot. And I do want to say thank you—slides 24 through 26 are great. Now, here is my question. If you looked at those statistics, you would not know anything is going on in the world—meaning those are all healthy stats of some portfolios. People are looking forward. The public markets crushed the equities in some of these underlying companies, wider spreads, and public BDCs trade at big discounts. I wonder if you could drill down a little bit more on the color of “nothing has changed on our watch list,” how you quantify that, and then most importantly, if you look at the tip of the spear, there is a software maturity wall coming in 2028 and 2029. In normal times, I think the current lender would be part of the process of refinancing, especially in private lending. Who is going to do that if the current lenders are in redemption mode, and what kind of conversations are you having? What is the equity investors’ behavior? What is that like right now? I thought that would be helpful insight to how we should all think about the go-forward. Thanks. Marc S. Lipschultz: Thank you very much, Glenn. On those additional credit stats, a couple of comments and then we will jump into the specifics. We are out talking to all our shareholders, who we work for. What we heard is: we want to understand. We are reading a lot of narrative; help us with the facts. We tend to try to be very data-driven in our business. This is additional disclosure that we hope helps people understand what we are seeing at a portfolio level, as you are observing, because headlines are pretty different from the underpinning facts in this context. We want to try to share as much as we can so people can see what we see, transparently, for the good and the bad. In this case, as you observe, there is a lot more to like than to dislike. With that said, let us look forward. We do not have a crystal ball, but a few things we can observe—and we will get to the software point specifically. More generally, we have seen no material negative developments in our portfolios in terms of amendments, in terms of PIK; in fact, PIK has been on the decline as a percentage of the portfolio, again contrary to what people might intuit. No material change in watch list, no material change in nonaccruals. Those are observable and important facts, and are probably a little different from what people tonally would suggest would be happening. That is a very healthy place to be, number one. Number two, things in our business have a lot of visibility, and things do not move fast—by which I mean that companies, as they are going from being very healthy—and our average portfolio company, remember, is still growing in the high single digits, revenue and EBITDA; these are growing businesses—to go on average from that and no material changes in those other gates, and they are gates, not just indicators. You do not go from “I am a healthy company” to “I have a tremendous problem.” We have huge visibility on that. That is why we have watch lists. That is why we have conversations about amendments and other topics. It is one of the great advantages of having tight documents and being in the private market. We have visibility on people going from one stage to the next. We can say with a lot of comfort that in the foreseeable future, portfolios are likely to remain very healthy. The further you go out, the more variables come in, which brings us to the software topic. None of us knows the future state of the world transformed by AI. The center of gravity of that conversation today is software, but it ripples across the whole economy. Here is what we can say: we are lenders. We are not equity owners. That is not a small distinction. We choose that position for a reason in our strategies. Our job is to be prepared, and that means doing great due diligence, good underwriting, good documentation, and importantly, being the senior capital where there is a lot of equity capital beneath us. In our tech portfolio, remember, some of the very largest companies are there. Average EBITDA, say, is $320 million. We all understand where the pressures can come from from AI, but you are starting at $320 million with companies that in many instances have equity checks from very sophisticated sponsors of billions and billions of dollars. We have maturities that are three to four years on average. I will come to your maturity wall question. Three to four years really says that today, by and large, the question at hand is really an equity question, not a debt question. Not a monolithic answer, but if you took a step back, you would probably logically conclude there is a set of companies that will be beneficiaries of AI and the agentification of the business. There will be a set of companies in the middle of that range that will probably be harmed in terms of profitability and growth, but that is far from mortal. That is all equity, both those categories. Then there will be some companies that get themselves in more substantial trouble. That is where our preparation and our work always comes to bear. This is not new. Credit is not intended, never expected, to be a flawless exercise. We have had defaults before. We will have defaults in the future. The key then becomes minimizing that number and then doing well in recoveries. We have gone back and studied all of the cases where we have had restructurings or material amendments driven by performance issues. The actual statistics are: our average principal recovery in those cases has been $0.80 on the dollar. When you incorporate that we actually had several coupons in on average in those instances as well, our actual recoveries in total on our problem situations have been 1.1x to 1.2x. Not suggesting that means you cannot have worse outcomes, and there could be some of those in the world of software—probably a good place to watch—but you are down to very much a subset of a subset of a subset, and our job will be to manage through that. As for the conversations: these have very, very large equity checks involved. That does not mean that some of them will not be handed over to the lenders. Some will. In all likelihood—and we experienced an analogous circumstance with COVID—good sponsors are going to look and say, let us take a $10 billion buyout. They may think it is worth $10–$12 billion. We may think it is worth $6 billion, and it has $3 billion of debt. In either case, you are now about someone’s several-billion-dollar equity check, and they are very likely to logically want to continue to sustain that. What does that mean, which brings us to your software wall question? Yes, there are a number of refinances that are going to have to take place. There will be different categories of software performance, which will be a lot clearer a few years from now than it is now, as to who fits in what category. When we get to that place, it is safe to say that, as today, we are working down our exposure to software given the level of uncertainty. We will all know a lot more in a few years. To cut to the chase, you are going to end up in a circumstance where you are going to need to see a lot of equity injected by private equity firms into these companies in order to continue forward, even when they have many billions of dollars of equity value that they understand they have. It is going to be working together with those sponsors. Most will work quite amicably. Some will be a little more challenging. Again, that is what we have done since the day we started. It happens to be in the software arena this time. It has been in other arenas before. Do not minimize it, but do not overstate it. We will come to a point where there will be a subset of companies that will be the more contentious ones, and then we will work our way through, and that is what leads to having some amount of loss rate, which is endemic to not just private credit. It is going to be in public credit. It is going to be in high-yield. It is going to be in equities. Last comment: we have all seen a lot of volatility, certainly a downward direction for sure in software equities. Year-over-year, the change in the software indices is actually quite modest, and yet here we are talking about things that are down in the 40% on average loan-to-value. There is a lot of spring and cushion, and our job is to be prepared and ready, and we are. Ann Dai: Thank you, Glenn. Operator: Your next question comes from Brian McKenna with Citizens. Your line is open. Brian J. Mckenna: First off, great to see the resiliency in results to start the year. Can you just remind us how much exposure you have in your direct lending funds to SpaceX? I know this is just one investment. I think it is important to understand how and where you invest and how these portfolios are structured. Can you just remind us how these gains ultimately help offset future credit losses across these portfolios? Alan Jay Kirshenbaum: Maybe I will take the last one first. If you go to slide 25, you can see net gains since inception for both OTF and OTIC, whereas you would normally expect some sort of modest annualized net loss rate since inception. Investments like that certainly contribute to what you see as an outlier—a net gain since inception—on our returns. Marc S. Lipschultz: Specifically at SpaceX, just as an example, we made about 10x our money on that investment. We have sold about half of it at a $1.25 trillion valuation, still holding about half of it. The reason I highlight that is not because, in the context of our funds, that is going to change the fundamental flight path, but as Alan said, those are the ways we, even when we do have—and we will have—some credit losses, can offset some of those losses. The other thing I would note is about our ecosystem. The reason we have that position is because we were one of the very earliest lenders to SpaceX. We made a loan to the company and had the privilege of getting to know them very well and then participating in ongoing conversations about other financing opportunities and ultimately, in this case, an equity investment. We have that elsewhere in our ecosystem. Part of being a one-stop shop and delivering capital solutions gives us a lot of ways to win on behalf of our LPs, and of course, when we win on behalf of our LPs, we win on behalf of our shareholders. Alan Jay Kirshenbaum: And create these very long-term partnerships with our borrowers and the sponsors. Brian J. Mckenna: Very helpful. Thank you. Operator: Your next question comes from Steven Chubak with Wolfe Research. Your line is open. Steven Joseph Chubak: Hi. Good morning, Marc and Alan, and thanks so much for taking my question. I wanted to ask on the FRE margin outlook. You delivered strong expansion in the first quarter, encouraging that you reaffirmed the 58% target. Amid the slowdown in retail fundraising, it would be helpful if you could frame some of the assumptions underpinning the FRE margin guidance and the levers that you could pull to hit the target if gross BDC flows remain subdued and redemptions stay elevated over the next couple of quarters. Alan Jay Kirshenbaum: Sure. Of course. Happy to do that, Steven. We have talked a little bit about this. We are very focused as a management team on showing progress on the FRE margin line. I noted in our prepared remarks, we remain very focused on disciplined expense management, and we continue to see that path to achieve the goal of 58.5% FRE margins for 2026. We certainly have comp and non-comp, right—G&A—and we have levers that we can pull across the board to make sure that, knowing we expect to continue to be in a softer environment in wealth, you saw strong institutional results. In an environment like this, you certainly saw good results out of our wealth products away from the nontraded BDCs. Even in our nontraded BDCs, you saw about $1 billion of inflows. Assuming that the environment remains soft for, let us say, the remainder of this year or the next number of quarters, we expect to continue to maintain that 58.5% FRE margin. Steven Joseph Chubak: Great color. Thanks for taking my question. Alan Jay Kirshenbaum: Of course. Thank you, Steven. Operator: Your next question comes from Patrick Davitt with Autonomous Research. Your line is open. Patrick Davitt: Hey. Good morning, everyone. Alan Jay Kirshenbaum: Hi, Patrick. Patrick Davitt: Kind of in the vein of Steven's question, last quarter you said you thought you could do low double-digit FRE growth this year. I would be curious to hear your thoughts on how that might have shifted given the now much lower flow outlook for the retail credit products. Thank you. Alan Jay Kirshenbaum: Of course, and it is a good question. We have talked about the challenging environment for the industry. We have talked about assuming this environment continues—for the industry and for us as well—there could be a wider range of outcomes for revenues. This ties right back to, keeping that in mind, remaining focused on disciplined expense management. When we look at something like the Visible Alpha consensus numbers for us, we think we can beat those numbers for 2026. Operator: Your next question comes from Wilma Burdis with Raymond James. Your line is open. Wilma Burdis: Hey. Good morning. You gave some good color on software earlier, but if you could give us a bit of a preview of what the software LTVs would look like today—sort of an update of those 2024 to 2026 slides. I know you touched on it. Public comps are down a little bit. You still expect the portfolio to remain healthy, but we would think the LTVs would come up a little bit. Alan Jay Kirshenbaum: Of course. Happy to. I will kick that one off, Wilma. What we have seen in the last few quarters leading up to this quarter is LTVs in the low forties for diversified lending and low thirties for software lending. What we saw this quarter is LTVs coming up across the portfolio into the low forties. We saw a move in software LTVs—obviously a lot happening with public marks over the last three months—and so LTVs came from low thirties to low forties, matching the diversified side, which still gives us a significant amount of cushion—about 60%—to the equity. Marc S. Lipschultz: A couple of additional observations on that. We do not mark our own credit books; we get the marks from a third party. When we take those marks and apply them, and then we look at LTV based on current facts and the current market environment—Alan just said this, but it is important to understand that indeed there has been deterioration in the value of software companies. We are a lender. That is reflected. Yes, we have come from low thirties to low forties by virtue of that deterioration. That is a tremendous amount of remaining cushion. Again, that is about preparation. That is about being in places with lots of underlying equity in the system. I would dare say that really speaks to the strength and durability of the underwriting and positioning. We are seeing—where we all acknowledge the challenges of software—and with those challenges understood and quantified as best they can be today, we have a lot of cushion in the system to continue to get strong returns and strong recoveries, and you continue to see strong loan repayments. Alan Jay Kirshenbaum: Thank you, Wilma. Thank you. Operator: Your next question comes from Kristen Love with Piper Sandler. Your line is open. Kristen Love: Thank you. Good morning. Appreciate you taking my questions. Can you discuss the fundraising outlook for 2026, maybe parse that between institutional and retail? Fundraising trends have remained solid looking at that top-down in recent quarters, and Alan, you did mention the first quarter seasonality, which I do appreciate. But looking at slide four, you did see softer private wealth year-on-year, which is not a surprise. How do you view the outlook differences between key investor channels and products as planned for the rest of the year, and then what that cadence could look like given seasonality in fundraising? Alan Jay Kirshenbaum: Of course, Kristen. Thank you for the question. We have talked about near-term softness in particular in the nontraded BDCs in wealth. I also mentioned earlier about having these other non-direct lending capabilities with very strong returns on a relative and absolute basis. We are very encouraged looking out over the horizon to see what we can continue to do with products like Orent. It has been the number one fundraiser in the market, the number one returns; it has been a very strong performer. The interval fund ODiT. Shifting to more institutionally—but not solely institutionally—we have more products and more strategies that cover more geographies than we ever have. We continue to see a lot of traction and success across a number of these products and strategies. To reference the two recently closed funds, GP-led secondary strategy, BOSE—we talked about that—closed at approximately $3 billion, and for a first-time fund, that is a great accomplishment. In alt credit, ASOP 9 also closed at approximately $3 billion. In both cases, we exceeded our fundraising goals. We have three real assets first-time funds in the market. Net Lease Europe, sitting around about $1.25 billion raised to date—original goal of $1–$1.5 billion—so we have already hit that goal and think there is a little more upside here. Products like real estate credit and data center credit—the goal has been to raise about $1 billion plus between the two of them in total—and we think we can exceed that goal this year. Focusing on our bigger flagship funds, wrapping up Net Lease 7—we are sitting at about $5.8 billion today; we mentioned in our prepared remarks, we think we will hit that hard cap of $7.5 billion by the end of this year. We are wrapping up GP Stakes 6—we are at about $9 billion in the fund, $10 billion with co-invest. We are going to close out fundraising here this year. Launching BODI 4—we have talked about that as well—our next digital infrastructure fund, setting up for our first close there in the back half of this year. This is a subset of the products and strategies that I am talking about. As a reminder, deploying our AUM not yet earning fees—that is $350 million of incremental annualized management fees that we would expect over the next twelve to eighteen, probably eighteen to twenty-four, months. Overall, we are continuing to see strong interest. We will see how the rest of the year plays out, but we are cautiously optimistic with many of these products and strategies. Taking a step back to close out, a number of these new products or strategies could be, in three, four, or five years, part of our series of big flagship funds for Blue Owl Capital Inc. We are really focused on how we start to generate more of these big flagships a number of years down the road, and we have a number out there that we think could absolutely fit that bill. Marc S. Lipschultz: Just adding briefly onto that, we have strategies that are built for all weather. They are built to be durable, predictable, generate current income, and provide good downside protection. The corollary to an uncertain environment is that really serves a strong purpose in people’s portfolios. I think we are seeing that appetite, particularly in the real assets arena, where we are really serving a very powerful need. For both institutions and individuals alike, the idea of how you participate in, I think it is now $700 billion of CapEx planned by the hyperscalers—how do you do that in a fashion that is also about predictability and stability? ODiT, our digital infrastructure product, is exactly the way people can access that opportunity set and work with companies like Amazon. We just announced a couple of weeks ago another Amazon project, a $12 billion project that we are doing. That is our fourth greater-than-$10 billion project in the last eighteen months, and these are under long-term contract to some of the very best credits in the world. It is a great opportunity and time, and both institutions and individuals alike are seeing that, and we have created pathways for them to participate. Orent has been a tremendously successful product, and continues to thrive. Our triple net lease business continues to turn in really strong returns. ORET, in fact, we actually just raised the dividend yield last quarter. There are a lot of ways to participate across our now ever more diverse platform, and we are seeing the benefits of that. Kristen Love: Great. Thank you, Marc, Alan. I appreciate all the color there across the platform. Alan Jay Kirshenbaum: Thank you. Operator: Your next question comes from Ken Worthington with JPMorgan. Your line is open. Kenneth Worthington: Hi. Good morning, and thanks for squeezing me in at the end here. What is the outlook for direct lending fee-paying AUM as we look out to the end of the year? Is it more likely to be higher, lower, or flat from where we are today given what you see as the deployment opportunities and your dialogue with investors? Alan Jay Kirshenbaum: It is a good question, Ken. Thank you for asking. I will answer two questions. Fee-paying AUM growth—as you saw, meaningful institutional dollars came through in 1Q—that typically will go into AUM not yet earning fees, and then as we deploy that capital over time, it shifts over to fee-paying AUM. I would expect, as we continue to see the successes we are seeing across our products and strategies, including credit, to continue to see fee-paying AUM grow as we go through the year—in particular for credit, but across Blue Owl Capital Inc. Kenneth Worthington: And any comment on direct lending specifically? Alan Jay Kirshenbaum: I would have the same comment for direct lending. Sorry, I was focused on direct lending; I was using the word credit. Everything I just said would echo for direct lending specifically. Kenneth Worthington: Okay. Great. Thank you very much. Ann Dai: Of course. Thanks, Ken. Operator: Your next question comes from Benjamin Budish with Barclays. Your line is open. Benjamin Elliot Budish: Hi, good morning, and thank you for taking the question. Maybe another one for Alan. If you can comment a little bit on how you are thinking about compensation—something investors tend to focus on a lot. I am curious if you have any thoughts that you could share around the trajectory of stock-based comp, how you are thinking about cash versus equity for employees, and how we should think about that from a modeling perspective. Thank you. Alan Jay Kirshenbaum: Sure. Of course, Ben, I appreciate the question. We gave guidance on this last quarter. The numbers will move around a little bit in any given quarter, but we are in line with our guidance for the stock-based comp “other” line. That is $365 million—my guidance from last quarter—which is about upper-teens growth. Keep in mind, as I mentioned last quarter as well, the business combination line also winds down to zero by the end of this year. Overall, we saw an increase this quarter in stock-based comp, but our guidance continues to be in line with what we are expecting for the rest of this year. On the acquisition-related, you are going to see that bump around in any given quarter. We use a combination, as we have talked about, of cash and stock for compensation. At the end of the day, from an overall expense perspective, of course, we point back to the FRE margin line—58.5%. But specifically for stock-based comp, we are very in line with our guidance of the $365 million last quarter. Benjamin Elliot Budish: Okay. Great. Thank you, Alan. Alan Jay Kirshenbaum: Of course. Thank you. Operator: Your next question comes from Alex Blostein with Goldman Sachs. Your line is open. Alexander Blostein: Hey, everybody. Good morning. Thank you for the question as well. Alan, I was hoping we could hit on the balance sheet—pretty meaningful increase in the revolver sequentially. I was hoping you can walk us through the sources there. More importantly, as you think about the dividend dynamic—obviously not fully covered here—but as you think about the forward, both on the dividend and how you guys are managing the debt level at the corporate level, that would be helpful. Alan Jay Kirshenbaum: Of course. Thanks, Alex. I appreciate the two questions, so let us hit both. On the balance sheet, 1Q always steps up, and by 4Q it comes back down. You can look back to last year—same path; the year before that—same path. We make our TRA payment; we pay bonuses in 1Q, and then you will see that come down each quarter as we get to April. On the dividend, we are committed to paying the dividend of $0.92 for 2026. Our business is growing—you have heard a lot about that today—and we are excited about that. We expect our payout ratio is coming down naturally. It is going to take a couple of steps, as we talked about in the past, to bring that payout ratio back to, call it, the 85% general target that we have over the course of the next few years. We are focused on the payout ratio. We are committed to the dividend. Our business is growing. We feel good about all of those aspects. Appreciate the question, Alex. Thank you. Operator: That is all the time we have for questions. I will turn the call to Marc Lipschultz for closing remarks. Alan Jay Kirshenbaum: I had one last quick follow-up, which was there was a question on catch-up fees in the credit business. It was about $7 million for our BOSE product. Ann Dai: Over to you, Marc. Thanks, Alan. Thank you all very much for the time. Marc S. Lipschultz: We appreciate the opportunity to have a detailed, fact-driven conversation. We are always available. We are going to keep sharing as much as we can share. We are quite optimistic overall about the forward path of the business and look forward to sharing that information with you as we go forward. Thanks so much. Have a great day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Welcome to the Invitation Homes Inc. First Quarter 2026 Earnings Conference Call. All participants are in listen-only mode at this time. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead. Scott McLaughlin: Thank you, operator, and good morning. Joining me today from Invitation Homes Inc. are Dallas Tanner, our President and Chief Executive Officer; Tim Lobner, our Chief Operating Officer; Jonathan S. Olsen, our Chief Financial Officer; and Scott Eisen, our Chief Investment Officer. Following our prepared remarks, we will open the line for questions from our covering sell-side analysts. During today's call, we may reference our first quarter 2026 earnings release and supplemental information. We issued this document yesterday afternoon after the market closed, and it is available on the Investor Relations section of our website at invh.com. Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources, and other nonhistorical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated. We describe some of these risks and uncertainties in our 2025 Annual Report on Form 10-K and other filings we make with the SEC from time to time. Except to the extent otherwise required by law, we do not update forward-looking statements and expressly disclaim any obligation to do so. We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures, in yesterday's earnings release. With that, I will now turn the call over to Dallas Tanner. Dallas Tanner: Thank you, Scott. Good morning, everyone, and thanks for joining us. I want to start by thanking our associates for another quarter of strong execution in a dynamic environment, and our residents for continuing to choose Invitation Homes Inc. We delivered first quarter results in line with our expectations, accelerated average occupancy to the mid-96% range, and entered April with improving leasing momentum. I will let Tim walk through the details, but this positions us really well in the early part of the peak leasing season. We are in the business of providing high-quality, professionally managed homes in neighborhoods where families want to live, and the value proposition for our residents has never been clearer. In our markets, leasing one of our homes saves residents on average almost $1 thousand per month compared to owning, according to data from John Burns. That is not a temporary dislocation. It reflects higher mortgage rates, increased home prices, and the structural cost of homeownership. For millions of American families, leasing a single-family home is simply the most financially responsible housing choice. We are proud to be part of that solution, and we take that responsibility seriously. In recent months, I have spent a lot of time working with other industry leaders in Washington, D.C., to advocate on behalf of our industry and our residents. I have met frequently with policymakers, the White House, Treasury, and Capitol Hill on both sides of the aisle. Everyone is focused on the same objective of making housing more affordable in this country, and I am encouraged by the constructive dialogue and that we are moving in the right direction for our industry and the residents we serve. This responsibility shows up in everything we do. We maintain and improve almost 110 thousand homes across 16 core markets. We create new housing supply through development and strategic partnerships. And we provide residents the flexibility, space, and access to school districts they want without the financial burdens of homeownership. For our residents, these are intentional housing choices, not stopgaps, and that is reflected in our strong retention rates and the length of time our residents choose to stay. Those resident behaviors underpin the resilience of our business. During periods of uncertainty, we tend to see residents stay longer, occupancy remain stable, and cash flows hold up really well. In the first quarter, our same store average resident tenure was over 40 months, with resident renewals remaining very high at over 78%. That resilience gives us flexibility in how we think about allocating capital. While the share price has not been where we want it to be, we have been deliberate about addressing that. During the quarter, we completed the full $500 million share repurchase authorization approved by our Board last October, including $400 million of buybacks since our February earnings call. Our Board has also just approved a new $500 million repurchase authorization, and we will continue to evaluate the best uses of capital as conditions evolve. We also continue to support and advance our third-party homebuilder partnerships. Our forward pipeline today stands at just over $200 million, reduced roughly two-thirds from where it was a year ago. We value these relationships because they serve a dual purpose: they generate attractive risk-adjusted returns for our shareholders and they contribute new housing supply to the markets where we operate. Meanwhile, the ResiBuilt acquisition we closed in January has moved quickly from integration to production, delivering over 300 homes to third-party buyers during the quarter. Our plan remains to continue using ResiBuilt primarily as a fee builder as we evaluate the right pace of building for ourselves. In addition, our construction lending business has grown to $279 million of commitments as of today, generating attractive returns. To date, we have funded just under $20 million against those lending commitments, and we expect that number to grow through 2026 as the development progresses. Together, ResiBuilt and construction lending represent a differentiated and capital-efficient way of bringing new housing supply to the markets. Looking ahead, we feel good about where we stand. Occupancy is climbing as we enter peak leasing season, new lease rent growth turned positive in April, and we have a clear view of where our capital can create the most value. The thesis is really straightforward: durable demand, disciplined operations, and capital allocation that rewards shareholders. We are executing on all three. At our November Investor Day, I laid out exactly what this management team is focused on—running the best-operated single-family rental company in the country—and I am confident we are moving in the right direction. With that, I will turn it over to Tim. Tim Lobner: Thanks, Dallas, and good morning, everyone. In my prepared remarks today, I will walk through our first quarter operating results, provide some context on the year-over-year comparisons, and then share our preliminary April leasing trends. But first, I want to thank our teams in the field for their continued dedication and our residents for choosing Invitation Homes Inc. Starting with the headline numbers, same store core revenue grew 1.6% year-over-year. Core operating expenses grew 5.7%, and same store NOI was down 0.3%. Regarding revenue, renewal rent growth was a healthy 3.7%, while new lease rent growth was negative 3%, resulting in a blended rent growth of 1.6%. New lease rent growth reflected elevated supply conditions that continued to weigh on pricing in a number of our markets during the quarter. The good news is that our West Coast and Midwest markets all held positive new lease rent growth, and as I will discuss in a moment, the picture improved considerably in April. Same store occupancy averaged 96.3% for the quarter. While that is a strong result relative to historic norms, it reflects a normalization from the 97.2% occupancy we achieved in 2025. That 90-basis-point year-over-year reduction created a comparable headwind to our same store revenue growth this quarter. We talked about this normalization during the last few quarters, and it has played out right where we expected and where we want to be as we head deeper into peak leasing season. Encouragingly, occupancy improved every month this year, moving from 96% at the start of the year to 97% by quarter end. Meanwhile, bad debt remained low and stable during the first quarter at 60 basis points, flat with a year ago, which speaks to the financial health of our resident base. That financial health shows up in other ways too. To date, over 160 thousand residents have joined our no-cost positive credit reporting program through Isuzu, with the majority improving their average credit score by nearly 50 points since enrolling. Turning now to first quarter same store expenses, the 5.7% year-over-year growth looks elevated relative to our full-year guidance, and the reason is straightforward. As you will recall, 2025 expenses were unusually low due to a combination of factors, including abnormally mild weather that suppressed R&M costs and exceptionally low turnover. These factors created a tough year-over-year comparison. We expect the year-over-year expense comparisons to normalize as we move through the year, and our full-year expense guidance of 3% to 4% remains intact. On the broader supply picture, third-party data tracking single-family for-lease listings across our key markets reflects continued moderation to date this year. While listings are still elevated year-over-year, the level has notably improved in recent months, which is consistent with what we are beginning to see in our own leasing activity. Which brings me to April, where the preliminary trends are encouraging. Average occupancy accelerated to 97.1%, up 80 basis points from first quarter. Renewal rent growth was in the low 3% range, and new lease rent growth returned to positive territory at just under 0.5%, or a 230-basis-point acceleration from March. Together, this brought April blended rent growth to 2.3%. In summary, we came into this year knowing the first quarter comparisons would be challenging, and our teams executed well through them. Occupancy is climbing, new lease rent growth has turned positive, and the majority of peak leasing season is in front of us. We feel good about where we stand. With that, I will turn it over to John. Jonathan S. Olsen: Thanks, Tim. Today, I will start with our earnings results, then cover capital allocation, the balance sheet, and guidance. For the first quarter, core FFO per share was generally flat year-over-year, and AFFO per share was down 2.6%, consistent with our expectations. As Tim noted, 2025 was an exceptionally strong quarter. Occupancy was at a post-pandemic high, expense growth was notably low, and recurring capital expenditures came in below trend. While our performance was solid, our per-share metrics this quarter reflect that difficult comparison, as anticipated. Additionally, I would note that the weighted average share count used in our per-share metrics for this quarter does not yet fully reflect the denominator impact of our robust share repurchase activity. Turning to capital allocation, as Dallas mentioned, we had an active quarter. We have achieved very strong traction with our disposition strategy. In Q1, we sold 483 wholly owned homes for $206 million, well ahead of our expectations. Sales prices and days on market continue to beat our underwriting, and we are achieving pro forma stabilized cap rates in the low 4s. This strong momentum on dispositions enabled us to lean in confidently on share repurchase. In Q1, we repurchased approximately 17 million shares for roughly $439 million. Combined with share repurchases completed in 2025, we have fully utilized the $500 million authorization our Board approved last October, retiring a total of over 19 million shares at an average price of $25.86. To put that in context, during the first quarter our average sale price was $427 thousand per home, and we bought back our stock at an implied price of $270 thousand per home. With the original $500 million share repurchase authorization now fully complete, our Board has approved a new $500 million repurchase authorization so that we may continue to have that tool in our toolkit. As always, we remain disciplined capital allocators, balancing liquidity and conservative balance sheet management with the opportunity to create value for our shareholders across the many levers available to us, including share repurchases. Moving now to our balance sheet, which remains in excellent shape. At quarter end, we had $1.3 billion in available liquidity through unrestricted cash and undrawn revolver capacity, while total indebtedness stood at approximately $8.9 billion, with no debt reaching final maturity before June 2027. Our net debt to adjusted EBITDA ratio was 5.6 times, well within our long-term target range of 5.5 to 6 times. That leverage profile, combined with 89.5% of our debt being fixed-rate or swapped to fixed-rate and approximately 90% of our wholly owned homes unencumbered, leaves us well positioned to navigate the current environment. Turning now to guidance, we are maintaining the full-year outlook we provided in February. As I mentioned earlier, disposition volume is tracking ahead of our initial expectations, which accelerated our stock buyback pace, and our insurance renewal came in favorable relative to our assumptions. We view these as encouraging early reads, and we expect to have more to say once the majority of peak leasing season is behind us. In closing, the balance sheet is strong, the business is operating as expected, and we have the financial flexibility to keep doing what we said we would do—return capital to shareholders at these prices while maintaining the operational discipline that has defined how we manage this company. Operator, we are ready to begin the question and answer session. Operator: We will now open the call for questions. To ask a question, please press star then 1 on your telephone keypad. To withdraw your question, please press star then 1 again. If you are using a speakerphone, please pick up your handset before pressing the keys. In the interest of time, we ask that participants limit themselves to one question and then requeue by pressing star then 1 to ask a follow-up question. One moment, while we poll for questions. The first question comes from the line of an Analyst with Bank of America. Your line is open. Analyst: Thank you. Good morning, and congrats on the nice start to the year. Just a question on the renewals—where you are sending them out for spring and summer, and what kind of strategy you are using there during this leasing season? Tim Lobner: Hi. I appreciate your question. We generally do not provide details on what we are going out at for renewals. We are seeing a strong market out there. We believe that May will look a lot like April, and if you think about our general renewal rate trends throughout the year, there is not a whole lot of seasonality. There is a little bit of it, but generally you see that mid-3% to mid-4% rate growth throughout the year. It is nice to see a good acceleration in our new lease rent growth, so we believe we are on track. We are liking the fundamentals that we are seeing out there right now. Operator: Next question comes from the line of Jamie Feldman with Wells Fargo. Jamie Feldman: Thank you. There is a pretty meaningful spread between your renewal rate growth and your new lease rate growth in some of the heavier construction markets, some of the Sunbelt markets. Can you talk about whether you think that narrows over time, or as we continue to see more supply, do you think that new lease growth will remain much more pressured than renewal? Tim Lobner: Thanks, Jamie. This is one that comes up from time to time. Look, spreads generally speaking tend to narrow as we work through our peak season. You see the renewal rates tend to stay flat, as I answered in the previous question, whereas the new lease growth generally trends upward from Q1 towards the end of Q2 and essentially closes the gap. There are some markets, to your point, where there is a little bit of outsized year-over-year growth pressure. There are a number of contributing factors. Build-to-rent is one of them, but if you look at the data provided by outside folks that track build-to-rent deliveries, we feel good about peak deliveries being in the past and that volume or inventory starting to come down. We have also seen over the last two years the mom-and-pop inventory has grown, but we are seeing that moderate really nicely as well. Each market is a little different, but we are starting to see some moderation in some of our larger markets. One thing on the supply side I will point out is that the year-over-year number at the start of the first quarter was large; we know it is up year-over-year and there are a lot of ways of tracking it. But we have seen that number moderate over the course of Q1, so that year-over-year number is actually much smaller than it was in January. We really like the fundamentals right now that we are seeing, and we hope to continue to see that absorption of product across the markets as peak season continues. Operator: Next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open. Austin Wurschmidt: Good morning. Maybe, Tim, going back to that last comment around inventory. You have seen occupancy improve pretty significantly in recent months, but last year that seasonal ramp seemed to peak a bit early. Based on leading indicators you are seeing and maybe what is assumed in guidance, do you expect things will drop off similarly, or was last year more of an anomaly? And given your comment about inventory improving a bit, does it feel a little bit better this year? Tim Lobner: Great question. We are cautiously optimistic as we head deeper into peak leasing season. No year is the same as the prior year. What gives us confidence is what we are seeing on the demand side. Demand in Q1 was generally quite healthy. Although it is down from peak pandemic-era demand, what we saw in our external funnel—what we saw in Google search, people asking about homes for rent—was up slightly year-over-year. So that demand for single-family residences is there. On our internal funnel, we are seeing a really stable top-of-funnel. Our gross lead volume was actually up year-over-year. Obviously, it is spread across a bigger denominator in terms of inventory, but it really shows health in the demand side. We are seeing a nice conversion on our leads to showing in our portfolio. I would also point to the net migration that we see towards the Sunbelt. We look at Oxford Economics data and continue to see nice numbers, although down from the peak pandemic numbers, certainly still strong in DFW, Phoenix, Charlotte, and Orlando. Those are all strong migratory patterns. We feel good about where we are. Typically you see growth in occupancy as you head deeper into peak season, then after the effective move-outs when peak season ends, you see occupancy go down a little bit toward the back of the year, and in December you see it pop back up as we head into the new year for the new cycle. Again, we are pretty happy with the fundamentals we are seeing—cautiously optimistic at this point. Operator: Next question comes from the line of Steve Sakwa with Evercore ISI. Your line is open. Steve Sakwa: Thanks. Good morning. Given the activity you have had on the disposition program, is that something you would consider ramping? What are the tax implications around that, and if you were to ramp that up, might that entail something like a special dividend as opposed to buybacks? The sales environment seems pretty good for you. Dallas Tanner: Hi, Steve. This dates back to last year as we thought about our asset management strategies and what we were going to do with the business as we continued to see an unsupportive share price. We have always been a good seller. I think up to this point in time, we have sold almost 20 thousand homes back into the marketplace in the history of our business. We know how to do it if the market is there—that is a really important point. As you look at what we sold in the quarter, I would bet close to 100% of those went to homeowners generally. There is also a mortgage market factor here that allows us to think about pricing. Our assets are primarily infill assets in highly desirable locations, so there is a bid there. As we have gone to market to sell these homes, Scott and the team are looking for ways to be good capital allocators at the end of the day. We recognize the spread that is there. We are going to continue to use it as a measured lever like we have in the past, albeit it is a far more attractive cycle when you are buying shares at the prices that we were buying them back at. But it is a balanced approach. We will look for opportunities to continue to recycle capital accretively. We do not want to necessarily signal one way or the other. We are going to continue to watch it through Q2 and then put that capital into whichever lever makes the most sense at the time—could be buybacks, could be other opportunities. I will hand it over to John to talk a little bit about tax. Jonathan S. Olsen: Steve, if I am understanding your question correctly, you are asking whether tax is a governor. Clearly, we have to adhere to the tax rules and the REIT rules, and that does impose a degree of limitation on what we can sell. But generally speaking, we have to distribute all our taxable income to stockholders, and the homes that we are selling, as a general rule, have a lower tax basis, and so we are triggering a decent tax gain recognition. I think the real governor is the fact that we renew about 80% of our leases, and so the pool of homes available for sale at any given point in time is a pretty small subset of what we own. The great news is, as Dallas mentioned, we have had a lot of experience selling homes into the end-user market. I think we are really quite good at that. To the extent that market conditions allow us to, we will continue to lean in. I think that is evidenced by the fact that we are ahead of where we expected to be from a disposition perspective, and that has allowed us to be as aggressive as we were with share repurchases. Next question. Operator: The next question comes from the line of John Pawlowski with Green Street. Your line is open. John Pawlowski: Thanks. A follow-up on the dispositions in recent months. We can see which markets you are selling out of, but within a given market, have the dispositions been tilted towards what you consider lower cap rate assets, or more tilted towards higher cap rate assets that might have higher CapEx and/or lower forward growth? Tim Lobner: When you look at where we have been disposing assets in the market, we have a list of homes that we have pre-identified for sale, and it is frankly a combination of factors. There are a lot of different things we look at. Some of the homes are in submarkets where we do not want to have a long-term presence. Some are high CapEx homes. When you look at the way we look at the disposition cap rates, it has been roughly in the low-4% range if you annualize the income in place on those homes. You can see that year-to-date it has been about, call it, 40%-ish in Florida and 25% in California. But it really depends on which homes become vacant. We already know ahead of time which homes we have identified for sale, but we are dependent upon when those homes become vacant. Generally speaking, we are selling the lower-quality homes—we are not selling the highest-quality homes in our portfolio. From an asset management and capital allocation standpoint, we have pre-identified those homes that are not long-term holds for us, in the bottom percentage of the portfolio, and we are going to continue to target those as they become vacant and as we see opportunities to sell. Operator: Next question comes from the line of Juan Sanabria with BMO. Your line is open. Analyst: Hey, this is Robin Handelin sitting in for Juan. I was curious about how market concessions trended on new leases in the first quarter and April, and how you expect concessions to trend for the remainder of the leasing season? Tim Lobner: Hi, Robin. Appreciate your question on concessions. As we shared at the Citi conference, we actually have no same store concessions in place today. We generally do not use concessions during peak season, and that is something we tend to use late in the year. It is a tool in the toolbox. I will add that we do offer concessions on our build-to-rent communities during lease-up, and that is a pretty standard tool that developers use, especially in light of the fact that you are moving people into a construction zone as you are building the product. It is pretty standard to offer a concession on those. But again, that is not on our same store portfolio, and we do not feel the need to use concessions right now. We are liking what we are seeing in terms of the fundamentals of this peak leasing season. Operator: Next question comes from the line of Brad Heffern with RBC Capital Markets. Your line is open. Brad Heffern: Thanks for taking my question. On guidance, I know you do not normally change it at first quarter earnings, but you also do not normally have this very large repurchase number, and that is obviously a known quantity at this point. Should we view this guidance as not incorporating the benefit from the repurchases, or is there some sort of offset that is also being incorporated? Jonathan S. Olsen: Thanks, Brad. We did anticipate leaning in and being aggressive on share repurchase when we put our budget together for the year. We did get through it a little bit faster than we anticipated, but relative to guidance, I would say that there is not a hugely material benefit from that. That factors into our thinking, as does the fact that there is still a lot of year ahead of us. The last couple of years there have been some patterns of behavior in the operating environment that have changed, and we want to be cognizant that it is still early in the year. We are really pleased with where we are. Big picture, we are right where we expected to be. We are ahead of where we expected to be on dispositions, but in terms of operating performance—revenue growth, expense growth, NOI growth—we are tracking very closely to our internal numbers. We are going to watch and wait and see. We feel good about where we are. As Tim said, we are cautiously optimistic, but we are not seeing anything that would cause us to revise at this point. Operator: Next question comes from the line of Michael Goldsmith with UBS. Your line is open. Analyst: Hi. Thanks. This is Amy. I am with Michael. I am curious—have you seen any change in demand for your third-party management platform or for development funding opportunities, given some of the uncertainty for SFRs within the Road to Housing Act? Dallas Tanner: Good question. Generally speaking, we get inquiries about opportunities to manage. Like we have said in the past, we are highly selective about when, how, and who in terms of how we want to operate, because we really just want to run our operating playbook. That said, there will be some noise that comes out of some of the legislative discussion that has been going on, and it certainly could create some opportunities. I think it is a bit too early to tell or try to handicap that opportunity set. I would just say that the team here, both with our own portfolio metrics and from what our customers see, is focused on really consistent operations at the end of the day, and I think that has lent itself to Scott and the group being able to pursue or look at some other opportunities. Operator: Next question comes from the line of an Analyst with Citi. Your line is open. Analyst: Hey, maybe I missed this in the prior answers, but now that your occupancy is at a very strong level above 97%, are you starting to get more aggressive on new leases, or given your experience with the last couple of years, are you trying to keep it protected going into the third quarter? Does the higher occupancy change your strategy on pricing? Tim Lobner: Great question. While occupancy—our April number—was 97.1%, that is something that we do not know exactly where it will go. We anticipate, like I mentioned earlier, that occupancy will trend upwards as we head through peak season into late Q2, then tend to come down following move-in/move-out season. We price based on what the market bears. We are constantly looking at supply and demand. We are cautiously optimistic that we will continue to show good numbers on the rent growth side, both on new and renewal, but it is a bit too early to predict that number at this point. Operator: Next question comes from the line of Richard Hightower with Barclays. Your line is open. Richard Hightower: Good morning. Thanks for taking the question. Last quarter you mentioned, directed to Dallas, your conversations with policymakers. You expressed some optimism, and since then, news flow has generally been better, not worse, for the single-family industry. Can you update us on the tone and tenor and maybe some substance from those conversations? Do people seem to get some of the problematic elements of the legislation as it has been publicized? Dallas Tanner: Happy to provide some color. It has been a very active quarter in terms of that work, and we have been on the front lines with some of our peers, spending a lot of time on the Hill. As I shared in my opening remarks, there are two or three things that have come out of this process thus far. First, I think policymakers and the media are much better educated as to what the industry does now versus some of the taboo that has been written about the industry for the last ten years. I view that as a net positive. I think the coverage has been fair. People are pointing out the fact that Invitation Homes Inc. and some of our peers are adding a lot of new supply and creating services that people want. Second, I have been impressed by the amount of collaborative conversation we have had on both sides of the aisle in Washington, D.C., and we have had really good conversations with the administration, Treasury, and elected officials who are trying to solve some of these housing supply issues. I truly believe it is done in earnest. People are trying to address the fact that we know we need more housing supply. The conversations are dynamic. People understand you want to create regulatory frameworks that provide clarity to capital. Over the last 90 days, that has been a little murky and created some noise, and I think everybody appreciates that we do not want to do things that stunt housing supply generally. It sounds like some of these provisions, in their current drafts, are being reviewed and thought through to see if there can be effective changes or revisions to land in a safer place for capital, for our residents, and for the opportunities to provide these services. Lastly, people who rent are voters and residents, and they matter. That message has resonated well on the Hill. We have 47 million households in this country that lease something, and there should be rights associated with those households as well. It is not a simple solution. We have tried to stay as collaborative as we can with everyone through this process. We want to be viewed as a productive partner in housing. While legislation is never perfect, the goal is that over time this lands in the right place so everyone—residents, capital, and most importantly the housing market—has clarity and can continue to evolve and create new supply. Operator: Next question comes from the line of Adam Kramer with Morgan Stanley. Your line is open. Adam Kramer: Thanks for the time, and Dallas, really appreciate the update on the legislation. Maybe piggybacking off that, as you think about the business—specifically with ResiBuilt—how are you thinking about the range of outcomes in terms of policy and what that means for the different parts of the business, both from an internal growth and then from an external growth and rent-to-build perspective? Dallas Tanner: A couple of things. There is a golf analogy—there is a lot of grass between here and the hole to know where this finally lands. We are glass-half-full guys, and we are always trying to think about ways that we can work with what we have. Even with the bill in its current form, I think Scott and I, and John as well, are comfortable that there are a lot of ways to still bring new housing supply to the market. It is not perfect, and we hope it gets fixed, but we think we can operate within the framework. As it relates to ResiBuilt—set the bill aside—our goal has been to get smarter and smarter as homebuilders in all of the strategic partnerships that we have and will continue to maintain, and at some point be able to control a little bit of our own destiny. That can come in a variety of shapes and sizes. Scott is looking at a lot of very interesting opportunities in real time. It still ties back to our earlier comments around how we allocate capital in this environment. Development opportunities may not be highest and best use right now all the time. There are certainly some things that are starting to look more and more palpable as we look for some of these opportunities—and then how you design these communities, the standards, whether they are townhomes, and how you make sure you operate within whatever potential framework is or is not there in the future. I will hand it over to Scott to talk about what we are seeing and our early learnings on the ResiBuilt transaction. Scott Eisen: Thanks, Dallas. It is now three months since we closed the acquisition of ResiBuilt. We are really pleased with the integration of their platform into Invitation Homes Inc. ResiBuilt is executing on their existing midstream customer contracts we took over as part of the acquisition. We continue to build a backlog of partners for future fee-build opportunities. Obviously, some projects have been put on hold until we have further clarity with the legislation in Washington, but we are evaluating new opportunities and taking our time. As we originally said when we made the acquisition, we look to grow the fee-build side of the business, we look to grow the side of the business that will build for our joint venture partners, and eventually for ourselves. Nothing has changed from that game plan. Operator: Next question comes from the line of an Analyst with Raymond James. Analyst: Thanks, everybody. My question has already been asked and answered. I appreciate that. Operator: Next question comes from the line of Jesse Lederman with Zelman & Associates. Your line is open. Jesse Lederman: Thanks for taking the question. Another one for Scott. It looks like the company pared back some of its forward purchase agreements during the quarter with 76 net cancellations. Can you provide some color on the thought process behind that? It seems like overall industry fundamentals are improving relative to where you were three months ago when you had about 200 net additions. Is it fair to assume the pullback was driven by incremental legislative uncertainty, or something else? Scott Eisen: Thanks, Jesse. We have been following the signals we have seen in the capital markets in terms of our capital allocation strategy. As a reminder, we disclosed in the quarter that our current forward backlog is $556 million, which is around [inaudible]. This is down from almost 2.7 thousand homes we had in the backlog at our peak in Q2 2024. These homes in the backlog are really the tail end of forward commitments that we had with homebuilders where we started taking deliveries in 2025, and we are getting final deliveries over the next few quarters. We have really dialed back our acquisitions and forward commitments, and we have dialed up our dispositions. We have recognized the signals we have received in terms of our cost of capital and how we are allocating our capital. A lot of this is driven by cost of capital and where we go from here. We are taking a cautious view of the market toward acquisitions at this point, and we will see where we go from here. Operator: Next question comes from the line of Jade Rahmani with KBW. Your line is open. Jason Sabshon: Hi. Thanks. This is Jason Sabshon on for Jade. In the higher-for-longer rate environment and with the regulatory uncertainty, have you seen any movement in pricing from sellers? Is that something that you would lean into, or would you more just wait and see on the regulation front? Dallas Tanner: We have actually seen overall supply in the resale market be pretty steady. We have not seen much movement in cap rates. You have certainly seen some opportunities on finished spec inventory where there might be some interesting scattered approaches, but with the murky outlook for the last 90 days, capital is being very cautious about one-off purchasing or anything like that. The end-user market is very mortgage-market driven, especially in suburbs or tertiary outliers. We see less of that with our infill portfolio, as we talked about in our disposition program earlier. We have not seen a whole lot that seems all that compelling. Operator: Next question comes from the line of John Pawlowski with Green Street. Your line is open. John Pawlowski: Thanks for taking the question on expenses. You mentioned insurance costs are trending favorably. Are there any other line items surprising positively or negatively as 2026 unfolds? Jonathan S. Olsen: Hey, John. Thanks for the question. I would say not yet. On insurance, when we introduced guidance, we were on the cusp of completing our renewal. At that time, our expectation was that the property renewal would be slightly favorable, but that it would be a materially harder renewal for general liability, workers’ comp, auto, etc. I would say that outlook was directionally correct, but ultimately we were able to do slightly better on those nonproperty lines of coverage. The difference between the original midpoint we articulated and the updated midpoint in last night’s release is a little less than $2 million—ultimately not a hugely material change. As I noted earlier, at this stage of the year things are tracking very closely to how we expected the early part of the year to unfold, but I would stress that it is still early, and we are going to continue to watch expenses like a hawk. Operator: And our last question comes from the line of Michael Goldsmith with UBS. Your line is open. Analyst: Hi, it is Amy. Thanks for the follow-up. With turnover ticking slightly higher over the last couple of quarters, are you seeing any changes in reason for move-out that could be driving this, or is it just normalization off of the very low COVID-era turnover levels? Dallas Tanner: We have been seeing for the last year about 16% to 17% of our move-outs be part of a home purchase opportunity. That has been very consistent and a little bit low for the last four quarters. We also see about 25% of our move-outs tied to some sort of a transition in life, like a move for a new job or schools, etc. Those numbers have been incredibly consistent for the last four quarters. Tim Lobner: No, I think you covered it. Operator: This completes our question and answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks. Dallas Tanner: We want to thank everyone for their support. Thanks for being on the call today. We look forward to seeing people at upcoming conferences. Thank you. Operator: Ladies and gentlemen, that concludes today’s call. Thank you for joining in. You may now disconnect.
Operator: Welcome to the Bristol-Myers Squibb First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chuck Triano, Senior Vice President and Head of Investor Relations. Go ahead. Charles Triano: Thank you, and good morning, everyone. We appreciate you joining our first quarter 2026 earnings call. With me this morning with prepared remarks are Chris Boerner, our Board Chair and Chief Executive Officer; and David Elkins, our Chief Financial Officer. Also participating in today's call is Adam Lenkowsky, our Chief Commercialization Officer; and Cristian Massacesi, our Chief Medical Officer and Head of Global Drug Development. Earlier this morning, we posted our quarterly slide presentation to bms.com that you can use to follow along with Chris and David's remarks. Before we get started, I'll remind everybody that during this call, we will make statements about the company's future plans and prospects that constitute forward-looking statements. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in the company's SEC filings. These forward-looking statements represent our estimates as of today and should not be relied upon as representing our estimates as of any future date, and we specifically disclaim any obligation to update forward-looking statements even if our estimates change. We'll also focus our comments on our non-GAAP financial measures, which are adjusted to exclude certain specified items. Reconciliation of certain non-GAAP financial measures to the most comparable GAAP measures are available at bms.com. Finally, unless otherwise stated, all comparisons are made from the same period in 2025 and sales growth rates will be discussed on an underlying basis which excludes the impact of foreign exchange. All references to our P&L are on a non-GAAP basis. And with that, I'll hand it over to Chris. Christopher Boerner: Thanks, Chuck. Welcome, and thank you for joining our first quarter earnings call. We delivered a solid Q1 and continued to improve our say-to-do ratio, with disciplined execution across the business as we continue to best position the company for long-term sustainable growth. Our strategy remains grounded in 3 priorities: focusing R&D on life-threatening diseases, driving strong execution across the organization to build momentum in our growth portfolio and maintaining disciplined shareholder-friendly capital allocation. We saw progress across all 3 in the quarter. Let me start by highlighting our performance on Slide 4. We started off the year with solid results across our key marketed products. In the quarter, growth portfolio sales were up 9% year-over-year with contributions from a broad range of assets, including Reblozyl, Breyanzi, [indiscernible], Opdualag, Qvantig and Cobenfy. These are differentiated, durable assets that treat serious diseases and remain early in their life cycles, and they continue to strengthen our foundation for long-term growth. Overall, our growth portfolio performed in line with our expectations for this quarter. Outside of the growth portfolio, Eliquis performed well and grew in line with the range we provided on our Q4 call. David will provide more details on the financials shortly. Turning to our recent regulatory and clinical milestones. In Q1, we made progress advancing our broad and diversified pipeline. Regarding our CELMoDs, iberdomide and mezignomide, our ibertamide filing for relapsed or refractory multiple myeloma was accepted by the FDA with breakthrough therapy designation and priority review with a PDUFA date of August 17. This is an important step for our protein degradation platform potentially enabling us to bring first [indiscernible] to market. For mozigimide, we reported positive Phase III interim data from the SUCCESSR-II study, demonstrating a meaningful improvement in progression-free survival in patients with relapsed or refractory multiple myeloma. This marks the second positive pivotal readout from our oral CELMoD program and further strengthens our conviction in the platform. We will also present the full data at ASCO and are actively planning regulatory submissions based upon the data. For our ADC [indiscernible], we shared positive Phase III interim top line results in patients with previously treated triple-negative breast cancer based on a study conducted in China. We will present these exciting data, along with the positive Phase III China study results Izobran in previously treated esophageal squamous cell carcinoma at ASCO. At the same time, we continue to broaden the reach of our in-market portfolio through life cycle expansion. We received approvals for SOTC 2 in psoriatic arthritis and Opdivo for 2 new classical Hodgkin lymphoma indications. We also reported positive Phase I switch data for cobi positive Phase III data for KEMZYOS in adolescents with obstructive HCM and positive Phase II data for Reblozyl in alpha thalassemia. Stepping back, these updates reflect the diversity and breadth of our pipeline, both in terms of therapeutic areas and modalities as well as continued execution across the business. Moving to Slide 5. As we've said, the latter part of 2026 is shaping up to include an increasing cadence of pivotal readouts that are expected to further define and derisk our long-term growth profile. Among the Phase III readouts expected late in the year, our Milvexian and atrial fibrillation and secondary stroke prevention, Cobenfy Alzheimer's psychosis at [indiscernible] iberdomide PFS data. We anticipate these readouts will help us further diversify and broaden our portfolio and are part of our efforts to deliver more than 10 new medicines and 30 meaningful life cycle management opportunities by the end of the decade. Turning to Slide 6. We Central to delivering on these opportunities and enabling sustained long-term growth are our efforts to drive top-tier R&D productivity. In our development organization, we continue to improve execution across drug development by upgrading talent, streamlining decision-making and instituting tighter management of core clinical activities. We are also focused on enhancing the quality and depth of our early to mid-stage pipeline. Underpinning these efforts are investments we are making in core R&D infrastructure, including broadening the use of AI tools together with laboratory automation and people trained in the right ways of working. In research and early development, target selection and molecule design can have an outsized impact on long-term value. We have set a target to reach lead molecule identification approximately 50% faster while applying greater rigor so that only the most differentiated molecules advance. In late development, we're using AI to streamline clinical operations, compress development time lines and enhanced quality oversight. Over time, we expect these efforts to deliver a 30% reduction in cycle times versus just a few years ago. Among others, we have ongoing partnerships with Ferro, enabling us to design trials more efficiently and [indiscernible] cost optimizer tool. These ongoing efforts across R&D are top priorities for 2026. The organization's continued focus on financial discipline enables us to make these and other important investments. We remain on track to deliver the remainder of our $2 billion in cost savings from our strategic productivity initiative by the end of 2027. With respect to capital allocation, business development remains an important focus. As always, we will continue to index on opportunities where we add strategic value and where we can deliver attractive returns. As our post-LOE growth profile becomes clearer, we'll naturally place greater emphasis on expanding our early and mid-stage portfolio to support growth into the 2030s. In summary, based on our performance, we see the business currently tracking towards the upper end of our guidance ranges. Looking forward, we have continued momentum in our growth portfolio, broad potential in our pipeline and the ability to invest in our business while becoming more focused and efficient in how we operate. With that, I'll turn it over to David. David Elkins: Thank you, Chris, and good morning, everyone. Our performance in 2026 is off to a strong start as highlighted by our first quarter results. We delivered solid R&D, commercial and financial performance while continuing to manage our cost structure. Our persistent focus on execution has further strengthened our foundation as we position the company for long-term sustainable growth. I will begin with a review of our first quarter results and then discuss our financial outlook for the remainder of the year. . Starting with Slide 8. Total revenue in the first quarter was up 1% year-over-year at approximately $11.5 billion. Our growth portfolio continued to perform well with global revenue increasing 9% to $6.2 billion. As Chris mentioned, several products that are still early in their life cycles are driving growth as we intentionally expand our business across a wider range of key assets. Within the legacy portfolio, we saw solid growth from Eliquis, which was offset by the continued impact of increased generic entry across several other brands. All in, we are very pleased with our results in the quarter as we build upon our objective to reshape and redefine BMS as one of the fastest-growing pharmaceutical companies into the next decade. Turning to product performance on Slide 9, starting with oncology. Opdivo revenue decreased 8% to approximately $2.1 billion, with most of this decline coming from the U.S. This is primarily driven by an Opdivo inventory drawdown at the wholesaler level, where inventories are at the low end of the typical range. We continue to monitor whether these levels will normalize over the balance of the year. In addition, we saw continued conversion to Cobenfy, where the launch continues to progress well with revenues of $163 million. With Opdualag, we delivered another quarter of strong double-digit growth, driven by demand globally, where it remains a standard of care in first-line melanoma. Turning to Slide 10. Reblozyl delivered 15% growth with performance continuing to reflect solid uptake across first and second line MDS-associated anemia. In cell therapy, Breyanzi first quarter growth of 53% reflects its best-in-class profile and continued strong demand across its approved indications in both the U.S. and international markets. We remain encouraged by Breyanzi's continued momentum and growth prospects. Moving to cardiovascular and immunology on Slide 11. Eliquis revenue was approximately $4.1 billion in the quarter, an increase of 13%. We continue to see strong demand. And given our U.S. price reduction that took effect at the beginning of the year, we also saw some wholesale inventory build in the first quarter. We anticipate this build to reverse in the second quarter. Turning to Camzyos. Revenue in the first quarter nearly doubled to $314 million, benefiting from continued demand growth globally. Now moving to immunology. Global revenue of Sotyktu grew 20%. And recent approval in cirrhotic arthritis represents a continued presence in rheumatology while we await our Phase III readouts in lupus and Sjogren's disease. I will wrap up our product performance on Slide 12 with neuroscience, where Cobenfy revenue in the first quarter was $56 million, representing continued steady growth. Now let's move to the P&L on Slide 13. As expected, gross margin declined 280 basis points in the first quarter to 70.3%, which was primarily driven by product mix. Excluding in-process R&D, operating expenses for the first quarter were $3.9 billion, slightly above the same period last year. As compared to a year ago, the incremental investment related to Pumitamig, [indiscernible] was largely offset by savings from our strategic productivity initiative. This continues to provide additional flexibility to invest behind these growth-oriented opportunities. Our effective tax rate in the quarter was 18.3%, reflecting jurisdictional earnings mix. Overall, diluted earnings per share was $1.58 for the quarter, which includes a net charge of $0.03 a share related to in-process R&D and licensing income. Turning to the balance sheet and capital allocation highlights on Slide 14. Our financial position remains strong with approximately $11 billion in cash equivalents and marketable securities as of March 31. In the first quarter, we generated approximately $1.1 billion in operating cash flow. This quarter's cash flow reflects roughly $1.2 billion and lower net cash collections due to Eliquis list price reductions. We expect this to be more than offset later in the year through lower rebate payments. In terms of capital allocation, we continue to take strategic and a balanced approach to deploying our strong cash flows. Business development remains a priority, and we are regularly evaluating opportunities in the therapeutic areas we know best while continuing to return cash to shareholders through our commitment to the dividend. Now moving to guidance on Slide 15. We are reaffirming our financial guidance for the full year of 2026. Based upon the first quarter results and our current projections, we see our financial performance tracking towards the upper end of our established revenue and EPS guidance from us. We will continue to provide updates as the year progresses. In closing, our strong performance in the quarter reinforces our confidence in our ability to deliver long-term value for our patients and shareholders. And to reiterate Chris' comment, our strategy remains grounded in 3 priorities: focusing R&D on life-threatening diseases, driving strong execution across the organization to build momentum in our growth portfolio and maintaining disciplined shareholder-friendly capital allocation. And with that, I'll now turn the call back over to Chuck for Q&A. Operator: [Operator Instructions] The first question today comes from Asad Haider with Goldman Sachs. Asad Haider: Just maybe just to open, just given how consequential the clinical readouts at the end of this year are going to be for the company Christian, just starting with you, can you just level set us on your confidence in the key programs, specifically for [indiscernible] trials? Just any quantitative base for success. And then related for Chris, how do the timing of these readouts impact the company's BD strategy as you think about the different outcomes that could unfold with the results of each of these readouts. And where do you see opportunity as you scan the landscape ahead of these readouts? And any framing on potential size of the BD aperture would be helpful? Christopher Boerner: Thanks for the question. Cristian, do you want to start and then I'll take the BD question. . Cristian Massacesi: Thank you, Asad, for the question. Let me start with the fact that we have a very data rich 2026 and even probably more '27. And let me start with what we already achieved because in NIM, I think we had a positive MRD with Iberdomide in caliber in and we are expecting the PFS later this year. As Chris mentioned in his opening remarks, the PDUFA date for this filing is August [indiscernible]. We got breakthrough designation, priority review. So it's progressing at pace. We achieved the mezigdomide this year with access to oral presentation at ASCO, really looking forward to show you guys the data. In NIM, we will have a readout also with our [indiscernible] that is a GPRC5D CAR-T that is happening later this year. Moving cardiovascular milvexian, as you was mentioning, are importantly doubt, both AFib and SSP are continue to be expected by the end of the year. We have -- we are recruiting the events is an event driven. And of course, we remain blinded, we are recruiting the events as planned. And we at BMS are regularly is reviewing the data and even in the most recent meeting, they recommend to continue the studies as planned. So BMS will be the only Factor XI company with Factor XI inhibitor in AFIB, of course, with the presence also in SSP, this can allow us to continue to lead in the thrombotic space. confidence remains absolutely unchanged for milvexian in this space. In neuroscience, we continue to expect the ADP studies, a den, 2 and 4 by readouts by the end of the year. This is based on very -- we are managing the studies and moving the studies more or less at the same -- with the same time lines. So they are lining up quite nicely. We need the 2 studies probably for an approval. This is the best case, but for refining, but we will see how the evolution in this space is happening. The confidence that remain unchanged also for Cobenfy study designs, trial conduction is now completely under control. And of course, the reason to believe in Cobenfy the space are very clear. Prior data the data that we are seeing in schizophrenia and of course, the open label in Adept 1 were patients before being randomized to receive Cobenfy 12 weeks give us confidence in potentially bringing this drug in patients with [indiscernible] disease in psychosis. Last but not least, to me, critical readout this year is Admilparant in immunology, in IPF and PPF. This is a novel mechanism -- this is an inhibitor that can bring a novel mechanism to patients with is very, very difficult to treat disease, is a first-in-class asset with a very differentiated profile, not only on efficacy side but also on the safety side. IPPF is guided by the end of the year. PPF will be just a few months later, probably beginning '27, Very solid Phase II data. I'm very pleased on the execution of the Phase III programs. So this is another important therapeutic option. As Chris mentioned, there is much more this year, next year, I have to say, it's an exciting time to be at BMS. Christopher Boerner: Thanks, Cristian. And then just on your BD question. Look, BD continues to be a top capital allocation priority for us. It's not impacted by the end-of-year readouts. We have a very strong late-stage pipeline. We certainly don't need to chase deals. But as we've said consistently, if there are opportunities that make sense for us to enhance near-term growth, we have the financial flexibility to be in the mix. At the same time, we're building for the long term, and we're going to continue to add to our early and mid-stage pipeline as well. And of course, given the size of those deals, we can certainly do both. Irrespective of phase of development, though, the opportunities we're looking for are areas we know well scientifically where we can add clinical and commercial value and ultimately, we can deliver value to patients and to our shareholders. We're size agnostic as we've been, and we certainly have the financial horsepower to go after multiple sized deals. Operator: The next question comes from Jeff Meacham with Citi. . Geoffrey Meacham: Great Morning, everyone. Thanks for the question. Cristian, on Pumitamig, I wanted to check on the cadence of data in, say, the next 6 to 12 months? And would you wait for more mature data on PSS before you really expand the number of trials? Or are you ready to go right now? And then real quick for Adam, just to talk through the Qvantig dynamics versus Opdivo and where you're seeing the biggest demand? . Christopher Boerner: Thanks, Jeff. Cristian and Adam. Cristian Massacesi: Jeff, for the question on Comite. Let me start with ASCO. ASCO will be an important meeting this year for PD-1 BGF inhibitors. There are some competitor data in plenary that, of course, increase the confidence in the class. And we are presenting as an oral, our Phase II data in [indiscernible] cell lung cancer in front line as a global data set after the China data we presented previously in other indication in a few days, the abstract will be released. Our strategy with Pumitamig is replace and expand. We want to replace PD-1, PD1 inhibitors, and we want to expand beyond them. We announced and we deliver it studies across indications. All of them are ongoing and all of them are recruiting actively. What is very important, in my view, is also what we are doing beyond the first wave of trials. The confidence in my view, is becoming more and more tangible in terms of level of activity, a combine ability that you have with PD-1, PD-L1, GF inhibitors by specifics. And in my view, this is potentially translatable across indications. Now the next step at reading our strategy is novel novel combinations. And BMS has a very rich oncology portfolio, Biotech has also an important portfolio of oncology assets. And what we are doing we are combining now -- we started the combination of Pumitamig with these other drugs that represent an enabler for other regimens, also using some combination with the standard partners. On our internal side, we started the combination with our Iza-bren ADC, which is an EGFR [indiscernible]. You will see that as Chris was mentioning at ASCO, In esophageal real negative is a very active ADC. And I think we mitigant represent a very powerful regimen. We start the combination with our [indiscernible] inhibitor, our meta very do tight drug. So in summary, I have to say that the partnership with biotech is moving very well because we are progressing the development of this drug with speed. We think we are very well positioned to make this drug as a potential new backbone in immuno-oncology and generating the next regimens very powerful cancer patients across indications. David Elkins: Yes. Jeff, thanks for the question. As it relates to Cobenfy, we're pleased with the Cobenfy launch performance. Our teams are executing well. And we're seeing use across multiple tumor types. We're seeing uptake in our monotherapy indications as well as in combination treatment. So in RCC, in gastric cancer and in melanoma. We're continuing to hear positive feedback from community oncologists that Qvantig improves practice efficiency with a 3-minute in-auto injection and that patients prefer gigantic when offered the opportunity versus the IV formulation. So we've now delivered over 10% conversion from IV to Qvantig in the U.S. in just over a year in the market, and we're tracking well against our expectations, and we remain confident in our expectations that physicians will convert approximately 30% to 40% of IV business in the next 2 years. Operator: The next question comes from Alexandria Hammond with Wolfe Research. Alexandria Hammond: On [indiscernible], given the size and breadth of the [indiscernible] program, seems like there's probably a rich set of outcomes between the clean wind and mix. Can you help us think through how you'd approach a subgroup analysis, particularly for patients where the risk for or calculate might be more favorable for Factor XI. And to the extent that the top line doesn't meet that primary endpoint cleanly. Is there a path where the this patient population still supports a meaningful commercial opportunity? Christopher Boerner: I'll have Cristian take that and then, Adam, you can add any color commentary as you need to. . Cristian Massacesi: I mean Alex, let me start with that to tell that we continue to be on track by the end of the year with both AFib and SSP. These trials are remain driven. We remain blinded. As said, the DMC continues the oversight to [indiscernible]. We are at a point in which we give us confidence that we are progressing on the right way with both efficacy and safety. Everything is continued as planned. In AFib, the study will test noninferiority versus apixaban, and then we will have a superiority testing for bleedings. Based on what we have seen in other trials recently and based on the expectation and how we size and power the study, I think we are very much on track with both the endpoints to show non-inferiority and superiority in bleedings. . Christopher Boerner: Adam? . Adam Lenkowsky: Yes. Alex, as it relates to commercial opportunity, to vaccine represents a significant opportunity commercially. There is a need for a medicine with low bleeding risk, both in a Ib and in SSP, and we think there's a significant advantage to having both indications, we would expect gone adoption. As we talked about premium Europe-leading continues to be the main reason why physicians hold back from utilizing Factor Xa in more patients. And despite the highly effective drug like Eliquis roughly 40% of patients who should be anticoagulated are either untreated underdosed or the discontinued treatment. And that's driven largely by concerns around bleeding risk. So this leaves a meaningful unmet need across a substantial number of patients. As a reminder, this study AFib was designed to demonstrate a superior bleeding profile compared to Eliquis with comparable efficacy. So we believe this profile is going to drive significant demand and it will be important for both patients and providers. And as Christian said, we're looking forward to the data readout at the end of this year, and we think this has true blockbuster potential. Operator: The next question comes from Chris Schott with JPMorgan. . Christopher Schott: Just 2 for me. Maybe first, can you just talk about Camzyos potential post your competitor approval? Just what are you seeing in the market and just how you're thinking about that evolving? And the second 1 for me was coming back to the CELMoDs that we kind of some of this initial clinical data has read out. Can you just elaborate a little bit more the role in the market you see for those products based on these initial data sets and how much of your excitement here is based more on the future readouts versus what we're seeing initially here? Christopher Boerner: Thanks for the question, Chris. Adam, I think you can take both. Adam Lenkowsky: Yes. Thanks, Chris. So Canada continues to have very good momentum. Again, our commercial teams are executing very well in the field. We are seeing continued strong new patient starts, coupled with high persistency rates. Physician and patient feedback are very favorable and physicians consistently fight the significant and rapid improvement in symptoms, and we're seeing very low drop up rates. In fact, we are approaching 25,000 patients now prescribed Camzyos in the U.S. with thousands more prescribed internationally. As far as what we're seeing in the field, we've been planning for competition for some time. ACP has continued to reinforce that they see little differentiation. It's still early. Some physicians have started 1 or 2 patients on the competition, and they are still operationalizing their own REMS program. But we also hear consistently that the Camzyos REMS process is very clear and the infrastructure and workflow that have been established now for 4 years are very clear. and thus, PLs have shared, they'll use the Camzyos dosing and echo regimen at 4 weeks. So we think it's a positive. And we lived that because roughly 90% of patients on Camzyos are on the 5-milligram starting dose. And it's simply 1 dose titration to 10 milligrams. So it's 5 or 10 representing [ 9% ] of our business, which is effective for the majority of patients, Camzyos patients feel better in a matter of weeks where we see from the competition requires multiple titration steps to reach an effective dose. And so our teams were well prepared for the launch of [ apacamten ], and we remain confident that we'll be the leader in the space longer term. So as it relates to iberdomide, I think we're really excited about the launch of iber. I know that Chris and Christian have talked about this. And so I think there are a few areas that is going to. Number one, with Iberdomide, this is an area that we know very, very well in the multiple myeloma. We see that for multiple myeloma, it's highly competitive, it's a fragmented market, but there remains a need for more effective and safe options that can address the majority of patients, particularly those patients who are treated in the community setting. And that's 70% to 80% of patients. When we hear from physicians, they're excited about oral low burden some regimens that can find a better experience for their patients. And we're confident that Iberdomide will provide a balance of high potency manageable toxicity combined ability with daratumumab with the convenience of an oral treatment to amplify the efficacy of IMiD-based regimen. So our goal is to make both iber and mezi foundational in multi myeloma, replacing REVLIMID and POMALYST in second line over time in the community, longer term serving as partners for T-cell redirecting therapies and cell therapy. So we know the work that we need to do to establish both iber and mezi in the market, and we're very sad to bring both of these important medicines to patients because we believe this is a real attractive commercial opportunity. Cristian Massacesi: And Adam allow me to step in. Chris, I want to use the opportunity you mentioned in the question on Camzyos because I received received often the question about the nonobstructive HCM plants. I think, first of all, let me start that the level of benefit expected in nonobstructive is different than an obstructive because of the terogenity of patients and diseases is much higher. That said, we have learned a lot from [indiscernible]. We know that we are the patients and which we diseases that are affected by that can benefit most from is inhibitor like Camzyos. So I want to announce that we are planning now to run a new more focused study in non-obstructive HCM. And then, of course, the detail of it will be highlighted in clinical [indiscernible] progressing. Operator: The next question comes from Evan Seigerman with BMO Capital Markets. . Evan Seigerman: And another 1 for Christian. So you really inherited design in kind of the Milvexian trials. Can you walk me through the aspects of the trial design, patient selection that increased your confidence in a potentially successful readout later this year? . Christopher Boerner: Cristian? Cristian Massacesi: Thank you, Evan, for the question. In -- I think your question is referring to [indiscernible] specifically, imagine because [indiscernible]. So in AFib, let me tell you that, first of all, the data are solidly based on a Phase II studies that we run in total new replacement. That is a very good surrogate for [indiscernible] drug. So we learned a lot from Eliquis in that space, and we know the productivity value of that kind of population for antithrobotic agents. I think the very elegant, the refined work that has been done with Milvexian was in selecting the dose for FI. That was -- in that why we tested multiple dose levels. And ultimately, we landed with 100 milligrams twice a day, that is a much higher dose for instance that we are using in. but it's a dose that gave us the confidence based on all the work that has been done, the modeling and the work that we were able to to bring in this -- in the Phase II part, give us confidence to have at least same level of efficacy that we expected with apixaban, preserving of course of the bleeding value. Going specifically to your question, the design of the study is to be able to show a noninferiority apixaban in net to add comparison in a very well sized study, we recruited 20,500 patients. So very well powered for inferiority margin. We disclose these margins cost 0.8% to 1.3%. And we will then, when an inferiority will be met, to test the superiority for bleedings. We test we split alpha for measure bleeding and nonmajor clinical relevant bleedings because I want to link what Adam was telling. This is a measure of probably in the clinical setting. And being able to show that the drug provide benefit in terms of decreasing the bleedings will be very important in the marketplace. So as said, the study is fully powered, well-designed and picked in my view, the right dose to being able to show what the study predefined criteria should meet. Operator: The next question comes from Michael Yee with UBS. Michael Yee: Following up on the design of the Milvexian study. If you take a look at the recent AFib results, you can see that the stroke rates are quite historically a lot lower than they were back in the original days of Eliquis. So just thinking about whether you've taken that into consideration and to what extent you think that impacts the study design and whether you think that there's any chance that the study results will ultimately end up in 2027, which could end up being more positive for you than in 2026. Cristian? Cristian Massacesi: Okay. Michael, for the question. I don't -- we cannot disclose baseline characteristics and which kind of events that we are recruiting by we remain blinded, of course, to the study. What I can tell you, again, is that the AFIB study, the [indiscernible] study has the right sample size and of course, has a predefined number of events. We are recruiting the events as expected. And the events predefined number is for efficacy and, of course, for safety. So we are on track by year-end. It's is event driven. We are in April. We will see later in the year if this event rate will change or not, for the moment, we are on track for a year-end readout. . Operator: The next question comes from Akash Tewari with Jefferies. Akash Tewari: So for your Cobenfy [indiscernible] studies, you have several trials that I know [indiscernible] requires patients to have a confirmed Alzheimer's diagnosis using to imaging and blood-based biomarkers. Can you talk about why you added that criteria for the study? And was it based on any issues you saw with the ADEPT II trial conduct? And then just on CELMoDs, can you talk about your confidence on the successor on study, which goes against POMALYST showing a clinically meaningful effect size based on the results you saw in Successor2? Christopher Boerner: Cristian? Cristian Massacesi: Thank you, Akash. The Cobenfy ADPET-4 decision to go into a biomarker-selected population, was based in try to decrease teragenity in the patient population. As you know, ADEPT-2 was a study that was already ongoing in the moment we acquired Cobenfy. And we wanted to have a more predefined patient population to be recruited into an Alzheimer disease psychosis setting. This is why we took this approach of biomarker positivity. That can be done through plasma or radiologically. And I think, of course, this is increase the confidence that the right patients are treated in the tria even if increase a little bit at the -- the operational challenges because, of course, we need a predefined number of patients, biomarker positive to run. So the screening failures are a little bit higher. This doesn't take out any confidence of the potential benefit you can see also maybe in a trial like ADEPT2, where we do not have a biomarker positive study because ultimately you treat symptoms, but give more confidence that you have Alzheimer patients. This is the main reason. We are not the only one doing this taking this approach. Going back to your second question on [indiscernible]. I think a Successor2 was a very good news not only because it -- and as you mentioned, Successor2 is an add-on study on top KD, but because it came earlier than expected. We hit you will see the task, but you already know that when you eat an interim PFS means that you eat a bar that is higher according to the study, what the study was designed for. This is answering your question on Successor1. We believe Mezigdomide is a very potent sermon is more potent than Iberdomide, for instance, is a drug that can be very well combined with the standard of care regimens that we will see, little bit less with anti-38. This is why Iberdomide is doing that job. But I believe that the level of efficacy we have seen and the design of the study, let us believe that this drug can be better than Revlimid and pomalidomide. So the confidence or Successor1 is high and of course, is higher bar because it's not an add-on is a replacement strategy, but I think [indiscernible] high. Christopher Boerner: Thanks, Christian. And let me just also say that I'm glad to hear so many questions on CELMoDs. The CELMoD program, we're quite excited about. You're going to see exciting data at ASCO on iber and mezi. We shouldn't forget you'll also see data on good which continues in my view, to be a sleeper in the program just because of the high-quality data that we've seen thus far. You'll see more of that data at ASCO. Of course, behind this, we've got additional degraders, BCL-6 LDD, AR LDD and this program in this platform is quite deep. It's nice to see these data maturing as they are across each and every one of these programs. So it's exciting to see. So stay tuned for that at ASCO and beyond. Operator: The next question comes from Louise Chen with Scotiabank. Louise Chen: I wanted to ask you, in addition to your ADP study for Cobenfy, I know you have several additional potential indications for Cobenfy, and which of those additional indications are you most excited by? And then secondly, you have a lot of different modalities in your self therapy franchise and pipeline. And how do you see these all coming together to give Bristol a more comprehensive hold on the market? Christopher Boerner: Cristian and then Adam, to provide color and the commentary. Cristian Massacesi: So ADP, because we believe this is a huge medical need -- and we believe a Cobenfy bring benefit based on what we have seen in schizophrenia. We are focusing our strategy in psychosis specifically assessing hallucination delusions and this is something that we have seen patients really having an improvement in schizophrenia. We wanted to have a multiple shot on goal. This is why we have Adept II and Adept 4 that are similar studies with the difference. One is biomarker selected population, the other one d1 not. And we have a Adept 1 that is more a study that will assess how Cobenfy to avoid relapses. But we also designed Adept 5. So we have now 4 shots on goal in this program because the best case I was mentioning before is having at least 2 positive things are changing maybe. And we believe this is an important setting. Cobenfy bring benefit to patients, we want to really have a multiple shows. When talking -- when thinking the other indication, bipolar disorder is the next one in line because we're expecting results in 2027. We are testing Cobenfy, specifically in many on the -- in the context of bipolar disorders. And if you think this is very similar in terms of the productive symptoms that we see in AD psychosis. And then we have AD agitation AD agitation is very related to psychosis because this is one symptom that we have seen Cobenfy already providing benefit. So the confidence is high also for this. Education is coming in 2028, like cognition, AD cognition. And cognition is probably different mechanism. Psychosis is probably mediated a muscarinic receptor 4. Cognition probably by muscling receptor 1. Cobenfy is working on both. So this is where the confidence day. So I will say the Cobenfy, we believe that can bring benefit in controlling these kind of symptoms in Alzheimer, in the bipolar patients, and this is a noncore asset for our portfolio in our science. We are building -- we really would like you to start to see how we are building our portfolio in Alzheimer with a Phase II asset and multiple Phase I assets that show the commitment that BMS has for this disease because we want to play in this disease. Adam Lenkowsky: Yes. Just to add, Christian, did a good job covering much of our life cycle management program. But from a commercialization standpoint, I would say, stepping back, there are approximately 7 million patients diagnosed with Alzheimer's disease. And roughly 30% to 50% have psychosis and that's elucidation of delusions and the vast majority have cognitive impairment. So this presents a real significant unmet need where there are no approved treatments today. And we know that antipsychotics have significant safety limitations. They have movement disorders, they carry box warnings that are specific to elderly patients with dementia. And then often treated and used inappropriately rather than treating the underlying psychiatric diseases, they -- they leave patients with cognitive impairment, falls and fractures and these are all really serious issues in long-term care facilities. We believe that Covent has potential to play a very important role in treating a number of Alzheimer's disease. Safety becomes increasingly important in an elderly population, where Cobenfy is not associated with EPS sedation doesn't carry a box warning. And in those 2 areas, ADP and Alzheimer's ease cognition, Cobenfy can be the first and only product apron those states. Cristian Massacesi: Let me -- thank you, Adam. Let me go back to your second question on cell therapy. I could discuss about cell therapy strategy in hematology or in a immune disease. I want to focus on that immune disease because probably is newer. And I think it's is more -- it's important that we explain the strategy that we want to put in place on the development maybe in the commercial side. I believe that BMS has a very powerful platform in this space and with 1 aim resected immune system. And 2 is that immune system. This is the strategy that we want to take. We decided to have a multimodal approach. This is why we have an autologous, an allogenic and an in vivo platform. And I have to say, this set as a part, compare many other players in the space. If you think of these products, this can be transformative for patients without immune disease because if you can eradicate B cells, you can provide benefit to patients with a severe or moderate stage of the disease. But the vision can be to use these onetime treatment before the patients start to have the organ damage by the autoimmune diseases. The most advanced program is [indiscernible], our autologous CAR-T. We have 2 ongoing pivotal start, 1 in lupus and 1 is [indiscernible]. We have a multiple later indication ongoing, and we see a level of activity that is unprecedented. And then we have in clinic now an allogenic CAR-T that, of course, can represent a more accessible and scalable approach because from one donor, you can manufacturing 100 cells. And so this can broaden up the access, but the real transformative thing can be in vivo. We acquired [indiscernible] an mRNA in vivo platform where you have the patients that are producing, manufacturing the cells itself worse -- so this is really -- can be transformative because they can really broaden up and give scalability in such a broad space like immune disease. So I hope I addressed the strategic -- we want to be a player. We want to lead in this space. I think we are very well set to doing that. Operator: The next question comes from Terence Flynn with Morgan Stanley. . Terence Flynn: I'll keep it to one. Christian, I appreciate the details on the Milvexian AFIB trial in terms of noninferiority on the efficacy endpoint, but just was wondering if you could elaborate in terms of what differential it's powered for on bleeds for superiority or if you don't want to answer that question, what you think is a clinically relevant delta versus Eliquis that would drive reimbursement coverage? Cristian Massacesi: Maybe start and then, Adam, you can opine as you want. So Terence, again, the study is designed to show non-inferiority. Non-inferiority has margins that goes, as I was mentioned, we disclosed this margin, why I can speak about it. They go from [indiscernible] to 1.3 something. So we believe in the study and the preclinical and clinical work plan in Phase II is set to show that the noninferiority is meant to have a similar activity on efficacy versus a pixel. It is possible that [indiscernible] can have another ratio less than 1, but it's not needed. Because clinically, very commercially the success required to be similar and having a better bleeding profile in measure bleedings and clinically meaningful bleedings. And this is where the study, I think, is extremely well set and power to show the noninferiority and then superiority on the bleeding rates. Adam Lenkowsky: Just from a coverage standpoint, Terence, what payers consistently telling is that bleeding -- and particularly major bleeding is the single largest cost driver associated with oral anticoagulation therapy today. That's why Eliquis has significant share in the market and payer discussions are suggesting that the potential of improved benefit risk profile will be a strong value proposition, particularly around economic benefits and payers aren't necessarily anchored to a specific percentage threshold. What they're looking for is clinically meaningful and statistically credible reduction in major bleeds that translates into fewer hospitalizations and fewer events that are clinically and economically important. Operator: The next question comes from Seamus Fernandez with Guggenheim Securities. . Seamus Fernandez: Great. If I may, I just wanted to drill in a little bit on Admilparant and the opportunity there. Just from a commercial perspective, we're seeing a very robust potential combination poised to emerge here. But obviously, the key is success in clinical programs -- so just wanted to get maybe Christian, a little bit more of your sense of what are the key risks as we evaluate Phase II to Phase III -- and how do you see the opportunity beyond that? When we look back at the Phase II and incorporated a [indiscernible] analysis from a statistical perspective, there weren't that many patients on background therapy. So just trying to get a better understanding of how you see the risk/reward heading into the IPF results and the PPF results? And then just for Adam, as you look at the evolution of this market, how are you looking at the impact of the current antifibrotic standard of care and the dropout rate that patients experience and suffer from versus some of the emerging data sets for other combinations in this setting like the [ treprostinil ] data. Christopher Boerner: Cristian and Adam. Cristian Massacesi: Seamus, the -- let me start with the target. LPA1 inhibition is important because it's working in 3 dimension in the fibrotic process in IPF and PPF, fibrosis, inflammation and also repair. So this is the duty of the target. And I think Admilparant is the first-in-class in this space for both IPS and BPS. The goal here is to improve on efficacy also to have a differentiated tolerability. You know there are drugs that the patient can use today that have some GI issues, some issues. So Admilparant is very different differentiated. The conviction on this program is sitting on the Phase II results. in both IPF and PPS. We have more than 60% improvement versus placebo in the lung function decline with 60-milligram BID. And we tested different doses. And the dose relationship is very clear. This is another and one's very important that we put in the Phase III, they give me confidence in what we are doing. Because we running -- we are running both studies, and PPF with 2 doses, 60 and 120. The dose relationship and the benefit of having I was very clear, deeper efficacy while the dose is increasing. BMC also for these trials are continues to motor and reviewing the conduction of the study, safety and efficacy and tell us to continue as planned. So we do not see any flag, especially on safety side in terms of hypotension, syncopal events, even in overall in the trial. So 2 shots on goal in a very well-designed power study. The Phase II and the Phase III population are very similar. We tried and time the teams did a very good job in ensuring consistency and in trying to have as much as possible in Phase III what we did in Phase II. In your question on specific on the design of the trial, in both trials in IPF, we stratify based on prior treatment, [indiscernible] or nothing. So we can use add-on in patients that don't receive any treatment. And in PPF, there is certification based on usage or not of antifibrotic. So the studies will answer that question, and the drug can be used on top of [indiscernible] as a single agent. Very high confidence on how this program has been delivered on the target, execution and looking forward to the results. Christopher Boerner: Adam? . Adam Lenkowsky: Just quickly, Seamus. We're excited about this program as well. We believe that Admilparant has the potential to play a meaningful role in both IPF and PPF with an improved efficacy and tolerability profile, as Christian described. There remains a significant need for improved therapies that slow disease progression that are well tolerated and ultimately help patients manage their disease. As you're alluding to, GI tolerability remains a significant barrier where approximately 50% to 60% of patients on treatment today are discontinuing therapy by 12 months with current standard of care. And even what we're seeing with the newest approved products, the diarrhea rate is roughly 40%. What we're hearing from our thought here is that a Admilparant has the potential to be foundational as a first-line option and has the versatility of being used in combination given the expected efficacy and tolerability profile and on many in the marketplace. So we've got important prelaunch activities that are underway now, and we are very much looking forward to the data readout in the second half of the year. Charles Triano: Operator, can we please take our last question. . Operator: The last question today will come from Mohit Bansal with Wells Fargo. . Mohit Bansal: So I have a question on -- so your competitor has signaled that VEGF PD-1 compared to an IO or PD-1, may be able to show a minimal regression in hazard ratio when you go from PFS to OS. We saw a regression when we compare it to chemo, but with IO-combo, it may not be a same situation. How are you thinking about that given that Bristol is probably the only company with 2 IO combos in the market and you have seen data for both the with LAG-3 as well as CTLA-4 count on top of PD-1. So how are you thinking about this sort of regression from PD-1 -- for PFS to OS, given in the context of VEGFs kind of an important investor debate right now? Christopher Boerner: Cristian? Cristian Massacesi: Thank you, Mohit, for the question. Let me start on the way we deliver these 2 mechanisms. I truly believe bispecifics are a better way to deliver 2 different mechanisms than using 2 different antibodies because you are much more on target, you are much more selective in delivering them and potentially, you can decrease also the off-target issues like adverse events. So there is another important learning that we have had -- we are having every day with these drugs. Our Pumitamig is a safe drug. The safety is very predictable, the combinability is very high. So we know VGF is impacting PFS. This is what also you are mentioning. And I think that we will see where the data are maturing. We see even a few weeks at ASCO, what this PFS improvement can translate in terms of OS. My base case, Mohit, is that if I have a drug that gave me a good PFS gain and the statistical significance OS gain that will be without increasing the safety in a dramatic way is good enough. Because then I can use this as a backbone and I can improve even further paring other mechanisms that can continue to increase the PFS gain and potentially translating even in a better OS. I don't think we can be so simply -- we can simplify so much like in the past, the VEGF inhibitors did not translate in U.S. because here, we have the IO component. And we still don't know how much the DGF part of the drug is giving us the upside for the IO. And it is possible actually that this is give us an uplift also for OS. So I'm excited by this by specifics. I'm excited very much about Pumitamig and the plan that we are putting in place because I truly believe this can be the backbone for future regimens for cancer patients across indications. Christopher Boerner: Thanks, Christian, and thanks, everyone, for the questions. In closing, I just want to come back to where we started. We're doing what we said we would do. We're executing across the business, advancing a really differentiated pipeline that we think is going to strengthen the growth profile for the company and operating consistently with financial discipline. And of course, that discipline enables us to have flexibility to invest in growth, pursue business development where it makes sense and ultimately deliver long-term value. There's always more work to do, but the foundation we've built and the momentum we're seeing gives us confidence in the trajectory of the business. So with that, thanks for joining us today. And as always, the team is available for follow-ups. Have a good rest of the day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to today's Tyler Technologies, Inc. First Quarter 2026 Conference Call. Your host for today's call is H. Lynn Moore, President and CEO of Tyler Technologies, Inc. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. In order to address everyone's question and state it in the allotted time, please limit yourself to one question, and you may rejoin the queue for a question. As a reminder, this conference is being recorded today, 04/30/2026. I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead. Hala Elsherbini: Thank you, John, and welcome to our call. With me today are H. Lynn Moore, our President and CEO, and Brian K. Miller, our CFO. In an effort to streamline our earnings communication and provide timely context around our quarterly earnings results, we published our prepared remarks yesterday shortly after posting our full quarterly results release to the news section of our Investor Relations website. This go-forward practice allows for more timely understanding of our earnings results released before our earnings call this morning. Additionally, beginning next quarter, we plan to hold our earnings call earlier in the day before the market opens. After I give the safe harbor statement, Lynn will provide a summary of our key quarter highlights and then we will move to our Q&A session. During this conference call, management may make statements that provide information other than historical information and may include projections concerning the company's future prospects, revenues, expenses, and profits. Such statements are considered forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties which could cause actual results to differ materially from these projections. We refer you to our Form 10-K and other SEC filings for more information on those risks. We have also posted on the financial section of our Investor Relations website a schedule with supplemental information. During the past year, we have discussed our intent to simplify the supplemental information we present to focus on our key performance indicators—annualized recurring revenue (ARR) and free cash flow—along with other metrics we consider meaningful, including quarterly recurring revenues and bookings. We believe this will enable investors and others to focus on relevant metrics that best reflect the performance and trajectory of our business. Also, on the Events and Presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks. Lynn? H. Lynn Moore: Thanks, Hala. Our first quarter results provided a strong start to 2026, with better-than-expected recurring revenue growth and free cash flow generation. Total revenues and recurring revenues both reached new record highs. Brian K. Miller: And free cash flow more than doubled last year's first quarter. Public sector demand remains robust, with an active pipeline and growing momentum across our cloud solutions, AI-enabled applications, and our unified transaction strategy. Operating margins continued to improve, benefiting from our cloud model transition. During the quarter, we repaid our convertible debt at maturity and executed meaningful opportunistic share repurchases under our new authorization. And earlier this month, we completed the acquisition of For The Record (FTR), representing the third largest acquisition in Tyler Technologies, Inc.'s history. We are well positioned for 2026 with durable demand drivers, accelerating cloud momentum, and a trust-based approach to leading the public sector's AI evolution, supporting our confidence in delivering on our strategic initiatives and 2030 targets. We will now open the call for questions. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset and then press the star key and then the number one. To withdraw your request, press the star key and then the number two. As a reminder, please limit yourself to one question, and you may rejoin the queue for a follow-up. We will pause momentarily to assemble our roster. Our first question comes from the line of Terry Tillman with Truist. Please go ahead. Terry Tillman: Yes. Hey, Lynn, Brian, and Hala, thanks for taking my question. We had the benefit of going to your conference—that was helpful. A lot about enablement for customers moving to cloud and building confidence that they are ready to move to cloud. Maybe this is for you, Lynn: in terms of confidence level 90 days since your last update on SaaS flips—the volume and velocity as we look through the year. I know you had ACV growth on the flip side of 10% year over year in Q1, but any more color you can share about the confidence level—has it increased, is it where it was—for SaaS flips for the rest of the year? And related to that, is AI and agentic becoming an incremental stimulus or not necessarily? Thank you. H. Lynn Moore: Thanks, Terry. I would say my confidence level in our cloud transition—both in terms of customers flipping to the cloud and what we are doing from an operational perspective—is really high. We showcased this at Connect, as you mentioned. We had a client advisory board where we talked about the future direction of Tyler Technologies, Inc.'s client cloud movement, and clients now are just really receptive to it. I think hesitation in the past is really in the past. Now it is a matter of execution going forward. One anecdote I would share is public safety. We used to talk about how that was a little bit slower to move to the cloud. We are seeing now the public safety market is pretty much 100% going to the cloud. All those points lead me to feel just as confident as ever. Our 2030 plan has not changed. As it relates to AI, I think it is a tailwind. I would not say it is a big tailwind at this point. We have a lot of AI initiatives going. We have AI in a lot of our products. It is embedded in our workflows. We spent a lot of time showcasing it at Connect. There was a lot of buzz around what we are doing and the trust we have with our clients. They trust us to move forward with AI. I like where we are positioned. We are making the right investments. Our clients are partnering with us on it, and I like where it is going. Operator: Our next question comes from the line of Matthew David VanVliet with Cantor. Please go ahead. Matthew David VanVliet: Hey, good morning. Thanks for taking the question. You mentioned in the prepared remarks you put up that RFP activity continues to improve and you are seeing a lot of momentum there. Curious what you are seeing coming out of that in terms of deal execution—win percentage—and then also, are customers looking to land a little bit bigger now that they are moving into the cloud and bolting things on is maybe a little bit more palatable up front? How are deal sizes and win rates looking? H. Lynn Moore: I think the market dynamic is pretty steady. RFPs continue to be steady. Our win rates are steady. The market right now is good. As it relates to deal size, every time we flip to the cloud, it is an opportunity for us to upsell, and that continues. We are also seeing some increasing deal sizes by adding on things like AI. Overall, the market is good and steady. Operator: Next question comes from the line of Ken Wong with Oppenheimer. Please go ahead. Ken Wong: Fantastic. Thanks for taking my question. Brian, a question on the guidance. Nice to see the strong quarter and the raise. Any way to help us dissect some of the drivers of that increased raise—whether For The Record, the increased demand, timing of SaaS deals? Any color you can give would be fantastic. Brian K. Miller: This early in the year, there are not any major changes to the guidance. The biggest factor is the addition of FTR, which is now included in our guidance for the year. That accounted for a meaningful amount of the revenue raise along with the outperformance in the first quarter, particularly around transactions. FTR adds somewhere in the neighborhood of $30 million of revenues to the full year and a modest amount to EPS. So it is a combination of the outperformance in the first quarter as well as the addition of FTR. Ken Wong: Fantastic. Thank you very much. Operator: Our next question comes from the line of Joshua Christopher Reilly with Needham and Company. Please go ahead. Joshua Christopher Reilly: Great. Thanks for taking my question. After seeing some of the Tyler Foundry use cases at Tyler Connect and the packed room for the customer overview of the agent capabilities, clearly the demand is there for the AI products. How quickly can you ramp to market the roughly 40 to 50 use cases that you plan to release for the initial agentic use cases at the conference? And how is the sales and implementation process going to work for those initial use cases on the agentic side? Thank you. H. Lynn Moore: Yes, Josh, you are right. The buzz at Connect was strong. I think our message generally around AI really resonated with our clients, and I cannot overemphasize how much our clients put their trust in us to deliver the AI solutions for them in the future. Buzz does not always translate to deals immediately. We are getting deals. As you mentioned, the use cases—we have some of those already in the hands of clients and in the market. But I would generally say it is going to be a slower ramp. Our sector generally moves a little slower than the private sector. There is a lot of receptiveness and excitement. I think it is still TBD to see how much it is going to impact near-term financials. Operator: Our next question comes from the line of Saket Kalia with Barclays. Please go ahead. Saket Kalia: Appreciate the new format as well, so thank you. Brian, maybe for you, I would love to dig into some of the moving parts within the higher SaaS revenue guide. I think the $30 million from FTR is adding to that a little bit. Could you talk us through how the SaaS revenue guide is changing both organically and inorganically so that we are all on the same page? Brian K. Miller: Around 70% of FTR's revenues are software revenues—a combination of SaaS and maintenance—and the rest is hardware. So they are the biggest piece of that increase. The other thing driving increased SaaS is a little bit around the timing of when some of the bookings come online, so it is really some fine-tuning. There is no fundamental change from the outlook we entered the year with. Obviously, strong bookings in the first quarter give us more confidence around that. There is a modest contribution from the acquisitions last year, but those were built into our guidance for the year from the start. So really it is modest tweaking around timing combined with the FTR acquisition. And I would just add on the FTR acquisition, they are in the midst of their own SaaS transition. As we look out over the next few years, we expect SaaS to accelerate in their business as hardware and maintenance continue to decline. Operator: Our next question comes from the line of Alex Zukin with Wolfe Research. Please go ahead. Alex Zukin: A couple of really nice wins and a really strong bookings quarter for you, and it feels like even some of those wins are not fully reflected in the bookings number. What is driving the strength competitively here? Were there any onetime items, or are we pulling forward bookings from later in the year? Help us gauge how that ebb and flow should come in this year. Brian K. Miller: I do not think there is anything pulled forward or unusual. It actually was a quarter in which there were not really any large deals—just a handful of SaaS deals with ARR of more than $0.5 million a year, so no kind of multimillion-dollar SaaS deals. As you know, bookings can be lumpy with respect to big deals. We have talked about the pipeline still containing a normal amount of large deals, but this quarter there really were not those. One of the biggest software deals is a transaction-based deal—a statewide digital motor vehicle titling solution—and so it does not appear in SaaS bookings. It is one of those deals where we are providing software as well as payment processing and other services under a transaction-funded arrangement. So it does not hit SaaS bookings, does not hit bookings at all this year, and revenues really will not start for that until next year, but that is a deal that we estimate will generate in excess of $20 million a year in transaction revenues when it is at full ramp. Otherwise, we expected to see a good rebound in bookings. There were certainly some unusual events that impacted last year's first quarter, so the comp was a little bit easier. But notwithstanding that, it was a very strong bookings quarter without any major onetime events—just a good solid volume quarter. Operator: Our next question comes from the line of Jonathan Frank Ho with William Blair. Please go ahead. Jonathan Frank Ho: Hi. Good morning, and thank you for the new format. One thing I wanted to understand a little bit better is how to think about the cadence of your on-premises flips this quarter and how that may progress over the course of the year, especially as you start to implement some of these cloud-first changes. Brian K. Miller: We do not focus too much on the short-term cadence of flips. We have talked about our expectation over the next several years of getting to, by 2030, a point where 80% or more of our on-premise customers have moved to the cloud. We have said we are still on track for that. We expect the peak of that flip activity to be in the 2027 through 2029 time frame. At a high level, we expect the volume of flips—focused on dollars rather than number of flips—to be higher this year than last year. The quarterly cadence is a bit hard to pin down, and as long as we are making appropriate progress towards those longer-term goals, we do not worry about the quarter-to-quarter as much. So expect that volume to be up this year. It is in line with our expectations, and we have a high degree of confidence, as Lynn mentioned earlier, from conversations with clients that it is a matter of when and not if, and we are on the right track to achieve our goals. Operator: Our next question comes from the line of Robert Cooney Oliver with Baird. Please go ahead. Robert Cooney Oliver: Great. Thank you. Good morning. Lynn, my question is for you. Coming out of Tyler Connect, I would be curious to get your view on the product-per-customer motion for you. I guess another way to ask the cross-sell question that Matt had earlier. I think your prepared remarks mentioned that you saw some really good progress internally. I know you have driven a lot of those initiatives. I think you said that the average customer has around three products, and that could go to seven to eight. Help us put some color around what you saw at Connect and how that appears to be trending now as customers move to the cloud. H. Lynn Moore: Yes, Rob. I would actually say we are looking for an average of three to go to 10 to 12, not seven to eight, but I am not going to quibble. I think the momentum is there. We are also seeing a lot more cross-sell momentum coming out of our State and Federal group—getting more of our local products into state hands. We are seeing it with things like our document automation product and our priority-based budgeting product. The initiatives that we have been talking about for the last year and a half—around improved client success, improved efficiencies and optimization in the cloud, making the cloud experience better for our clients—are only going to help grease the wheels and help us make that cross-sell motion go faster. It is not only the competitiveness of our products and putting AI in our products, but the whole basket of our strategic initiatives that will help drive those cross-sells and upsells as we head towards our 2030 goals. Operator: Our next question comes from the line of Allan M. Verkhovski with BTIG. Please go ahead. Allan M. Verkhovski: Hey, thanks for taking the question. Can you share how you are thinking about potentially including AI capabilities for your on-premise customers? And just really quick on the strong free cash flow in the quarter—what drove that? Any onetime items we should be aware of, and the level of prudence in the updated guide considering the strength you saw in the quarter? H. Lynn Moore: Yes, Allan, as it relates to AI, as we look out over time, there have been a few questions around flips and getting clients in the cloud. Over the years, we have talked about carrots and sticks. I would not be surprised if, looking out in the future, AI becomes more and more available only in the cloud. We are not quite there yet, but that is something that we are looking at very hard. Brian K. Miller: On the free cash flow side, it was mostly around working capital improvement. We had strong AR collections, and some of that is around timing. There is not really any onetime item in there, but the timing of working capital changes—particularly around collections—helped. CapEx was a little bit lower. And improved operating margin also flowed through to cash. Mostly timing events. Our expectation for the full year around free cash flow margin has not changed at all. Nothing particularly unusual to point out—just good execution. Operator: Our next question comes from the line of Clarke Jeffries with Piper Sandler. Please go ahead. Clarke Jeffries: Hello. Thank you for taking the question. Just a clarifying one for me. You raised the midpoint of maintenance revenue by about two points. I want to confirm that was entirely driven by For The Record. And you have made reference to the timeline being a few years for the SaaS transition. Is that at all impacted by the contract length, or just the comfortable pace that you want to go through that model transition? Thank you. Brian K. Miller: Most of the maintenance increase is For The Record. Our expectation around flips and that impact on maintenance changes has not changed, so that would be the primary driver. On the longer-term pace of flips, there is not really a contract-length factor impacting that. It is really around a lot of complex issues that vary from client to client about when they are ready to move internally—things like their replacement cycles for hardware in their own data centers, their concerns about cybersecurity, their overall IT road maps, and how they can pace moving multiple products to the cloud. All of those things drive that long-term cadence around flips. It is a pace we are comfortable with. We would love it to be faster, but we can certainly accommodate it while also serving our new customers and new implementations as well. Hala Elsherbini: Thank you. Operator: Our next question comes from the line of Charles S. Strauzer with CJS Securities. Please go ahead. Charles S. Strauzer: Hi, good morning. Can we talk a little bit more on FTR and give your thoughts on the addressable market for that product line and client overlap with current valid plans? Thanks. H. Lynn Moore: Sure, Charlie. FTR has already made a big splash in their space—45% of U.S. courtrooms are using it. We look at the combination as something that enables us to create something powerful we call judicial intelligence—something that does not exist today—to bring together what are right now disparate manual systems between the judge, the clerk, and the court reporter. Right now, using Tyler Technologies, Inc.'s client base, we think our current SAM is about a $200 million market. When you expand beyond that with their core offerings, that goes up to about $500 million. We are also excited that it opens the door for other revenue opportunities. I do not want to get too carried away because we need to execute on our own SAM and then the TAM, but there are a lot of things we think we can do in terms of monetizing the audio and transcript data that could increase the overall TAM north of $1 billion—maybe $1.5 billion. I am talking about things like attorney remote access and third-party data sharing, online transcript certifications, attorney insights, even going international. There are a lot of other layers we see playing out in the future. This fits well with our overall M&A strategy—expanding in new markets, filling gaps in our offerings that are adjacent to our core fundamentals, and targeting areas that can grow faster than we can. I am really excited about this acquisition. It will take time, like all our acquisitions do, but the runway is there, and leveraging our strong position in courts coupled with their offering makes it pretty exciting. Operator: Our next question comes from the line of Adam Hotchkiss with Goldman Sachs. Please go ahead. Adam Hotchkiss: Great. Thanks so much for taking the question. I wanted to ask Rob's question on cross-sell a little bit differently. You mentioned the success and execution on the dedicated state sales team side of things. Could you help us understand what is happening on the ground with the state and federal initiatives and how that differs from the strategy and resource allocation you have had historically? H. Lynn Moore: Yes, Adam. We talked about this around this time last year. We created a whole new state sales team that is dedicated to that space—different from what was there before. Part of that is new strategic account plans, new strategic account managers, and actually targeting states where historically NIC did not have state enterprise contracts, so expanding our footprint there. We are also transforming the way historic NIC's business model worked. Historically, a lot of their state contracts were funded through DIRs, and we are moving to more of a funded-solution contract. We have already seen traction with Oklahoma and Kansas. We continue to look at sales all the time and how we can tweak and make it better, and those are some of the things we are doing in the state space. Operator: Our next question comes from the line of Mark William Schappel with Loop Capital Markets. Please go ahead. Mark William Schappel: Hi. Thank you for taking my question. Lynn, in your prepared remarks, you discussed the goal of getting every client on a single code stream for each product. How far along are you in that journey? I suspect it is still early. Which business segments—such as courts or ERP—are furthest along? H. Lynn Moore: You are right, Mark. This is what we call phase two of our cloud transition—cloud moving. You will get a lot more detail on that at the Investor Day in June. It is about getting all of our core portfolio products to a single release stream—continuous improvement, continuous delivery—with coordinated releases across our product portfolio. We have been working behind the scenes toward that, and we will give you more details at Investor Day. Part of that process is getting everybody to a single version—the cloud version—and each of our divisions is at different stages, but they are all making solid progress. It is exciting. It is where we will start seeing real leverage in the gross margins of our cloud delivery. Operator: Our next question comes from the line of Alexei Mihaylovich Gogolev with JPMorgan. Please go ahead. Alexei Mihaylovich Gogolev: Thank you very much. Hello, everyone. Brian, I wanted to ask about the R&D step-up. I remember you are migrating some of the costs from COGS to R&D. Where is the investment concentrated? Is it the agentic AI versus core ERP, courts, or implementation tooling? And what are the clearest milestones to watch for this year? Brian K. Miller: The R&D investment is pretty balanced across the things you mentioned. As you noted, there is an ongoing movement of development resources from the cost of sales line to the R&D line as we continue to evolve along that cloud transition—that is just a geography change. We have also reduced the amount of R&D that is being capitalized as some of those capitalizable projects have wound down, so more of the same resources are being expensed now that were formerly being capitalized—also not a change in work, just accounting geography. When we look at the true increase in development spend, it is balanced across innovation investments across our entire portfolio—things that improve our competitiveness, drive higher win rates, and add more value to our existing customers—as well as growing investments in AI. We are continuing to move resources that are already on board to the AI side as we execute on version consolidation and free up more internal resources, so it is not a huge hiring push on the AI side, but we are dedicating more of our development resources to those efforts. Operator: Our next question comes from the line of Analyst with Evercore ISI. Please go ahead. Analyst: Hi, this is Bill on for Kirk, and thanks for taking my question. On the $20 million state digital motor vehicle titling and electronic lien win, can you provide more detail on what differentiated you on that deal? And how should we think about the implementation timeline and revenue ramp as we look out to 2027? Brian K. Miller: That is an area where we have had a fair amount of success in the last couple of years. We have a partner in that space that we work with, and we have deployed that solution in a handful of states already. As those states move from paper titles to digital titles, they create a lot of efficiency in how they manage motor vehicle titling. Those have typically been funded by transaction revenues, so it has been a nice growth area for us. We continue to see a number of opportunities in our statewide client base, and I would say the solution we are deploying is a leader in that space. The implementation will take place over this year. We expect revenues to start in the first half of next year. They will be transaction-based revenues, and we expect those, as they ramp up, to reach north of $20 million a year of transaction revenues. Operator: Our next question comes from the line of Analyst with Stifel. Please go ahead. Analyst: As you partner with your clients on their AI journey, could you provide some of the main points of feedback they are giving you on the current feature set, the roadmap, and the pricing model? H. Lynn Moore: Yes, Parker, I think the most important feedback we have gotten is really the point we have emphasized a lot over the last year—trust. Our clients really trust us to be their partner more than anybody else. They are really concerned about their data and the protection of that data, which is something that we do. We talked a lot about the AI Foundry, and that includes all the security we have around it—around their data, around their processes—being embedded in their workflows and helping them do their business and make their jobs more efficient, freeing up their time from manual tasks so that they can accomplish other things. That message gives me the most confidence going forward. Our clients have high switching costs, and that plays to our advantage as well. We have client focus groups. We had a client advisory board where we spent time talking about AI. Our ERP solutions have their own client AI working focus groups. The feedback, and working with our partners to make sure we are doing the things that are most meaningful to them, really resonates with our clients. As it relates to the pricing model, it is going to be priced differently. Some of these are going to be priced as SaaS. Some AI features will be included as part of our competitiveness, and some will be priced as separate modules. We are still early, but we are getting wins and deals that validate our models. For example, this past quarter we won a couple of document automation deals. One in Miami-Dade—we mentioned that in our prepared remarks—where their existing maintenance and support agreement was a little over $0.25 million, and we sold a document automation SaaS deal for upwards of $0.8 million. That product is getting a lot of traction in the market. All the feedback we are getting is positive, and I like where we are sitting and our trajectory. Brian K. Miller: And to add one thought to that example with Miami-Dade, it is a value-based approach, because with that uplift from the AI-driven document automation they will generate significant labor savings. There is a very strong ROI to that purchase from Tyler Technologies, Inc. Operator: Our next question comes from the line of Analyst with Wells Fargo. Please go ahead. Analyst: This is Austin Williams on for Michael Turrin. I wanted to follow up on the AI efficiencies internally that you are seeing. Any color on how you are leveraging AI and any cost savings that you are able to drive there? And as a follow-up, any thoughts on the pace of the buyback going forward? Thank you. H. Lynn Moore: On internal AI efficiencies, we are seeing them, but it is still anecdotal at this point. Brian answered a question before about R&D, and the way we think about internal resources is we focus on capacity. In R&D, AI is increasing the capacity of our developers, which allows them to do more, which is great. We are seeing some anecdotal efficiencies in the service delivery area. For example, one of our clients in our appraisal and tax business doing a data conversion—in the past, this conversion would have taken many months and was reduced to a couple of weeks. It is still early to say we can apply that across all of Tyler Technologies, Inc.'s solutions, but what we are seeing is positive and something we continue to focus on. Brian K. Miller: On the share repurchase, we have repurchased 2.5% of our stock this year. The average price has been around $315. We still have another approximately $650 million under our authorization. When I look at our share repurchases and capital allocation, I think about our Tyler 2030 path and goals and the increasing confidence we have in our free cash flow generation that will exceed $1 billion in 2030 and we believe will continue to extend far out in the future. When I look at that, and have confidence in our 88% recurring moving to 90%+, it makes me think that today is a good value. We will continue to buy our shares when we think it is a good value. Operator: Our next question comes from the line of Terry Tillman with Truist. Please go ahead. Terry Tillman: The heart of my thunder was stolen with my follow-up on the AI-driven deals. I was going to focus on document automation, and I think both Lynn and Brian shared some perspective on that. But there were a lot of deals mentioned here. Did something happen or inflect in terms of go-to-market and the sales playbook? And with these document automation deals, does this go beyond the sphere of influence you had—whether courts or back-office ERP—and become a broader document automation use case that could go well beyond what you typically were doing? Thank you. H. Lynn Moore: Yes, Terry. I do not know that there was anything more specific—it is more the timing of these deals. We had two big document automation deals. I mentioned one was about a $0.8 million deal. Another one was Harris County that was pushing $1 million. Brian mentioned the ROI selling point, which is something we focus on, and it resonates with our clients. As it relates to the acquisition of CSI and document automation, absolutely, we think it is applicable across more parts of our portfolio. Our initial focus has been in the court space—that is their bread and butter and where we have a strong presence—but I expect it to roll out across other Tyler Technologies, Inc. portfolio products. Operator: Our next question comes from the line of Matthew David VanVliet with Cantor. Please go ahead. Matthew David VanVliet: Yes, thanks for taking the second question here. I wanted to drill in a bit more on the raise of the revenue guide for 2026. I presume it now includes For The Record. What was the contribution there, and were there any other puts and takes in terms of raising the guidance? Brian K. Miller: For The Record is the biggest contributor to the revenue gain and added in the neighborhood of $30 million in total revenues. In addition, we continue to see a little bit higher volume around our transaction-based business—some of that was reflected this quarter in the actual results. To the extent our expectations have changed at least modestly around that, we have factored that into the guide for the year. But the vast majority of the raise is the result of the FTR acquisition. Operator: Thank you, Matt. At this point, that concludes our Q&A session. I will now turn the call back over to H. Lynn Moore for closing remarks. H. Lynn Moore: Thanks, John, and thanks, everybody, for joining our call today. If you have any further questions, please feel free to contact Brian K. Miller or myself. We look forward to welcoming many of you to our June Investor Day, in person or on the webcast. Thanks again, and have a great day. Operator: Ladies and gentlemen, this concludes today's conference call, and we would like to thank you for your participation. You may now disconnect your lines.
Operator: Good day, and welcome to the Builders FirstSource First Quarter 2026 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by management and the question-and-answer session. [Operator Instructions] I'd now like to turn over to Heather Kos, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead. Heather Kos: Good morning, and welcome to our first quarter 2026 earnings call. With me on the call are Peter Jackson, our CEO; and Pete Jackman, our CFO. The earnings press release and presentation are available on our website at investors.bldr.com. We will refer to the presentation during our call. The results discussed today include GAAP and non-GAAP results adjusted for certain items. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. You can find a reconciliation of these non-GAAP measures to the corresponding GAAP measures were applicable and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings and presentations. Our remarks in the press release, presentation and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results. Please review the forward-looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ from our forward-looking statements and projections. With that, I'll turn the call over to Peter. Peter Jackson: Thank you, Heather, and good morning, everyone. Our first quarter results reflect the adaptability of our operating model as we delivered strong strategic share growth in weak housing market. Across the organization, we remain focused on the factors within our control, including serving our customers, expanding our differentiated portfolio of value-added solutions and leveraging technology to accelerate growth and drive operational excellence. This disciplined approach continues to strengthen our leading position as a trusted world service partner to homebuilders. By continuing to invest in innovation and the capabilities that matter most to our customers, we are reinforcing our role as the leading building materials provider and extending our competitive advantages. Our strategy enables us to outperform as the market normalizes and to deliver sustainable long-term value for our shareholders. Let's turn now to Slide 4. Our first quarter results highlighted our agility despite the challenging housing market and seasonally lower time of the year for the industry. We landed at the upper end of the expected Q1 range for sales and EBITDA even if the macro was worse than we expected. We continue to lean on our exceptional team, leading value-added solutions and robust operating model to drive performance. Let me take a moment to share some perspective on the market. The housing market remains weak as affordability challenges and muted consumer confidence continue to weigh on demand. In recent months, geopolitical tensions have added to market volatility by contributing to higher interest rates and additional inflationary pressure. The surprise of the Middle East conflict and the uncertainty around implications for both affordability and consumer confidence have undermined the spring selling season. While we are managing what's in our control, these conditions have created sales and cost headwinds that we don't expect to fully offset this year. Sales improved in the first quarter, in line with expectations and daily sales continued to build in April. However, sentiment is clearly weaker. As people discuss, our revised full year guidance reflects these dynamics. Despite ongoing macro challenges, we remain committed to advancing our strategy, including a sustained focus on share growth, continuous improvement and capital allocation. We cannot control the market, but advancing our initiatives will enable us to realize share gains, improve the way we operate and position us to accelerate growth with any level of recovery. We expect to capture single-family share growth by delivering outstanding customer service, bundling our broad product portfolio to drive affordability and leveraging cutting-edge technology. Multi family, quoting activity remains active, but the uptick in interest rates has deferred certain projects. Given the current project pipeline, we don't anticipate a meaningful improvement in our multifamily results until next year. In response to the current market weakness, we are prudently managing spending and maximizing operational flexibility as outlined on Slide 5. We remain operationally disciplined and have taken actions to reduce costs in line with demand while preserving our ability to partner with our customers and invest in innovation and technology. So far in 2026, we have consolidated 21 facilities following the consolidation of 55 total facilities over the prior 2 years, all while maintaining an on-time and in-full rate greater than 90%. Supported by our industry-leading scale, experienced leadership team and proven ability to operate proactively through the cycle, we are confident in our ability to make the necessary adjustments and continue to deliver exceptional customer service. On Slide 6, we highlight some of the key initiatives under our strategic pillars. Our capital deployment is strengthening our competitive position and driving long-term value creation. Since the inception of the buyback program in August of 2021, we have repurchased nearly 50% of our total shares outstanding. Operational excellence is crucial to how we run the business. As we develop talent, improve agility and increasingly embed technology into our operations. We generated $6 million in productivity savings in Q1, primarily through targeted supply chain and logistics initiatives. Moving to Slide 7. Our prudent capital allocation strategy focuses on maximizing shareholder returns. In Q1, we deployed $360 million towards return-enhancing opportunities aligned with our priorities. Our consistent strong free cash flow through the cycle gives us the flexibility to invest in organic growth, pursue strategic M&A and return capital to shareholders. Drilling down into M&A on Slide 8. We remain focused on pursuing acquisitions that expand our value-added product offerings and advance our leadership position in desirable geographies. We have developed substantial and proven muscle memory to grow through M&A and have a track record of successful integration and synergy capture. As a reminder, we acquired premium building components in January, marking our company's first trust and wall panel operations in York. Since the P&C merger in 2021, we have made 41 acquisitions representing over $2.3 billion in annual sales, the equivalent of a top 6 LBM player. Demonstrating our ability to execute and integrate seamlessly. With the industry still fragmented, we see significant opportunities ahead and are confident that inorganic investments will remain an important driver of long-term growth. Turning to Slide 9. We continue to differentiate by digitally enabling our team members, strengthening customer relationships and advancing value-added product development to support long-term growth. Our investments in automation, AI and digital integrations are focused on simplifying and accelerating the building process for our customers. In Q1, our digital platform processed nearly $800 million of quotes as we continue to automate key steps of the process. Later this year, we will roll out the next generation of digital solutions. Deploying emerging technologies to support builders across key stages of the homebuilding journey. The platform will include 4 integrated hubs: community, plan, selections and construction. All accessible through mybldr.com with embedded AI capabilities, providing actionable insights through a single unified platform. Builders will have access to connected tools and real-time data to coordinate the build, reduce waste and sell homes faster. Digital is central to how we operate today, particularly with our sales organization, where these tools create opportunities to capture share, expand product adoption and deepen customer relationships. Recognizing 1 of our outstanding team members each quarter is 1 of my favorite parts of our earnings call. Today, I'm proud to highlight members of our Middletown New York Millwork team. Sam Lane, Dan Livingston, Anthony Legmen and Eddie Walsh, who are recognized by the New York State Police for their compassion and willingness to help a community member in need during dangerously cold winter weather. Earlier this year, first responders contacted Sam and his team after identifying a local resident whose front door was severely damaged and no longer provided adequate protection from the coal. The officers were seeking to purchase a replacement or to help ensure the individual safety. When our team learned that the situation and the residents need, they stepped in immediate, producing a brand-new prehung door at no cost and assisting with the installation, I'm truly grateful to our Middletown millwork team for living our BFS purpose every day to build a better future for those we serve. I'll now turn the call over to Pete to discuss our financial results in greater detail. Pete Beckmann: Thank you, Peter, and good morning, everyone. Our first quarter performance reflects disciplined execution in a weak housing market. We remain focused on managing our operations and working capital while advancing key growth initiatives to drive long-term success. Turning to our first quarter results on Slides 10 through 12. Net sales decreased 10% to $3.3 billion, driven by lower organic sales and commodity deflation, partially offset by growth from acquisitions. The core organic sales decrease was driven by an 11% decline in single-family reflecting lower starts activity and reduced value per start and a 1% decline in both multifamily and repair and remodel, consistent with our expectations given muted activity levels and consumer uncertainty. As we've noted on recent calls, several factors reconciled single-family starts to our organic sales. First, there is an approximate 3-month lag between the start and our first sale. Second, average home value has declined as homes have become smaller and less complex, creating a sales headwind, we believe a comparable start has declined in value by 10% on average since 2019. Third, housing affordability constraints continue to pressure margins across the supply chain. Against this backdrop, we believe we grew share in the first quarter, reflecting our market-leading offerings and continued role as a trusted partner. For the first quarter, gross profit was $0.9 billion, a decrease of 17% compared to the prior year period. Gross margin was 28.3%, down 220 basis points, primarily driven by a declining start environment. Adjusted SG&A of $740 million decreased $31 million, primarily due to lower variable compensation amid lower sales and lower headcount, partially offset by acquired operations. As we touched on in February, we linked further into our downturn playbook with $100 million of cost actions, which includes $75 million in year-over-year cost reductions and $25 million in cost avoidance. These actions include deeper cuts to overtime and temporary labor, adjustments to incentive compensation plans, reduced merit and overhead spend, additional facility consolidations and tighter controls on discretionary spending. To date, all actions are complete or meaningfully underway. We realized $13 million in the first quarter and are on track to achieve our cost reductions this year. This positions us to leverage our costs as the market improves. Adjusted EBITDA was $214 million, down 42%, primarily driven by lower gross profit. Adjusted EBITDA margin was 6.5%, down 360 basis points from the prior year, primarily due to lower gross profit margins and reduced operating leverage. Adjusted EPS was $0.27 and a decrease of 82% compared to the prior year. Now let's turn to the cash flow, balance sheet and liquidity on Slide 13. Our first quarter operating cash flow was $87 million, down $45 million primarily due to lower net income. For the quarter, we delivered $43 million of free cash flow, underscoring the strength and consistency of our cash generation profile. Our trailing 12 months free cash flow yield was approximately 10%. Operating cash flow return on invested capital was 13%. Our net debt to adjusted EBITDA ratio was approximately 3.2x, while higher than our long-term target, we are confident in the strength of our balance sheet with strong liquidity of $1.5 billion. We remain comfortable with our net debt levels and we'll continue to execute our capital allocation priorities with discipline to maximize long-term value creation. Moving to the first quarter capital deployment. Capital expenditures $45 million. We deployed $12 million on acquisitions, and we repurchased 3.3 million shares for $303 million. Earlier today, we announced that our Board of Directors authorized $500 million in share repurchase inclusive of the $200 million remaining under our April 2025 authorization. On Slides 14 and 15, we outlined our latest 2026 outlook and assumptions, which reflect continued weakness in housing starts, ongoing affordability pressure and a more cautious consumer. Compared to 2025, single-family and multifamily starts are expected to be down 2.5% and repair and remodel down 1%. As a result, we are adding net sales in the range of $14.6 billion to $15.6 billion, adjusted EBITDA of $1.1 billion to $1.5 billion and adjusted EBITDA margin of 7.5% to 9.6%. We expect our 2026 full year gross margin to be in the range of 27.5% to 29%. Reflecting the below-normal starts environment, we expect free cash flow of approximately $400 million to $500 million. The year-over-year change is driven primarily by a $180 million swing in working capital and lower EBITDA. In 2025, we benefited from a working capital release driven by the lower sales environment exit the year. In 2026, we anticipate the second half to be stronger, which requires investment in working capital. Our guidance assumes average commodity prices in the range of $390 to $410 per thousand board foot in line with the long-term average of $400. Despite continued end market softness, commodity prices have pushed higher since mid-December, driven by rising input costs. For Q2, we expect net sales to be between $3.75 billion and $4.05 billion and adjusted EBITDA to be between $300 million and $350 million. The shape of the full year implies a heavier second half contribution as we lap the starts decline due to the rapid deceleration of starts to reduce new home inventory levels. In closing, we are closely monitoring the current environment and remaining agile to mitigate downside risk in the near term while also investing strategically for the future. Supported by a fortress balance sheet and strong free cash flow through the cycle, we continue to manage capital with rigor, drive for organic growth and productivity savings and pursue M&A. We remain well situated to compound value through our strategic initiatives. With that, I'll turn the call back over to Peter for some final thoughts. Peter Jackson: Thanks, Pete. We are the nation's largest supplier of building materials to homebuilders in new residential construction, combining unmatched scale with deep global execution across every major housing market we serve. We are #1 in manufactured components, windows, doors and millwork, providing significant value to builders. Our footprint, digital platform and install capabilities create an unparalleled structural advantage. With our experienced cycle-tested team, we expect to deliver solid results in the near term and significant upside when the market recovers. Thank you again for joining us today. Operator, let's please open the call now for questions. Operator: [Operator Instructions] And we'll go first to John Lovallo with UBS. John Lovallo: Despite the headwinds that you've articulated in housing so far this year, I mean we would argue that the spring selling season has probably been a little bit better than feared and better year-over-year with most builders posting year-over-year order growth. I mean I do recognize there's a 3-month lag from -- for you guys from when you start getting activity. But is this kind of better-than-expected spring part of the driver of the second half step-up that you're expecting? Along with just the easier comps? Peter Jackson: John, yes, so thanks for the question. We absolutely did see a nice build at the beginning of the year. There were a number of different conversations we were having about the positive momentum, both on the public and the private side. It's important to remember that we generally see the headlines for the public builders, but they're a significant, but not universal coverage of the industry. That momentum at the beginning of the year, I think, has been good. It's just not -- I don't think able to withstand negative headwinds around uncertainty. That's what we called out here. I still think we'll see a good year. I just think it will be a little bit weaker than what we anticipated and that has led to pressures throughout the business, whether it be on the inflation side or just the competitive dynamics side. John Lovallo: Makes sense. And then maybe just digging a little bit deeper. The outlook implies a pretty nice improvement in margin in the second half at the midpoint, I think a 26% adjusted EBITDA margin would be 9.6%, which is, I think, 200 basis points higher than the first half. I mean what are you kind of expecting to be the big drivers of this improvement? Pete Beckmann: Yes. Thanks for the question. So it's really driven by the leverage that we gain out of the summer selling seasons, with the strength in our sales flowing through some of it's related to the sequential performance and management of our cost structure. We outlined our productivity was $6 million in the first quarter. We're still targeting our $50 million to $70 million for the full year, as well as the cost actions that we've outlined. So the $100 million of cost actions are well underway. We've completed most actions. Now it's just realizing those benefits as we move forward, which should help accelerate some of that leverage we would see in the back half of the year. Operator: Our next question comes from Charles Perron-Piche with Goldman Sachs. Charles Perron-Piché: First, I just want to draw a more into the gross margin guidance embedded for the balance of 2016. I think you mentioned last quarter, Q1 would be the low point for the year. But obviously, it sits on the midpoint of the revised range. So how does it inform your expectations for the balance of the year? And what drives your expectations for the high end versus the low end of that range? Pete Beckmann: So what we had signaled last earnings call is Q1 would be the low watermark as we were anticipating a stronger build in the selling season as Peter had mentioned, with the uncertainty as well as the increase in input costs, specifically around fuel, a lot of that inbound is still unknown that we're anticipating from our supply partners. It's not nominal amount of impact that it will have on the cost. We've left the margin range fairly wide. We look to navigate what that looks like as we move forward. At the same time, we do expect to pass through where a distributor passed through those cost increases, but some of it is timing related. And as we work through that, it's probably going to have a muted impact on our margins. So we had signaled a build in margins as we go through the year and we leverage our fixed costs and cost of goods sold. That's still the case. We still anticipate that, but maybe not to the same degree, given the sales volume expectations. Charles Perron-Piché: Got it. Okay. That's helpful color. And considering the challenging housing backdrop and the profitability outlook you've highlighted, I would imagine some of your competitors are struggling significantly at these levels. I guess how are you seeing some of them behave in this market environment? And are you seeing some smaller players exiting capacity? Peter Jackson: Yes, it's a great question, Charles. The answer is, yes, there's a ton of pressure. And there are smaller players that are certainly struggling. There are players that have closed down a lot of facilities. We've obviously talked about it publicly, but they're doing it privately. We've seen that in the market. We've seen a lot of turnover. People are making significant headcount reductions, talent coming on to the market in some instances, we've seen aggressive behavior, certainly, a mix, as you might expect, right? The bell curve of performers in this market is what we see in terms of reactions. Some people are trying to pursue product categories perhaps that they haven't before. So new entrants and new competition in certain buckets. We've seen irrational behavior where people will throw numbers out and then not be able to fulfill and have to back off. And so churn in the market. And just in general, a lot of very aggressive behavior. So people alluded to it. I think sometimes it's hard to -- it's hard to relate to what people are seeing in the market, but we're -- volume levels or starts that would be comparable to 2019, but the content of the house is even smaller by another 10%. So we're certainly seeing a market that's at substantially lower levels of volume running through it even after having an additional 5 years of capacity adds and things going on. So the market is absolutely adapting. Capacity is coming out -- some of the weaker players are really struggling. We're hearing rumors of not being able to pay bills and delays and layoffs, but we'll see how it pans out. We're still strong in this. We're still able to, I think, take advantage. We alluded to that a little bit, we're sort of leaning in a little bit this quarter, harder than we have and taking advantage of some of those opportunities. it's not easy right now, but I'm absolutely proud of this team for what we've been able to do. We're still strong in this market, even though it's not. Charles Perron-Piché: Got it. Peter, and good luck with the quarter. Operator: Our next question comes from Rafe Jadrosich with Bank of America. Rafe Jadrosich: I just wanted to start on the share repurchase in the quarter. You are above the sort of target, the long-term target leverage range, but you bought back $300 million. Can you just talk about that decision and strategy going forward? Pete Beckmann: Sure. Yes, when we talk about our capital deployment strategy, it's very consistent with what we've seen. I would say, the way I would frame that is, first, making sure that our balance sheet and our debt is rock solid. We have plenty of liquidity. Second, that we're investing in the core of the business, continuing to make sure we have what we need from a capital investment perspective. Third, looking at the M&A environment, the inorganic opportunities and what high return targets are out there for us to consider and then finally, what does it make sense to lean in and buy back shares. And I think we saw the dip this quarter in reaction to the dynamics of what was going on in the Middle East and saw it as an opportunity to pick up shares of BFS at a tremendous discount. We have a lot of confidence in our balance sheet and where we stand on the leverage perspective, certainly with the decline in EBITDA levels, it's resulted in some of the multiples. The leverage multiple as you mentioned, is being a bit higher but it's not an area of concern for the business. We're going to remain disciplined. We're going to remain thoughtful about how we do it. And at no point are we going to impair our strength on the balance sheet or our liquidity position. Rafe Jadrosich: That's helpful. And then just on the inflation side, how are you -- could you just help us understand how you handle sort of higher diesel costs and some of the inflation. Does that get passed along to your customers through surcharges? And maybe just talk about the exposure in terms of the transport on the fuel side. Pete Beckmann: Yes, absolutely. And we certainly saw, as did everyone else in the space and across the world, increases in fuel costs, diesel specifically, we take those costs as inputs, and we will surcharge our customers passing along. And sometimes it's embedded in the way that we price our product and how to service our customers. So it's all embedded and we do pass that through. We evaluate it very closely. And like I mentioned on a prior question, it's not an insignificant amount on the inbound and it's not insignificant on the outbound. We do take that very serious and passing it through. Operator: Our next question comes from Ryan Merkel with William Blair. Ryan Merkel: I want to go back to gross margins. What was the biggest surprise in the quarter because you did beat the street on sales? And then on the guidance, how did you think about that? Did you just extrapolate what you saw in the first quarter or did you add a little bit of incremental weakness to the guide? Peter Jackson: Ryan, yes, thanks for the question. So I think the challenge that we face in this current environment is the variety of products that we're selling and the dynamics that are happening in each 1 of those categories. What I would say in Q1 is if you look at the trends, the core of the business is pretty well leveled out. They're certainly hand-to-hand combat in certain areas, in certain parts of the country, so you get sort of the normal variability. If you think about lumber commodity and the value add where I think we were surprised is in the specialty products and the other categories. That was where it was certainly more challenging, more volatile than we expected. Not happy about it, recognizing it for what it is and trying to account for that on a go-forward basis. But that's the core of the story. Pete Beckmann: So Ryan, if I could add to that. What's also working really well is our funding program. Where we picked up a little bit of mix is on the lumber and sheet goods. So as we've been successful with our manufactured or value-added sales, we picked up a little bit more on the lumber and sheet which is a lower margin category, which had a little mix impact. So that's all evidence of some of the share that we've been able to capture on the lumber side, leveraging that value-added capability. Ryan Merkel: Got it. Okay. And then just back on the guide, I know it's an uncertain environment. So did you just extrapolate sort of the trends in 1Q? Or did you add a little bit of cushion in the guidance. Curious how you thought about it. Pete Beckmann: I would say we don't just extrapolate we're looking at our buildup from the bottoms up as we think about our sales projections for the year, what's in the pipeline what we're hearing from our customers, the economists, we take all things into consideration as we develop our guide. And we have a normal seasonal curve. So it's a little more muted than what we had communicated last quarter -- or last quarter. But it's still a seasonal curve and we're seeing certain parts of the country saw out and start to gain momentum as we get into the summer selling season. We're playing closer to the pin, Ryan. Operator: Our next question comes from Mike Dahl with RBC Capital Markets. Michael Dahl: I want to follow up on the kind of strategic share comment. So I think in the past, you've talked about others have been more competitive on the lumber and dirty side, not necessarily wanting to share that way. It doesn't sound like this is specifically the goal of, let's win back share in lumber, it's more kind of a function of some other strategy. But can you just elaborate a little bit more on kind of the shift that you've made there? And then if there's any way to quantify when we think about the mix in the act gross margin, what that really cemented the quarter and in the guide?. Peter Jackson: Thanks, Mike. Listen, man, there was a lot of feedback there. So I think I got it, but if I don't, please just correct me in the answer. So your question was about what's the bundling -- a little bit more on the bundling, what do we think that's doing in terms of the margins and the business. So our bundling is really sort of the culmination of all the work we've done to offer the variety of products. It's the ability to come in and say, to a builder, we can make your life simpler and more efficient and put together an affordability package for you if you're interested in buying lumber plus trust plus millwork, plus Windows or whatever we're offering in that particular market. The opportunity there is to have some sort of back end or some sort of combined pricing that allows us to fill capacity, keep our operations humming. But by combining it offer a superior value while at the same time offering or capturing more gross margin dollars for ourselves. So pretty straightforward in that regard. The mix impact right now, I think Pete alluded to it in the past, I think we've walked away from more of the lumber than maybe we have to right now. We can kind of pick that up, has a little bit of a negative impact on margins by virtue of mix. I would tell you that's not the biggest impact or a negative mix in this quarter -- sorry, or negative margins this quarter. I think the primary issue is what I was outlining before about the other products, the specialty products. It's just gotten tighter I would say, surprised us how quickly it got tight in the quarter. But the core of the business, the lumber and lumber sheet and the value-add, I think, is performing largely in line with what we expect. Michael Dahl: Yes, that's helpful. Sorry, Chris. Hopefully, the follow-up comes in clearer. The -- just then to kind of dovetail understanding those comments in terms of that's not really the main driver. Some of the public builders have commented about cost increases are not taking cost increases or want to push them off. We have heard some concerns about kind of players like yourselves being caught in the middle in an inflationary environment. Obviously, historically, there's been sufficient ability to pass through costs, given your position in the market. But maybe specifically on the commodity pricing right now, there have been periods of time where you might be a quarter or 2 of margin compression as commodities rose. I think you moved away from a lot of the longer duration contracts. So that's been a little less of an issue in recent years. But can you talk through whether there's any timing differentials on -- I know you mentioned fuel, but also on the commodity side that might be pressuring margins in the near term? Peter Jackson: Yes. No, that's a good question. So I'll start with the commodity side. You're right. We have largely moved away from those long-term contracts. And we're accurately we, I think, done a better job of matching our commitments to our customers with our purchasing profile and the way we're bringing it in. So certainly, it's a little bit of that, but if it was big enough to mention I'd be calling it out. So it's fairly modest in terms of the number. The broader question I think you asked is probably the more urgent one and it has to do with, well, builders are saying they're not going to take price increases and vendors are saying, well, we're going to get price increases. So that's going to leave us holding the bag. I'd say that's not true. I think we're pretty good at this. And the balance here is we provide a value to this market on behalf of both of those parties. And there's a level of profitability that we're going to need to see in order to continue to participate. So to the extent we have good long-term partnerships and the market wants product there's going to be a pass-through of whatever it needs to be. Now do we play a mediating role in that Absolutely, right? We're in the discussions between vendors and builders and builders and vendors, depending on the dynamic. It's very clear to us that we have an affordability problem, right? We are trying to help the builders achieve that goal in any way we can. But at no point does that involve us becoming a charitable institution and losing money in order do it. So there's a balance, right? And I think they understand I've had conversations with a number of them. And I think they're going to do what they need to do and they're going to press and we're going to do what we need to do, and we're going to hold the line where it's appropriate. But in the middle, there's a lot of value and a lot of work to be done, and I think we're particularly good at navigating that. Operator: Our next question comes from Matthew Bouley with Barclays. Matthew Bouley: Just sticking on the gross margin topic. So this guidance change of hundred basis points or so. I heard you mention several drivers. You had the competitive environment, change in your starts assumption from flat to down low single digits. It sounds like price cost due to fuel, talked about lumber mix, and then the specialty products and other margin. My question is really is any 1 of those, the biggest issue? Or maybe you can kind of rank order the drivers of that change? Obviously, what I'm trying to do is get conviction on what it would take to sort of halt that decline in gross margin. Peter Jackson: Thanks for the call, Matt, for the question, Matt. Yes, I think the answer is, if I'm scaling the level of impact, the biggest one is the specialty. I think the second piece is, it's a lot of different stuff in the inflationary component is an important one. It's kind of the impact of fuel and what we're trying to do to manage it. That's more of an outbound cost thing that we're managing. It's certainly, I would say the others are more comparable in size for the starts impact the competitive dynamic mix impact and the fuel on the gross margin side. Matthew Bouley: Got it. No, that's -- got it. Perfect. That's helpful. And then the second one, the cost savings, the $100 million in 2026. It's the same number from last quarter. Obviously, your overall earnings rejection has come down. So my question is, is there any more room to press on that? And how are you thinking about the balance of hanging on to cost, hanging on to labor, et cetera, versus what it would take to kind of press on more, I guess, austerity type measures? Peter Jackson: So I think that the short answer to that is we're always looking at changing the size of the business and cutting costs in a market like this. The primary focus remains on the variable side to ensure that we're matching the people doing the work with the work that we have. And that is the biggest dollar amount by far that you're going to feel in our results. We're working through and as Pete mentioned, largely through most of the cost outs. I think at least initially, we need to digest the impact of that and make sure that we're able to deliver on the things that we're committed to delivering before we take another pass. That said, we will continue to look at it. And as the year progresses, we'll see what we need to do. We're not announcing anything today, nothing new to that. Operator: Our next question comes from Keith Hughes with Truist. Keith Hughes: Thank you with the margin hit on specialty. It seems like it's now everything you do. Has it changed the relative margins amongst the products, the pressures of the downturn are they still kind of rank order the same top to bottom. Peter Jackson: They're still rank order pretty much the same. I think what you see, Keith, in its the academic in me is kind of fascinated by you actually saw the wave of cost reductions and competitiveness flow through our P&L similar to the way you would see it hit the job side. It started with the lumber. It's a commodity move quickly. It reset quickly all the margins reset quickly, then it worked through some of the value-added products as you get into the structure and we're seeing it, we're all the way through to some of the dogs and cats on the back side of the build that we deliver. So the relative performance, still very similar, but the timing at which we saw the resets was kind of in that order and why we're seeing the specialty now is just a bit more than we thought. Operator: And our next question comes from David Manthey with Baird. David Manthey: Guys, I'm wondering if you're expecting to see any relief in the size and complexity of homes as rates are more or less stable here. I mean at some point, I think maybe it just mix up naturally as buyers would skew more affluent because of the affordability, but maybe not. Could you just discuss the second derivative rate of change and any expectations you have that as sort of a leading indicator ahead of unit volumes going up? Peter Jackson: Yes, Dave, thanks for that question. It's a fascinating one. We debated it internally going back and forth. I think that the dynamic we've seen up until now is very much a bifurcation of the market, right? You've got strength at the large-scale, the more affluent buyer, the cast fire, if you will. But on the counter, you have a lot more homes shrinking and using in complexity at the bottom end. So the starter homes are more starter. They're simpler. There's less in them. There are also -- not only is it square footage, but it's single pipe stand-alone to the townhouse offering as well, right? So those dynamics we think have played out pretty aggressively. It is our opinion that stability to improvement in the market will likely lead to a reacceleration of some of those factors, meaning people would prefer to live in it would be welcome. I think you'll see more stability through the middle and upper tiers of the market, and we will see a little bit of that. David Manthey: Okay. And if you could just update us on the ERP, how far are you? And what does the time line look like from here? Peter Jackson: Yes, sure. So for those of you who don't recall, we're in the midst of an SAP implementation. We are doing it in a very incremental way. So it's not a risk to the overall business. We did a preliminary pilot last year and have been doing some work to dial it in so that we can scale it. We're going to test those changes later on this year with another rollout. And then the expectation is it will start to accelerate in 2027 for the next kind of few years, I guess, based on the current schedule. We'll see how it goes as we start to trigger it. But we think we're ready to have a really nice rollout later this year to prove it out to prove out a new training regime and some of the other stuff we built. But that's kind of the thinking around it. It's going well. It's slow process. I'm very impatient, but I think the team is doing a good job. Operator: Our next question comes from Trey Grooms with Stephens. Trey Grooms: Everyone. So a little bigger picture here, I guess. I think installed products are something around kind of high teens or so of your sales with the install including the products you're selling, clearly. It seems like that's a value-add area that builders are willing to pay for. How are you thinking about installed generally, is this an area you can lean into in the current environment? And maybe where do you see your install offering going here over time. Peter Jackson: Thanks, Trey. Yes, I think install is still a compelling offering. It's got the combined benefit of taking work off of the builder, making the job site more efficient and capturing the off-site benefits of all the other things we're able to do. Right? So whether that be installed trust, installed windows, we do some install framing, we leverage ready frame, there's a bunch that we do. I believe that even in a market like this, where there's depressed volumes, we're doing quite well with it. It's growing or it's performing better than market. put it that way, right? It might be down, but it's down less than the overall starts, where I think it's really going to shine though is as this market starts to turn. I'm a firm belief that the lack of skilled labor will continue to be a challenge for this country in this industry for a long time. And I think the efficiencies captured in the installed model that we offer will be a differentiator and a competitive advantage as the market begins to accelerate again. Trey Grooms: Got it. That makes sense. And then on the -- with cash flow and on the balance sheet, Pete, you guys are -- you mentioned you're expecting second half to be stronger, which will require investment in working capital. Any additional color you can give us there on what that use could be or what you're baking in there for working capital as a use of cash with your updated free cash flow guide for the year? Pete Beckmann: Yes. So the working capital increase is going to be generally around or your receivables. So as we have higher sales per day as we exit the year, we'll have higher receivables that will carry over that finish line. I think we highlighted last quarter that the year-over-year changes in the change in working capital, specifically year-to-year was going to be about $300 million. Because of the lower guidance, we pulled that back, we're looking at about $180 million in the change in working capital year-on-year which is that change is helping to offset the lower EBITDA that we had outlined. And then there's some other docking cats with the CapEx guidance that we had changed that kind of make up the delta. But that's really the bigger pieces of it. Now if you also think about inventory with higher inflationary costs on a relative basis point to point, inventory cost is going to be a little bit higher as well. So we try to factor in all the real working -- operating working capital pieces as well as the things around it. I hope that helps give the frame. Operator: Our next question comes from Kurt Yinger with D.A. Davidson. Kurt Yinger: Great. Thanks, and good morning, everyone. Just looking at kind of the base business, it looks like kind of the current guide is down on sales, 4% to 5%, a little bit more than the drop in end market assumptions I think last quarter, you had kind of assumed a certain level of share gains this year. Have you dialed that back at all? Or how does maybe inflation play into that as well? Pete Beckmann: Yes. Thanks for the question. So when you're looking at the base business and the trend, you have to also factor into the margin change, the price because that's going to weigh on the top line as well. No, we have not pulled back on our share gains or organic growth. We're still driving that forward in addition to what we had talked about earlier on the bundling and going after strategic share gains where it makes sense and where it's profitable. So that's all baked into the base business trend that you're looking at. But that weight from price is certainly a factor on the sales line. Kurt Yinger: And that would be, I guess, a component of competitiveness on gross margin, not necessarily an assumption of kind of vendor-led price decreases. Is that the right way to think about it? Pete Beckmann: That's correct. But we've talked about all the factors that weigh into that margin performance. So, the competitive nature is certainly 1 of Peter has mentioned the specialty and what we've seen on the specialty side, a little bit of the mix that we talked about. So yes, the competitive environment is still active and with a lower start environment, it's going to continue to persist. Kurt Yinger: Okay. Great. And then just on manufactured products kind of price cost, lumber has been on a nice low run here through Q1 kind of stabilizing at higher levels in Q2. Did you feel like on the trust side, you're able to fully pass that through or maybe how do you balance that price cost dynamic with the desire to fill up capacity and make sure you're covering more of those fixed costs going forward? Pete Beckmann: Yes. The fixed cost dynamic is certainly a volume aspect that we talked about with seasonality and fill in the plants and making sure that we're utilizing as much as we can. That factors into some of our facility rationalization Peter mentioned in his remarks that we had closed 21 locations so far this year. Some of those are manufacturing operations where we're trying to make sure we're consolidating and maximizing that utilization. As far as the trust, we are passing the cost through, there's a little bit of lag on a trust design because you design and that cost basis is built in typically when you're co-inhibiting. So it's a little more extended than just the short term on the lumber and sheet goods However, that resets with each trust that you're bidding and quoting. So it's got a little bit of a lag, but it's something that we're proud of on how our margins have performed and how well the team does with the product that we deliver to our customers. it's going to continue to be a higher-margin category for us as we look in the future. Operator: Our next question comes from Sam Reid with Wells Fargo. Richard Reid: I actually wanted to circle back to a comment that was made in the prepared remarks on April. I believe if I heard correctly, you saw a little bit of a sales improvement in April. I was just curious, is that a function of the macro and maybe just contextualize that April sales improvement in the context of normal seasonality. Peter Jackson: Yes, I think you hit it there. It's normal seasonality. We do see sustained growth from January through at least May and then it sort of ebbs and flows throughout the rest of the year, depending on the month and the sort of the focus that the builders have in terms of what they're trying to accomplish and the reactivity to the selling season and how well it's gone. But given the kind of normal seasonality around the country, this is what it's supposed to do. And it's doing it. I think for all of us, we just like it to be a little bit better and a little bit broader. Richard Reid: That makes perfect sense there. And then switching gears, maybe going down a little bit on that install piece. We've been hearing from a lot of the builders that they're getting concessions on labor, that's 1 of the key components that some of the big guys have indicated is driving thick and brick savings. I'm just curious for your installed business, do you see any of those benefits there potentially flowing through the P&L? Just talk through that implication. Peter Jackson: Well, I'd say good news and bad news on that. Yes, we're seeing it and no, it doesn't flow to the P&L. It flows through to the job site, right? I mean that labor has a relatively modest margin, well, I guess, everything has a relatively modest margin these days. But it's dominantly a baseline competitive component, much like commodity lumber in the space. We're adding value by virtue of our efficiency. So there's some benefit there, but a lot of that is passing through. Operator: Our next question comes from Phil Ng with Jefferies. Philip Ng: Well, Peter, I guess to kind of kick things off, your sales in 1Q and even 2Q somewhat backward-looking in terms of starts and starts have actually been grinding higher a little bit. Curious what are you hearing from your customers on spring selling fees because you're calling for a better back half. The public guys have been pretty -- I mean it's out there, but just any color on that with the private customers you deal with day to day. Peter Jackson: Yes. Thanks, Phil. So yes, I mean, like to recap at the beginning of this year, I think you saw a differentiated performance. You saw some builders who have been more successful in that effort, see really nice start, right? We have a couple of builders who are doing candidly some of their best business ever because they are able to start with a clean sheet, build exactly what the current consumer is looking for and putting it into the ground at pace. Others are still worried about the burn off. And so there's a mix. Now that characterization that I just gave you is really a public builder storyline and largely what you saw. So I think in general, not too bad, pretty decent year. On balance, I would probably say that it's neutral to negative, but it's neutral to where they were, and there's some optimism in that number. When I go to the other side of this equation though is the private guys, which is still 40%, 45% of the starts. The impact of uncertainty, the impact of the war and the volatility in the stock market. I think you've had some people just say, you know what, let's just wait a little bit. And I don't think that was the tone earlier I think before the war, there was a bit of a sense of, hey, this isn't too bad. Mortgage rates look pretty good. When it crossed [ 599, ] there was some optimism -- but I think that has pulled back and slowed down. Again, I don't think that -- it's not the lights have turned off. I don't want to call an end to anything. But it's a bit more tepid than we were hoping for, given what we had seen earlier on in the year. So trying to reset around that, putting our best foot forward as to what we think is going to play out. But Hopefully, that's helpful. Philip Ng: Yes, that's very helpful, Peter. Really appreciate the color. And let me preface this question. I have a necessary seen, it's not clear to me yet the merit of going vertical, horizontal, I mean, for some of these larger distributors that have made big investments recently. But one of them in particular, made a splash with during the LBM market now as well as the insulation side of things. I'm just curious, does that give you a rethink in terms of your approach, which has been more targeted around your core or you're considering actually going more horizontal, how does that like perhaps change the competitive landscape and how you go to market just given what you're seeing in the broader industry at large? Peter Jackson: Yes. Thanks, Phil. I hadn't heard anything about what you're talking about. Yes, just didn't. So I think our comments on this have, I think, been pretty consistent. Hopefully, we'll be familiar. We really like the business that we've been able to put together. We've done some of these other things over the years. I think it's public record. We spun off our [ chips in ] business. We do very little in insulation. We do very little in roofing isn't to say we don't do it. There are certain markets where it makes sense to include it in our offering, but it's not an area of focus for us. And we think that's because there's very little overlap in terms of the benefit that these products can provide by virtue of the way that they're provided and by virtue of the customer that is purchasing what they're selling. So not true in every instance, but we think this is the right place for us. We feel very good about our ability to compete in our core market and to win. We think our strategic advantages in our core market are the things that are -- that have benefited us in the past and will continue to. I am not intimidated by any player in our market right now by virtue of what they can do. Some are far better than others at telling the story. And I can absolutely offer my admiration for a good storyteller. I love that since up. So I'll get better at it, but let's just agree that we are the biggest, we are the best and -- of anybody. Operator: Our next question comes from Reuben Garner with the Benchmark Company. Reuben Garner: I appreciate you squeezing me in. If this is a repeat, I apologize. I had some feedback earlier on the call, but you mentioned specialty margins a couple of times. I was wondering if you could give a little more color on what you're seeing there. Is it specific products within specialty? Is it just broad-based kind of price cost pressure? What's driving the margin headwind there? Peter Jackson: Well, specialty for us by virtue of what we cover is a list about as long as you are. It's everything we sell outside of those primary categories. So it's things like siding, roofing, it's the gypsum, it's cement. It's anything that we're doing is a long list. So it's that culmination of a bunch of small hits that is the outline that we're providing around the specialty that other category, if you look at our investor presentation materials. That's where it's being hit. Reuben Garner: Okay. So just to be clear, it's not necessarily the digital or install piece with -- that I believe is within that segment as well. It's more the kind of the long list of products that you sell? Peter Jackson: It's not the it will be too small to move the needle. I mean, install is in there, but it's not a -- that's not a meaningful change from what we're able to drill down into it and it's that long list and a bunch of slices. Sorry, it's just hard going forward there. The rest of the day, trying to part it all out for you. I don't think that makes sense. Operator: Our next question comes from Min Cho with Texas Capital Securities. Min Cho: Just a couple of quick questions here. Peter, you mentioned that value per start was down in the quarter, but have you started to see any stabilization there? Or do you expect it to kind of decline for the intermediate term? Peter Jackson: Well, the callout was 10% versus 2019. So it's a longer-term decontenting. I would say it's fairly leveled out we are -- we might see a point of movement in any given quarter. But it's not moved as dramatically as it did about 1.5 years, 2 years ago. Min Cho: That definitely makes sense. And also, your value-added sales remains a similar percentage of overall revenue, and I'm assuming that those margins are probably holding up better. But as long as pick back up, can you expect the value-added part of that -- of your business to grow faster or slower? And I know you had mentioned installation will probably grow faster, but just in terms of your just overall value-add products. Peter Jackson: No question. Value-add has historically been our high-growth area. We've got better capacity, better service levels and particularly in a market that's labor-constrained, which it will be as this market turns, we will absolutely see better growth in value. Operator: Our next question comes from Adam Baumgarten with Vertical Research. Adam Baumgarten: Just on -- I think you mentioned maybe not being able to recoup all the cost inflation, I assume that maybe relates to fuel in 2026. Can you give us a sense of the magnitude of the headwind you're expecting for 26 at this point? Peter Jackson: Well, I mean, it blows down to that fundamental question of affordability and how much can you pass through and how much to eat. So the answer is in broad. It's market-specific depending on local profitability. I would tell you that we're taking it a bunch of different ways. Like Pete was saying, some of it's embedded into the cost that we're providing on the material side, particularly on the inbound cost. On the outbound, we're taking it in a couple of different ways, whether it's pass-through surcharge or part of the negotiation. I think the negative number that we're managing, it's probably around $100 million, right? So it's a meaningful number. The impact on the bottom line, I would say right now is a lot less than that based on what we're doing, but it's not zero. Operator: And our final question today comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Just a couple of questions. On the competitive dynamics, you talked about sort of specialty, but it struck me that you didn't talk about sort of on the trust side and the EWP side. Is it fair to say then that you're starting to see stabilization there? Peter Jackson: Yes. Yes. I mean it continues to be competitive at a given quarter could be up or down within a small range. But yes, I think the -- our belief is that we have better clarity on the lumber and stability is starting to appear the manufactured product category, the broader value add cap. Ketan Mamtora: That's helpful. Peter Jackson: I'm going to be careful, right? This is a broad statement, but I think that's generally directionally correct. Ketan Mamtora: I see. Okay. And then just on leverage. I understand it's sort of a function of just how the EBITDA is moving through this year. But on the multiple side, is there a number where you feel that you don't want to go in terms of whether there's a 4 handle on it or whether it is sort of towards the high end of 3, is there a way to sort of think about that in general? Peter Jackson: I mean the short answer is our comfort zone is 1% to 2%. So anything north of 1% to 2% is challenging. The threshold for us is always back to where do we believe the market is, where is our balance sheet, how do we manage that in a very thoughtful and strategic way in comparison to the opportunities that were presented. So I don't want to put a hard range around it, but we keep a very close eye on it. The Board keeps a very close eye on it. And ultimately, our commitment is to have a full improved balance sheet with sufficient liquidity to do what we need to do. Operator: Thank you. This brings us to the end of today's question-and-answer session as well as Builders FirstSource First Quarter 2026 Earnings Call. We appreciate your time and participation. You may now disconnect.
Operator: Hello, and welcome to the Entegris' First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jeffrey Schnell, VP of Investor Relations. Jeffrey Schnell: Good morning, everyone. Earlier today, we announced the financial results for the first quarter of 2026. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, and actual results could differ materially from those projected in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in our most recent annual report and subsequent quarterly reports that we have filed with the SEC. Please refer to the information on the disclaimer slide in the presentation. On this call, we will also refer to non-GAAP financial measures as defined by the SEC and Regulation G. You can find reconciliation tables in today's news release as well as on the IR page of our website at entegris.com. Joining me on the call today is Dave Reeder, our CEO. With that, I'll hand the call over to Dave. David Reeder: Thanks, Jeff, and good morning. The first quarter was a solid start to the year as we continue to execute with focus and discipline against the constructive and improving semiconductor industry environment. We are delivering on our commitments. Revenue increased 5%, slightly above the midpoint of our range, while most other metrics, including adjusted gross margin, EBITDA margin and non-GAAP EPS all exceeded our guidance range. I'm encouraged by these results, and we remain focused on the significant opportunities ahead to fully capitalize on the organization's long-term growth and earnings potential. As I mentioned, total revenue increased 5% in the first quarter as compared to the prior year, driven by a 7% increase in our APS segment and a 3% improvement in MS. Our unit-driven revenue, which is correlated to MSI, increased approximately 7% year-over-year, driven by growth in liquid filtration, advanced deposition and selective etch, all of which are critical product lines for our customers' new technology nodes. We're pleased to see the continued growth in liquid filtration, which posted its third consecutive record quarter. CapEx-driven revenue decreased modestly year-over-year in the first quarter, mostly driven by accelerating order patterns in the prior year quarter in response to tariff actions. Given our current bookings patterns, we expect 2026 CapEx revenue to increase throughout the remainder of the year and contribute more meaningfully to our overall growth profile, driven by strong WFE growth and improving fab construction trends, which support not only the latter half of 2026, but also growth expectations in 2027 and beyond. Our overall results reflect the improving demand landscape across our end markets and regions. This includes double-digit Q1 growth in Taiwan and broader Asia, supported by strong plan of record positions as well as improving demand within advanced logic and memory, driven in part by AI-enabled applications. Turning to profitability. Gross margins improved in the first quarter of 2026. The key drivers to the strength in margins on both a year-over-year and sequential basis were productivity and efficiency actions across our manufacturing network and supply chain, favorability from the useful life accounting change in the first quarter and product mix. Jeff will provide more details on this later, but we are pleased with the structural improvement in margins and expect to build on this progress in the future. Additionally, we are continuing our efforts to optimize our manufacturing network. We closed another subscale facility during the quarter in Chandler, Arizona, further advancing our operational initiatives. These actions represent an important proof point in our ongoing efforts to drive scale, optimize our footprint, improve efficiency and better position the business for growth and improved operating leverage as volumes increase. Free cash flow was also a highlight for the quarter. We delivered $144 million of free cash flow, approximately 18% of sales, despite headwinds from normal working capital seasonality. Our strong free cash flow enabled us to accelerate our deleveraging as we repaid approximately $50 million of our term loan in the quarter. We believe this trend will continue, and now expect to reduce net leverage to approximately 3x by the end of 2026. Turning our commentary to the semiconductor market. We now expect mid- to high single-digit industry MSI growth for the remainder of 2026, which correlates to approximately 75% of our business. This contemplates an improved DRAM outlook, a similar unit outlook compared to last quarter in advanced logic and NAND, and a continued mixed outlook within mainstream logic. And the outlook for fab spending is also improving, which correlates to the remaining 25% of our business, both fab construction and WFE. Let me now address the end markets. Advanced logic, which represents approximately 40% of our total revenue, remains well positioned for strong growth in 2026, primarily driven by accelerating demand for leading edge compute. Utilization rates at the most advanced nodes are already operating near effective capacity, and the industry is responding with aggressive capacity investments to support the demand for next-generation nodes. Additionally, as 2 nanometer technology enters a more meaningful production ramp this year, we expect strong growth in 2 nanometer wafer output. Process complexity meaningfully increases with sub-5 nanometer nodes, driving higher Entegris content per wafer and aligning with our strong positions of record. The memory market, which represents approximately 30% of our revenue, is also structurally strong, underpinned by AI workloads and technology road maps that are reshaping DRAM and NAND architectures. In DRAM, demand continues to accelerate, driven by increased AI consumption. Additionally, and as announced, we expect DRAM capital investments to continue at pace, supporting accelerated DRAM MSI growth beyond 2026. NAND demand and MSI are also expected to increase in 2026, though it remains more nuanced than DRAM. This view is supported by both leading-edge technology transitions and AI-driven storage requirements. The key short-term growth driver in NAND for Entegris will be layer scaling and the resulting incremental Entegris content, with wafer start activity expected to improve in the latter half of 2026 and into 2027. Vertical scaling materially increases process complexity, elevating the importance of yield, precision manufacturing and advanced process steps and materials. These technology shifts are expected to result in double-digit increases in content per wafer for Entegris. And lastly, mainstream logic. The recovery and outlook in this end market, which represents approximately 1/3 of our business, remains mixed. We continue to expect tempered MSI growth in mainstream logic through 2026, improving thereafter as new capacity additions, specifically in memory, begin to ease near-term supply concerns, especially with respect to price-sensitive consumer products. As it relates to CapEx, we are incrementally more positive on the portion of our business related to industry CapEx. The return to growth in fab spending is materializing. This is driven by selective but substantial global capacity additions and pull forwards, primarily in leading-edge logic and memory. Additionally, forecast for WFE spending remains strong as these projects advance. Entegris is well positioned to deliver value for our customers and to capture the multiyear growth opportunities we expect will emerge as we progress through 2026 and into 2027. To summarize, there are several industry and operational tailwinds fueling Entegris' growth. The industry outlook remains constructive. Semiconductor fundamentals are favorable and support growth in 2026 and beyond. This is driven by advanced logic and DRAM with a more stable near-term outlook for NAND and mainstream logic. Stronger order patterns and increasing backlog provide increased visibility and confidence across our unit and CapEx-driven businesses. Next, technology transitions will continue to drive upside for Entegris. Materials intensity and process complexity continue to increase. Beyond node transitions, we differentiate by innovating alongside our customers to advance their technology road maps, which is where Entegris creates the most value. And we are driving a stronger operational focus. We are executing with discipline to improve our operational performance, accelerate growth and strengthen our financial profile. Finally, I want to recognize our employees for their focus, discipline and execution. Their dedication enables all of us to deliver upon our commitments. Before turning the call over to Jeff, I'd like to highlight that following a rigorous search process, Sukhi Nagesh has been appointed as our new Chief Financial Officer, effective May 18. Welcome to the team, Sukhi. His engineering background, significant semiconductor industry experience, deep financial expertise and strong operational discipline make him the ideal CFO for Entegris. Having previously worked with Sukhi, I am confident that his leadership will be instrumental as we continue to execute our strategy to unlock Entegris' full potential. With that, let me turn the call over to Jeff to discuss the financials. Jeffrey Schnell: Thanks, Dave. Good morning. Q1 sales were $812 million, an increase of 5% year-over-year and above the midpoint of our guidance range. Gross margin on a GAAP and non-GAAP basis was 46.9%, above the high end of our guidance range. These results included approximately 50 basis points of onetime items, which we do not expect to recur at similar levels in subsequent quarters. The sequential improvement in Q1 was driven by productivity and execution across our network, including more consistent performance and ongoing cost controls, favorable product mix and favorability from the useful life accounting change in the first quarter, which was in line with prior guidance. Operating expenses on a GAAP basis were $239 million in Q1 and were $189 million on a non-GAAP basis. Adjusted EBITDA in Q1 was $226 million or 27.8% of revenue, also above our guidance range. The GAAP tax rate in Q1 was 1% and the non-GAAP tax rate was 8%, which includes an unforecasted release of a tax reserve. GAAP diluted EPS was $0.60 per share in the first quarter and non-GAAP EPS was $0.86 per share, which exceeded our guidance range. Switching to our segments. Material Solutions delivered Q1 sales of $351 million, up approximately 3% year-over-year. Year-over-year growth was led by double-digit increases in advanced deposition materials and selective etch chemistries, along with continued strength in CMP consumables, underscoring the durability of demand for key technologies. Adjusted operating margin was 22%, in line with the prior year period, and increased by approximately 100 basis points sequentially, reflecting improved performance across the manufacturing network. Advanced Purity Solutions delivered Q1 sales of $464 million, representing approximately 7% year-over-year growth. Results were driven by continued strong demand across the portfolio, including the third consecutive record quarter in liquid filtration, a 3-year revenue high in FOUPs and growth in gas filtration. Adjusted operating margin was 29.1% for the quarter, expanding both year-over-year and sequentially, reflecting strong operational execution and productivity, favorable product mix and the majority of the favorability from the useful life change. Switching to cash flow. Free cash flow in the first quarter was strong at $144 million, representing a free cash flow margin of 18%, a continuation of the positive trend from the second half of 2025. The increase in free cash flow compared to the prior year was driven by 3 factors: the improvement in earnings, an increase in cash from operations, primarily due to working capital discipline, and lower CapEx in the period. CapEx is expected to increase as the year progresses, but will remain meaningfully below 2025 levels. We continue to expect strong free cash flow generation in 2026. Turning to our capital structure. During the first quarter, we reduced our term loan by $50 million, building on the $300 million reduction in 2025. We currently have $400 million remaining on our term loan, which is the only variable rate debt in our capital structure. At quarter end, our net debt was $3.3 billion and net leverage was 3.6x. As Dave articulated, we expect to improve our net leverage ratio to approximately 3x by the end of 2026, underscoring our commitment to deleveraging. Moving on to the second quarter outlook. We expect 2Q sales to range from $815 million to $845 million, a year-over-year increase of approximately 5% at the midpoint. Gross margin is expected to be between 46.25% and 47.25%, both on a GAAP and non-GAAP basis, a modest improvement at the midpoint from the underlying gross margin level achieved in Q1, but more than 200 basis points of improvement year-over-year. We expect GAAP operating expenses of approximately $241 million and non-GAAP operating expenses of approximately $194 million, which reflects higher variable comp relative to 2025 and other intentional investments to support the expected growth across our portfolio. EBITDA margin of 27.5% at the midpoint, driven by incremental improvements in gross margins. Net interest expense of approximately $46 million, which accounts for debt paydown to date. We expect our non-GAAP tax rate to return to a more normalized level of approximately 15% in 2Q. We expect GAAP EPS between $0.53 and $0.61 per share and non-GAAP EPS between $0.76 and $0.84 per share. And we expect depreciation to remain largely stable for the balance of 2026 at approximately $35 million per quarter. Looking ahead to our third quarter revenue expectations. Historical industry seasonality supports a sequential improvement in the third quarter. With our current visibility, which we'll refine on our second quarter call, we expect revenue to grow by approximately 5% from the midpoint of the second quarter's guidance range. Finally, I'd like to update a few modeling items for the full year of 2026. We expect net interest expense to be slightly below $190 million, the non-GAAP tax rate to be approximately 15%, diluted share count of approximately 154 million for 2Q and for the full year, CapEx of $250 million, and depreciation of approximately $140 million. Lastly, we have set a date for our Investor Day in New York City in early November 2026, and will share the save-the-date information soon. With that, operator, let's open the line for questions. Operator: [Operator Instructions] Our first question will come from Melissa Weathers with Deutsche Bank. Melissa Weathers: Looking forward to working with Sukhi in the coming months. So I guess for my first question -- thank you for all the color that you gave in the prepared remarks on the market environment that you're seeing. I guess, could you flesh out a little bit more what you're seeing -- it's pretty obvious, AI is very strong. But I think on the consumer electronics side, the demand is -- the jury is still out on where fab utilizations are shaping out for those [indiscernible] products. So is there any more color you can provide on those non-AI markets, would be really helpful. David Reeder: Sure. Melissa, good to speak to you again. Look, we view the mainstream market as mixed, with memory availability and pricing impacting price-sensitive computer products. And then we view that as being offset, however, by power management, data center-related strength and then other ancillary AI-related strength. So on the one hand, you've got potentially some pressure on the consumer products due to the availability and pricing of memory. But yet on the other hand, you have some strengths still associated in mainstream with kind of the broader build-out of AI. So we kind of view that as a put and take. We view capacity utilization right now in mainstream as being somewhere between 75% and 80%. There have been some foundries that have reported that have broken that 80% barrier for the first time in several years since 2022 peak. So we view that as positive. We do think that, that market is improving, but we're looking at it right now with the current view of being mixed. Did you have a follow-up, Melissa? Melissa Weathers: Yes, I did. On the CapEx side, I think the numbers we're hearing from WFE companies, and you can see all the fab announcements coming on. It seems like we're going to have a pretty historic fab build-out cycle coming. So any more color on how we should think about the CapEx portion of your business, whether it's groups or the subfab system than you guys do. I think presenting that ahead of these things have buildouts, would be really helpful. David Reeder: Sure. Let me give you a quick refresher on our CapEx portion of our business. So as a reminder, about 25% of our revenue is CapEx related. And of that 25%, about 1/3 is WFE and about 2/3 is fab construction. So when you think about Entegris, we typically benefit from kind of 3 cycles of demand when the market enters an up cycle and starts building out new fabs. So fab construction-related product lines increased first. Then you typically see revenue approximately 12 months, maybe 9 to 12 months after groundbreaking, that tends to be centered more towards gas purification and fluid management products in our portfolio. Then WFE related product lines and initial filtration during tool qualification start to ramp up. That typically happens somewhere between, call it, 12 and 18 months after groundbreaking. You'll start to see product lines like gas filtration, AMC, LMC bulk filtration start to increase for us. And then finally, you'll start to see the unit-driven product lines, you'll see that demand start to increase, and that's kind of 24 months. So after the fab construction piece, after the tool placement and qualification piece, then you start to get kind of the unit-driven business coming in on the tail end, somewhere around 2 years after groundbreaking. So those are kind of the 3 waves. 75% of our business is unit driven, 25% of our business, CapEx driven. And then from an end market perspective, we would characterize memory probably being in wave 1 of this cycle. And I'm really referring more to DRAM right now. The NAND, the NAND has not announced a lot of incremental fabs or incremental capacity builds at this stage. They've been a bit more focused on driving incremental layers. We're a bit density. So memory though, I would say, is kind of in the wave 1 of this phase really with DRAM at the forefront. And then advanced logic is going through rolling portions of this phase. So probably in the wave 2 and wave 3 portion, but obviously, with some new fabs that have been announced. Operator: Our next question will come from Elizabeth Sun with Citi. Yiling Sun: I guess my first question is on the gross margin side. You -- your Q1 gross margin had a nice improvement quarter-over-quarter and also above your guidance and in Q2, improved a little bit, I guess, more on volume. But I guess, going forward, looking into the second half and maybe in '27, how should we think about gross margin path? Are you going to continue to rationalize some factories and improve [indiscernible] efficiency? David Reeder: Thank you for the question, Elizabeth. I can't tell you how pleased it actually makes me to field some questions about gross margin, particularly because we believe that we're in a period of sustained structural gross margin expansion. And so as we think about gross margin and what we're trying to drive, as I've mentioned previously, we're simplifying and refining our manufacturing network. We're relentlessly driving higher productivity, higher fixed cost absorption, better yields. There is a tremendous amount of work ahead of us, and it will be lumpy, but we are focused on delivering our full gross margin potential, which we think is significantly higher than where we are today. So getting directly to your question on Q1 gross margin. First off, our 46.9% that we posted on a non-GAAP and GAAP basis, we did benefit from about 50 bps of onetime items in the first quarter. So if you normalize for that, that would put first quarter at about 46.4%. That's about 240 bps improvement sequentially. Bridging you from fourth quarter, about 100 bps of that 240 bps improvement was related to the useful life change that we made at the beginning of this year, very much in line with what we guided at the beginning of the quarter and as highlighted in our 10-Q. Productivity and other specific efficiency initiatives, including improved plant performance, comprised the remaining 140 bps. So that kind of bridges you from 44% where we exited fourth quarter of '25 to where we delivered first quarter of '26. And then kind of bridging you for second quarter as well. Again, I'll go back to the fourth quarter simply because that's kind of a fully loaded quarter with respect to KSP as well as Rockrimmon, 2 of our newer facilities. At midpoint for Q2, we guided gross margin at 46.75%. That's about a 275 bps improvement from fourth quarter, which again was 44%. We're expecting about 150 bps to be related to the useful life change, and about 125 bps, driven by improvement in our manufacturing network as well as ongoing productivity and efficiency actions, including the closure of the 2 facilities over the last 2 quarters. Also included in this guidance, I did want to highlight -- included in this guidance is incremental production staffing and related project costs to enable incremental capacity in the future quarters of 2026 as well as into 2027. So embedded in our second quarter guide are some incremental costs that you have to incur ahead to be able to unlock and enable kind of more capacity in the third quarter, fourth quarter and then the first half of 2027 as well. So we're quite pleased with our gross margin trajectory. And did you have another question, Elizabeth? Yiling Sun: Yes. I guess the next one is on the -- congrats on the CFO appointment. I happen to know this, Sukhi has a lot of experience in M&A and corporate development. So I was just wondering, does this signal you guys are ready to do more M&As once your net leverage is below like 3x, as your -- talk about your target? David Reeder: It's probably -- one, we are incredibly happy to announce Sukhi. I'm looking forward to getting him on board. I wish he could have started today, actually, but he will be joining us in mid-May, and I can't wait to work with Sukhi again. Just to kind of recap a little bit about Sukhi, I think many of you probably know him, but to kind of recap Sukhi's background, he started in semiconductors in the mid-90s on the wafer fab equipment side. So we actually started in semis at a similar period in time. He actually started as an engineer, much like myself in semiconductors, he started as an engineer. He actually has a masters in engineering. Unfortunately, it's not in chemical engineering like me, but he does have a strong mechanical engineering degree as a background, and he got to kind of cut his teeth on the WFE side of the business earlier in his career. You followed that up with an MBA, some sell-side analyst experience, a lot of corporate experience, investor relations, corporate development, corporate strategy. He was an interim CFO. And then finally, I got a chance to work with Sukhi at GlobalFoundries. He was there when I joined the company, and he did a phenomenal job of really leading that IPO. So for all those reasons, after a very extensive process, we had a chance to sit down with Sukhi and convince him to join the team of athletes that we're assembling here at Entegris, and couldn't be happier to have him on board. Specific to your question on corporate strategy or corporate development. Right now, we're focused on delivering our leverage reduction, our deleveraging plan. And initially, this year, we told you that we thought we would be under 3.5x of net leverage. We're already at 3.6x of net leverage, and we updated you that we thought we would be closer to 3x of net leverage by the end of the year. Very happy with the profitability that we're driving. Very happy with the free cash flow that we're driving. And so as we progress through the year, while we pay off our term loan, which is something that we're planning this year in 2026 now, we feel like with that as well as with increased profitability, we'll be well positioned in 2027 to at least start to consider other alternatives, whether it's shareholder return or other opportunities in the market. Operator: Our next question will come from Timothy Arcuri with UBS. Timothy Arcuri: Dave, can you talk about just some of the puts and takes on gross margin and how to think about incremental margins from here? I know Taiwan has been sort of a 100 basis point headwind. Is that still the case? And when does that go away? And then can you talk about Colorado? I think that was only going to go away next year. So can you sort of walk through how do you sort of roll off? David Reeder: Sure. So without bridging you again, given the details we've provided, I think the best way to think about gross margin is that as we continue to grow volume from here, we should continue to get gross margin improvement from here. And so that will be both in fixed cost absorption as well as incremental efficiencies that we can drive through our manufacturing network. Now given the strength in order book that we started seeing in the middle of first quarter, we are still looking to optimize our manufacturing network, but we're balancing that rate and pace with respect to make sure that we can still deliver the demand in what looks like a very constructive semiconductor backdrop. So we're taking a bit probably a more measured approach to that as we kind of continue through this year to make sure that we can satisfy our customers with the lead times that they expect and deserve. Specific to KSP, KSP is dilutive to our P&L today, as you know, and as you articulated. We think that by the end of this year, with the ramp that's ongoing, which it's quite a good trajectory, with respect to where we were a couple of quarters ago to where we are now. But it is still a work in process. We will have that facility by the time we get to the end of the year, probably breaking even on a P&L basis, plus/minus. And then we'll start to potentially move it into a less dilutive state, will probably still be dilutive in '27, but less dilutive, significantly less dilutive once we're kind of exiting fourth quarter '26 run rate into '27. Colorado this year is all qualification. And so this year is really -- last year was facilitizing, qualifying the equipment and opening the facility, staffing the facility. This year is further staffing the facility and qualifying products with customers. We're expecting very little revenue out of Colorado Rockrimmon this year, with the hope of ramping Colorado in early 2027. So for that reason, both facilities will be dilutive to us in '26, KSP becoming less so towards the end of the quarter and then improving -- or towards the end of the year, I should say, and then improving in '27; Colorado dilutive -- fully dilutive in '26 and then starting to ramp revenue in '27. Did you have a follow-up, Tim? Timothy Arcuri: I did, Dave. Yes. So can you talk about China and just what's going on in China? Are you seeing any more competition there? We're hearing about some folks trying to do CNP there and becoming a little more -- becoming a little more of a competition for you. So can you talk about that? David Reeder: Sure. I'll actually touch on a couple of regions. Since I know the 10-Q is not out yet. It will be filed later today, where you're going to see the full regional breakdown. I'll just give you a little swing around Asia. Strong growth from Taiwan, up 18% on a year-over-year basis in first quarter. Broader Asia, in general, so including all of Asia, up double digits, slightly more than 10% on a year-over-year basis in first quarter and then migrating specifically into China. China modestly down in the first quarter. So obviously, it does remain a key long-term market for us. But when you look at the first quarter performance, that modest decline was largely driven by some of the CapEx-related businesses that were down double digits, largely reflecting some dislocated order patterns that were in the first half of last year related to tariffs, as Jeff mentioned in his script. And so if you were to exclude those, we feel like it would have been a bit more of a normal quarter in China, but the first half, we do expect to be kind of impacted by some of those order patterns that were pull-ins for the first half of last year related to tariffs. We feel like we have a strong competitive position in our franchise product lines in China: filtration, food, slurries. Yield and performance matter in China, the same way it does in the rest of the world. At this stage, we view China largely as derisked, and we think we're going to have a solid second half, and we think we're going to have a solid 2026 in China. Operator: Our next question will come from Bhavesh Lodaya with BMO. Bhavesh Lodaya: Hi, Dave, and welcome Sukhi. Looking forward to our discussions. Following up on your CapEx -- WFE CapEx side of the business day, as we see higher volumes start moving through your system, I would presume it comes with pretty strong incremental margins, perhaps better than your company average. Maybe if you could provide some color on where margins stand in that business today versus historical peaks? And how should we think about that side as volumes coming in? David Reeder: Sure. Look, let me start with utilization. We articulated in last quarter that we had about $1 billion of incremental upside that we could deliver from our manufacturing network. Now obviously, you have to staff for it. You have to position inventory for it. But that's kind of the physical capacity that we have. And so whether it's unit-driven volume or CapEx-driven volume, incremental volume is tremendously helpful from a fixed cost absorption perspective when you're sitting at the type of utilization rates that we're setting out today. So without getting kind of too far into the details of unit-driven CapEx, our unit-driven margin versus CapEx-driven margin, incremental volume does help us in a pretty meaningful way with respect to fixed cost absorption as it drives our plant utilization higher. And we do expect our plant utilization to grow higher as we progress through the year in the absence -- even in the absence of any other specific initiatives that we have. So from that perspective, we're very much pleased with what kind of the CapEx order book looks like today. We have been booked kind of through the latter half of 2026, if not into '27 on some of these CapEx items. And we do expect gross margin to grow modestly as we deliver that fixed cost absorption with incremental volume. Did you have a follow-up, Bhavesh? Bhavesh Lodaya: Yes, and a different one. So there's been a meaningful amount of inflation in terms of polymers and chemical feedstocks. Are you seeing any challenges in procurement or pricing for your raw materials? And then do your contracts with your customers building just a simple pass-through of these costs? Or is there a lag as you price it through to your customers? David Reeder: What we have seen, some modest inflation. Actually, let me start with the contracts. We do have, for some key suppliers, we do have some contractual terms with respect to price increases as well as our long-term agreements with them to take a certain amount of volumes. So there are key suppliers to us that have relatively fixed contracts, both from a pricing perspective as well as a volume perspective that we have to abide by and as do they. For the vast majority of our supply chain, however, we have agreements, but then we will do certain annual negotiations. We feel like those annual negotiations were pretty productive for us. We feel like we're in a good spot, cost-wise from an inflationary perspective, with perhaps one exception, and I'll just -- I'll touch briefly on it. The Iran Middle East conflict. As you know, it's a fluid situation, one that I'm sure everyone in the industry, including yourselves, are monitoring. It's probably a bit too early to quantify the full cost impact there, but we have seen some early cost pressure on raw materials related to some of the availability coming out of the Middle East. And specifically, that's in the areas of some of the noble gases as well as some of the resins. It looks like right now, at least our position on this right now is that we think it could be temporary. And so we just absorbed those costs. To the extent that this cost pressure kind of persists, either in logistics cost or raw feedstock cost for us, then we would evaluate increasing pricing in the future. But at this point in time, we view the inflationary pressure as -- largely as expected. Some unexpected that I just mentioned related to the conflict in the Middle East, absorbed in our P&L for now and we'll reserve the ride in the future if it becomes too big of a burden to go back and kind of renegotiate some of the pricing with our customers. So from kind of -- as we sit today, I would say, steady as she goes to continue to be reviewed as we progress through 2026. Thanks, Bhavesh. Operator: Our next question will come from Jim Schneider with Goldman Sachs. James Schneider: I was wondering if, David, if you could maybe kind of comment on what you think has changed the most in terms of the wafer start outlook for the year? It sounds like that is mainly DRAM, either increasing utilization rates or pull-ins in terms of capacity. But I was wondering if you could give any color on that? And then maybe if you could explicitly address the analog sector, where it seems like we have the stand to improve the most from a utilization perspective this year. David Reeder: Sure. Thanks, Jim. So what's changed the most from when we spoke to you in February until today, I think in -- at the beginning of February, the forecast for the industry was that fab construction would be up low single digits. And I think when you look at fab construction today, the forecast for the industry is high single digits. So that's a pretty meaningful change. It doesn't mean that we'll get necessarily that revenue in period in '26. As I mentioned earlier in the call, from groundbreaking to kind of first revenue for us is around 12 months. But that's a big change. Fab construction going from kind of low single digits, essentially flat to high single digits, I think that kind of speaks to the state of the industry, the current utilization, particularly for advanced logic and memory, and I think that bodes well for kind of the setup for 2027. So I think that was a meaningful change, not a big change for us, again, in period for '26, but I think the foreshadowing for '27 and the setup is quite good. MSI, we were originally forecasting that MSI would be low to mid-single digits. We did update the forecast for MSI to be kind of mid- to high single digits. So I would say modest change there on units. And I would say that was a little bit of a blend between advanced logic, DRAM as well as some incremental NAND, and then I would say we're still kind of expecting flat from our expectation in February with respect to -- with respect to mainstream. So I think those are kind of like the big puts and takes between our February call and our market commentary in February and where we sit today in April. To get to the second question that you had, which was really around mainstream. And mainstream, I think if you stood back and looked at it objectively, I think you'd say that the first quarter has probably been a little bit better than we originally expected. So I think from that perspective, there were, again, some of our customers that have recently released, not all of them have, but some of them that have released have kind of talked about improving inventory in the channel. They've talked about utilizations. If they're a manufacturer that have broken kind of the 80% level, which for many of them have not been breached since the peak in '22. And then all of them, I think, have kind of highlighted memory availability. So strength in kind of AI-related and data center-related products, but memory availability potentially being a concern. So I think we view that market, as I mentioned earlier, is kind of mixed. We've kind of included a mixed view. Again, this is 30% of our revenue. We've included a mixed view in our guidance for '26 as well as kind of an initial flash that we gave you for third quarter of '26 as well. Operator: Our next question will come from Charles Shi with Needham. Yu Shi: I'll start with the first question around your exposure in advanced packaging. We know this is one of the growth areas for Materials and probably want the variable between you and your closest peer in terms of some of the near-term performance. We know you probably were going to talk a little bit more about that at the Investor Day, but Investor Day probably still 6 months out. So we still would love to hear some thoughts, early thoughts, any new actions undertaking right now at Entegris? We know you talked about the thermal material, you're talking about some of the carrier stuff. Is there anything more than that right now in your thinking that Entegris can get a little bit more exposure in advanced packaging? For one, we do think that CMP seems to be a very important area, especially with the adoption of a more hybrid funding type of advanced packaging and you do have good amount of a CMP slurry path business, but I want to get some thoughts there first. David Reeder: Thanks for your question, Charles. And look, we agree with you, we think the advanced packaging market is an attractive market. Unfortunately, our exposure to advanced packaging right now is limited due to just the prior investments that we didn't make necessarily in advanced packaging. That stated, we do have some products that have performed well in this space and that we did. We were able to launch some more minor, I would say, minor spends of products to be able to address this market. So specifically advanced flow control for thick resist, delivery solutions for copper plating and photoresist CMP, as you mentioned, for high-bandwidth memory and TSVs in particular, and then, of course, the carrier offering. So we do have a portfolio of products that we have been able to penetrate the advanced packaging market with. Our current revenue exceeds $100 million a year run rate. So we're excited about some of the traction that we're getting in this market for the areas where we've been able to kind of make investment and bring products to market. We are excited about some of the products that we have in the pipeline. That's really for the future. However, it's not for today, it's not necessarily for 2026 revenue. The 2026 revenue product, so the areas that I highlighted earlier. But we will have more details for you at Investor Day in November, recognizing the nature of the question that November is still about 6 months away. So -- but that's what I can give you today. And we're excited about the $100 million plus that we're driving from the business. Did you have a follow-up, Charles? Yu Shi: Yes. Dave, since your 10-K came out intra-quarter over the last couple of months, we looked at some of the customer-specific financials. So we did notice that the largest foundry, which is the #1 customer for you, the revenue from that particular customer last year, I would call probably flat to modestly up, and there was a little bit maybe trailing what I consider as their own growth. Was wondering if you can give us some stuff? What happened last year? Why the growth wasn't keeping up very well with the leading foundry? And any -- about this year, are you able to catch up to their growth? And obviously, we heard you talking about 2 nanometer production ramp that is actually happening later this year, but I want to get some thoughts around that. David Reeder: Sure. Speaking first to last year, to 2025, there is a pretty significant build-out in '24 that from a CapEx perspective, was meaningful, and that puts some pressure on year-over-year comps. We actually felt pretty good about the unit volume for 2025. But obviously, we had some year-over-year dynamics in '25 versus '24 from a CapEx perspective. Early results here in 2026, which we'll get in our 10-Q later today. And while I won't talk about specific customers, we can certainly talk about regions. Taiwan was up 18% on a year-over-year basis in the first quarter. A lot of strength across the portfolio there, strength that we're anticipating will continue. So good results from Taiwan, again, up 18% year-over-year in Q1. And really some good results across -- broadly across Asia. Asia as a whole, was up a little north of 10% on a year-over-year basis. Obviously, that includes Taiwan that was up 18%. It also includes China that was down modestly. So the other regions in Asia performed well as well. And as you know, we have key customers in Korea, we have key customers in Singapore, we have key customers in Japan. So good to see that kind of broad region performed well as well as good to see Taiwan perform well. Operator: Our next question comes from John Roberts with Mizuho. Unknown Analyst: Welcome, Sukhi. Back to China, are you through with your requalification of sourcing into China? And I think you're actually going to rationalize some products just not requalify, and maybe, is that any headwind to the China sales? David Reeder: Yes. China, we're -- I think in Q1, I think about 85% of our revenue for China, it was in that ZIP code, was from in region for China. That's about where we exited in terms of regional qualification in 2025. We'll probably pick up another 5% of the product portfolio that we sell there in '26. So we'll probably take that 85% number up to 90% by the end of this year. I don't anticipate that we'll ever get to 100%. I think there'll be some products that just given the volume of sales, it won't justify the expense of relocating their production route. But I do think that we'll go from kind of 85% where we are today to probably more than 90%, but we do expect to get to 90% throughout the course of '26 and then above 90%, we'll work on in '27, just with this kind of upper limit of it, it will probably never get to 100%. So there will always be some amount of products that will be impacted either geopolitically or by tariffs. Did you have a follow-up, John? Unknown Analyst: Yes, in Materials Solutions, so are the constraints in the memory market driving any product shifts within the Materials Solutions segment? David Reeder: Not really product shifts. I think -- if you look at memory total, sorry, let me -- maybe it's best to break it down and be more specific. NAND, there are some shifts in the market with NAND. NAND is very much focused on driving bit density, and bit density is driven by layer count. And as layer count moves from low 200s to 300 or 300-plus layers, it does introduce new materials, for example, moly, which the company has spoken about. So we do like that trend. Incremental bit density, while it does consume capacity, so you don't get more wafers, you don't get more MSI, but it does consume process steps and capacity. And we feel like that's where the focus on NAND is right now is on driving bit density at least in the first half with potentially incremental wafer starts in the second half. Incremental bit density drives incremental materials for Entegris, particularly in areas like moly and selective etch. And so that's a trend that we would like to see continue. And we'd also like to see them continue to fully utilize those fabs to 100% capacity. So both drive bit density and drive more MSI, but I think first half is more of a bit density story. For DRAM, DRAM is operating really near capacity at this stage. So even with being fully utilized or near full utilization and even with potentially some technology changes in DRAM, there's not a significant change in the materials there. I think the most significant change was just simply the HBM wants a lot of DRAM kind of migrated into HBM. That is incremental processing. We do have some slurries and some other products in that incremental advanced packaging process steps or in those advanced packaging process steps. And so that's a trend we'd like to see continue as well. Operator: Our next question comes from Chris Parkinson with Wolfe Research. Harris Fein: This is Harris Fein on for Chris. Just given the geopolitical environment, there are some fears about energy availability. You mentioned Noble Gas has some key inputs like helium for fabs located in Asia. Just as you run the business and you have conversations with your customers, how would you characterize the degree of concern around that? David Reeder: We haven't -- there haven't been kind of semiconductor specific concerns around energy. I think in general, there's concerns around just energy consumption and availability, especially as you think about data centers tapping big parts of the grid. But we haven't really seen anything specific to semiconductors or semiconductor fabs. Obviously, it's a key consideration when you think about building a fab, but most of those fabs secure that energy in advance for -- usually for some pretty long periods of time. Did you have a follow-up, Chris? Harris Fein: Yes. The other one. On the third quarter -- on the third quarter directional framework, I think you mentioned historical seasonality supporting a sequential improvement. I just want to clarify, does that third quarter guide contemplate any cyclical recovery on the mainstream logic side? Or is this just contemplating normal seasonality and any cyclical recovery would be upside to what you're communicating? David Reeder: Yes. Our third quarter guide today, we just tried to give you a little bit more visibility based on what we're seeing kind of in our order book. So third quarter includes a little bit of seasonality. It also includes some of the visibility that we've received in our order book, particularly with respect to CapEx. And so we wanted to give you a flash of what we thought that looks like. Now that 5% sequential guide from second quarter to third quarter from our second quarter midpoint, that would be about 8% year-over-year growth if you were to do that math and then look at third quarter kind of guide '26 versus third quarter '25 actuals. So we feel like that's a pretty good guide at this stage given where we are in 2026. So we're pretty happy about that, and it's really just including some seasonality, some of the current order book that we currently have visibility to, and it really doesn't include anything -- any meaningful recovery with respect to mainstream. Thanks, Harris. Operator: Our next question will come from Edward Yang with Oppenheimer. Edward Yang: Dave, I appreciate the time and good to see the improvement. First question is on R&D, and that's been ticking down every quarter for the last several quarters now. I'm just wondering what's driving that? And related to your R&D engine, how does the pipeline look for POR wins that you could leverage above and beyond cyclical recovery? David Reeder: Sure. Thanks, Edward. There's certainly no intention to kind of tick down R&D. Obviously, if revenue is growing kind of faster than we originally expect, then you tend to get this phenomenon where you kind of set a budget for about 10% of revenue to be invested back into R&D., and so you get kind of these, let's call them, period gaps. But we do feel good about roughly this 10% level of revenue being reinvested back into R&D. We feel like that's a pretty good benchmark. Again, plus minus, and it's very different by business and where different businesses are in their growth cycle and maturity cycle as well as R&D intensity cycle. But from that perspective, we feel like our model of roughly 10% of revenue invested in R&D is, for a bunch of reasons, is the right one. Pipeline for PORs. We actually feel pretty good about both our current plans of record, our current market share as well as the PORs that are currently in our pipeline that we are competing for. So as manufacturing becomes more complex, as you move to higher layer counts and memory, as you move to more advanced packaging for DRAM that requires incremental slurries, incremental pads, incremental filtration. And then, of course, as you move advanced logic from kind of 2 nanometer to sub-2 nanometer, the landscape and the precision required and the contamination and material purity required, those requirements all get orders of magnitude harder. And we feel like that plays very well, both to our development cycle as well as to our current product line. So I feel very good about our innovation engine. It's something that we're looking forward to showcase a little bit at our Investor Day in November. So some more to come. Thanks, Edward. Operator: And this does conclude the Q&A portion of today's call. So I'd like to turn it back over to Jeffrey Schnell for any additional or closing remarks. Jeffrey Schnell: Yes. Thanks, everybody, for joining our call today, and we look forward to discussing more with you in the coming quarters. Operator: Thank you, ladies and gentlemen. This concludes today's Entegris' First Quarter 2026 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Wayfair First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference call over to Ryan Barney, Investor Relations. Ryan, please go ahead. Ryan Barney: Good morning, and thank you for joining us. Today, we will review our first quarter 2026 results. With me are Niraj Shah, Co-Founder, Chief Executive Officer and Co-Chairman; Steve Conine, Co-Founder and Co-Chairman; and Kate Gulliver, Chief Financial Officer and Chief Administrative Officer. We will all be available for Q&A following today's prepared remarks. I would like to remind you that our call today will consist of forward-looking statements, including, but not limited to, those regarding our future prospects, business strategies, industry trends and our financial performance, including guidance for the second quarter of 2026. All forward-looking statements made on today's call are based on information available to us as of today's date. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10-K for 2025, our Q for this quarter and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events or otherwise. Also, please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance, including contribution profit, contribution margin, adjusted EBITDA, adjusted EBITDA margin and free cash flow. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings release and investor presentation, which contain descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. This call is being recorded, and a webcast will be able for replay on our IR website. I would now like to turn the call over to Niraj. Niraj Shah: Thanks, Ryan, and good morning, everyone. We're pleased to discuss our first quarter results with you. Wayfair has been off to a solid start to the year despite a volatile macroeconomic backdrop. Our net revenue grew by 7% in the first quarter, driven by order growth of 3% and AOV expansion of 4%. The home furnishings category has had a choppy start to the year with weather disruptions in the front part of the quarter, leading right into a broader pullback in consumer spending, driven by elevated energy and fuel prices. Sometimes we get asked why weather would impact an online business. And the answer is pretty simple. Weather disrupts our customers' lives and when you have no power or your children are home from school, you're simply not shopping for home goods. By our estimates, the home furnishings category was down in the low single-digit range for the first quarter, suggesting that we outperformed the market by a high single-digit spread. However, our share spread success has held strong. We're thrilled with the customer engagement we saw during Way Day this past weekend, and we had a terrific opening to our Atlanta store earlier in the month. Our strong revenue performance in Q1 translated to noteworthy profitability. Our 5.2% adjusted EBITDA margin in the first quarter is the best Q1 result we've delivered in 5 years, and it approaches what we reported in the first quarter of 2021. Years of work to optimize our capital structure puts us in a place to take advantage of the market dislocation to repurchase more of our convertible bonds in Q1. This functions essentially as a stock repurchase. This effort reduced potential dilution by more than 4 million shares. Our plan remains consistent, increasingly outperformed the category to drive top line growth, follow that growth through in a manner that maximizes EBITDA dollars and grows them faster than revenue and deploy our excess cash to manage both our upcoming maturities and dilution. We're sticking closely to this plan even as the macro environment remains turbulent. We have heard many questions from investors regarding the impact of higher energy and fuel costs. Our platform puts us in a strategically valuable position here. While we face higher cost for fulfillment, those are reflected in the end retail price via the take rate. Suppliers ultimately decide the level of cost burden, they're willing to bear as they determine the wholesale price they want to charge for each item. Ultimately, we see that suppliers are focused on remaining competitive, especially in such a demand-constrained period. And so prices remain generally stable. This is a critical feature of our model. At every price threshold, we can ensure that we're offering the best value for shoppers due to the vast selection on our platform and the intense competition among suppliers to win each order. We're continuing to closely watch the broader economic implications and how consumers are managing their wallets as they face higher prices at the gas pump. We understand concerns that a high-ticket long consideration discretionary category, like home furnishings, would be impacted in a more meaningful economic pullback. However, it's helpful to contextualize the category's current state. It has seen steady contraction starting in 2022. The category tracked down in the double digits for most of 2022, 2023 and 2024 and saw some modest improvement to low to mid-single-digit contraction in 2025. By our estimates, in Q1 of 2026, the category is now down between 25% to 30% versus the peak in 2021 and clearly below the 3% long-term CAGR from the 2019 pre-pandemic baseline. This data holds whether you use Census Bureau, credit card panel or any other available data source. This is a cyclical category, which is clearly in a down cycle in a category that has historically always returned to trend over time. While we believe we're due for a mean reversion, the timing remains hard to predict. We take confidence in knowing that whichever direction the macro turns, Wayfair will be a key share winner because our scale gives us the ability to build a customer experience that cannot be matched. And to be clear, our plan to accelerate growth is not dependent on the mean reversion. We're very excited by how our share gain is widening and will continue to widen in this tough environment. The years of investment we've made to continually improve our core recipe, develop a global logistics network and replatform our technology architecture benefit every customer we serve. This work extends beyond our Wayfair.com business to benefit our professional offering, our retail stores, our luxury business, Perigold as well as what I'd like to focus on today, our international markets. We made great progress since we last updated you, so I'd like to spend a bit of time highlighting the exciting work we're doing internationally. If you zoom out and look at the total addressable market across the U.S., Canada, the U.K. and Ireland, we're talking about a category that approaches nearly $0.5 trillion, over $100 billion of which comes outside the U.S. While our U.S. business naturally commands a lot of attention given its scale, Canada and the U.K. represent large, highly attractive markets with similar demographics and a similar online penetration rate. We've taken a deliberate long-term oriented approach of building a global infrastructure that can be leveraged to support our efforts internationally and we think we're set to reap the benefits. In both countries, despite macro headwinds, we're seeing clear structural share gains. Particularly in a tough market, there's an opportunity for the strongest platforms to pull ahead. We're seeing this in both the U.K. and Canada, driven by a combination of: one, focused execution against the basics of our customer offering; two, the leverage gained through our global technology infrastructure; and three, our ability to deliver relevant local nuance in our marketing flywheel to maximize impact and loyalty. Let me start with the core recipe, offering the best possible selection, sharp pricing and fast reliable delivery. This is the fundamental consumer value proposition that wins in the home category anywhere. In Canada, which is our most mature international market, we achieved our highest non-COVID market share last year with growth nicely outperforming the market. Historically, Canadian consumers faced a subpar retail experience compared to the U.S., defined by smaller assortments, higher pricing and the friction of cross-border shipping. Since launching our Canadian business 10 years ago, we've been focused on dismantling those barriers and delivering a best-in-market offering. We offer nearly all of the 40 million products we show to U.S. customers to our customers in Canada. This means we have one of, if not the most extensive catalog in the country because we integrate across our entire North American supply chain. Our supply chain enables forward positioning locally in Canadian CastleGate warehouses while also fulfilling cross-border orders seamlessly utilizing our U.S. CastleGate sites. Our global footprint and advances in supply chain optimization has allowed us to shave nearly 2 days off of our delivery speeds over the past year. This operational agility also enables us to pivot quickly to meet the needs of the local shopper. In response to rising interest in domestic goods, we made it easier than ever for customers to find Canadian-made products and products that ship from Canada through curated events, site navigation filters and targeted marketing. These local-first initiatives are resonating deeply driving a 15% increase in customer engagement among this product segment. In the U.K., the story is very much the same. Despite intense consumer headwinds and pressure in the broader market, we've seen consistent share gains. We've grown our U.K. catalog to over 6 million products. Having the right item at the right price is only part of the recipe, getting it to the customer quickly and safely is where we truly differentiate. Similar to our U.S. business, we see our post order service as a key differentiator in this complex category. 60% of our large parcel orders are now delivered within 2 days. We've added room of twist delivery as well as both assembly on delivery and assembled post delivery to ensure a seamless experience from the moment of purchase all the way to enjoying it at home. We make it easy for a customer to buy a heavy bulky item and have it assembled in their living room, which builds the type of loyalty that gets a shopper to come back time and time again. And similar to the advantage in Canada, we offer substantially all of the 6 million items to customers in Irelan and other underserved markets. This brings me to the second pillar of our international momentum, our scale advantage and technology. We have a technology organization of more than 2,000 talented engineers, data scientists and product managers. Our technology development is done centrally, which means we don't need to build from zero for each market, a durable competitive advantage that allows us to raise the bar on the customer experience every day. Now where is this more evident than in our rapid deployment of generative and agentic AI? We're not just experimenting with AI, we're actively using it to widen our competitive moat. In Canada, localization is critical, particularly for our French-speaking customers in Quebec. Historically, translating and merchandising a catalog of millions of items with the necessary nuance and interior design context was a monumental highly manual task. Today, we're leveraging advanced AI capabilities to execute in-depth merchandising and product detail page translations for our French catalog at incredible speed and accuracy. We're also using AI to speed up the time it takes to launch new products on our site. In the U.K., we're deploying agentic AI to autonomously enrich our catalog data. We built this capability for our U.S. business and are now rolling it out across our platforms. We are operating agents that automatically enrich and correct product attribute details across tens of thousands of products. This means that when a customer searches for a very specific aesthetic or finish, the results they see are highly accurate, visually inspiring and complete. This kind of technological leverage allows us to use resources more efficiently, while simultaneously delivering a richer and more intuitive shopping experience. And finally, let me touch on the third pillar driving our success abroad, our marketing power and our intense focus on customer loyalty. As we have scaled our brand awareness to household name status in both Canada and the U.K., we're evolving our marketing mix to mirror our U.S. strategy, moving beyond traditional channels to aggressively lean into platforms like TikTok, Connected TV and streaming audio. Central to this approach is speaking to the consumer in a voice they recognize through local influencer and celebrity collaborations. In Canada, we scaled our Creator program from 0 to more than 1,000 creators in the past year, generating tens of millions of views. That manifests in visuals of homes that feel familiar with a style and aesthetic that is highly relevant to local market trends. We can speak to and resonate directly with the consumer looking for inspiration for her home in the suburbs of London or the heart of Toronto. Acquiring a customer is only the first step. Our goal is to earn their repeat loyalty. In the home category, a customer may only make a purchase a few times a year. Our aim is to ensure that every time they think about their home, they think of Wayfair. And that's why we're so excited about the international rollout of Wayfair Rewards. We spoke at length about the program last quarter and continue to see terrific response from our customers. We launched this program in Canada last month, and we just launched in the U.K. a couple of weeks ago. We're seeing Reward shoppers come back more frequently and at a lower acquisition cost, all of which contribute to a meaningful expansion in customer lifetime value. When you step back and look at the whole picture across Canada and the U.K., you see a business that is widening its gap to the market through a combination of our value proposition with local customers and our structural advantages versus local competitors. We're leveraging the considerable investments we've made in our proprietary global logistics, our expansive technology stack and our data-driven marketing engine and are bringing their full weight to bear on these international markets. We have a clear playbook. We have the right team in place, and we're incredibly excited about the compounding growth and profitability that lies ahead. And I'm excited to say that we're now entering a new phase where we have ramping programs that allow us to focus on profitable growth, focus on accelerating our rate of taking market share despite the tough macro, an opportunity to even further increase it when we get to a good macro, but always in a manner that optimizes for the growth of EBITDA dollars. Ultimately, delivering terrific value to our customers and helping our suppliers to grow their business enables us to continually expand our market share in a manner that maximizes our profit. This is the outcome we have been and are expressly focused on delivering. This year, you will hear us talk about the levers to do this. They include things that we've discussed, like stores, verified and rewards, but we'll also increasingly include new topics like improvements on the consumer technology front. AI tools for suppliers, enhancements in our consumer financing options and new convenient delivery offerings. These all drive up customer satisfaction and loyalty to our platforms and resulted in market share gains and more growth in EBITDA. Thank you, and now let me turn it over to Kate for a review of our financials. Kate Gulliver: Thanks, Niraj, and good morning, everyone. Let's dive into our results for the first quarter before talking through guidance for Q2. Revenue for the first quarter grew by 7.4% year-over-year, with the U.S. up by 7.5% and our International segment up by 6%. We delivered another impressive quarter of outperformance against a challenging macro backdrop by approving day in and day out that our core recipe of fast delivery, broad availability and sharp pricing combined with the growth of newer initiatives like Wayfair Loyalty and Verified stands on its own against our peers. Let me continue to walk down the P&L. As I do, please note that the remaining financials include depreciation and amortization, but exclude equity-based compensation, related taxes and other adjustments. I will use the same basis when discussing our outlook as well. Gross margin for the first quarter was 30.1% of net revenue. I tapped at length in February about how the componentry of gross margin will evolve over 2026. As we scale up programs like rewards and other investments in the customer experience, we increasingly see that maximizing profit takes our reported margins slightly lower, but leads to higher profit dollars. You can see that very clearly in the top line results. We're making gross margin investments, which drive our share spread wider. And net result year was another quarter of very healthy order growth at 3% versus the first quarter last year. Within that, we saw new order growth of nearly 7% in the quarter, our best result since 2021 and saw our active customer growth finally flipped to positive year-over-year after multiple quarters of positive sequential growth. Customer service and merchant fees were 3.8% of net revenue, while advertising was 11.2%. The net of these delivered a contribution margin of 15% in the first quarter, up by 70 basis points against the year ago period. Selling, operations, technology, general and administrative expenses came in at $356 million for Q1, the lowest it has been since the second quarter of 2019. We're hearing many questions around efficiency, especially in light of all the ways AI is augmenting productivity across our corporate staff. I find it's helpful to remind investors where we are and how much we've already accomplished. From our peak in 2022, we've taken SOTG&A down by nearly 40% on an annualized basis, which translates to more than $800 million in run rate reduction and even more when you factor in stock-based compensation and capitalized labor. This efficiency has been coded into our DNA for years. And as we drive more productivity in our workforce, we expect to further lever our fixed costs as revenue grows by billions of dollars. In total, we generated $151 million of adjusted EBITDA in the quarter for a 5.2% margin on net revenue, up by 130 basis points year-over-year. We ended the quarter with $1.1 billion of cash and equivalents and $1.5 billion of total liquidity when including our undrawn revolver. Cash for operations was an outflow of $52 million and capital expenditures totaled $54 million for the quarter. Free cash flow was a negative $106 million in Q1 and an improvement by $33 million from Q1 of 2025, which is simply a function of our typical negative working capital cycle after a successful Q4. On the capital structure front, we made further progress in both leverage reduction and dilution management. Our gross leverage ending Q1 was 3.8x ,down a full 3 turns from where we stood just a year ago. We issued a partial redemption for $250 million of principal on our 2027 convertible notes and repurchased roughly $56 million of principal on our 2028 convertible bonds as well. The over $300 million of principal reduction is the equivalent of more than 4 million potential shares of dilution which we essentially repurchased. We wanted to continue to take further advantage of the equity dislocation, so we bought back another $43 million of principal of the 2028 in April through a 10b5-1 repurchase plan. Our convertible exposure is quickly dwindling away. Today, we have just over $700 million of principal remaining on the 2027 and 2028 convertible bonds, nearly half of what the original size of those issuances were as well as the $39 million stub on our 2026 bonds. You've seen us be strategic about the ways we've managed these obligations. This is one more area where we are firmly in control of our own destiny and taking the right steps to maximize free cash flow per share. Now let's turn our attention to guidance for the second quarter. Beginning with the top line, we would guide you to mid-single digits year-over-year growth for Q2. We often hear a lot of questions from investors on how we formulate our guidance. So let me give a brief explanation. When we think about top line performance for the full quarter, we look at how the category has performed so far and how our share spread has trended. From there, we build in any specific changes to the promotional calendar or other items that would impact the comparable to get to a final figure. So in this case, we're looking at a category that has been volatile in April so far, trending down in the mid-single-digit range. Our share spread has been holding nicely in the high single-digit range. Promotional intensity over the remainder of the quarter is expected to look very similar to the year-ago period. So the combination of those factors get us to lease where we expect mid-single digits year-over-year growth from a weakening macro even as our share spread widens. Turning to gross margins. We would guide you to a range of 29.5% to 30.5% of net revenue. As I mentioned a moment ago, with the ramp of Wayfair Rewards and broader consumer price elasticity, we see new opportunities to make investments out of gross margin, which should lead to benefits on adjusted EBITDA dollars and margin as we scale order volume faster. Consistent with prior quarters, our expectation for customer service and merchant fees is just below 4%. We expect advertising in a 10.5% to 11.5% range, reaching a contribution margin of roughly 15% once more. SOTG&A is expected to continue to hold in the $360 million to $370 million range. Working your way down the P&L, this guidance suggests a second quarter adjusted EBITDA margin in the 6% to 7% of net revenue range. Now let me touch on a few housekeeping items. We expect equity-based compensation and related taxes of roughly $70 million to $90 million. Depreciation and amortization should be approximately $63 million to $69 million. Net interest expense of approximately $38 million, weighted average shares outstanding of approximately $132 million and CapEx in a $55 million to $65 million range. As we wrap up, I want to zero in on the 2 core themes we hope you've taken away from the call this morning. Our success on share capture and our ability to drive durable and expanding profitability. You'll see us widen both these over the course of 2026 as we focus on raising the bar on the customer experience and earning a greater share of our shopper spending. We're not going to wait for the macro environment to normalize, we can drive growth on the basis of our outperformance, and you'll see us deliver on that over the rest of 2026 and beyond. Our model is now honed to drive substantial incremental flow-through from that growth, giving us the platform to meaningfully expand owner's earnings and free cash flow per share in the quarters and years ahead. Thank you. And with that, Niraj, Steve and I will take your questions. Operator: [Operator Instructions] Your first question comes from the line of Christopher Horvers with JPMorgan. Christopher Horvers: So the first question is, I want to try to diagnose what's going on in the environment. Obviously, it got volatile in the back half of March, April continues to look that way. But at the same time, you had stimulus that helped the customer and help drive, I think, overall retail spending. Do you think that actually helped in your category and your results in the first quarter? And then as you think about the second quarter, last year, you extended Way Day, I think an extra day, but you didn't do it this year. So that seems to provide signal some confidence in your outlook. So just trying to unpack what's going on, do you think stimulus helped such that maybe you're misreading what the trend business might be. Niraj Shah: Thanks, Chris, for your question. So yes, so here's my view. Let me start with the macro environment and then I'll do some micro comments on our business. I think the overall macro environment, it's -- I would think of home as being a category that's still out of favor. I would think of it as kind of bumping along the bottom. I think in terms of how it's comping, you think of maybe that category comping like low single digits or something right now. You probably saw the Wall Street Journal article... Kate Gulliver: Negative. Niraj Shah: Negative low single digits. You priced out the Wall Street Journal article the other day we said, hey, prices, there's been some inflation. Anything has had some inflation is basically seen consumer spending drop and they cite furniture as an example of that. So I don't think the category is going off a cliff, but I don't think the category is actually great. What I do think is happening though -- and on your question about stimulus like tax rebates, there, I think those clearly have been healthy, but I also think like good spending is not fantastic. And so -- sorry, let me take a sip of water. And so I don't know, with the gas prices, oil prices, the headlines, I'm not sure that tax refunds have driven a lot of spending in the category, which I think is part of the Wall Street Journal sort of article that I referenced. So what do I think has happened? I think we're doing particularly well, right? So I think we -- our share spread to the market, I think it's basically a double-digit share spread. And why? I think it has a lot to do with the programs we're driving, things like stores, verified rewards, we have a new delivery program, launching what we're doing with the app, what we're doing with our B2B sales force. And I think most of those are compounding programs, and almost all of them are relatively early in the impact they can have. On the Way Day extension, I think that's just an other example of us optimizing our promotional calendar in a category that's out of favor promotional events are a great way to get the category to be top of mind. And what we found is that you could have a longer event or you could have more events in the quarter. And we basically have optimized how the we try different things and we've basically optimize it from what gets us the maximum benefit. So I wouldn't overly read into the Way Day event being 3 days versus 5 days. So I think we basically set ourselves up through our own actions to actually accelerate the rate of taking share for us to grow EBITDA faster than we grow revenue. And I think we're set up pretty well to aggressively take share in what is continuing to be a down market for the category. Christopher Horvers: Makes sense. And as a follow-up question, I looked at your most recent investor presentation, at least one before today. The bridge to the 10%-plus adjusted EBITDA was taken out of the presentation, I know you're very focused on driving EBITDA dollars and contribution margin. But just was wondering, is there a signal there that we're supposed to read into it in terms of how you now think about the long-term profitability of the company? Niraj Shah: No, we're absolutely on track to get to 10%-plus EBITDA over time. So I'm not sure exactly what you're referring to. But the way we're going to grow the business, EBITDA is going to grow faster than revenue. And the way that's going to happen, a lot of that is through very profitably growing the size of the business because we have a lot of fixed costs in the business. That's how EBITDA percentage grows. And the share spread is a great indicator of how we're going to do that, and that's going to continue to expand. But let me turn it over to Kate. Kate Gulliver: Yes. Chris, I think you're referring to the IR presentation that we updated a year in February. And we just took out the bridge slide that was a few years old at this point, but we still left the 10% goal on the profitability. And in fact, Niraj and I have both said, I think several times, we actually believe it can go north of 10% adjusted EBITDA margin. We're quite confident in the path there. And if anything, you've seen us continue to build on that last year, this year in the guide for this coming quarter, right? So that's nicely picking up. And as Niraj spoke to, it's a result of the combination of share capture, and that really nice solid flow through. Operator: Our next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: Maybe sticking on the longer-term topic. Niraj, in your shareholder but last quarter, you talked about a 20% plus organic growth rate that you guys are targeting berg stock is not reflecting that type of growth looking forward. So perhaps you could provide some high-level background and some of the bridge dynamics in order to get to that growth level. Niraj Shah: Yes. Thanks, Peter. And the team here in the room is pointing out that I sound like I just got back from a 9-day business trip, which includes spending a weekend in High Point, North Carolina, which turns out to be true. But they just handed me some throat lozenges, which are hopefully helping now. So to answer your question about the 20% plus organic growth rate, yes, the reason I pointed that out in the shareholder letter is that I understand folks want to model a quarter, talk about the current quarter, model the next quarter after that, et cetera. I prefer to think about how this business is going to durably grow over the meaningful long term, midterm, et cetera. And a 20% growth basically is where we think that this business can get to in the not-too future, through our own actions. And so what are some of those actions? And I've kind of recapped a bunch of those programs before, but let me just talk through maybe a little more than I have in the recent past. So we talked a lot in the last year about Rewards, about Wayfair Verified and about what we're doing with brick-and-mortar stores. And if you think about those 3, they are meant to be meaningful moats relative to other competitors, and they are meant to be compounding advantages. And what do I mean by that? Well, on average, a customer is spending $600 a year with us right now. And that's out of a $3,000 or $4,000 spend, and that's in a year where they're not moving. And can we get more share of wallet? Then can we get more new customers? Can we grow that base of customers who in 600 starts saying $700 or $800 a year with what we think we can with the loyalty program is meant to bend that curve. Something like stores where the majority of customers are new to file, that's a great way to get new customers. And by the way, our Atlanta store just opened a few weeks ago, the grand opening was a couple of weeks ago. It's opened stronger than Chicago opened. It's a great proof point. It's hard to draw a line with 1 point. We now have 2. You can draw a line. We'll assume we'll have 3 this summer with Columbus, Ohio, up 4 in November with Denver. We have more than 3 opening next year. We're pretty excited about what we're seeing there. These are profitable ways to grow the customer base and profitable ways to grow the dollars per customer per year. Well, those are 3 we're going to be talked a lot about. But then if you think about the consumer tech investments we're making now we're post replatforming, what we're doing with the native apps. If you in about the brand marketing, and hopefully, you've seen some of our new adds. I think our new ads are some of the best ads we've run in the last decade. I think our ads have gotten a little stale. And now I think they're a lot fresher and they're meant to really help people understand what we offer and frankly, draw in a lot of new customers. That's part of why you also see them running in places like NBA games and NFL games and the NCAA Final 4. This is all inside an ad budget that's actually, on a percentage basis come down pretty nicely and on a dollar basis, frankly, gotten a lot leaner. I think that's meaningful. In our B2B business, we've made a lot of change to how we run the sales force there. We think that's got a big runway ahead of it. We have emerging categories like home improvement, where we sell things like cabinetry and large appliances, things we're not known for, which we're seeing some nice growth in and we're seeing in the super early days on that. So how do we get to 20% growth over time? It's not one of these things. It's the aggregate of these things. And I think we're in the early days of proving that we can do that. We started last year at 0% year-over-year. We ended last year at 7% year-over-year. That was a year where the category probably comped down mid-single digits or something like that. And so we did that against a headwind that basically remained. This year, the headwind is probably a little less, but there's still a headwind. I don't know what we're headwind is right now, but let's call it low single-digit negative. But we're going to see that our rate of growth is going to accelerate as we go through time. Peter Keith: Okay. That's helpful. It does sound like the throat lozenge is working, but we'll pivot the next question to Kate... Niraj Shah: This is a cherry one. I would have picked lemon if I had a lot of choices, to be honest. Peter Keith: So Kate, just to parse out the guidance for mid-single-digit revenue growth in Q2, it does sound like the industry has stepped down and gotten a little bit worse in April, as you said, negative mid-single. But the Q2 guide is similar to the Q1 guide. So kind of walk us through the logic on getting to that mid-single-digit number when you -- the industry is weakening, do you think your share gains are accelerating? And I do believe that compared to get a little bit tougher as the quarter progresses. Kate Gulliver: Yes. I mean I actually think you just hit on it in the way you frame the question, and it aligns with Niraj's answer that you just gave, which is we do believe the share gains are accelerating. And so we're quite confident in that guide even with ongoing compression in the category. And I think it speaks to all of these pieces that we're working on really building and combining together. So rewards, verified physical retail, improvements in the site experience, implements and marketing. And that gives us that conviction around that widening share spread. Operator: Our next question comes from the line of Oli Wintermantel from Evercore. Oliver Wintermantel: So Niraj, maybe you can help us walk through that EBITDA bridge over time a little bit because at your last Analyst Day, we heard that gross margin should be a help to get to that 10% EBITDA margin. And now it looks like gross margins for a period of time is going the other way. So maybe you could talk a little about that. And then on the gross margin itself, maybe frame it how you think transportation cost, gas prices are a headwind there? And how you think contribution margins are going to develop over the year? Niraj Shah: Yes. Thanks for the question. So let me say a few thoughts, and I'm going to turn it over to Kate. So a few thoughts I want to share. So we gave that bridge in the summer of 2023. And so we're kind of, call it, roughly 3 years later and a few meaningful things have changed since then. Just to rattle off a couple, like one is we launched our loyalty program. Our loyalty program is a great program to grow revenue faster and grow EBITDA faster. It does lower the gross margin percentage, for example, but it does lower the ad cost percentage. We started launching brick-and-mortar stores. Brick-and-mortar stores actually where the costs get accounted for brick-and-mores stores go in different lines. So a lot of the store staff goes into Saka, for example. So I would say, at some point, we need to update the bridge for you all with the updates we have now. But the long-term numbers we can get to haven't changed. The order of operations, I would say, of what we get to when could have changed. And so I think it's important not to worry about the intermediate lines, but actually to focus on the top line and the bottom line because those are really what matter. All the changes we've made are meant to basically facilitate the top line getting better and the bottom line getting better, which I think would be the 2 numbers everyone would care about the most. But basically, in the long term, nothing has changed. And on gross margin, what do I mean by that? Like how can we get gross margin up with rewards perhaps being a drag on it, and we want to get more members in rewards. So maybe that will be more of a drag. Well, the answer is that as you scale the business, there's a lot of benefit to gross margin percentage as individual items get a lot more volume, the economics on individual items get better. And then the fixed cost of logistics is another item that gets a lot of leverage because a lot of logistics is variable, but there's actually -- we operate 20 million square feet of logistics space across, I think, roughly 70 buildings -- and there's a fixed cost nature to how that works. So there's a lot of puts and takes, but the trajectory of where we're going hasn't changed at all. But let me turn it over to Kate. Kate Gulliver: Yes. I'll add a little bit more color there, and then I'm happy to answer your second question about energy prices. So I think on the sort of componentry to get from where we are today to the 10% as Niraj mentioned, things in the business evolve and that can move around a bit, but the conviction around getting to the north of 10% obviously is still there. On the gross margin piece, in particular, on that slide, we talked about 3 things that were going to drive gross margin. The supplier adds, so the retail media piece, leverage in the business and from CastleGate and then the merch margin mix. And all of those things still exist. So I think it's really important to understand that none of those pieces are actually operating differently than we expected. We're seeing really nice gains in CastleGate. I think if you've been at High Point, you would hear that from folks. We're seeing really nice gains in the Retail Media business. But as we constantly evaluate where are the right places to invest in the customer and the customer experience, where do we see things on sort of the optimal curve there, that may make sense for us to invest in that customer experience like in the form of rewards and actually then see the result of expanding gross profit dollars. So we actually -- you saw that guide down, we're talking about over $1 billion of gross profit dollars in the second quarter. That's where you see that expansion. So things may move around, but the levers are all still there, and I think that's really important to understand. We also, in that bridge showed a little bit of leverage that we might get on SOTG&A. But throughout this year, we -- or last year, we continue to show significant improvement in SOTG&A. In fact, we're back to 2019 levels on SOTG&A with $3 billion more in revenue on the top line. So you're seeing efficiency pickups every stage of the game here. And then the other piece that I just want to point out is on that bridge, we sort of show the path to 10%, but we said we believe that we can get to well north of 10%. And so 10% is obviously a stop on the way, but we think we can continue to exceed that. On your question around energy prices weighing on GM, I think you mean in the form of transportation. Obviously, the way that our model works is we have the wholesale cost. We add from our suppliers. We add on top of that the cost to deliver, incidents and damage and then our take rate. And so effectively, we can maintain that gross margin even with fluctuations in the energy prices. Operator: Our next question comes from the line of David Bellinger with Mizuho Securities. David Bellinger: I just want to follow up on an earlier one, where you're talking about the higher energy prices, some of the macro issues. Can you talk about the cadence of sales growth through Q1? Are you seeing any of this actually show up in your business day-to-day to date? And is there also any evidence that the category may be shifting even further online during these times of higher gas prices and maybe just store visits are starting to dwindle a bit more. Is there any evidence of that digital shift starting to take shape even further? Niraj Shah: David, thanks for your question. The energy prices, I would say, I don't think energy prices have had a direct -- I don't think it's affected like sales moving online or anything like that. I would say that, obviously, in a world where customers have noticed prices going up, it doesn't help optically that they see the gas prices having jumped up 20% year-over-year. or all the headlines are basically about how inflation stubborn or there's new spikes to it. And so I think why is the category still comping negative low single digits after being down for 3 years in a row and why is it down fourth year in a row. I think that's mainly that people are not moving categories out of favor. But none of these headlines help matters. But I think the category is just bumping along. I don't think these are having particular effects. But I don't know, Kate, do you have any... Kate Gulliver: Yes. I mean I think we've long talked about the impact of consumer sentiment on the category. And so certainly, that creates incremental challenge for us. But -- we go back to what can we can control right now, and we think we can continue to control the pace of our share gain. And so we're focused on expanding those share gains even while the category may be compressed. David Bellinger: Got it. And then I just like to follow up on the consumer-facing genic AI. I know this is a very early stage. You're doing a lot with Google Gemini and their UCP. Any additional data points you can share around the traffic that's being driven to your digital properties? Or just any data points around how referrals are looking and what this could mean over the next 6 to 12 months and adding to this share capture? Niraj Shah: So let me give you the answer. There's kind of 2 sides to it. So 1 is the same way as the media landscape evolved. We were an early partner with Meta, an early partner with Google, an early partner with Pinterest helped develop [ ad news ] with all of them, still do that and all the alphas and betas with those guys. And so we want to be everywhere. We want to be there early, and we want to help shape the direction. That's the way we think about agentic commerce. So early partner with Perplexity, early partner with OpenAI, early partner with Google and what they're doing with Gemini, so on and so forth. Whether that be on shopping, the shopping protocols like UCP, whether that be with new advertising formats, the different ones of them are trying. And a number of them have publicly cited is, we're effectively partnering with them all, and we're early in partnering with them all. At the same time, as I say that, the traffic levels we're talking about today are de minimis. They're very small. A lot of people talk about the growth rate of that traffic with a high percentage, but that is a little bit misleading because you have to put a high percentage on a very low number. So where could that be over time, it could be meaningfully higher. But I tend to think that, frankly, a lot of what's going to happen in agentic commerce will really impact 3 categories of goods. One is going to be replenishment-type items where agents can just execute replenishment for you, whether that's paper towels or dish soap or whatever. You know what you want, it knows what you want cheapest way to get it by whatever you want it. Second will be like commodity items. You want a few more iPhone cables, they give me some high-quality one inexpensively and can get it for. And the third will be technical items. You want a 55-inch TV. "Hey, what's the best premium 55-inch TV out there right now? What's the best budget 55-inch TV out there?" And it can figure out the right 1 for you. And they all look the same. You probably don't care what logo is on it. You care about getting the best value, best quality, one, et cetera. Categories like fashion, beauty, home, I think there's a lot that a consumer learns through the process of shopping. There's a lot of motion there and consumers actually don't want to own the same items as each other. So to be honest, I think the role that these platforms will play will be different than I think the way a lot of it's talked about today, which hits those 3 use cases, but we're going to be there early. We're going to help shape the direction and that's the same role we kind of played with tech platforms historically. Kate Gulliver: I think we shared a bit on previous calls and some of our other remarks and even on the call today about how we're using AI to actually improve the customer experience. So there's -- what you were asking about, which is sort of off-site shopping, but there's also how do we -- we are 1P from the perspective of the data that we have into the consumer and how do we leverage that to actually make a much better experience? So we talked about AI stylists at Shopko. We talked about on the call today how we use AI to improve the merchandising of products. On the 2 calls ago, we had Fiona Tan, our CTO on the call talking about how we're using some of the personalization trends on site. And so what we are really excited about is we have this rich data set. We have engineers that have been using various forms of machine learning for years, how do they use AI to really accelerate how the consumer discovers and engages with the site. Operator: Your next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: My first question is 2 parts on the financial model. So first, the gross margin, I guess, pull back that is that entirely due to the loyalty program investments? Are there any other puts and takes to it? And then should we be less focused on an incremental margin more focused on an EBITDA dollar growth for the near term? And then I'll have a follow-up on agentic. Niraj Shah: I'll just say one thing and turn it over to Kate. But what I would say, I actually think if you net out the loyalty program, gross margin actually would be neutral to up, not down. But let me turn it over to Kate. Kate Gulliver: Yes. I mean I think the way we've talked about the gross margin investment is there are a few pieces to that. Certainly, the loyalty program weighs on gross margin, although it gives you improvements elsewhere, right? And we've talked nicely about the incrementality that we get in the customers from the loyalty program. We've also mentioned there are other ways that we think about investing in the customer experience, whether that be in the form of price on certain segments of the catalog or category in the form of delivery speed. So I would think about sort of multiple things that we look at on that gross margin line and we say, "Hey, these investments sense because they're going to drive greater gross profit dollars over time." And so therefore, it is the right thing to make those investments. You also asked about EBITDA incrementals and dollar growth rate. I think you've heard us say a few times that EBITDA dollars and margin, right? So EBITDA margin will continue to grow quite nicely and that EBITDA dollars should accelerate at a pace that's faster than top line growth. still seeing really nice EBITDA dollar growth. The one thing I want to point out is as you may be looking at in the '25 incremental relative to '24, you did have some sort of astounding incremental that year where we were comping over some unusual periods. And so as we spoke about at that time, those were a little bit unusual given the comps. But I think what you're seeing now is really steady profitability improvement. Simeon Gutman: Got it. Okay. And there is a follow-up on this agenetic idea. Is there a scenario in which some of the vendors, whether it's even importers, wholesalers have a way to get to the customer without using platform. I'm sure that's always exists, but do you think agentic is an enabler. And then it could decrease the value of a marketplace or your platform. And I'm wondering if that is tied into some of the loyalty you're working on now, and then the share capture that you're focused on or if those are just 2 separate thoughts. Niraj Shah: The main reason to drive the loyalty is basically 2 things. One, obviously, you want to grow the dollars per customer per year. And the second is you want to do that and basically not be paying the advertising costs of having to reach that customer repeatedly and you'd rather give the value to the customer, which effectively, if you think about the benefits of rewards, that's what effectively rewards does, it gives value directly to the customer and incent them to just come direct to us, right? So that's the trade there. In terms of suppliers wanting to go direct to customers, there's basically a few big problems with that notion. And they're obviously welcome to do that. But the problem they find is that it's expensive to reach the customers. They have a relatively narrow catalog in context of how customers want to shop the category overall was they're making a purchase decision. But the biggest issues have to do with customer service and logistics to actually deliver these items economically in a manner that avoids damage and basically successful, it's quite difficult to do that. And so suppliers -- this is why suppliers effectively in this industry don't go direct. In fashion, for example, you see them go direct. And the reason is that an article of clothing, you can actually ship very easily and you can take a return very easily because you just think about putting an article clothing in a polybag, he logistics, the service on it and the return product is actually fairly trivial on a relative basis. And so that's a big hurdle for these folks. So I don't think anything around agenetic would change how the supply chain would operate. Operator: Our next question comes from the line of Colin Sebastian with Baird. Colin Sebastian: Yes, really good to see the ongoing share gains here, and that's not with a shortage of competition, obviously. And I guess within that context, I know there's been some chatter about some of the more value-oriented marketplace is trying to move upmarket. So I wonder if you're seeing that? And I guess related to that, given what Niraj, you've sort of articulated on agentic commerce if being more focused in the middle and higher end of the consumer market, how is agenetic benefiting you in terms of those integrations with agents that may be more price-oriented than a traditional means that people in your focus -- focused on what the market might be shopping, if that makes sense. Niraj Shah: Yes. Let me take a shot, but I'm not 100% sure I understood your question, but let me answer what I think your point. So I think you're saying at the commodity end of the market, at the opening price point and where you could shop on a Walmart, on an Amazon, on Wayfair and you can get that inexpensive commodity item, that $29 bar sell from anybody. How does agenetic change that because it's a price-driven commodity purchase. And I would say that, that's a great example of the closest our category gets when I mentioned agentic, I said there's replenishment, there's commodity. There's technical as a 3 class of goods, I think, are most likely to be impacted by agentic. I think what you're saying is like there's a portion of the category that's commodity. And that's true. What I would point out is that commodity end is not where we really do much volume. And that commodity end is, in fact, where -- you can go to Target, you go to Walmart, you go to Amazon, you go to us, you got a to, you go to TikTok, you go wherever, but it kind of -- there's really no margin in that volume. And that volume is not where the differentiation occurs. And that's why we, as a category specialists do particularly well is that we actually become very strong as you come up off of that as you shop all the way through the middle and then if you think of our specialty retail brands up through the upper middle. And then as you think about Perigold and luxury, all the way up through the top. And so I think that's part of the point that I would make about agentic doesn't impact us in the same way that I think it impacts some others because the tranche of our market that would be impacted is not really -- that is not the tranche that we are particularly strong in. But is that what you were asking about? Colin Sebastian: Yes. Just in terms of the benefits that you see from integrating with agentic commerce if the agents sort of facilitate more of that price orientation. And then also if you're seeing some of the more value into marketplaces move upmarket. Niraj Shah: Yes. So -- okay. So 2 thoughts on that. I think it's hard for folks to move upmarket or downmarket. If that's not what they're known for, not what they specialize and if that's not where their supplier base is, and that's not the type of goods that they know how to merchandise and sell. So I don't know that agentic enables that movement in the same way you're thinking. Kate Gulliver: Yes. Maybe you're going to that agentic could enable more price discovery. We've long operated in a world of price discovery. And I think that's where parts of our catalogs that are more differentiated, the way that our delivery and service experience, we've spoken on this call quite a bit about actually the complexity of the category differentiate our ability to service the customer in that way. Niraj Shah: And I guess one last comment on that as well. because I've rattled off a bunch of reasons why our share spread and our growth rate can keep climbing. And when I answered Peter's question about how we get to 20% plus, it's one of the things I rattled off. But I talked about what Verified. We just zoom in on Wafer Verified for a moment. Wafer Verified is where we actually do an editorial review kind of like the old -- for those who are old enough to remember, consumer report style kind of review of an item that gets it like what the item really is to set expectations so that customers can make good choices are very happy. We do that on a selection of goods. Those goods are increasingly exclusive to Wayfair. And so that's the other thing to think about as we scale exclusive items give us differentiation because to your point about price competition, when you have an item that's exclusive and you have the merchandising and the information to support why it's a great item. So I might be able to find something that looks like it but you have no certainties around quality or knowledge of what the item will be. And I think everyone on this call is probably have an experience where you order something and what you get is not what you thought you were getting. And I think that's a concern for customers. It's yet another way that we can build a milk around what we provide. Operator: Our last question comes from the line of Brian Nagel with Oppenheimer. Brian Nagel: So I've got two. The first question, and again, at the risk of being a little repetitive here. Just with -- I guess it's more for Kate. With regard to what we're seeing in gross margin, the question I want to ask is, if I'm hearing you correctly, the impact here is largely a function of the loyalty program. But then obviously, as you discussed essentially, there positive offsets elsewhere. So I want to ask, I mean, how big is royalty now? And presumably, as loyalty continues to grow, is that going to -- does that suggest there's going to be an increasingly large impact upon the gross margin rate? Or are there some type of offsets there? And then I have a follow-up question. Kate Gulliver: Yes. So yes, certainly a component of the gross margin is the loyalty program. We said on the last call that we ended 2025 at a little over 1 million members, and we obviously intend to continue to grow the program in '26. That's contemplated, of course, in the guide that we gave for the second quarter and the way that we've talked about gross margin throughout the year. I would focus you back to sort of how do we think about EBITDA dollars and EBITDA margin growth and the accelerating EBITDA dollars throughout '26. And what we said there is that even as we make investments in some places, there will be offsets throughout the P&L, such that EBITDA dollar growth accelerates faster than revenue growth. And you've seen that this quarter. You will continue to see that. And I think that, that's an important piece to keep in mind. So that's income in the form of certainly ACR, but also in the form of how we think about leverage on the SOTG&A line and the efficiency there. Brian Nagel: Okay. That's helpful. And then my follow-up question, a different topic, but you continue to make very nice progress with regard to your balance sheet. So I guess as you is you're sort of saying improving the balance sheet. I mean how do you think about this from a -- how to manage dilution, your leverage ratios and then any type of capital return to shareholders? Kate Gulliver: Yes. Thanks for the question. Obviously, in Q1, we continue to make nice progress on there. We essentially bought back roughly $300 million of face value of the '27 to '28 million. That's roughly the equivalent of managing 4 million shares of dilution, right? So you're seeing us make progress on this potential dilution that we had overhang of the '27 and '28 as we continue to buy that back. And I think that speaks to how we're trying to manage ultimately to this free cash flow per share continuing to grow. And part of that piece is obviously on growing the numerator, but part of that is on how do we continue to take that denominator and make that as efficient as possible. And you're seeing that in the way that we're managing the '27 to '28. You've also seen us manage that in the way that we've managed net withholding on the sort of employee share pieces. And so nice progress there. As we look going forward, what we said is we want to remain opportunistic about how we continue to grow -- or how we continue to manage these -- how we continue to manage these pieces on the '27 and '28, how we continue to do that in a way that sort of manages further dilution. And then eventually, you get to a place where you're sort of talking about outright repurchasing of shares. And I think that's been a goal of ours and a place that we're excited to keep making progress to get to that point. Operator: We have now reached the end of the Q&A session. I will now turn the call back to the Wayfair team for closing remarks. Niraj Shah: I'll just leave you with -- first, thank you all for your interest in Wayfair. I'll just leave you with 2 thoughts. You can decide which one is more important. One is we're definitely very focused on how we can profitably grow the business, and that's really about accelerating the rate at which we grow the revenue which will include spreading the share growth over the market in an increasing way. You'll see that manifest in the growth in EBITDA dollars and margins. And the second thought I'll leave you with is that it turns out throats just work really well. So thank you all for your interest in Wayfair. Talk to you in next call. Kate Gulliver: Thanks very much. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the Sonic Automotive, Inc. First Quarter 2026 Earnings Conference Call. This conference call is being recorded today, Thursday, 04/30/2026. Presentation materials, which accompany management’s discussion on the conference call, can be accessed at the company’s website at ir.sonicautomotive.com. At this time, I would like to refer to the Safe Harbor statement under the Private Securities and Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information, or expectations about the company’s products or market, or otherwise make statements about the future. Such statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from these statements. These risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company’s Current Report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive, Inc. Mr. Smith, you may begin your conference. David Smith: Thank you very much and good morning, everyone. Welcome to the Sonic Automotive, Inc. first quarter 2026 earnings call. I am David Smith, the company’s Chairman and CEO. Joining me on today’s call is our President, Mr. Jeff Dyke; our CFO, Mr. Heath Byrd; our EchoPark Chief Operating Officer, Mr. Thomas Keen; and our Vice President of Investor Relations, Mr. Danny Wieland. I would like to open the call by thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. It is because of our outstanding teammates that Sonic Automotive, Inc. was just recognized as one of America’s most trustworthy companies by Newsweek. We believe our strong relationships with our teammates, guests, and manufacturer lending partners are key to our future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive, Inc. team. Heath Byrd: Earlier this morning, Sonic Automotive, Inc. reported first quarter financial results, including record first quarter total revenues of $3.7 billion, up 1% from the previous year, and record first quarter total gross profit of $598.8 million, up 6% year over year. First quarter reported GAAP EPS was $1.79 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the first quarter was $1.62 per share, a 9% increase year over year. Moving now to our first quarter franchised dealership segment results, we generated reported revenues of $3.1 billion, flat year over year, and same-store revenues of $2.9 billion, down 4% year over year. This same-store decrease was largely driven by a 10% decrease in new vehicle retail volume, offset partially by a 3% increase in used vehicle retail volume year over year. It should be noted that first quarter new and used vehicle volume faced tough year-over-year comparisons due to the pull-forward of consumer demand for vehicles in the prior year ahead of the U.S. auto import tariffs announced in March 2025. Reported franchise total gross profit for the first quarter was up 5% and was flat year over year on a same-store basis. Our fixed operations gross profit and F&I gross profit set quarterly records, up 10% and 7% year over year, respectively, on a reported basis. These two high-margin business lines continue to increase their share of our total gross profit pool, once again contributing over 75% of total gross profit for the first quarter, mitigating the potential headwinds to new vehicle volume and margin to our overall profitability while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit. Same-store new vehicle GPU was $3,002 per unit, down 4% year over year. On a reported basis, new vehicle GPU was $3,144 per unit, up 2% year over year. On the used vehicle side of the franchise business, same-store used GPU decreased 4% year over year to $1,533 per unit, but increased 11% sequentially due to typical seasonality in the used car business. Our F&I performance continues to be a strength, with first quarter record reported franchise F&I GPU of $2,670 per unit, up 9% year over year and up 2% sequentially. Turning now to EchoPark, adjusted segment income was an all-time record $12.6 million, up 25% year over year, and adjusted EBITDA was an all-time record $18.6 million, up 18% year over year. For the first quarter, we reported EchoPark revenues of $581 million, up 4% year over year, and all-time record gross profit of $68 million, up 6% year over year. EchoPark segment retail unit sales volume for the quarter increased 3% year over year, and EchoPark segment total GPU was a first quarter record $3,502 per unit, up 3% year over year and up 2% sequentially from the fourth quarter. With momentum on our side, we believe we are well positioned to resume a disciplined cadence of EchoPark store openings beginning in late 2026 while also initiating targeted investment in brand marketing as a key component of our long-term growth strategy. We expect to begin funding these brand marketing efforts this year, potentially increasing advertising expenses by $10 million to $20 million, with the majority of that investment occurring in the second half. Turning now to our Powersports segment, we generated first quarter record revenues of $41 million, up 19% year over year, and first quarter record gross profit of $10 million, up 19% year over year. First quarter combined new and used retail volume was up 25% year over year. And we are beginning to see the benefits of our investment in modernizing the Powersports business and the future growth opportunities it may provide. We also welcome our new team members from Space Coast Harley-Davidson, Treasure Coast Harley-Davidson, Falcon’s Fury Harley-Davidson, Raging Bull Harley-Davidson, and San Diego Harley-Davidson. The acquisition of these five dealerships provides us coverage in key riding states of California, Florida, Georgia, and North Carolina. This acquisition further reaffirms our commitment to strategic growth within the powersports segment and diversifies our geographic footprint and seasonality. Finally, turning to our balance sheet, we ended the quarter with $770 million available liquidity, including $381 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allows us to strategically deploy capital in a variety of ways to deliver value to our shareholders. During the first quarter, we repurchased approximately 2.1 million shares of our common stock for approximately $136 million, representing a 6% decrease in outstanding share count from 12/31/2025. In addition, I am pleased to report today that our Board of Directors approved an additional $500 million share repurchase authorization and an 8% increase to the quarterly cash dividend to $0.41 per share, payable on 07/15/2026 to all stockholders of record on 06/15/2026. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on vehicle production, pricing, and volume forecasts, vehicle affordability, and consumer demand going forward. The full-year 2026 outlook and guidance on Page 13 of our investor presentation considers these uncertainties and represents our current expectations for 2026 financial results. As always, our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment while making strategic decisions to maximize long-term returns. This concludes our opening remarks and we look forward to answering any questions you may have. Thank you. Operator: We will now open the call for questions. Our first question is from Jeff Licht with Stephens Inc. Jeff Licht: Good morning. Thanks for taking my questions. Was curious if you could just talk a little bit about EchoPark. It appears that you are having some success there. Now you are talking about the optimism about opening some new stores. I am curious, is there anything about this particular environment where obviously supply is pretty tight, it seems like used demand might be a little higher than new demand. Anything about this environment that plays into EchoPark’s business model? And then what is it that gives you confidence to open new stores? Jeff Dyke: On a same-store basis, new car prices were over $60,000 in the first quarter. That is an all-time high for the first quarter. Our total store was over $61,000. So with the increase in new car pricing, it is making affordability a big, big issue and that is going to put wind in the sail for pre-owned. So it gives us a lot of confidence. We also are buying a lot more cars, as a percentage of our overall business, off the street, both on the franchise side and EchoPark. I believe we approached the 40% range in the first quarter, and that makes a big difference. So margins are better, we are selling more cars, we have access to inventory. We are growing, we are executing at a high level, and it gives us a lot of confidence as we move into Q2 to see the same kind of growth or even better for EchoPark on a year-over-year basis. And we are seeing it on the franchise side too, maybe as a percentage growth not quite to the extent, but in Q2 the business is really strong. And it is being driven by just amazingly high new car pricing in the marketplace. Heath Byrd: And let me add one point. I think it is really important to understand the value of us getting the non-auction sourcing, and the team has done a great job. Keep in mind, when we started we were 90% auction and 10% other sources, and now, as Jeff mentioned, we are 40%. Those vehicles make about $1,200 more in GPU than the auction vehicles, so that has been a big driver. The team has found ways to source vehicles in multiple ways rather than the auction. That is a big, big part of it. Jeff Licht: And could you talk a little bit about, I know you have somewhat integrated or tried to use your franchise dealership as a strategic asset for EchoPark. And it is notable that you did a positive same-store sales in franchise for used as well. Can you maybe just talk about the kind of the symbiotic relationship between those two and how you are using that, you know, the source for the entire enterprise? Jeff Dyke: Yes. We have never done that before. We started here in the first quarter, really the later end of the quarter, and so it is not that many cars yet, a few hundred overall, but it is going to grow. And we are buying nearly new cars out of the franchise side of the business, which obviously is helping the franchise, so it helps the franchise side of the business. Bringing those cars into EchoPark, the margins are decent, back-end margins are great, and we are selling the heck out of them, in particular on the East Coast. They have been really, really strong. The Atlanta market has been really strong in this arena, and we will continue to do that with more brands. We have been really focused on Toyota and Honda, but we will do that with more brands as we get better at this. It is very new for us, and again, just a few hundred units would be included in those numbers that you are looking at for the quarter. Jeff Licht: Thanks very much. I will get back in the queue and best of luck. Jeff Dyke: Thank you, sir. Thank you. Operator: Our next question is from John Babcock with Barclays. John Babcock: All right, thanks. First question, I was wondering if you are able to quantify the impact of weather. And apologies if I missed, but whether it is an impact on overall dollars or if there is some way to estimate the impact on volumes? Any color there would be useful. David Smith: Yes. Thank you. This is David Smith, and honestly, I am not being a smart ass, but we really do not allow weather reports in our business, in our meetings, and we just push through. And so we really do not focus on that at all. John Babcock: Okay. Totally understand. Next question, I was wondering, are you guys seeing OEMs pull forward at-lease maturities? And if so, is that benefiting EchoPark at this point? Jeff Dyke: 100%, they are doing that, in particular around BEV. And we are seeing that on the East Coast and the West Coast, and we are selling those vehicles. It is helping both the franchise side and somewhat at EchoPark. We are keeping most of those on the franchise side of the business. But definitely, the pull-aheads are helping in BMW, Mercedes. BMW has done a particularly really good job with it, and we expect that to continue as we move forward, in particular around BEV because there are so many more BEV lease returns coming back here over the next six months between now and the end of the year as those leases mature. John Babcock: Those are primarily happening with the luxury brands? Jeff Dyke: Yes. John Babcock: Okay. Interesting. And then just last question. I was wondering if you might be able to provide some color on where you plan to open the EchoPark stores, whether it is in the same region as your existing stores or if you are planning to expand into other areas? Jeff Dyke: Our early expansion is primarily in Florida and Texas. John Babcock: Okay. Thank you. Operator: Our next question is from Chris Pierce with Needham & Company. Chris Pierce: Hey, good morning. Just one on EchoPark. I know you are guiding to sub- to high-single-digit unit gains. I just was curious, I mean, you guys have performed better on front-end GPU, talked that you performed better last year on vendor leverage, seeing healthy OpEx leverage. But I guess I just want to understand what would be the real driver of unit growth? And again, I am not trying to poo-poo high-single-digit unit growth in a flat market. I am also not trying to compare you to someone putting up 40% unit growth, but I am just kind of curious what would be a real driver of mid-double-digit unit gains. That sounds like what you are doing. Jeff Dyke: Yes, 40% is certainly an impressive number. Now look, at the end of the day, we are executing our playbook and our process. We sold well over 30 units per sales associate in the month of March, for example, and we are executing, we think, at a high level. Those gains will continue through this year. That is what is giving us the confidence to open more stores as we move to the end of the year and then on into 2027. We are very comfortable with where we are, proud of our team for the growth that they have, and we look forward to that growth continuing. Heath Byrd: And I will add, one of the things that would drive the unit growth is awareness. That is precisely why we are investing in the brand starting this year. David Smith: Yes. And Jeff noted before, he mentioned Atlanta. We have had all-time record sales in Atlanta, and we think that a big part of that is because the market is much more aware of the EchoPark brand. Danny Wieland: And one final point on that, this is Danny, on the earlier point on non-auction sourcing improvements, we were up about 15% in terms of our sales in the first quarter year over year that were non-auction sourced. As Heath added, it is about a $1,200 better GPU on those vehicles, but it also gives us upside to grow that volume without being dependent on, or at risk of, pricing on the wholesale auction front. Our wholesale auction volume was actually down year over year in the first quarter, and some of that was strategic given the 7% wholesale auction price increases we saw in Q1. We took advantage of it in the late fourth quarter, but when pricing gets too high, we really push on this non-auction source path, and that will only benefit from further investment in brand awareness and sourcing from customers as we go forward. Chris Pierce: Can you, Heath, could you please drill down on Atlanta a little bit? Like, how should we think of Atlanta in terms of cohort age of store versus Denver, marketing spend in Atlanta versus other regions, and give us some sort of support beams as to what you are doing there that is driving the growth you talked about? David Smith: Yeah. This is David. One of the things we did, you may have seen, is that we got the naming rights for Atlanta Motor Speedway. It is now EchoPark Speedway. We have seen in the numbers that has been a major impact on customer awareness of the brand. And we found since 2014, when we opened our first stores in Denver, that people know about the EchoPark brand and they search for us and once they experience it, and their friends experience it, it is why we have the number one guest experience in the industry as rated by reputation.com. That really pays off. So we have been really focused on that. And as we said, we are going to start growing now, but we wanted to make sure we can maintain that world-class guest experience and the kind of volume that, like Jeff mentioned, in March our teammates were able to deliver. We had some teammates who sold 50 or 60 cars in just the month of March and maintained that high-level guest experience. That is something that, thinking of the future, is going to benefit the brand. Jeff Dyke: The awareness in the Atlanta market has more than doubled since the sponsorship, and that really gave us the leg to say, okay, we need to really make some investments here from a marketing perspective, from a brand awareness. We just were not ready till this year. And we really spent a lot of time getting our house in order, buying more cars off the street, executing at a high level. You have seen we put quarters back to back to back to back together if you are following EchoPark closely in the growth, and that growth is going to accelerate. And in particular, as we start opening stores, it will have the hockey stick acceleration. We are very excited about that opportunity, but we are going to be very prudent and focused. We have done this before, and this time we are going to make sure that we get this absolutely right. And so we are real excited about getting some stores open towards the end of the year. Heath Byrd: And I just want to highlight one more thing on this. The fact that we have sales associates that are selling 30-plus vehicles per month per associate on average, that efficiency and the process that we have, that is one of the reasons that you see for this quarter EchoPark’s SG&A as a percent of gross was lower than 70%. Our semi-fixed expense structure there, coupled with the process that allows that kind of efficiency, is just going to get better. And you will see, as we have said from the beginning, that EchoPark has the ability to leverage that SG&A because of the way it is set up. It is very unique to have associates averaging that number of vehicles per month. Danny Wieland: And Chris, one more point on the Atlanta market specifically. As operational points supporting the brand awareness and the gains we have made there, our unit volume in the first quarter in Atlanta was up about 25% year over year, and our total GPU was up $225 per car. So we are seeing more traffic, we are monetizing those incremental vehicles at a better rate. Some of that non-auction sourcing mix we talked about obviously benefits us there. We really think that is an incremental proof point in the early stages on brand awareness, and reaching consumers and letting them know who EchoPark is and what our guest experience is will only help continue to benefit those growing markets, but also our more mature markets in Houston, Dallas, and Denver as we go forward. David Smith: And one last thing: you will see as we move forward and we open new EchoPark stores that our cost basis in those stores is going to be less than we have spent historically, which is going to make it far easier to become profitable a lot faster in those locations. Chris Pierce: Great. Thanks for all the details. Appreciate it, and good luck. Jeff Dyke: Yes, sir. Thank you. Operator: Our next question is from Rajat Gupta with JPMorgan. Rajat Gupta: Great. Thanks for taking the question. Pretty good execution, congrats on that. Had a question on parts and service. Acknowledge that you do not like to talk about weather. So, irrespective, the growth is pretty strong despite some of the tough warranty comps. I am curious how we should think about growth there. I know you are sticking to your framework, but maybe if you could unpack that for us a little bit—what is really helping that business? Any change in processes, hiring cadence? How should we think about growth there for the rest of the year? Jeff Dyke: This is Jeff. Look, we told you this two years ago. We were on a mission to hire technicians—with plus 400 technicians since we started that mission. We continue to hire techs. We are executing at a really high level in our playbooks. We have a value service program that we are very focused on to drive more customers into our drive, which then allows us to upsell off of those value services we brought into the service drive. The used business is growing, so that helps internals. Just overall, we are executing at a very high level. And mid-single digits is a good number, maybe up a little bit above that. It is across the board, it is not one market or another, it is not one brand or another. We have some warranty challenges in comparison to last year. I think we had with our Honda brand we are off about $1 million in gross there. But we will drive more customer pay. We are obviously not in control of warranty, but we will drive more customer gross into those brands, into that brand. It is a bright future for fixed operations at Sonic Automotive, Inc. It is going to get better as we go on this year. It is going to get better and stronger in 2027, 2028, towards the end of the decade. There is a lot of business out there for us to get. Remember, customers buy new cars, but half of them do not go to a dealership—not just Sonic, anybody—because the industry is priced high and processes were crazy and this reputation. I think we have cleaned all that up. Our service CSI scores are fantastic, and that is all playing into the results that we are seeing, and they are just going to get stronger as we move forward. And one additional opportunity there is it is very ripe for AI. Heath Byrd: Our AI team is just going in now and is starting to look at the processes in fixed. Obviously, it is a very high-margin part of our business, but we think we can be more efficient with the technology. So I think there is opportunity in that area as well. Rajat Gupta: Got it. That is helpful. Jeff Dyke: We just broke $90 million in gross in a single month in the first quarter. That was an all-time record for us for a single month, and that is going to continue to get bigger. We have short-term goals of being over $100 million a month in fixed operations gross, and we are hopeful to see a month this year do that and then, ongoing, we will be above that. So there is just huge growth there and great opportunity for us. As we started to look at the business differently—more of a high-volume, high-traffic-count business than we have in the past—there is just too much opportunity and too many guests out there in our AOIs to take advantage of that. So that is what we are focused on. Danny Wieland: And just a couple of other points there. As you might have seen in the release, we grew customer pay at a 5% rate on a same-store basis, and warranty was at a 7% rate. So that was even an uptick in growth rate versus the fourth quarter—warranty was only 2% up year over year in the fourth quarter. We are continuing to see benefits there as long as that warranty tailwind persists, but we are really focused on customer pay. We got 40 basis points of margin expansion out of it. On an all-in basis, customer pay is growing at 9%, warranty is up 15% including the acquisition. So we have got some year-over-year upside in terms of the comparisons as we get into the back half and lap those JLR acquisitions from last year. Rajat Gupta: Right. That is very clear and helpful. I wanted to just ask a broader question around pricing dynamics. Maybe a twofold question. One is, you have this one big nationwide competitor of yours that is undergoing a pretty well-telegraphed price cut. I am curious if you are feeling it. Are you seeing it? Have you reacted to it? Any thoughts on that would be helpful. And then second question, you know, Carvana yesterday talked about some risk in the second quarter from just narrowing wholesale-retail spreads. I know that you have much lower day supply and you are improving consumer sourcing too. But curious if that is something to keep in mind as far as your business goes. Jeff Dyke: As far as the pricing goes, we have not felt that. It is isolated to VINs and marketplaces, and that has not tripped any wires over here at all. So we are not feeling that. I am going to let Danny attack the color on the spread. Danny Wieland: It is pretty normal seasonality. Obviously, prices went up in the first quarter. Jeff Dyke: We were buying cars early in the first quarter when wholesale prices were down. As we go into the second quarter, we are seeing that shrink—the gap between the two. It is not going as rapid as last year. Danny Wieland: But it is closing. Jeff Dyke: So that is real. But we still expect nice growth with EchoPark in the second quarter, and we are going to continue to expand—better growth than we had in the first quarter. Margins are hanging in there better both on the franchise side and EchoPark side in April, better than they normally do from a pre-owned perspective, which is very good. We will see how supplies hold up as we move in. They always tighten and we are always trying to shrink our day supply at this time of the year after the big first quarter and tax season. We will see how things go, but the pre-owned business should be nice and solid as we move throughout the rest of the year. Danny Wieland: And again, to our actual performance in the first quarter, our average selling price at EchoPark was down about 2% sequentially from the fourth quarter, but wholesale pricing was up 7% as we went through the first quarter. Yet our GPU expanded—our vehicle-related GPU only expanded about $200 sequentially. So we were seeing narrowing retail pricing on a mix basis anyway, increases in wholesale pricing, but still saw expansion in GPU again because of the way we buy, because of that non-auction sourcing mix. That should only give us more insulation against those movements, as well as, as Jeff said, recognizing the normal seasonality of used car pricing movements in January, February, March, and then on the downswing in April, May, June, post tax refund season. Rajat Gupta: Got it. That is helpful. Maybe just last one on balance sheet. Very surprised by the big buyback here in the first quarter. Curious, how should we think about leverage here? You obviously increased your authorization. Maybe another way to ask is, is the ramp-up in buyback just to signal that you are not really worried about the macro or the cycle here and you just feel like with the growth in parts and services, the trend in EchoPark, there are just more good things to come from an EBITDA perspective, and you feel comfortable buying back this equity right now? I was just really surprised given some of the choppiness we hear about in the macro. Thanks. David Smith: Yes, I mean, we obviously would not have bought back the shares if we did not feel confident in our business. And, as always, we want our investors to know that we are going to be looking at all our different options of where we place our capital and look for the best return. I think the key to what you were asking is what are we going to do going forward. We are going to look at various opportunities like the Powersports acquisition that we just made. That was a great opportunity and offered great ROI, and we are going to continue with that—whether it is share repurchases or debt reduction or acquisitions. It just depends on what we see in the market. Heath? Heath Byrd: Yes. I will just say, we feel like we have a very strong balance sheet at a little over two turns for our leverage ratio. And with a lot of liquidity, that gives us the ability to invest in multiple areas. As you have just seen, we were able to purchase five JLR stores last year, five powersports dealerships this year, at the same time buy back 2 million shares, increase the dividend by 8%, invest in our business as it relates to AI, buy real estate, and enhance the facilities. And finally, we are still in great shape to expand EchoPark. I think the balance sheet is allowing us to do that. We are completely comfortable where we are in the leverage ratio, we have it all cooked in and understand the impact, and are very comfortable that we have a lot of dry powder to invest in all of these areas. Jeff Dyke: And I think if you look at the last six or seven quarters that we have strung together, showing the execution and the discipline in this company like we have never shown before, that gives us a real high level of confidence. It does not matter if there is COVID or tariffs or weather or whatever else is going to come—Godzilla is going to come out and blow up our cars—we are overcoming all of that. I think that is a big testament to our team. The tenure that we have on this team is amazing. We had our board meeting yesterday, and we were going through our tenure in this company. It is just incredible. We look forward to the great remainder of the year and a very bright future for Sonic. Rajat Gupta: Awesome. Great. Thanks for all the color and good luck. Jeff Dyke: You bet. Thank you. Operator: Our next question is from Bret Jordan with Patrick Buckley: Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our questions. As you think about the longer-term outlook on franchise new GPUs, how are you thinking about the new floor there? Some peers have recently suggested a landing spot towards the upper end of their previous targets. Have your thoughts changed at all? Jeff Dyke: We did not change guidance there. We are seeing a little bit of shrinkage on front-end in April for new, but it is going the other way for pre-owned. I think we are fine in the range that we gave you for the year. Mix moves around a little bit—if you are selling more domestic than normal or more Honda than normal, we get a little drop in our front-end margin. But our F&I numbers are so good in our franchise stores. Our F&I numbers in the first quarter were up $230 a vehicle, which is just fantastic, and we expect that to continue to grow as we move throughout the year. So the total all-in margin, I think we are going to be just fine, and it may move around a little bit due to mix. You know, Mercedes sells more or less, or BMW more or less, then Honda comes in or Ford comes in—the margins are a little different. But our F&I numbers are so strong that it balances it all out. I think we will be fine with our guidance that we gave you for 2026. Patrick Buckley: Got it. And then on BMW, we have heard some talk of delayed new product timing there. Has there been any notable disruptions or impact due to that delayed product change this year? Jeff Dyke: No. They have been doing a fantastic job. They communicate well and have done an amazing job managing through this, as all of our manufacturer partners have. There have been no issues. We need to watch affordability and entry-level models in some of the luxury brands—that is an important topic to study and watch. But you start getting past four quarters in a row now we are past the $60,000 mark. I do not see that changing in the second quarter. Third quarter, they are going to pass on the tariff expenses to the consumer. Prices are going up—it helps the used car business. We will see how much elasticity is in the new car pricing. Something is going to have to happen if volume really slows off as days’ supply starts growing, and then you will have a margin compression issue. I just do not see that happening this quarter or next—maybe a little bit due to change in mix for us. But overall, I think it will be nice and steady as she goes. Patrick Buckley: Got it. That is all for us. Thanks, guys. Jeff Dyke: Thank you. Operator: Our next question is from Alex Perry with Bank of America. Alex Perry: Hi, thanks for taking my questions here and congrats on the execution. I just wanted to ask if you have seen any impact from the war—any change in new or used vehicle sales trends as we moved into April? And could you maybe help us on the cadence of the monthly comps in the quarter on the new side? David Smith: Thanks, Alex. It has been really pleasantly surprising—the resilience of the consumer—and they have just continued to show demand. You have seen in our numbers they are continuing to do business with us. Despite the uncertainty, it has really been fantastic to see. Hopefully soon this major conflict will be over, and I think we will go into the summer months with some great results. Jeff Dyke: Yes. If anything, BEV units from a pre-owned perspective—we are selling a lot more of those. The pull-aheads are helping, and that is a big win in our sales right now. Otherwise, we would have some overhang with that. In particular, the larger stores are doing a great job with that—BMW, Mercedes, they are doing a really good job. Other than that, the business has been good. Cadence-wise, January was amazing—it was just an unreal January. If you want to talk about weather, maybe that slowed us down a little bit after January, but it was just a fantastic January and a really good February. We started comping against the tariff pull-aheads in March, and you did that all of March really and the first two weeks or so of April—10 days of April—and then the comps will get a lot easier as we move into May and June. So we will see some flip around in our year-over-year numbers; we will start heading into the positive direction. If you compare March and the first two weeks of April against 2024 and 2023, we look fantastic on a year-over-year basis. That is kind of behind us now. You are going to get a little bump when we get to the September timeframe and we bounce against the BEV pull-ahead from that time frame, but it ought to be smooth sailing other than that for the rest of the year. Alex Perry: That is really helpful context. And then, you mentioned in the deck consolidation opportunity in powersports. Is that a place where you will continue to add doors? What are you seeing there that gets you excited? Do you expect it to be on the Harley side and the motorcycle space or more traditional powersports? Would love to hear how you are thinking about that segment. Thanks. David Smith: Yes. Thanks for the question. We have been really, really pleased—a big shout out to our powersports team. They have done an outstanding job. As I mentioned, modernizing the powersports industry—at least the ones that we have—we see some great opportunities, and the prices that acquisition opportunities are coming at us are very interesting. We like our diversified portfolio, so we are not going to be concentrated solely on Harley-Davidson, but this recent acquisition was really outstanding, and they are fantastic locations where, as I mentioned, you have a lot of sunny days in those markets to offset some of the snowy weather in our big South Dakota Sturgis stores. We do see opportunities. You look at the gross that is generated in motorcycle sales, new and used—it is really crazy. We are making the same amount of profit on selling an item maybe a third of the price of a vehicle. So there are some great opportunities there. Jeff? Jeff Dyke: Yes. To give you a little more detail on what David was talking about: our new GPU for the first quarter franchise was $3,144, and our GPU for powersports was $2,891—damn near the same number. Our used GPU—we have really grown the heck out of our used business in powersports; that is something the industry lacks—was $1,938 a copy versus $1,539 a copy. We are making more gross selling used in powersports than we are selling used on the franchise side. So it is a very exciting opportunity for us to grow that part of the business. We are opportunistically buying, just being very careful and cautious, as we told you from day one—growing the business and putting in our playbooks, our technology, taking care of our guests, taking care of our teammates—and we just get better and stronger. All-time record quarter; we see that backing up to the next all-time record quarter and the next one. It is a fun business with great margin percentage. Our team loves going in and buying them, and those we are acquiring love it. We are having a great time, and as David said, we have a fantastic leadership team running that business totally separate from EchoPark and our franchise business. We will see what happens in the coming quarters. There is a lot of opportunity in this segment. Alex Perry: That is really helpful. Could I ask one follow-up on that? The used grosses and the differential versus vehicle side is pretty interesting. Why do you think the grosses are so high in the powersports side on a relatively lower ASP? Is it just the fractionation of the market? David Smith: It is. That is part of it. But think about it: customers do not know what to do with that product. When they buy a new power sport—buy something Polaris or whatever—they have always taken their old one and put a sign on it in the front yard and said “for sale.” They do not know that we want to buy that from them. And they are expensive. You buy a brand new Ford—Polaris now—$55,000. We can trade for them and sell them for in the upper teens or lower $20,000s, make great margin like you see, and provide the consumer with something they have never gotten in this industry. Jeff Dyke: So there is a huge opportunity. The industry just did not sell pre-owned. We are growing pre-owned at 40%–50% clips a quarter, and that is going to continue into the future. They just did not focus on it, and that is something that is core to our success at Sonic Automotive, Inc., and we are bringing that to this industry. It is making a big difference. Danny Wieland: And that is one of the things that validated our entry into this. Over the last three quarters, we have grown 35%, 40%, and this quarter 56% used vehicle volume year over year, even in an off quarter like the first quarter seasonally. New volume was up 16%. Both new and used gross per unit grew 7% or 8%. So we are growing not just the base, but the efficiency of those products just as we get into prime selling season here starting in April and May. They also had very little discipline around inventory management, and as you guys know, that is something that we are known for in our day supply and how we manage inventory. We do not get surprises there. If we do, they are fixed within two weeks. There was absolutely none of that in the powersports business. We have cleaned all that up from a parts, used, and new perspective, and we are turning inventory like we should. That is going to expand margin when you do that. Alex Perry: That is incredibly helpful. It sounds like an exciting opportunity. Best of luck going forward. Jeff Dyke: Thank you very much. Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to David Smith for any closing comments. David Smith: Great. Thank you very much. Thank you, everyone. We will talk to you next quarter. Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you again for your participation.
Operator: Good morning. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Methanex Corporation First Quarter 2026 Results 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, press the pound key. Thank you. I would now like to turn the conference call over to the Vice President of Investor Relations at Methanex Corporation, Robert Winslow. Please go ahead, Mr. Winslow. Robert Winslow: Thank you. Good morning, everyone. Welcome to Methanex Corporation’s First Quarter 2026 Results Conference Call. Our 2026 first quarter news release, Management’s Discussion and Analysis, and financial statements can be accessed through our website at methanex.com. I would like to remind listeners that our comments today may contain forward-looking information, which by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from actual results. We may also refer to non-GAAP financial measures and ratios that do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Any references made on today’s call reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, our 50% interest in the NatGasoline facility, and our 60% interest in Waterfront Shipping. To review the cautionary language regarding forward-looking statements, and to find definitions and reconciliations of the non-GAAP measures, please refer to our most recent news release, MD&A, annual report, and investor presentation, all of which are posted on our website under the Investor Relations tab. I will now turn the call over to Methanex Corporation’s President and CEO, Rich Sumner, for his comments, followed by a question-and-answer period. Rich Sumner: Thank you, Robert, and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2026 results. Our first quarter average realized price of $351 per tonne and produced methanol sales of approximately 2.2 million tonnes generated adjusted EBITDA of $220 million and adjusted net income of $23 million. Adjusted EBITDA increased versus 2025 primarily due to a higher average realized price, partially offset by slightly lower sales of Methanex-produced methanol. During the first quarter, cash flows from operations allowed us to repay $60 million of the Term Loan A facility, ending the period in a strong cash position with nearly $380 million on the balance sheet. Turning to our operations in the first quarter, our total equity methanol production of 2.4 million tonnes was slightly higher compared to the fourth quarter. Starting with our United States operations, we produced 934 thousand tonnes at our Geismar plants, and produced [inaudible] tonnes at the Beaumont plant in the first quarter. Our equity share of production at the NatGasoline joint venture was 203 thousand tonnes. Our U.S. assets operated at higher rates outside of a short period early in the quarter when production was reduced in response to a significant short-term spike in natural gas prices in late January. In Chile, we produced 398 thousand tonnes in the first quarter, utilizing gas supply from Chile and Argentina. A third-party pipeline failure that occurred late in the fourth quarter was rectified early in the first quarter, and our plants operated at full rates for the remainder of the period. We are expecting to idle one Chile plant during the middle part of the second quarter in line with gas availability during the Southern Hemisphere winter season. In Egypt, our first quarter production was similar to that of the fourth quarter, with the plant operating at full rates. The plant continues to operate well today, and we are closely monitoring the regional situation for any potential impact on its gas supply. In New Zealand, we produced 158 thousand tonnes in the first quarter, down moderately from the prior quarter. Despite the stable gas and production levels over the past few months, the structural gas outlook in New Zealand continues to be challenging. Our equity production for 2026 remains 9 million tonnes of methanol; actual production may vary by quarter based on the timing of turnarounds, gas availability, unplanned outages, and unanticipated events. Now turning to methanol industry fundamentals. The conflict in the Middle East, which began in late February, escalated into the second quarter. These events have significantly disrupted global markets for energy and petrochemical supply, including methanol, and we continue to monitor both short-term and longer-term impacts on global markets and our business. The Middle East supplies approximately 20 million tonnes of methanol per annum to global markets, and this has been significantly reduced since March. Thus far, overall methanol demand has remained relatively resilient with no significant signs of shutdowns or demand destruction. In Asia and China, which rely significantly more on Middle East imports that need to bypass the Strait of Hormuz, we have seen no trade flows from Middle East non-Iranian supply, and very modest supply from Iran into coastal markets in China since late February, and believe that downstream operations have been primarily sustained through the drawdown of inventories. We believe this situation will be unsustainable in the short term, and we are working closely with customers to understand their demand outlook. We are also trying to better understand the extent of damage to methanol plants and related supporting infrastructure in the conflict region, if any, and the length of time it might take to restore back to full operations, which is still unclear today. Given these unprecedented events, we have seen a rapid and significant escalation in methanol prices across all major regions through March and April, and we are well positioned in today’s market with our advantaged asset base that continues to operate safely and reliably. As a result, we are expecting to see significantly stronger earnings and cash flows in the second quarter compared with the first quarter. Based on April and May contract price postings, we estimate our average realized price for April and May is between approximately $500 and $525 per tonne. Assuming this pricing holds through June, and factoring in produced sales volumes similar to those of the first quarter, we would expect a significant increase in adjusted EBITDA in the second quarter consistent with the first quarter and adjusted for these higher methanol prices. It should also be noted that due to the timing of inventory flows, there will be delayed recognition into the third quarter of cost increases we are seeing now from higher natural gas prices linked to higher methanol, as well as higher ocean freight costs from higher bunker fuels. We believe the current market dynamics could be prolonged for some time, and we are monitoring the medium and longer-term impact and risk to the global economy. Our priorities for 2026 are unchanged: to safely and reliably operate our assets and supply chain, deliver on the OCI integration plan, and continue to progress our deleveraging goals. Based on our short-term financial outlook, we expect to repay the term loan of approximately $290 million in the quarter. After the term loan is repaid, we will remain focused on directing the majority of our free cash flow towards the repayment of the bond due in 2027 while evaluating share buybacks with a smaller portion of cash if they represent an attractive investment for shareholders. 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 yourself to one question and one follow-up. For additional questions, you can go back in the queue. Your first question comes from the line of Ben Isaacson with Scotiabank. Your line is open. Ben Isaacson: Thank you very much, and good morning. Rich, a supply-demand question for you. I know on the supply side it is very fluid in terms of intel, but based on your best understanding right now, what do you think has structurally changed when it comes to methanol in the Middle East? And assuming Hormuz opens, how likely is it that Iran will be able to go back to that run rate of about 9 million tonnes a year, give or take? And then on the demand side, we know macro is challenging. We are seeing weak housing and construction on methanol affordability. I believe there are a few small cracks in some of the smaller applications. Can you discuss what you are seeing in the cadence of demand or how you are feeling about demand destruction? Thank you. Rich Sumner: Thanks, Ben. On the supply side, it is difficult to get a read on exactly what the longer-term impact could be. There are a number of things we are trying to get a better read on, starting with the infrastructure around methanol, including upstream natural gas feedstock and related infrastructure. If there is damage, what will happen to gas allocations and where will methanol fit in the pecking order? Has there been any structural damage to methanol plants or related logistics infrastructure? All of those things we need to better understand as things start to stabilize, and we are not anywhere close to that today. On the demand side, we have not seen significant signs of demand destruction. Affordability will be important. Particularly in coastal markets in China, the longer the blockade is in place and the less Iranian product flows into those markets, we think that will put pressure on MTO operating rates. We have seen methanol prices around the world outside of China in the $550 to $650 per tonne range, and it is really a supply issue. Demand remains the pull today, but what this means longer term in terms of inflationary implications and which downstream segments are hurt the most remains to be seen. We are working closely with our customers to understand their demand outlook and affordability levels, both in the short term and long term. It is difficult to provide a lot of guidance right now, but these are all things we are monitoring. Operator: Your next question comes from the line of Hassan Ahmed with Olympic Global. Your line is open. Hassan Ahmed: Good morning, Rich. Talking to various chemical executives, it seems that even if peace were declared tomorrow and the Strait of Hormuz were to open up again, it may take as long as nine months from that point for supply chains to normalize, given the pecking order of energy and chemicals and the need to reopen oil and gas fields. We also do not know the full extent of damage, particularly in Iran and other Middle Eastern countries. As I compare that to consensus earnings estimates for you, they have you peaking in EBITDA in Q2 of this year and then a steep falloff thereafter, suggesting a V-shaped recovery of volumes from the Middle East. How do you think about that? Rich Sumner: Thanks, Hassan. As I mentioned in the opening comments, we think this could be prolonged for some time. We do not think it gets fixed in short order. Gas infrastructure is really important, and methanol probably fits lower in the pecking order when you think about energy products for power, transportation fuels, and fertilizers for food. The pace of restoring both downstream and upstream infrastructure matters, and inventories throughout the supply chain have been significantly lowered globally, not just in Asia Pacific. That is why pricing has run up globally. Supply chains have to be restored, infrastructure has to come back, and it is a 25- to 30-day transit time out of the Gulf. Many things have to happen, and it is unlikely to be a light switch. The big unknown is how quickly demand-side shutdowns occur and whether supply gets ahead of demand restarting, creating whipsaws on the other side. We do think the disruption will be prolonged. Hassan Ahmed: As a follow-up, in this new pricing regime, can you discuss China’s role, particularly coal-based methanol on the cost curve, and how downstream products like acetic acid seeing downward pricing pressure in China might affect methanol pricing globally? Rich Sumner: In China, pricing is demand-driven more than cost-driven, anchored by roughly 11 million tonnes of coastal MTO capacity that is a ready and willing market. Methanol in China has been around $400 to $450 per tonne, consistent with affordability back to C2/C3 pricing, much of which is linked to naphtha. Outside China, we are seeing $550 to $650 per tonne. Some downstream petrochemicals like acetic acid have been overbuilt and are weaker given macro conditions. We are watching whether lower operating rates there release more methanol back into the market, but we have not seen a significant impact yet. We view methanol as increasingly demand-driven. We are forecasting a supply gap over the next five years of 9 to 10 million tonnes, relying on Iranian production and potentially new projects. We believe we are in a structurally tight market, which supports a demand-driven cost curve. Operator: Your next question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open. Joel Jackson: Hi, good morning. A couple of questions on marginal assets, one by one. First, Trinidad. You have a gas deal up for renegotiation later this year. Some nitrogen peers in Trinidad have signed very short-term gas deals, and a third has not been able to do so. Would you consider signing a short-term gas deal to keep the plant running, assuming this very strong environment? Can you describe the Trinidad environment? Rich Sumner: Thanks, Joel. Our gas contract is up in September, and we are in discussions with the NGC. We are considering a full range of outcomes, including a short-term deal as well as the potential to idle the plants. In the short term, Trinidad is an extremely tight gas market, with LNG, ammonia, and methanol all operating below nameplate capacity. A lot will come down to commercial discussions. We are also looking longer term at optionality, but we think any new gas from Venezuela is quite a ways out and carries risk as to whether it can ever flow to methanol economically. If a short-term arrangement makes sense, we would look at it, but we also have to consider other outcomes. Joel Jackson: Turning to New Zealand, you are running one plant at low rates and gas has been a problem. It looks like the Maui gas field might be closing into this year, making the situation worse. What is the end game in New Zealand? Rich Sumner: I will remind that New Zealand and Trinidad together represent over 10% of production but less than 5% of our run-rate earnings. Both assets have performed well over our history. In New Zealand, gas issues are not new. OMV announced it would cease production on the Maui field by the end of the year. If that happens, we would no longer be capable of running our plant. We are working with gas suppliers and looking at all options to monetize our gas position, including producing methanol or selling gas, while operating safely and reliably. The outlook is tough and structurally challenging there. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open. Jeff Zekauskas: Thanks very much. In the event that your earnings fly up this year, what will happen to your cash taxes? What would be the cash tax rate in a much more profitable environment? Also, what would happen to working capital—would receivables, inventories, and payables go up at the same rate as sales, or faster or slower? Rich Sumner: I will turn that over to Dean Richardson, our CFO. Dean Richardson: Thanks, Jeff. Our tax rate guidance of 25% holds even in a higher-price environment. From a cash tax perspective, we have been guiding that the majority of our taxes are cash; however, in a higher-price environment, the majority of our earnings would be in the U.S., and the percentage of cash taxes would actually go down because of significant assets and loss carryforwards in the U.S. given the acquisition and build-out. So the percentage of our 25% that is cash tax would move toward the midrange, roughly a 50/50 split between cash and deferred. On working capital, higher methanol prices significantly impact receivables. We saw some of that in Q1, and we would expect that in Q2 as well. Inventories are largely based on our plant cost structure, with limited purchases, so we would not expect inventory balances to move materially; there would be some offset in payables. Net-net, we would expect a higher working capital balance due to higher prices. Jeff Zekauskas: For my follow-up, given what you have seen in April and normal seasonal considerations, as a base case, would you expect to sell more produced methanol in the second quarter than in the first, all else equal? Rich Sumner: It will be highly dependent on our overall sales, which we are monitoring carefully for any demand deterioration. We are also being careful about purchases. If we have flexibility not to sell in this environment, we may exercise that if it means covering with produced tonnes given the risk of change. To the extent we hold sales levels the same, you would probably see more produced tonnes coming through; if sales are reduced, you may see about the same. The majority of inventory we are bringing through now is produced product, a big change since we added 4 million tonnes of North American supply with Geismar 3 and the OCI acquisition. Operator: Your next question comes from the line of Josh Spector with UBS. Your line is open. Josh Spector: Hi, good morning. On realized pricing, you seem to be implying a discount rate in the high 40s versus realized in the low 40s this quarter. Can you confirm that? I thought when pricing goes up, the discount rate comes down and vice versa, so this seems backwards. Can you help me understand? Rich Sumner: Sure. In the second quarter, we expect to sell a lower proportion in China, which is mainly where we have purchases and where we can reduce purchases. That results in a higher discount because pricing outside of China has higher discounts, yet a higher realized price. We actually have stronger average realized pricing when our discounts are higher in this configuration. It is counterintuitive, which is why I tend to focus on average realized price rather than discounts. Josh Spector: You also commented about lags in cost-sharing agreements into Q3. Is that correct that you would over-earn a bit in Q2 because you are paying less on the equivalent gas basis, and then it catches up? How long are those lags? Rich Sumner: It is really about inventory flows. We have about 45 days of inventory, so you will see some of those costs coming through, but not all, and Q2 will not be fully reflective of today’s market structurally. There is roughly 30 to 40 days of that 45-day lag that will come in during the third quarter and be more structural in today’s higher pricing environment. That includes both shipping and gas. Operator: Your next question comes from the line of Nelson Ng with RBC Capital Markets. Your line is open. Nelson Ng: Great, thanks. First, a follow-up on Trinidad. You mentioned you are considering a number of options. For the Titan facility, is it due for another turnaround after September 2026? Does a new contract need to be long enough so that you can fund a major turnaround? Rich Sumner: There is no turnaround coming then. The economics of the existing contracts mean the lion’s share of the rents go back to Trinidad, and any increase in pricing makes it very difficult for us to support running there. A lot of this comes down to negotiations with the NGC, which are progressing, but indications look challenging. Nelson Ng: You also mentioned New Zealand and Trinidad make up less than 5% of your run-rate earnings. Got it. And on the OCI assets, you initially provided an estimate of about $30 million of synergies. Can you give an update and what is left to implement over the next several quarters? Rich Sumner: Those synergies come from insurance, logistics and terminal optimizations, IT costs, and site optimizations. Progress is going well. We are through some synergies; in other areas, like IT, we are carrying double costs this year. We have a plan to be through that by year-end. We do have a higher fixed cost carry in 2026 to then achieve the synergies beginning in January 2027. Operator: Your next question comes from the line of Hamir Patel with CIBC Capital Markets. Your line is open. Hamir Patel: Hi, good morning. Are you able to quantify the non-gas cost increases you are seeing and how much on a per-tonne basis that might be once fully apparent in Q3? Rich Sumner: The key areas are fixed costs and ocean freight. On fixed costs, as noted, we are progressing integration to bring our fixed cost structure down through the year. On ocean freight, we had a longer supply chain through Q4, with some lag into Q1. We have seen a weaker backhaul market over the past year. In today’s environment, things have changed quite a bit. Our focus is on avoiding spot vessel requirements. There are about 2,000 ships locked in the Gulf right now, and supply chains have lengthened because product must move longer distances outside the Gulf to meet demand. Spot vessel rates have increased significantly, and the backhaul market has disappeared. Our goal is to keep our ships tied to produced product and avoid spot exposure. Having our own fleet is a competitive advantage. Our cost per tonne might be higher than in more normal times, but far lower than competitors facing today’s spot market rates. Our attention around shipping has shifted accordingly. Hamir Patel: And for 2026 methanol production, what percent of that would be spot? Rich Sumner: Very little of our sales portfolio is spot. We have some flexibility to place product in the market, but our primary commitment is to term contract customers and ensuring reliable supply. If some customers are unable to produce, we may have more product available for the market, but our focus is on contract customers. Operator: Your next question comes from the line of Matthew Blair with TPH. Your line is open. Matthew Blair: Thanks, and good morning. Rich, where do MTO operating rates stand in China today, and how does that compare to a Q1 average? Rich Sumner: In Q4, MTO operating rates were about 85% to 90%. Iranian supply stayed on the market in Q4 until around December. We then saw a gradual lowering through Q1, with Q1 averaging around 70% to 75%. Through March and April, some limited Iranian volumes—around 200 thousand tonnes per month—were able to move. MTO has been holding around 70% operating rates, but we are now seeing a dramatic shift in coastal inventories in China. Assuming the blockade stays in place and there is no product available behind what came in over the last few months, inventories will draw, and it will be difficult for MTO to maintain those rates. Matthew Blair: Circling back to the guide for Q2, the $500 to $525 realized price for April and May—your realized price tends to be above a 100% capture on the spot average, but in Q2 it looks closer to 92%. Is the guidance conservative, or are you factoring in potential price decreases in June? Rich Sumner: In an upward market, there is some catch-up due to timing. For example, we set our European quarterly price back in March, when spot was around the low $500s, and it is now above $600. There are similar monthly lags depending on when you trend spot. It takes time to adjust to the then-prevailing market, so the difference you see largely reflects steady, significant increases and timing effects. Operator: Your next question comes from the line of Laurence Alexander with Jefferies. Your line is open. Laurence Alexander: Two quick questions. First, on ammonia—can you clarify ASPs or margins and your baseline outlook for Q2, how much is contracted versus spot? Secondly, given how stark the disruptions could be if the war continues, what are you hearing from customers about what it would take for the industry to undertake capacity additions elsewhere? Rich Sumner: On ammonia, we produce and sell around 80 thousand tonnes a quarter. Our estimate at acquisition was about $50 million of EBITDA per year, based on a Tampa price of around $450 per tonne. It is now about $775 per tonne and climbed through April and May, so we are achieving significantly higher earnings—an uplift of $20 million plus per quarter at these prices. We are mostly contracted there. On capacity additions, we are not seeing the market actively discussing new builds yet. When things resolve, people will want a read on where long-term conditions rest: pricing that supports reinvestment, long-term energy prices, demand, supply, and the ability to raise capital. Many factors would need to align before you would see big capital commitments. We are in wait-and-see mode and will monitor closely. Operator: Your last question comes from the line of Steve Hansen with Raymond James. Your line is open. Steve Hansen: Thanks. On Iran and restarts in recent weeks, we have been reading about restarts but without a clear path to get product to market. Is there any indication they are trying to recreate supply chains around the Gulf or Strait, like trucking to tidewater, that would allow meaningful volume to get out? Or are the restarts just testing facilities? Rich Sumner: We are not hearing about alternate supply chains to avoid the Strait. We think the U.S. blockade is a very significant derailer to moving product out. We have not seen evidence of meaningful product movement, and everything has to ultimately move to China as well. None of that has come to our attention. Steve Hansen: One follow-up: Are you altering operational cadence versus plans from three or four months ago to run harder in this tight environment—maintenance timing, short-term gas contracts, or other levers? Rich Sumner: Across our portfolio, in North America we aim to run at 100%, and in Egypt and Chile as well—safely, reliably, and at the highest sustainable rates. New Zealand is different: the gas contracts are attractive, but we are running suboptimally well below capacity in a mature, declining basin. If we were able to run as a more flexible asset, maybe we would, but the basin is structurally challenged. Trinidad is more of a cost issue and depends on NGC negotiations; if something short-term makes sense, we will look at it, but it has to make sense in both the short and medium term. We are evaluating all outcomes in those discussions. Operator: There are no further questions at this time. I will now turn the call over to Rich Sumner. Rich Sumner: Thank you for your questions and interest in Methanex Corporation. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Good day, everyone, and welcome to the Everest Group Limited First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mr. Matt Rohrmann, Senior Vice President, Head of Investor Relations. Please go ahead. Matthew Rohrmann: Thank you, Jamie. Good morning, everyone, and welcome to the Everest Group Limited First Quarter 2026 Earnings Conference Call. The Everest executives leading today's call are Jim Williamson, President and CEO; and Mark Kociancic, Executive Vice President and CFO. We are also joined by other members of the Everest management team. Before we begin, I will preface the comments by noting that today's call will include forward-looking statements. Actual results may differ materially, and we undertake no obligation to publicly update forward-looking statements. Management comments regarding estimates, projections and future results are subject to the risks, uncertainties and assumptions as noted in Everest's SEC filings. Management will also be referring to certain non-GAAP financial measures. Available explanations, reconciliations to GAAP can be found in the earnings release, investor presentation and financial supplement on our Investor Relations website. With that, I'll turn the call over to Jim. James Williamson: Thanks, Matt, and good morning, everyone. This is the first quarter reporting under the new segment structure we previously announced, and the early read is consistent with what we committed to, a more focused, more profitable, more capital-efficient Everest. Both core businesses contributed meaningful underwriting income, investment income remained a durable earnings engine, and we accelerated capital return to shareholders. There is more work to do, but the quarter offers clear evidence of the strength in our lead market reinsurance treaty franchise and that the strategic reset within our new Global Wholesale & Specialty segment is beginning to take hold in the numbers. Group operating income for the quarter was $648 million, producing a net operating return on equity of 16.7%, and an annualized total shareholder return of 16.1%. This performance was delivered despite a more challenging market environment. The combined ratio was 91.2% with $130 million of pretax catastrophe losses net of recoveries and reinstatement premium, including a $58 million provision for the conflict in Iran. Excluding the Legacy segment, the combined ratio for the quarter was 89.3%. Net investment income was $567 million supported by fixed income portfolio growth and strong limited partnership returns. Gross written premium was $3.6 billion, down year-over-year 18%, largely due to the completed exit of our commercial retail insurance business and continued runoff of legacy U.S. casualty exposures. Excluding the impact of divestitures and deliberate runoff, underlying premium declined 6.4%. Consistent with the strategy we laid out in October, we will continue to prioritize profitability and shareholder return over top line volume, and Q1 is a clear example of that philosophy at work. Treaty Reinsurance delivered an excellent quarter, generating $315 million of underwriting income on an 87.2% combined ratio. Gross written premium was $2.7 billion, down 8.9% year-over-year, driven primarily by continued casualty discipline, and selective reductions where pricing or structure did not meet our return thresholds. Since January 2024, we have reduced casualty premium by more than $1.2 billion. Over that same window, the portfolio has rotated meaningfully towards short tail and specialty lines, where we continue to see opportunities for attractive risk-adjusted returns. The April 1 renewal reflected the market conditions we anticipated on the last call. Property Catastrophe pricing continued to soften with rate down 13% on our book globally. However, terms and conditions held, attachment points held and structural discipline remained intact. Our lead market position and preferred counterparty status allowed us to shape signings towards the most attractive deals. Bound premium at 4.1 decreased 14.6% versus expiring but expected returns on the written portfolio remain above our thresholds. Looking to the midyear renewals, we see continued competitive conditions. Florida will be an interesting dynamic with strong demand by cedents and meaningful tort reform benefits that we are clearly seeing in our data. We will continue to deploy capacity where the math works and pull back where it does not. Mt. Logan continues to build momentum with assets under management now exceeding $2.6 billion. Our pipeline of investor interest is strong across multiple strategies, and Logan is playing an increasingly important role in our overall capital model, supporting underwriting capacity and enhancing our return on capital. Turning to the Global Wholesale & Specialty segment. As a reminder, this business includes our London market operation, U.S. wholesale, Global fac and a number of specialty groups with deep expertise in their respective markets. This is the first quarter printed results for the go-forward platform, a 96.8% combined ratio on $793 million of gross written premium, producing $23 million of underwriting income. Premium was up modestly year-over-year, driven by growth in specialty lines and Accident & Health, partially offset by continued reductions in U.S. casualty, especially in our facultative business. A word on how to read the results. Underlying attritional loss performance in the quarter was strong, improving 3.8 points to 58.9%. This was achieved by repositioning the portfolio into higher-margin lines and by underwriting improvements in each of our portfolios. Rate achievement in key U.S. lines, including GL, umbrella access and auto liability remains strong. The operating expense ratio at 12.6% continues to reflect a drag tied to mix, and modestly lower underwriting leverage, which we expect to improve as we scale the business over time. The team is executing a clear plan, sharpening underwriting driving operating leverage and concentrating on the Specialty & Wholesale segments where Everest has genuine competitive advantage. Meanwhile, the transition of our retail business to AIG is progressing as planned, and we continue to expect meaningful capital release from this transaction to become visible in the back half of 2026. Moving to reserves. We completed our customary Q1 reserve assessments across the group. The overall reserve position remains robust, especially in reinsurance, with favorable development in the quarter of $33 million, driven primarily by short-tail lines. Consistent with our expectations following the comprehensive actions we took in 2025, there were no material movements in U.S. Casualty. Our approach to current year loss picks remains prudent across both businesses and in every line, particularly in U.S. Casualty, where we continue to build risk margin. Now a word on capital. In the quarter, we repurchased $331 million of shares at an average price of $330. We also repurchased an additional $100 million in April. Effective this quarter, we are raising the quarterly floor on share repurchases from $200 million to $300 million, absent major external dislocation. This reflects our continued conviction that Everest share price today does not accurately reflect either the current value or the true earnings power of the company. And as we have demonstrated in the past 2 quarters, we have a willingness and ability to exceed the floor repurchase amount. Stepping back, this quarter shows what the new Everest can produce, focused businesses centered on markets where we have a right to win, disciplined underwriting, deploying capital only where return expectations are clearly above our threshold, a strong balance sheet underpinned by prudent loss picks and reserve practices and a growing third-party capital base and a clear capital return trajectory. While this quarter is a meaningful step in our journey, we are not declaring victory. Market conditions are more competitive than a year ago. The legal environment in the U.S. remains hostile, and we will have to continue earning our results, deal by deal, renewal by renewal, quarter-by-quarter. But Everest is better positioned today than it has been in years, and the team has confidence in where we are taking this company. Before I turn it over to Mark, let me take a moment to thank him for his service as our CFO over the last 5 years. He has been an important partner to me as we've moved Everest to a stronger position. On behalf of the entire Everest Board and management team, I want to wish him the best of luck in his retirement. Over to you, Mark. Mark Kociancic: Thank you, Jim, and good morning, everyone. Everest delivered a strong first quarter, building upon the momentum of -- from the strategic actions taken in the prior year as both underwriting income of $316 million and net investment income of $567 million drove operating earnings per share of $16.08. This resulted in net income of $653 million and an annualized total shareholder return of 16.1%. Now turning to our group results. Everest reported first quarter gross written premiums of $3.6 billion, representing an 18.5% decrease in constant dollars while excluding reinstatement premiums from the prior year quarter. When excluding our Legacy segment, which now includes our commercial retail insurance business, gross written premiums decreased 6.4%. Combined ratio improved to 91.2% for the quarter, net favorable prior year development of $33 million from well-seasoned property reserves in our Reinsurance Treaty segment contributed a 90 basis point benefit to the combined ratio. Catastrophe losses contributed 3.6 points to the group combined ratio, largely driven by a $58 million provision for the Iran war and several other weather-related events globally. The group attritional loss ratio improved 2.8 points to 59.4% in the quarter. Aviation losses contributed approximately 2 points to the prior year first quarter attritional loss ratio. When excluding this, the improvement was driven by improved expected loss experience and a lower proportion of Retail Casualty premium. The commission ratio increased to 23.1% in the quarter, with the increase driven by mix the underwriting-related expense ratio improved 10 basis points to 6%. In the other income and expense line, we recognized a net expense of $81 million associated with the sale of the commercial retail insurance renewal rights to AIG in the quarter as well as expenses associated with the sale of other primary operations, principally Canada. As I previously noted, we expect there will be approximately $150 million of restructuring charges throughout 2026 associated with our exit from the commercial retail insurance business and we still expect some elevated real estate related costs in the fourth quarter, which we expect to mitigate through subleasing opportunities and these costs will be reflected in our other income and expense line within operating income and will not impact the combined ratio. Moving to Reinsurance Treaty. Gross written premiums decreased 8.5% in constant dollars versus the prior year quarter when adjusting for reinstatement premiums during the quarter. Property growth of 1% in the quarter when excluding reinstatement premiums, was largely driven by a 9.4% increase in Property CAT XOL. And this was more than targeted decrease of 23.9% in Casualty Pro-Rata and 13.3% in Casualty XOL. The combined ratio improved to 87.2% in the first quarter 2026. The quarter benefited from a relatively lighter amount of catastrophe losses, which contributed 3.7 points to the combined ratio versus 19.7 points in the prior year first quarter. Favorable prior year reserve development contributed 1.4 points to the improvement. The attritional loss ratio decreased 270 basis points to 56.7%, largely due to aviation losses in the prior year first quarter. And consistent with prior quarters, mix benefits were balanced by our proactive approach to embedding prudence into our U.S. casualty loss picks. And moving to Global Wholesale & Specialty gross premiums written increased 1.6% in constant dollars to $793 million, growth in accident and health, professional liability and other specialty was more than offset by decreases in property lines and reduced writings in casualty lines. Combined ratio was 96.8% in the quarter, and included 4.2 points of catastrophe losses versus 3.1 points in the prior year first quarter. CAT losses in the quarter were largely driven by losses associated with the Iran war as well as U.S. winter storm activity. And while it's early, we believe mix benefits from our actions to shift the portfolio towards short-tail lines and to strengthen the quality of the portfolio are driving improved loss experience. These actions contributed a 3.8% improvement in our attritional loss ratio to 58.9%, while we continue to set prudent loss picks. The underwriting-related expense ratio was 12.6%, with the increase driven by reduced casualty earned premium and the commission ratio increased 1.6 points to 21.2%, with the increase largely driven by mix. Now moving to our Legacy segment. The segment generated a modest drag to group results, largely due to higher ceded premiums as well as a modest increase in property loss activity. We continue to expect the segment to run at a combined ratio above 110% combined ratio for fiscal year 2026 driven primarily by higher expenses as we transition the commercial retail insurance book to AIG. Now moving to reserves. While we are seeing early evidence that our remediation actions are leading to improved underwriting results in our U.S. liability insurance portfolio, we will continue to maintain elevated loss picks as we did in 2025. While rates in U.S. casualty lines continue to increase, there remains uncertainty in loss cost trends and we expect these lines to continue to represent a smaller percentage of our overall mix. Moving on to investments. Net investment income increased to $567 million for the quarter, largely driven by strong alternative asset returns, which generated $156 million of net income in the quarter versus $55 million in the prior year quarter. Overall, our book yield remained stable at 4.5%, which is consistent with our current new money yield, and we continue to have a short asset duration of approximately 3.5 years and the fixed income portfolio benefits from an average credit rating of AA-. Our operating income tax rate was 11.7% in the first quarter 2026 which was below our working assumption of 17% to 18% for the full year, and this was driven by a onetime benefit from the takedown of an accrual of U.K. Pillar Two tax due to the U.K. updating its tax laws in the first quarter to conform with the most recent OECD guidance on global minimum tax. Operating cash flow for the quarter of $649 million decreased from $928 million in the prior year first quarter. And shareholders' equity ended the quarter at $15.3 billion, were $15.7 billion when excluding $369 million of net unrealized depreciation on available for sale fixed income securities. Book value per share, excluding unrealized depreciation on available for sale, fixed income securities ended the quarter at $393.02, an improvement of 4% from year-end 2025 when adjusted for dividends of $2 per share. In the first quarter, we repurchased approximately 1 million shares amounting to approximately $331 million at an average share price of $330.01 per share. When factoring in the lower growth environment for the industry, in combination with the strategic actions announced last year and the sale of our Canadian retail insurance operations, we would expect an elevated payout ratio for 2026 assuming a relatively normal level of catastrophe activity and other risk factors. As Jim mentioned, we now expect $300 million to be a quarterly floor for common share repurchases in 2026. Lastly, I wanted to take a moment to acknowledge that this will be my last earnings call for Everest, and the company has gone through a period of meaningful transformation over the years and I'm particularly proud of being able to be a part of the accomplishments to set Everest on its trajectory. I'm confident that Everest is in a strong position to deliver attractive results. And on a personal note, it has been a privilege to work with my Everest colleagues and the many fine people within the P&C industry over the years. And with that, I'll turn the call back over to Matt. Matthew Rohrmann: Thank you, Mark. Jamie, we're now ready to open the line for questions. We do ask you limit your questions to 1 question plus 1 follow-up, then you'll rejoin the queue if you have additional questions. Jamie, over to you. Operator: [Operator Instructions] Our first question today comes from Andrew Andersen from Jefferies. Andrew Andersen: Into Florida renewals, how much incremental demand are you seeing at an industry level? And how are you considering Everest deployment there, just given some [indiscernible] reform benefits, but also considering the current pricing market? James Williamson: Sure, Andrew. Thanks for the question. I mean, look, I'm not going to quantify the demand forecast, but I do think there's some pretty strong tailwinds in terms of clients looking to procure more limit. We have, as you probably know, a preferred position in the Florida market. I think we are a lead reinsurer for all of the best local underwriters. Obviously, the renewal is very much still in flight. It's early days. But so far, we're actually reasonably optimistic about where things will land. And I think you should expect us to be pretty consistent in terms of capacity deployment, assuming that rates move in a reasonable direction. I do think we are seeing, as I indicated in my prepared remarks, very strong statistical evidence that the tort reforms have worked, which obviously is a great positive given where our book is. Andrew Andersen: And on Casualty Reinsurance, still seeing some premium declines there, but are you seeing any improvement in terms that could warrant reengagement down the line? Or is that line still not at the return hurdles you would like to see? James Williamson: Well, to step back, I think the way I would frame this is our view of Casualty Pro-Rata, particularly given what's happening in the U.S. tort environment, is that we want to continue to partner with our best cedents who have a firm bead on how to underwrite in a fairly adverse environment, whose claims expertise, data analytics are world-class. And we're going to continue to do that. Now what that has meant for us is that we've had to reduce total premium levels, over $1.2 billion in the last 2 years. And I think that's just an indication of the level of discipline we're bringing to the equation. I think what we would need to see for that trend line to significantly reverse would be, first of all, ceding commissions on Casualty Pro-Rata remain quite elevated. I think that needs to change. And I also think you need to see some sort of normalization in the U.S. legal environment. So obviously, we're prepared to pivot when conditions warrant. But right now, I feel really good about how we're positioned. Operator: Our next question comes from Elyse Greenspan from Wells Fargo. Elyse Greenspan: My question -- my first question is on the Global Wholesale & Specialty segment. The attritional was 92.6% in the quarter. I know you guys highlighted, right, just an elevated expense level to start in the segment. But I'm just thinking away from just the expense comment. Would you highlight anything one-off in the quarter, just when we think about the margin profile of that segment from here? James Williamson: Sure, Elyse. Thanks for the question. A couple of things. First, while I do think there's a drag in the expense ratio, we're starting from a pretty decent spot. And I think we have some clear strategies in place that will help us to manage that, but that's going to happen over time. So that will be something that we're working on for a while. And there were really no one-offs in the quarter. What I would tell you is what's critical to laddering up this attritional loss ratio that drives that combined is the things that I talked about in my prepared remarks. The team has done an excellent job positioning the portfolio in terms of its mix. And that's something that we're going to continue to focus on. And then the quality of the underwriting really across lines of business has been very strong. And so again, over time, I think those things can inure to our benefit. At the same time, it's a very complex primary insurance market, as you know. We have a lot of rate movement in multiple directions across lines of business. And so we'll just navigate it very carefully and make sure that we're printing very prudent loss picks in each of the quarters that we print going forward. Elyse Greenspan: And then my second question, we've seen industry losses come up for the Baltimore Bridge event. I just wanted to get a sense of your thoughts there and just how you're thinking about Everest's risk exposure? James Williamson: Sure. Yes. So when the loss first occurred, I think a lot of people were sort of settling into about $1 billion industry loss range if memory serves. We had, as you may recall, put up a pretty prudent initial reserve of $70 million. Like you, we're gathering information regarding the settlements that are occurring around that loss. Those seem to indicate that we'll be looking at a larger overall industry loss level. But we're still very much assessing that. And what I would suggest, based on just sort of early indications, if they prove to be correct, we could be looking at a few tens of millions of dollars of incremental loss reserve needed which would flow through in a future quarter, whether that's Q2, Q3, we'll see through our prior year development line. Operator: Our next question comes from Meyer Shields from Keefe, Bruyette, & Woods. Meyer Shields: I just had a question on Global Wholesale & Specialty. I was hoping you could update us on the amount of casualty talent that you have relative to what you would want? I understand that the market is challenging for all the reasons that you laid out. But I just want to get a sense as to your assessment of whether the current underwriting team is all intact or whether we should anticipate incremental hires? James Williamson: Yes. Thanks for the question, Meyer. I feel -- one of the things I feel just exceptionally good about across really all of Global Wholesale & Specialty and certainly Reinsurance in the rest of the company is the quality of the talent that we have. if you sort of rewind the clock, remember, we started the remediation process in North America Casualty a couple of years ago. We made significant changes, and I would say, upgrades to that team. We've had a chance to continue to do that in the meantime. And so when I look at the team on the field today, whether it's in our evolution business, our U.S. programs business, or other parts of the group where we're writing U.S. Casualty, I think we have best-in-class talent. Now we are investing in Wholesale & Specialty across a number of dimensions. Technology would be an area where particularly with the retail divestiture, we now have more resources to devote to the Global Wholesale Specialty business. So we're investing in tech. And we are also selectively hiring. But I really view that as an augmentation as opposed to needing to rebuild teams. We're in a really good spot talent wise. Meyer Shields: Okay. Great. That's very helpful. And then second question, obviously, for some specialty lines exposed to the Iran conflict, there have been meaningful rate increases. I was hoping you could talk to how Everest is responding to that? James Williamson: Yes, absolutely. I mean we're in active -- we're an active underwriter in the region. We have a very robust reinsurance operation centered on the Middle East. And we also obviously underwrite a number of specialty coverages out of our London market operation in both businesses. And so as these events occur, there will be rate movement and our teams are very nimble, and they will be leaning in where they see appropriate risk-adjusted returns to both securing those rate increases and potentially deploying more capacity. Now as you can imagine, at this moment, given the level of uncertainty around where the conflict is going to go, we're being very judicious on what we're writing but I would expect it to inure to the benefit of the portfolios in terms of rate movement. Operator: Our next question comes from Josh Shanker from Bank of America. Joshua Shanker: First of all, just congratulations to Mark on his retirement. Wish him the best in all your endeavors. Quickly, you have a new floor setting of a minimum $300 million repurchase per quarter. Historically, we've seen reinsurance companies slow the roll a little bit around the early summer period in anticipation of the outcome of the hurricane season. Do you expect a programmatic purchase or will you just be continuing to buy at the same pace regardless of where we are in the calendar? Mark Kociancic: Josh, it's Mark. Yes, thanks for the kind remarks. Regarding the share buyback, I expect more of a programmatic approach throughout the year and with possible augmentation later in the year, just depending on how cat season plays out and as well as the development of the release of capital stemming from the legacy operation reserve runoff. So I think you'll see potentially more buybacks later in the year as well. Joshua Shanker: And notably, there was $33 million of favorable development in the quarter on the going-forward businesses. If I go back and look at Everest results for most of the past, there's always been almost no volatility in the reserves. [indiscernible] result in any quarter. This is always a little confusing. There's always new information, obviously, that you get about your reserves. But the truth is, I understand it. We just don't know what the future claims trend are going to be. With the portfolio throwing off [ PYD ] in this quarter, does that signal a change in how you're thinking about conveying your -- what new information comes into the actuaries? And also given, Mark, your retirement and Elias not having joined yet, why is this happening now? Mark Kociancic: Well, it started last year. I think in the second quarter, we had some favorable PYD also offset a bit through Russia Ukraine adjustments. But in general, we made a point a year ago that the reserves in property, which is where this is coming from a really well seasoned and significant enough where we felt comfortable to start releasing it. So we feel very good about the level of embedded margin in the reinsurance property reserves, especially given the seasoning we're going to play it, I think, close to the vest in terms of casualty, given the loss trend uncertainty, be prudent there. But there's a really nice embedded margin, I would say, on the property side that I think is available going forward. Joshua Shanker: And if you'll indulge me just one quick one other one. The Legacy segment, will it be small enough in 2027 that won't need to be disclosed anymore? Or is that getting ahead of myself? Mark Kociancic: Probably getting ahead of yourself. Look, the reserves will still be meaningful. The P&L, I would expect to be smaller simply because the net earned premium will have essentially become de minimis. But we set up this segment a couple of years ago under the nomenclature of calling it the other segment because we did have a few pieces in there. [indiscernible] this environmental plus Specialty program through [ Ryan ] Specialty. So I expect some level of much smaller levels of premium as this year progresses and still something in '27, I doubt it will go away, but it will definitely be much smaller. Operator: Our next question comes from Michael Zaremski from BMO Capital Markets. Michael Zaremski: Good to see a cleaner print. Just curious on the move kind of increased PMLs and kind of move into short-tail lines, is it fair for us to kind of bump up our cat loads a bit as we think about '26? Mark Kociancic: Mike, it's Mark. I think the cat load percentage back when we did the Investor Day in '23, we were saying approximately 7%-ish. We're in that same ZIP code today, you've obviously got a higher load for the Reinsurance segment and a lower one for the Global Wholesale & Specialty. It's a lot more diversified the portfolio in terms of the zonal PMLs and the risk that we're taking. And I think that it's something that will mechanically potentially increase a bit as the legacy premium diminishes and really depending on the growth environment for the company going forward as you've seen premium reductions year-over-year in some of the lines. So mechanically, it could have a slight increase given the fact that we still find property -- property cat very attractive and we are diminishing some of our casualty exposure. James Williamson: Yes. And Mike, this is Jim. The only thing I would add, I think Mark's explanation is spot on. There is that mechanical reality just driven, frankly, more by what we're doing with casualty to anything happening in property. When I look at the actual net PMLs though, and I know you don't have the 4/1s, but what I'm seeing is our net PMLs across, I think, just about every peak zone maybe with 1 or 2 exceptions are coming down now, just given the portfolio management we're doing in the market. So -- and that -- I think all other things being equal, that would continue to occur certainly during the course of 2026. Michael Zaremski: Got it. That's helpful. Just switching gears to capital management. Mark, you mentioned expect maybe higher capital management at the back of the year. But I think you just mentioned the AIG transaction, but I believe you also sold the Canadian property for a very nice multiple. So I think is it fair for us to kind of put a small placeholder for some capital return from that transaction as well in the back half of the year if that closes this year? Mark Kociancic: Yes, I think it will be a component. Clearly, the transaction still has to settle. That's probably 6 months away, and we'll see how that gets handled at the end of the year, but it will be accretive to that discussion for sure. Operator: Our next question comes from David Motemaden from Evercore ISI. David Motemaden: And Mark, I also want to extend my congratulations on your retirement. I guess maybe just quickly, Jim, on -- just hoping to get a little bit more texture on your expectations for the 6/1 and midyear renewals. Just -- I know you spoke about property cat pricing continue to soften down 13%, globally at 4/1. Maybe you could split that out between U.S. and internationally and how you're thinking about both pricing and terms in midyear? James Williamson: Yes. So thanks for the question, David. Just let's cover 4/1 and then we can pivot into 6/1. On 4/1, look, I think pricing similar North America to international. Obviously, you had some really big international renewals. And in particular, you had a lot of drag from a pricing perspective from the Japanese renewal where I think pricing levels were very robust. It's been a loss-free market for a while. And so you saw a little bit of a sharper takedown in that market. And then the other one I would call out as sort of anomalous is in India, which is becoming a much more meaningful reinsurance market. where everybody decided to get into India. We've had a very nice book of business in that country with terrific sedans for a number of years, unlike, I think, frankly, most carriers in that market, we make a fair bit of money providing that coverage and pricing was down sharply at 4/1 and we substantially cut our book of business in response to that. So that's certainly affecting the rate view. And the one thing I would sort of add before I get into 6/1 is each of these renewals are so different. 1/1, 4/1, very different renewal structure for the reasons I just cited, and then 6/1, obviously very much centered on Florida. In terms of what to expect for Florida, a couple of things to note. First of all, I do want to certainly give our reinsurance team an enormous amount of credit for how they executed in 2025 because that sets up the story. I think we had a very clear beat on the fact that 2025 pricing was well above our threshold of expected return. And we leaned into that and grew meaningfully. And I think that was exactly the right thing to do at the time, and you see that playing through in our Q1 cat growth rates ex reinstatement premiums being pretty solid. I think for this 6/1, what we're seeing is rates are definitely going to be coming off. I think there's a fair degree of rationality among underwriters regarding the exposure because it is. It's a peak zone for a reason. It's [indiscernible] peak zone. And so I think that will put a bit of a floor under things. I think terms and conditions will look good. The vast majority of our deals in Florida are on a nonconcurrent basis, and we're advantaged that way. So I think that will advantage us. And it's early days, though. I mean we've worked on, whether it's 25% or 1/3 roughly of our renewals are sort of getting some indications on them. So very early. But I would expect rates to come off maybe in the mid-teens zone, time will tell. And I think we'll have an opportunity to do quite well. It may include taking a few chips off the table. But overall, feeling really good. David Motemaden: Got it. That's very helpful. And then maybe just for my follow-up. Mark, the underwriting expense ratio 6% here this quarter, I mean, that's pretty much where you guys had said you were expecting to be exiting the year. So is -- should we be thinking about maybe a little bit lower on like continuing at this level? How should we be thinking about next year as well? Are we talking about this getting into like the low 5s, just as you guys work on some of the expense efficiencies to help offset some of the top line pressure? Mark Kociancic: I think the 6% to 7% range we talked about is still in order, a lot of different moving parts. So let me put some of those on the table. We're still benefiting materially in the first half of the year from net earned premium stemming on the commercial retail runoff that we have. So that's helping to absorb some of that expense load. I think you've also -- you're seeing in the industry and for us, reduced premium writings this first part of the year. And if that continues, that will also put a damper somewhat on the net earned premium development, which will mechanically increase the ratio. However, we're obviously aware of all this. We run fairly lean or efficiently, I'd say, on the corporate side. I think there's attention, good attention on the corporate expense load of the company to manage it in a disciplined fashion as we exit the retail and navigate whatever the premium environment is going forward. But I still think on a relative basis, we'll keep our expense advantage that we have. It's just that number could move, but not that much. I don't think it's going to be something that's problematic I just wouldn't be prepared to say you're going to be under 6% for any meaningful period of time in the next year. Operator: Our next question comes from Alex Scott from Barclays. Taylor Scott: First one I have is on the reinsurance reserves, sounded like [indiscernible] was net favorable this quarter. I just wanted to check to see if you could give us any color on was there any unfavorable if you look specifically at Casualty? And I mean, from the commentary in the presentation, it sounded like short-tail is doing well. So I'm just trying to understand if there's some level of offset to the positive commentary being made about short-tails or the property comments you made on the call that we need to consider? Mark Kociancic: No, it's doing well, Alex. No problem in Q1. We feel good about the loss picks. We took even more prudent approach, I'd say, with the 2026 loss picks for Casualty Pro-Rata, so feeling good about that. We did the review last year. The roll forwards continue every quarter. We've got our reserve studies coming in the summer, the cedent data that we're getting is pretty much in line with our expectations, and we're seeing good strength from other lines of business outside of Casualty Pro-Rata. So for now, it's steady as she goes. Taylor Scott: Got it. Very helpful. And then just on the investment portfolio, can you talk at all about any exposure you have to private credit, whether it's in your alt portfolio or your fixed maturities? Mark Kociancic: Yes, sure. So we do have private credit exposure. It's roughly 7% of our assets under management, roughly $45 billion of AUM in the company. It's something we've had for a meaningful chunk of time, a lot of diversified type holdings that we have. Direct lending, I'd say, slightly more than half, a lot of first lien secured loans attached to it as well. Software pretty much on the smaller side, I'd say it's probably 15% of that overall 7% that I'm mentioning. But it's performing well. We're not seeing anything meaningful in terms of impairments or watch list exposure. We're not adding to it, but we're quite comfortable with where we are right now. Operator: And our next question comes from Tracy Benguigui from Wolfe Research. Tracy Benguigui: You said you were in your early days with respect to the Florida renewal season. And I heard yesterday from one of your competitors that they placed the half so far. So I just want to talk about the cadence of this renewal season. If tort reform is making the market more attractive, do you think renewal discussions will wrap up earlier, this go around that you typically see? And what does that mean for pricing trajectory? Like is it better to get in sooner? James Williamson: Sure, Tracy. I mean I think every renewal season is the renewal season when we say we're going to get things done earlier and more -- in a more orderly fashion. It hasn't happened yet, but hope springs eternal. Look, I think we are -- as I said, we're a lead market in the Florida market. We have preferred client relationships. The renewal is well underway. And again, I think conditions overall will be fairly strong, given the dynamic of, yes, there is tort reform, which makes it more attractive, but there's also increased demand. And you always have to remember, it's a peak zone for a reason. And I think underwriters across the industry are well attuned to the risks involved in underwriting Florida property. And then as I would just remind everybody, just to repeat something I said earlier, north of 80% of our deals in the Florida market are with nonconcurrent terms, which I think puts us in a terrific position. Tracy Benguigui: Good. And as properties becoming more meaningful in your book, are you deemphasized -- as you're deemphasizing casualty, taking a step back, for prudence, have you made any material changes in your cat modeling process like adding additional loads? Or is it more status quo? James Williamson: Sure. I would say that our cat modeling capability is second to none in the industry, and it's a core competitive advantage of ours. So we're always enhancing our cat models. We have a fully dedicated team of PhDs, math experts, seismologists, volcanologist, you name it, on staff who are always incorporating the best scientific research, whether it's trends around climate change, views of the legal environment, et cetera. So we always want to be on the cutting edge of where we are on modeling. And -- and again, I think that's a core advantage of ours. Operator: Our next question comes from Yaron Kinar from Mizuho. Yaron Kinar: First, congratulations, Mark, on the retirement. Couple of questions. One, and I apologize for asking you, Jim, to pull out the crystal ball here. But I think you said that property cat rates remain above adequate at this point. So assuming that we have like a normal hurricane season this year, at what point would you think that the industry inflects back to flat or even property rate -- property cat rates increasing? James Williamson: Sure. It's a good question, and my crystal ball is out of order at the moment on that to mention, Yaron. I mean, look, here's what I would say. The first thing, and I know others have said this over the last few days, but -- while rates are coming down, there is also this underlying sort of floor of discipline that's occurring as well, which really gets reflected in terms and conditions, attachment points are very strong which tells me that underwriters are alive to the risks that we're taking and they're allowing rates to fall because pricing is above the levels they think they need to achieve in order to earn a reasonable return for the risk. I think there's probably still -- there's still some room, but our view and the communication we're having with our clients is, we've been a consistent supplier of cat capacity. We're a lead market. We want to get paid reasonable levels. And our view is that pricing shouldn't continue to fall. So we'll just have to see how it plays out. I think one thing that I take away from some of what I've heard in the market over the last few days from others is that you do see the lead markets taking chips off the table. And I think that's a very good sign that the market will find a reasonable rest in place from which we then can have sort of a normal market cycle. And I've said pretty consistently since the January 2023 renewal that it's my view that, that renewal was a reset around which you would see a market oscillation. And I think that's playing out and it will be up to the lead underwriters to sustain their discipline if -- when we're talking about the January 1, '27 renewal and beyond to ensure that, that is in fact what comes to pass. Yaron Kinar: That's very helpful. And then my second question is, can you size the earned premium base associated with the loan loss provision? The reason I asked this is I just want to make sure that as we think about underlying loss ratios that we have the right base here to the model into the future? James Williamson: I mean I can give you some indications. But one thing to keep in mind is a lot of the covers that are going to get affected are global in nature, especially a lot of the covers coming out of the London market. So how much of that premium is attributable to that particular region is really an impossible game. What I would tell you is if you look at our Middle East reinsurance business, meaning we have a team that's an exceptional team that's been writing in that region for a long time. And they write 4 clients based in the Middle East. That business alone is in the neighborhood of $300 million a year in gross premium. So the reinsurance loss that we've pegged for Iran is $40 million. So it gives you an idea. It's a meaningful kind of a cat number against the $300 million, but not outsized. For the rest of it, again, it would be sort of impossible to attribute an actual market size, too. But I think a [ $57 million ] provision, which we feel is quite prudent, given where the conflict is at the moment relative to a global diversified insurance and reinsurance business is a pretty modest number. Operator: And our next question is Ryan Tunis from Cantor. Ryan Tunis: First off, congrats to Mark. Jim, I wanted to go back to the attritional loss ratio in Global Specialty, the 58.9% -- make sure I'm thinking about this right. On the pro forma, that's like more than 4 points lower than what you did in 2025, which seems like quite a bit. Is that just lowering a loss pick just based on just a brand-new view of profitability? Just help me wrap my mind around that just a little bit better. James Williamson: Sure, Ryan. Happy to unpack that. I think there's a number of things happening. The first thing to keep in mind is that we have shifted the mix pretty meaningfully over that time. And some of it you see when you look at it by line, if you look at, for example, in the quarter, the growth of our Specialty businesses has a pretty meaningful impact on that number. I think then even beneath that, there's dramatic changes to the underlying portfolio. So for example, if you go back a couple of years to our U.S. wholesale business, we might have been writing a fair proportion of open -- what I would call open market E&S Casualty business. Just submissions are coming in, you're writing excess umbrella, often lead umbrellas, loss ratios on those are very elevated. I mean we've moved almost entirely away from that kind of business. What are we writing today? Well, we have experts that we've built that great team. I got a question earlier about the team we built. They're writing, for example, new risks around data centers. We have deep expertise in the area. We have a specialized product. It's still casualty. But if you look at liability profile, we might be writing an umbrella limit, a $5 million limit that might have used to be a $10 million. It's not lead anymore. We're farther up in the tower. Pricing is dramatically better. I mean those things do start to inure to your benefit in the loss pick. And I can tell you, we've been incredibly conservative in how we've reflected any of that in the number. But it's been so dramatic that I do think it justifies some movement, and that's how you get to the number where we are now. Now I do want to reiterate and maybe expand a little bit on something I said earlier in terms of where does this go from here? I feel good about the picks. Mix is really going to make a meaningful difference. And when you're in an environment where you have pricing moving in all directions. So property pricing is coming down in the core market, but casualty pricing is accelerating in a number of areas. We've got a bunch of specialty businesses. I think the relative growth of those businesses could move that average loss pick up or down and still result in really terrific overall results. So just be aware that there's some of that going on. Ryan Tunis: Got it. And then I guess just for modeling purposes, just thinking about how the invested asset base moves this year is just a little bit weird with the AIG runoff. I mean is there any rough rule of thumb on how we -- how you guys are thinking about growth there relative to the decline in premiums that's coming from those net retail business? Mark Kociancic: Ryan, it's Mark. I would expect it to be more marginal AUM growth. So part of it, to your point, is the reduction in the retail business. You've got, at least in the first quarter, diminishing gross written premium also being somewhat of a headwind. And you're seeing us emphasize buybacks, which is clearly a good thing, but a drain on AUM. So the other side of it, we'll see how the reserve paydowns progress, particularly in the Legacy segment, that will be something that also impacts it. So I would probably go with more of a flat to marginally -- marginal growth in that area. But it's dependent on all these factors on a quarterly basis. Operator: And with that, ladies and gentlemen, we'll be concluding today's question-and-answer session as well as today's conference call. We do thank you for joining. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Hubbell Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear a message advising your hand is raised. To withdraw the question, simply press star 11 again. Please be advised that today's conference is being recorded. Now it is my pleasure to hand the conference over to the Senior Director of Investor Relations, Daniel Innamorato. Please proceed. Daniel Innamorato: Thanks, operator. Good morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for 2026. The press release and slides are posted to the Investors section of our website at hubbell.com. I am joined today by our Chairman, President and CEO, Gerben W. Bakker, and our CFO, Joe Capazzoli. Please note our comments this morning may include statements related to the expected future results of our company. These are forward-looking statements defined by the Private Securities Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release and consider it incorporated by reference to this call. Additionally, comments may also include non-GAAP financial measures. These measures are reconciled to the comparable GAAP measures, which are included in the press release and slides. Now let me turn the call over to Gerben. Gerben W. Bakker: Great. Thanks, Dan, and good morning, everyone, and thank you for joining us to discuss Hubbell Incorporated’s first quarter 2026 results. Hubbell Incorporated delivered strong financial performance to begin the year, with double-digit growth in sales, adjusted operating profit, and adjusted earnings per share. Organic growth of 8% in the first quarter was driven by double-digit organic growth in our Electrical Solutions segment as well as our Grid Infrastructure businesses within the Utility Solutions segment. Our core utility T&D markets remain strong, with highly visible load growth driving continued strong demand in transmission and substation markets, and aging infrastructure and resiliency investments driving strong demand in distribution markets. Electrical Solutions growth continues to be driven by strength in data center and light industrial markets, enabled by our leading brands and continued success in our strategy to compete collectively in high-growth verticals. We are raising our full-year 2026 outlook for total sales growth, organic sales growth, and adjusted earnings per share this morning, as we are confident Hubbell Incorporated’s strong position in attractive end markets and continued execution of our long-term strategy will enable us to execute through a dynamic operating environment. Before I turn the call over to Joe to walk you through our financial performance in more detail, I would like to highlight an emerging growth opportunity for Hubbell Incorporated in high-voltage transmission, a long-term megatrend that sits squarely in our core, and we are demonstrating early success in a multiyear investment cycle. As background, 765 kV transmission represents one of the most efficient methods to move large amounts of power over long distances in order to accommodate accelerating electricity demand from electrification and load growth. Operating transmission lines at higher voltages enables utilities to deliver more power per line with lower losses and fewer space requirements. For Hubbell Incorporated, high-voltage transmission represents a significant multiyear opportunity which is largely incremental to existing strength in traditional 345 kV transmission markets. Our leading position and strong customer relationships position us well to capture this opportunity, and we are demonstrating early success with several key project wins supporting this initial phase of high-voltage transmission buildout. Additionally, our portfolio depth and breadth position us as a preferred partner whom customers can trust to provide a full package of critical components. This solutions offering enables high service levels and reliability while driving installation efficiency and ease of doing business for our customers. We are actively investing to support future growth in this market, including development and testing of new product offerings in collaboration with major customers, as well as in capacity expansion investments. Overall, we believe 765 kV transmission represents an addressable market opportunity of approximately $1.5 billion over the next ten years, and we believe we are well positioned to serve this attractive long-term investment cycle. With that, let me turn the call over to Joe to provide more details on our Joe Capazzoli: results. Thank you, Gerben, and good morning, everybody. I am starting my comments on slide five. Hubbell Incorporated’s first quarter financial performance was strong, with double-digit growth across sales, adjusted operating profit, and adjusted earnings per diluted share. Net sales of $1.517 billion in the first quarter of 2026 increased by 11% compared to the prior year, driven by 8% organic growth and acquisitions contributing 3%. Consistent with our fourth quarter 2025 performance, both the Electrical Solutions segment and Grid Infrastructure products within our Utility Solutions segment delivered double-digit organic growth in the first quarter, partially offset by anticipated softness in grid automation. Acquisitions contributed three points to growth in the first quarter, with DMC Power off to a strong start and integrating nicely within our T&D business. From an operational standpoint, Hubbell Incorporated generated $301 million of adjusted operating profit in the first quarter, representing 18% growth versus the prior year, with adjusted operating margins expanding 110 basis points year over year. This improvement in adjusted operating profit and adjusted operating margin was primarily driven by strong volume growth in high-margin businesses. While cost inflation accelerated against 2025 exit rates, as anticipated, our pricing and productivity actions continued to keep pace, more than offsetting those higher levels of inflation on a dollar-for-dollar basis in the first quarter. We also accelerated our investment levels in the first quarter, as previously communicated, most notably to expand capacity in high-growth areas and generate future productivity. And as anticipated, we invested $7 million in our restructuring and related program to further streamline our operational footprint, primarily within our Electrical Solutions segment, which, as a reminder, R&R is included in our adjusted results. Adjusted earnings per diluted share were $3.93 in the first quarter, representing a 16% increase versus the prior year, driven primarily by adjusted operating profit growth. Below the line, higher interest expense associated with borrowings from the DMC acquisition and a slightly higher year-over-year tax rate were partially offset by lower share count as a result of prior repurchase activity. Additionally, we repurchased $168 million worth of shares in the first quarter at a dollar-cost average below $500 per share. We expect the net impact of these repurchases to be neutral to 2026 earnings, as a lower share count will be offset by higher interest, but the repurchases of shares at attractive valuations are expected to provide us with earnings accretion in 2027. Our balance sheet remains strong and is poised to invest on behalf of our shareholders. Our primary focus remains on internal reinvestments and acquiring differentiated businesses to bolt on to attractive areas of our portfolio. The pipeline of opportunities remains healthy and active, and we continue to remain disciplined in our approach. Share repurchases represent an additional lever that we can and will utilize to return cash to shareholders over time. Turning to page six to review our performance by segment, Utility Solutions delivered another strong quarter, with double-digit growth in sales and adjusted operating profit. First quarter performance overall reflected a continuation of the momentum we realized exiting 2025, with overall drivers very similar across end markets. Utility Solutions generated net sales in the first quarter of $949 million, which represented growth of 11% versus the prior year and includes organic growth of 7% and acquisitions contributing 3%. Organic growth of 7% in the first quarter was driven by 12% organic growth in our larger, higher-margin Grid Infrastructure business, where demand strength was broad-based across T&D end markets. Utilities are investing at heavy rates, and demand for Hubbell Incorporated solutions to serve the expanding critical infrastructure needs of our customers is driving continued momentum in orders and providing visibility to further strength over the balance of 2026. As we will highlight in a few minutes, we now anticipate our Utility Solutions segment to deliver high single-digit organic growth on a full-year basis. Outside of our core T&D markets, telecom and gas distribution grew attractively in the first quarter, while meters and AMI markets remained weak as anticipated. While grid automation organic sales declined 7% year over year in the first quarter, sales increased slightly on a sequential basis. We remain confident that meter and AMI markets have stabilized, and we anticipate easing comparisons and continued strength in protection and controls products will enable grid automation organic sales to return to slight year-over-year growth in the second quarter. Operationally, HUS delivered $[inaudible] of adjusted operating profit in the first quarter, representing 21% growth in adjusted operating profit versus the prior year, with adjusted operating margins expanding 190 basis points year over year. Operating profit growth was primarily driven by strong volumes in high-margin grid infrastructure products, favorable price/cost productivity, and acquisitions, which were partially offset by grid automation volume decline. Moving to page seven, Electrical Solutions results were also strong in the quarter, with double-digit growth in net sales and adjusted operating profit. For the first quarter, Electrical Solutions generated sales of $568 million, which represented growth of 12% versus the prior year. Organic growth of 11% was again driven by strength in data center and light industrial markets, as well as solid nonresidential growth, partially offset by softer heavy industrial markets. The Electrical Solutions segment achieved approximately 40% growth in data center markets in the first quarter, driven by strength in both balance-of-system component demand as well as sales of our modular power distribution skids. Data center order activity remained robust in the first quarter, as buildout activity continues to accelerate across hyperscaler and colocation customers, providing enhanced visibility for us to increase our full-year outlook in data center markets to more than 25%. Broader light industrial markets remain healthy, as solid U.S. manufacturing activity generated demand for electrical components, and our strategy to compete collectively in vertical markets continues to drive outgrowth. Operationally, HES delivered $93 million of adjusted operating profit in the first quarter, representing 10% growth in adjusted operating profit versus the prior year, reflecting strong volume growth. Adjusted operating margins of 16.4% were down 30 basis points versus the prior year, as benefits from volume growth and the associated operating leverage were offset by higher investments in restructuring and growth initiatives. As you will see in our press release financials, within the Electrical Solutions segment, we invested $6 million in restructuring initiatives in 2026 versus only $2 million in the prior year, which impacted year-over-year margins by approximately 80 basis points, as we execute on footprint optimization projects which we are confident will continue to drive long-term productivity and margin expansion. Price realization remains strong, which, combined with productivity, more than offset cost inflation on a dollar-for-dollar basis in the first quarter. Turning to page eight to discuss our full-year outlook, we are raising our full-year sales growth outlook to 8% to 11% and organic sales growth outlook to 6% to 9%. This represents an increase of one point to the lower end and two points to the higher end of our prior full-year outlook, and is driven by both incremental price realization to offset increased inflation relative to our initial outlook as well as enhanced visibility to continued demand strength in our T&D and data center end markets. Operationally, we anticipate double-digit growth in adjusted operating profit at the midpoint of our guidance range for 2026, driven primarily by strong sales growth in high-margin areas of our portfolio. We remain confident in managing price/cost productivity to neutral or better on a dollar-for-dollar basis over the full year. So the math on higher inflation, as well as planned investments to support accelerated growth initiatives, results in a slightly more modest outlook for full-year margin expansion versus our initial outlook. Below the line, we anticipate that a lower share count of 53.1 million shares on a full-year basis will be fully offset by higher net interest, while our assumptions for other expense and tax rate remain unchanged. Overall, we continue to anticipate at least 90% free cash flow conversion on adjusted net income in 2026, and we are raising our full-year adjusted earnings per diluted share outlook to $19.30 to $19.85 per share. Now let me turn the call back over to Gerben to give you some more color on our confidence to deliver on this increased full-year outlook as we continue to navigate a dynamic macroeconomic and geopolitical environment. Gerben W. Bakker: Thanks, Joe. Turning to page nine then and concluding our prepared remarks, while the current operating environment poses macroeconomic and geopolitical uncertainty, as well as dynamic inflationary and supply chain conditions, we are confident in our ability to deliver on an increased organic growth outlook while continuing to manage price and productivity in 2026 and beyond. From an end-market standpoint, our largest, most profitable businesses are exposed to end markets such as utility T&D and data center CapEx where secular growth is being driven by long-term investment cycles. Our recent order patterns and key project wins, along with customer conversations around long-term investment planning, are providing us enhanced visibility to continued strength in these end markets. From a price/cost standpoint, while inflation has increased relative to our initial full-year outlook, we have implemented additional price and productivity actions which we are confident will offset, and we anticipate that recent updates to various tariff frameworks are largely neutral to our existing tariff cost structure. Overall, we have demonstrated our ability to manage through an inflationary environment successfully over the last several years, and we are confident in our ability to continue to do so in 2026 and beyond. While we are closely monitoring macroeconomic and geopolitical conditions, our short-cycle demand is holding up solidly, and price and productivity actions are being realized. Hubbell Incorporated’s portfolio is well-positioned with more than 90% sales exposure to the U.S., and over two-thirds of our portfolio exposed to secular growth markets in data center and utility, which we anticipate will continue to perform well through a broad range of economic environments. In short, we are confident that Hubbell Incorporated’s leading position in attractive end markets, as well as continued execution on our long-term strategy, will enable us to deliver attractive financial performance over both the near term and long term. With that, we will now open the call for questions. Daniel Innamorato: Operator? Operator: Thank you, sir. As a reminder, to ask a question, please press 11 on your telephone, and wait for your name to be announced. To remove yourself, press 11 again. We ask that you please limit yourself to one question and one follow-up. One moment for our first question. It comes from Jeffrey Todd Sprague with Vertical Research. Please proceed. Jeffrey Todd Sprague: Hey. Thank you. Good morning, everyone. Was wondering if you could provide a little more color on the high-voltage transmission outlook—just the level of project rollout there, you see that pacing in? You gave a little bit of color there, obviously. And is that $1.5 billion TAM all incremental relative to your prior view on the market? Maybe we could start there. And it sounds like you do not see this squeezing out spending elsewhere. There has obviously been a little bit of concern that all the generation spending may eat into T&D spending. You are calling the core distribution side of the business also growing at a stable rate? Gerben W. Bakker: Yes. Maybe I will start, overall, Jeff, with transmission. And then substation, I would probably categorize in the same area, as that is continuing to do really well for us. We communicated high single-digits growth there and certainly, I would say we are off to a very good start against that background. Particularly, the comments around 765—it is the ability for utilities to bring more bulk power into areas where it is needed. It is a very efficient way to do that. We have some lines in the U.S. that were built, I think, over 20 years ago that are 765. There just was not a need for it. And I think that is becoming very clear right now that the ability to drive more bulk power is actually a very efficient way to do so. We are very well positioned. We have products today that can serve it already. We have won a couple of orders already in this. We are continuing to develop products, and these are just taking it to the next higher voltages. We are able to do that with our capability, certainly with our labs. So I would say very well positioned. And we look at this truthfully as incremental, Jeff. We see this as upside to what is already needed. Any time you have a 765, you need off ramps for that, where you take the power down—think highways and offshoots of that, off ramps with substations—and then step the voltages down. So we think it is an upside for us, and we think it can drive a point of growth above what we are currently projecting with transmission already. You need both, Jeff. That is why we do not see it. Certainly, we are not seeing that in the projects that are ahead of us, the orders that we are winning. I mean, it is a logical question certainly to ask—how far can budgets flex up—but you see too that utilities are continually increasing their CapEx budgets. And I think that is a reflection of acknowledging and realizing that you really need to spend in all these areas to get the outcome you need. Jeffrey Todd Sprague: Okay. Great. Thank you. I will leave it there. Daniel Innamorato: Thank you. Operator: Our next question comes from Julian C.H. Mitchell with Barclays. Please proceed. Julian C.H. Mitchell: Hi. Maybe just a question, please, around how we should think about operating margins through the balance of the year and the operating leverage cadence, if that has changed at all versus prior thinking, please? Joe Capazzoli: Good morning, Julian. As far as the operating margin goes for the year, we are really looking at the full year with a 20 basis point margin expansion, and that is going to lean a little heavier towards Utility with more expansion and about flattish on Electrical. As the year progresses, I think we see the Utility side of margin expansion being pretty consistent. And certainly, on Electrical, we see a little bit of headwind just on the year-over-year comp from last year’s second quarter in Electrical, and the back half probably flattish. So that is kind of how we are thinking about margin for this year. Keep in mind, there is a lot of inflation that has come on, and as we cover that inflation with price and productivity, that is certainly margin dilutive. So in our 20 basis points of margin expansion at the midpoint of the guide, there is about a point of dilution just from that price/cost math. Julian C.H. Mitchell: That is helpful. And then maybe just my follow-up on the thoughts on the first half and second quarter. Maybe I missed it, but did you clarify the share of earnings in the first half? Is it still mid-high 40s? And so we are looking at kind of a $5.20-ish EPS for Q2. Any pointers on second quarter or halves phasing, please? Thank you. Joe Capazzoli: Yes. So for the second quarter, we would think about a normal seasonal setup for this year. And let us think about that on the sequential. Typically, with our strong orders coming through first quarter, we would anticipate a second quarter step-up like we would normally see: high single-digits organic growth. And add to that, we are looking at price/cost productivity at about neutral on the dollars. And so that is really the constructive way to think about Q2. Operator: Thank you. Our next question is from Thomas Allen Moll with Stephens. Please proceed. Thomas Allen Moll: Good morning, and thanks for taking my questions. Sounds like versus last quarter, we are expecting more pricing for the year, perhaps also better volumes than originally expected. So I was hoping you could unpack that 6% to 9% organic for us. How much of that is price versus volume? And how do those compare to what you provided last quarter? Thank you. Joe Capazzoli: Coming into the year, we were anticipating about two points of price, and the majority of that was coming from wraparound from actions that we had implemented last year. As we saw some of that inflation, mostly on the metal side—copper, aluminum, steel—in the first quarter, we went out with price actions in the second quarter, and that added about a point to our full-year price outlook. So our full-year 6% to 9% organic has about three points price, with the rest being volume. If you think, Tommy, about the way that price rolled on last year, the year-over-years are going to start to wrap here into Q3. So we would anticipate that our contribution from price fades as the year progresses, and our contribution from volume growth increases as we step through the year sequentially. Thomas Allen Moll: Thank you. That is very helpful. I wanted to follow up on DMC. What update can you provide for us there? And in particular, are there any elements that you are seeing unfold better versus worse than the original plan? Thank you. Gerben W. Bakker: I would say, Tommy, DMC—as we stated in our last calls—is off to a really good start. This is squarely in the area where the highest investment is going on in utility, which is transmission, and particularly this is a substation application. So I would say so far, it is meeting and even exceeding a little bit our expectations. It is also an area where we are really focused on adding capacity. I think our ability to get more out of that factory this year and next year is perhaps more a function of our ability to get capacity in place because orders are really supporting. So we are very, very pleased with it, as we are with Systems Control—another acquisition we did last year also in this space and with very similar dynamics of good demand and need to add capacity. We are very pleased with them. Operator: Thank you. Our next question comes from Nigel Coe with Wolfe. Please proceed. Nigel Coe: Just want to go back to the margins. How are the Section 232 tariffs sort of changing the landscape, and maybe talk about both businesses? And I believe that you were utilizing U.S. steel down in Mexico, so any more color there would be helpful, and any thoughts on how to think about margins by segment as well? Joe Capazzoli: Sure. Starting with the tariff, I would probably start by answering it more broadly with the events of tariff changes in the first quarter, of which, yes, February was a piece of what changed. We also saw the repeal of IEEP, we saw 01/22 come online, and we saw some of those changes in February. The sum of all of that is about neutral to us for the year. So that impact was not significant. We were paying in February, going back to Liberation Day, so February—with product lines that would have had U.S.-melted steel—the changes there were entirely offset by some other impacts on some other product lines. So overall, not significant. On your question about margins, quarter to quarter, we have 20 basis points of expansion embedded in the guide at the midpoint for the full year. The margin expansion is going to lean more heavily towards Utility, and Utility is looking at margin expansion pretty ratably across each of the four quarters. Electrical is a little bit of headwind on the margin in the first half of the year, and that normalizes in the second half of the year to get to about flattish on the full-year margin for Electrical. Nigel Coe: Maybe on the back of Jeff’s question on transmission—obviously very healthy growth, very vibrant end market. Some of the big players in that space are growing strong double digits in transmission. Do you see scope for your business to get up to those kinds of levels, and is the scope of your content increasing with time? Gerben W. Bakker: On the scope, we continue to develop products, we continue to do acquisitions, and both DMC and Systems Control are two examples where scope is increasing if you add additional product lines. Also, as you look at where the voltages go—when we talk about 765—our content on that per mile would also go up slightly from the lower voltages. So I think in net, both on what we are adding to the portfolio and where the investment is going, it does increase our content a little bit. Certainly, what we are seeing is double-digit growth. Our scope is broad, and we serve the majority of what goes on a transmission line. If you think about a transmission line, 85% to 90% of material that goes up on that, we serve. I would say we are going to get our fair share of that growth. Specifically, how many generator assets short term—it is a little harder for me to comment on that dynamic. But I would certainly say we will participate and get our fair share of the buildout. Operator: Thank you. Our next question comes from Joseph John O'Dea with Wells Fargo. Please proceed. Joseph John O'Dea: Hi. Good morning. Just wanted to touch on grid infrastructure growth expectations throughout the year. Is it reasonable to see something like low double-digit organic through the first few quarters of the year, and then I think the comp gets a little bit tougher as you get into the end of the year, so maybe that is more mid- to high single-digit? And along with that, any color on electrical distribution—understandably, the transmission and substation are driving strength, but just what you are seeing on the distribution side. Joe Capazzoli: Good morning, Joe. I will take the first part of that question on the Utility organic. And you are thinking about it the right way in terms of mid- to high single-digit organic growth as the year progresses, and we are anticipating it is going to be pretty consistent—Q1, Q2, Q3, Q4. Gerben W. Bakker: Maybe on the distribution side of it, we have been talking about this for quite some time now. What is driving the need to invest there is a lot driven by upgrading and resiliency of the grid. We dealt last year—and the last couple of years really—with destock, where we talked about that underlying demand was still solid, but we were dealing with something very specific. I think that is proving out now, with the destocking behind us, that we are actually seeing the underlying demand, and the drivers of it are continued hardening. I think it is slightly lower than transmission and substation for the reasons that we talked about—getting that power that is so needed in data centers and other areas. But we are very optimistic. And there too, if we think about the start to the year, it is not just off to a good start in transmission and substation, but distribution as well. Joseph John O'Dea: And then just on the timing of pricing and the impact on demand—were the price announcements in the quarter in place middle of the quarter, or in place at the beginning of the second quarter? And really just around any influence on demand pull-forward. It sounds like no incremental pricing required to tariffs. Over reporting season there is some debate on what kind of pull-forward dynamics there were broadly across industrials, but the degree to which you saw any of that in the quarter—it does not sound like much carryover impact anticipated throughout the year. Joe Capazzoli: Price increases went in for us at the beginning of the second quarter, and that typically takes 30 to 60 days to work its way through the backlog and to get to a point of fully realizing the run rate of that new price. So that all sets in during the course of the second quarter. We did not see any significant impact or unusual behavior with pull-forward on demand. That order momentum that we have seen continue going back to the fourth quarter, throughout the first quarter, and into the second quarter—nothing unusual in terms of how that sets up around our price increases that we have implemented. Price increases so far have been sticking. Conversations with customers have been very constructive. And the basis for our price increase has been around metals, and that metals inflation has been very visible and very well accepted in the channel. Operator: Thank you. Our next question is from Christopher M. Snyder with Morgan Stanley. Please proceed. Christopher M. Snyder: Thank you. I wanted to ask about data center. Obviously came through really good—40% in Q1. And you raised the full-year data center guide to now over 25%, previously up 15%. Is this new 25%+ basically all of your available capacity, or if demand strength is sustained, is there an opportunity to ship more this year? Thank you. Joe Capazzoli: Good morning, Chris. We spend a lot of time on that topic with all the activity and the significant demand in data center. You would recall that roughly half of our data center exposure is in our long-cycle power distribution modular skid business, for which we have good visibility to demand. Orders are booked out through the year and there is little incremental capacity, and that feels pretty well situated, and that was well situated in our original guide. So no real change on how we are thinking about the long-cycle piece. On the short-cycle, book-and-bill side, we continue to see strong order demand coming through. We continue to add capacity in that space—every quarter we are adding more capacity—and we continue to add inventory to every extent possible so that we have stock on the shelf for that short-cycle book-and-bill side of products needed for data center. So we think we have a little more capacity, and we continue to invest in that productive capacity coming online. We will continue to do that as the year unfolds to increase our capacity and serve that growing demand. Christopher M. Snyder: Thank you. I appreciate that. Then I wanted to follow up on price/cost. It seems like a year ago, you led on price/cost and then over time into Q1 the cost inflation caught up, netting you closer to neutral. Should we expect the same thing into this next round of price increases—like you will lead a little bit off the bat and then it catches up a bit two or three quarters out? Joe Capazzoli: You are definitely right in your first comment in terms of how last year played out. We were ahead on price versus cost, dating back to Liberation Day tariffs, and that benefit of being ahead kind of situated in the second quarter of last year, and we continued to run positive on PCP in each of the quarters of Q2, Q3, Q4 last year. We were positive PCP on a dollar basis to start this year, and we are anticipating managing that equation on a dollar neutral or better basis. That does have an impact on margins, as you know that math well. Do we think we can continue to hold the line on margin neutral on price/cost? No. I think that was a little beneficial to us last year, but we are very focused on managing to neutral or better and driving that double-digit operating profit growth for this year. Operator: Thank you. Our next question is from the line of Chad Dillard with Bernstein. Chad Dillard: Question for you is on Aclara. Can you talk about the sales in the quarter and how that has trended sequentially? And then just more broadly, how that business is positioned for AMI 2.0, and how should we think about when that cycle kicks off? Gerben W. Bakker: As you know, Aclara is part of the grid automation business, and that business continues to inflect up. We are down year over year, but the decline started to shrink, and while we still are a little bit down year over year in the first quarter, as we communicated, we expect that to start turning to growth. If you peel that apart and specifically to your question of Aclara versus the rest, clearly Aclara had been declining higher while the other part of the business was growing. What you have seen is that Aclara decline is starting to get smaller and smaller. We still, in the first quarter, saw a decline in that business, and as you look ahead, that is an area that has been more challenged. As utilities manage budgets—it goes back a little bit to Jeff’s very first question of how are utilities managing budgets—our view, and certainly indications from conversations, is that they are de-selecting this a little bit over other areas of investment, and we have seen fewer projects come through. But the challenge for utilities is that this equipment is going to fail at some point. The lifespan of this is not in the range of what our typical components are. What we are seeing is more project discussions right now. We are quoting more projects. We won a pretty nice piece of business that is multiyear. From where we sit today with this business decline, we should expect, going forward, to start seeing this business realizing modest growth. We feel it has stabilized—we have seen the bottom—we are now starting to come up. We are not expecting great growth rates, but the dynamics are such that this business should grow from here. Chad Dillard: Great. That is helpful. And then moving over to grid infrastructure, I know in the past you have talked about your order rates within distribution. I was hoping you could give an update on how those trended for the quarter, and can you break down how much of the demand you are seeing is restocking the channel versus pure sell-through into the end market? Gerben W. Bakker: Our view is that the demand is what is going up on infrastructure and not going to stock. We are off to a good start on revenue, and that is driven by order rates on both the Electrical and Utility side, but particularly T&D was also up nicely in the quarter. We generally do not talk about book-and-bill a lot; it is about order rates because we are a more short-cycle business. Our orders were up over one. That is not atypical in the first quarter, where people are starting to get their orders in to get ready for construction season, and that is typically a little bit over one. We were up stronger than that—close to 1.2 to start off the quarter. That is both a mix of short cycle, or book-and-bill, that was solid, as well as projects. We talked earlier about some of these projects. We feel really good about the start to the year, and it is what has driven us to raise our organic guidance. I realize there is a piece of that that is price, but there is a piece that is volume as well. We feel really good about how we started the year, and we see a continuation of this—nothing unusual in it. Operator: Thank you. Our next question comes from the line of Scott Graham with Seaport Research Partners. Please proceed. Scott Graham: Hi. Good morning. Thank you for taking my question. You have a global manufacturing footprint. With inflation higher and some of the geopolitical uncertainties, how is your supply chain behaving? Are you getting what you need? Are you getting any pushback in any corners? I think I heard Joe say no, not yet, on pricing, but we are starting to hear “enough is enough”—some corners are pushing back on pricing in different markets. How is your supply chain behaving overall? And then as a follow-up, how is your acquisition pipeline? It looks like your balance sheet is very lean right now, and I was wondering what the outlook was for 2026. Anything you can say? Joe Capazzoli: Good morning, Scott. On the supply chain, we are not seeing any significant impacts or constraints. What would be more noteworthy is that over the course of the last couple of months, with some of the disruption in the Middle East, we did have a little bit of aluminum that we were purchasing out of that region—that would be a noteworthy area. We do have other qualified sources of supply around the globe. We were able to move that to other suppliers, and we were not, at the end of the day, impacted by that, but it was something we had to address. We are not seeing constraints in other areas yet—chips or metals or component parts of any substance. So I would say the supply chain, as we see it right now, is holding up well and supporting what we need to do to service our customer demand. Gerben W. Bakker: Let me take the second one on M&A. You are right to point out that our balance sheet certainly supports doing acquisitions at larger scale than perhaps we were able to afford in the past. Before we look at the pipeline, we are focused clearly around the core areas of our business—anything in T&D, around data center, and lines around our light industrial markets. Those are all areas that we find very attractive, and there is still, based on our pipeline of deals that we are looking at, plenty of opportunity to deploy our capital there. Of course, timing is not always very predictable. But you have also seen—and Joe highlighted—what we did in share buyback during the first quarter. In periods where perhaps there is a little bit of a void in acquisition, we think utilizing our balance sheet to do buybacks is another attractive area to deploy capital. Of course, our highest preference goes to CapEx, and we certainly have increased that, and based on some of my comments of areas where we are investing, you should expect to continue to see that elevated. The second one being M&A—and I would say there is a good pipeline there, both of what we would call bolt-ons, even those are getting larger, as well as larger deals. And then we have buyback as an option. So we see within those areas that we could fully deploy our balance sheet. Operator: Thank you. And our last question comes from the line of Analyst with UBS. Please proceed. Analyst: Thank you. I wanted to come back to the high-voltage opportunity through 2035. Apologies if I missed this, but is the $1.5 billion opportunity relative to Hubbell Incorporated’s $400 million to $500 million transmission business today? I just want to get a sense of how to think about the growth opportunity. Gerben W. Bakker: If you think about that math a little bit, it represents about 7,000 miles of high-voltage transmission—how we get to the $1.5 billion with our content—and that is over ten years, and who knows if that is longer or shorter, but if you use that as a basis, and then we are not the only participant in that. We certainly have a very good position in that market with our customers. If you add all those things up, we believe it can drive a point of growth above the high single digits that we provided for transmission/substations in the absence of it. Analyst: That is helpful. And the RTO/ISO recommendation for 7,000 miles—I think there are a few hundred thousand miles of high-voltage transmission in the U.S. overall—so could that be more market opportunity if there is increasing content of 765 kV in the U.S., on top of that $1.5 billion, or is it too early to say? Joe Capazzoli: I think the $1.5 billion was related to high-voltage transmission overall, so obviously there is a baseline market of transmission that is also growing strongly, as we said. So not sure what the question was driving that, but— Analyst: No. That is clear. Thank you. Operator: Thank you. Ladies and gentlemen, this concludes our Q&A session. We will turn the call back to Daniel Innamorato for closing remarks. Daniel Innamorato: Great. Thanks, operator. Thank you, everyone, for joining us. We will be around all day for follow-ups. Thank you. Operator: Thank you. And this will conclude our conference. Thank you for participating, and you may now disconnect.
Operator: Greetings. Welcome to the SiriusXM's First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jennifer DiGrazia, Senior Vice President of Investor Relations. Thank you, Jennifer. You may begin. Jennifer Digrazia: Thank you, and good morning, everyone. Welcome to SiriusXM's First Quarter 2026 Earnings Call. Today's discussion will include prepared remarks from Jennifer Witz, our Chief Executive Officer; and Zach Coughlin, our Chief Financial Officer. Following their comments, we will open the call for questions. Joining us for the Q&A portion are Scott Greenstein, our President and Chief Content Officer; Wayne Thorsen, our Chief Operating Officer; and Scott Walker, our Chief Advertising Revenue Officer. . I would like to remind everyone that certain statements made during the call might be forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995. These and all forward-looking statements are based upon management's current beliefs and expectations and necessarily depend upon assumptions, data or methods that may be incorrect or imprecise. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information about those risks and uncertainties, please view SiriusXM's SEC filings and today's earnings release. We advise listeners to not rely unduly on forward-looking statements and disclaim any intent or obligation to update them. As we begin, I'd like to remind our listeners that today's call will include discussions about both actual results and adjusted results. All discussions of adjusted operating results exclude the effects of stock-based compensation. Additionally, please find a supplemental earnings presentation and trending schedule on our Investor Relations website for your convenience. With that, I'll turn the call over to Jennifer. Jennifer Witz: Good morning, everyone, and thank you for joining us today. We are off to a strong start in 2026, executing with focus and discipline against our 3 strategic priorities we outlined in December 2024, strengthening our subscription business by delivering exceptional in-car listening experiences, accelerating growth across our advertising business and leveraging our scaled SiriusXM portfolio to drive efficiency and long-term value. In the first quarter, we made meaningful progress across each of these areas, supported by solid performance in our core business and strong operational execution. On the subscriber side, we delivered significant year-over-year improvement in net additions, grew ARPU and achieved the lowest first quarter churn and highest subscriber satisfaction scores in our history. Through our recently announced landmark partnership with YouTube, we will significantly enhance our advertising capacity, and we continue to expand margins through our enhanced focus on efficiency, capturing $45 million toward our $100 million 2026 cost savings target. Before turning the call over to Zach for a more detailed review of our financials, I would like to offer a few observations. Starting with our subscription business, performance in the quarter was strong with a meaningful year-over-year improvement in self-pay net additions to negative 111,000, an improvement of 192,000. This reflects the growing adoption of companion subscriptions among our most loyal customers, ongoing progress with our continuous service initiative and momentum in our automotive dealer extended duration plans. Together, these offerings expand SiriusXM's presence across multiple vehicles and users within a household and make it easier for subscribers to seamlessly maintain service as they transition between vehicles, deepening engagement and reinforcing long-term loyalty. While we remain mindful of a more measured auto sales environment and its potential impact on trial volumes, our resilient in-car foundation and focus on controllable levers continue to support performance. Churn remained a standout, improving to 1.5% despite our February price increase, which contributed to a 1% year-over-year increase in ARPU to $14.99. The combination of pricing discipline supported by continually adding value to our packages and the ongoing impact of our customer experience initiatives underscores the durability of our subscription model. Our strong retention is also supported by high customer satisfaction levels. Our latest studies showed year-over-year improvement across all 5 core metrics: satisfaction, perceived value, likelihood to continue, likelihood to recommend and the essentialness of our service. Notably, both loyalty and perception metrics rose in tandem, an important signal of not only current satisfaction, but also growing confidence in the long-term value of our offering. We are also seeing traction across key demographics with the majority of the increase in satisfaction being driven by Gen X and Y. Gen X delivered strong gains, particularly in perceived value, intent to continue and essentialness, while millennials showed meaningful improvement in satisfaction and value, highlighting both the progress we are making and the opportunity that remains. Content is a defining strength of SiriusXM and a key driver of perceived value and engagement. We continue to expand and evolve our programming in ways that fuel fandom and deepen engagement across music, sports, comedy and culture. In the first quarter, we introduced exclusive full-time artist-led channels from Global Stars, Morgan Wallen and John Summit, alongside pop-up channels from BTS, Luke Combs and Robin as well as distinctive programming such as John Mayer Grateful Dead listening Party. We deepened our partnership with Metallica with the launch of the live call-in show, Tallica Talk, expanded Alt2K to our full subscriber base following 8 consecutive quarters of audience growth and broadened our comedy offering with a dedicated 24/7 channel featuring Sebastian Maniscalco. Our news and top category is also gaining momentum with consumption up 15% sequentially. This reflects continued investment in both independent and exclusive voices from the launch of Como Mornings to the strong performance of the Megan Kelly channel, where listening has grown 28% since its launch in November. We are also creating distinctive high-impact moments for listeners from intimate performances to major cultural events, featuring artists like Noah Kahan during Super Bowl Week, Kenny Chesney at Flora-Bama, Morgan Wallen in Nashville and a recent SmartLess taping in Hollywood. In sports, our offering is unmatched, spanning every major league and premier event from the NFL, MLB, NBA and NHL to college athletics, auto racing, golf and more, making SiriusXM a true year-round destination for fans. Our college sports offering continues to build momentum as a core part of our bundle with listening hours for March Madness and the College Football Championship up 22% and 37% year-over-year, respectively. At the same time, our hardware and software evolution continues to enhance the listener experience. As 360L expands across nearly all major OEM lineups, we're driving sustained growth in 360L-enabled subscriptions and increasing adoption of more personalized nonlinear listening. This is fueling double-digit growth in both usage and time spent with features like extra channels and artist-seated stations, deepening engagement. Turning to our advertising business. Momentum is accelerating. Advertising revenue grew 3% to nearly $407 million in the quarter, driven by a 37% increase in podcasting ad revenue. This reflects strong traction in video and social through our Creator Connect strategy as well as accelerating programmatic demand, where revenue more than doubled year-over-year through Google TV 360. Our partnership with YouTube marks a significant step forward. As the exclusive U.S. advertising representative for YouTube's audio inventory, we are expanding our reach to 255 million monthly listeners, nearly 90% of the U.S. population aged 13 and older. For the first time, we will offer advertisers scaled access to premium audio across a wide range of content from iconic franchises like SNL to leading creators like Mr. Beast as well as podcasts beyond our own network and streaming music. Beginning this fall, advertisers will benefit from expanded high-quality inventory paired with advanced targeting and measurement capabilities. By combining SiriusXM Media's leadership in audio advertising with YouTube's scale and always-on engagement, we are delivering high attention inventory through a more seamless buying experience while advancing a more open connected ecosystem for advertisers. In podcasting, we remain the #1 podcast network in the U.S. by weekly reach. As a launch partner for Apple's new video podcasting experience, we are helping shape the next evolution of the medium by unlocking dynamic video ad insertion and expanding access to a significantly larger advertising market. This uniquely positions us to power monetization across audio formats with greater flexibility and optionality for both creators and advertisers. These efforts reflect our commitment to an open podcast ecosystem that enables creators to grow across platforms. Across the portfolio, we are leveraging our scale, data and technology to unlock new growth opportunities and deliver stronger outcomes for advertisers. At the same time, we remain focused on building a high-performing, future-ready organization. We recently welcomed Yves Constant as Chief Legal Officer, bringing deep expertise across media, technology and content and further strengthening our operating discipline in support of our strategic priorities. Our progress is also being recognized externally. We were named by Forbes as one of the best brands for social impact and by Newsweek as one of America's greatest workplaces for culture, belonging and community as well as for women. Turning to our outlook. Our disciplined approach gives us confidence in delivering on our 2026 full year guidance, relatively flat revenue and stable adjusted EBITDA. While subscriber trends are expected to be modestly lower year-over-year, our focus remains on strong execution and driving continued free cash flow growth. Importantly, the fundamentals of our business remain strong. We have a durable subscription model, predictable and growing cash generation and a unique combination of assets, including premium content, unmatched in-car distribution, scaled audience reach and leading ad technology. We believe these strengths position SiriusXM well for the future, and we remain committed to disciplined execution, thoughtful investment and delivering sustainable long-term value for our shareholders. With that, I'll turn it over to Zach for more detail on the financial results. Zachary Coughlin: Thanks, Jennifer, and thank you, everyone, for joining us today. We delivered a solid start to the year with 3 key financial takeaways. First, we delivered revenue of $2.09 billion, up 1% year-over-year, supported by the strength of our subscriber base and continued momentum in advertising, where revenue increased 3%. Second, our disciplined cost management and a continued focus on efficiency drove approximately 6% growth in adjusted EBITDA to $666 million. And third, the strength and stability of our earnings and cash flow continues to create significant shareholder value with net income up 20% and free cash flow more than tripling year-over-year to $171 million. Together, these results underscore the steady progress we are making against our long-term strategic initiatives to enhance profitability and drive free cash flow generation. Looking first at the top line, consolidated revenue was nearly $2.1 billion, including $1.6 billion of subscription revenue, also up approximately 1% year-over-year. This growth reflects the early benefit of our recent February price increase as well as the full year impact from the 2025 rate adjustment, partially offset by a smaller average subscriber base. Advertising revenue increased 3% to $407 million as strength in podcasting, higher programmatic demand and technology fees more than offset softer demand in streaming music advertising. Turning to profitability. Adjusted EBITDA grew 6% year-over-year to $666 million, with margins expanding 140 basis points to 31.9% -- this improvement was primarily driven by revenue growth, complemented by disciplined expense management across our customer service, product and technology and personnel-related costs. Importantly, we captured $45 million towards our goal of delivering an incremental $100 million in gross cost savings this year, which includes $27 million in operating expense run rate savings and $18 million in CapEx savings. As a result, we generated strong bottom line performance with net income improving 20% to $245 million and earnings per diluted share growing 22% to $0.72. Free cash flow was $171 million, more than tripling year-over-year, primarily driven by higher adjusted EBITDA and lower capital expenditures. Turning to the segments. SiriusXM generated $1.6 billion in first quarter revenue, with subscriber revenue up 1% to $1.5 billion, supported by ARPU increasing 1% to $14.99. This reflects the benefit of recent pricing actions, including the February adjustment and the carryover benefit from the March 2025 change. SiriusXM advertising revenue declined 10% to $35 million, primarily due to softness in news, while equipment and other revenue at $41 million and $31 million, respectively, were relatively flat year-over-year. Gross profit increased 3% to $966 million, with margin expanding to 61%. While a softer auto environment, particularly following last year's tariff-driven pull forward in vehicle sales, created headwinds for trial starts, new acquisition programs and retention are supporting healthier subscriber trends. Self-pay net additions were negative 111,000, a 192,000 increase versus the prior year period. This was driven in part by growing adoption of companion subscriptions, which contributed 124,000 incremental self-pay net additions in the quarter. As a reminder, the companion offering is targeted to our most loyal subscribers and engagement has remained strong with continued marketing support and early indicators showing improved retention among those taking advantage of this benefit. This performance was further supported by continued progress in our continuous service initiative as well as momentum in automotive dealer extended duration plans, more than offsetting lower conversion rates. The stability of our subscriber base remains a core strength, reflected in first quarter self-pay churn of approximately 1.5%, the lowest first quarter level in our history. Notably, churn remained resilient despite recent pricing actions as we continue to evolve our packaging and pricing structure to better meet demand across different customer segments. With more than half of our subscribers having been with us for over a decade, we believe this performance underscores the strength of our enhanced value proposition and sustained customer satisfaction. Moving now to the Pandora and off-platform segment. Revenue increased 3% to $501 million. Advertising revenue grew 5% year-over-year to $372 million, driven by a 37% increase in podcasting revenue and higher programmatic demand and technology fees, partially offset by lower advertising demand for streaming music. We continue to expect modest growth in advertising for the full year 2026. Subscription revenue declined 2% to $129 million due to a smaller subscriber base. Segment gross profit for the quarter was $139 million with a margin of approximately 28%, representing a slight decline from 29% in the prior year period. As part of our ongoing efforts to simplify the business and sharpen our focus on higher return initiatives, we recorded a $6 million charge in the first quarter associated with restructuring and severance costs, which compares to $48 million in the prior year period. I'd also like to provide some context on the higher depreciation this quarter. As part of our ongoing portfolio optimization, we have begun decommissioning and planning the de-orbit of our FM6 satellite, reducing its useful life from 15 to 13 years. With XXM10 now in service, this capacity is no longer needed. We expect approximately $60 million of incremental noncash depreciation in 2026, including $3 million in the first quarter. This has no impact on free cash flow, but will reduce reported net income and EPS. Capital expenditures were $105 million in the first quarter, down from $189 million in the prior year period, primarily reflecting lower satellite spend and the timing of capitalized software and hardware investments. We continue to expect approximately $400 million to $415 million in non-satellite CapEx for the full year. Over time, total CapEx should trend lower with variability driven by the satellite replacement cycle. Near term, spending remains elevated as we complete our next generation of satellites, after which we expect a step down to more normalized levels. Now moving to the balance sheet. During the quarter, we completed a successful $1.25 billion refinancing, allowing us to retire all 2026 notes and redeem $250 million of 2027 notes, effectively extending maturities and strengthening our overall capital structure. And we remain on track to achieve our target leverage range of low to mid-3x by the end of this year. We also continue to return capital to shareholders, including $91 million in dividends and $21 million in share repurchase, driving efficiencies, optimizing the portfolio and prioritizing high-return investments. This positions us to reaffirm our 2026 outlook for relatively stable revenue and adjusted EBITDA modestly lower self-pay net additions versus 2025 and continued growth in free cash flow to approximately $1.35 billion with a path to $1.5 billion in 2027. The durability of our subscription model and the consistency of our cash generation continue to provide a strong foundation as we navigate the current environment and remain focused on long-term value creation. With that, I will turn the call back over to Jennifer to address recent headlines in the media. Jennifer Witz: Before we open the line for Q&A, I want to briefly address recent media speculation regarding SiriusXM. As a matter of policy, we do not comment on rumors, and we ask that you keep today's questions focused on our operating and financial performance. Our Board and management team are always focused on creating long-term value for our shareholders, and we'll continue to pursue that objective in a thoughtful and disciplined way. With that, I will turn the call back to Jen so that we can begin our Q&A session. Jennifer Digrazia: Thank you, Jennifer. Operator, we are ready to take our first question. Operator: [Operator Instructions] And our first question comes from the line of Stephen Laszczyk with Goldman Sachs. Stephen Laszczyk: Jennifer, maybe on spectrum, it's become very much top of mind over the last few weeks. I would be curious just to get your latest thoughts around the opportunity that you see for SiriusXM to monetize some of its excess spectrum, perhaps the types of opportunities you're considering, whether that's building adjacent services, partnering with someone or an outright sale? And then how soon do you feel like these opportunities could come into focus here for the company? Jennifer Witz: Sure. Thanks, Stephen. Before we jump into Spectrum, I just want to acknowledge all that our team has accomplished since we refocused our strategy in December 2024. We are doing exactly what we said we would do. And as a result, we're seeing momentum really across the business. We continue to launch new in-car subscriber acquisition programs and maintain record low churn and high customer satisfaction. We are growing our ad revenue and leveraging our unique strength to support a significant new partnership with YouTube, which we'll talk more about today. And we're finding incremental efficiencies to lower our cost structure, resulting in an improving outlook for both revenue and EBITDA. And we're growing free cash flow to our target of $1.5 billion in 2027, reaching our leverage target later this year and giving us the opportunity to expand capital returns to shareholders. And then on top of all this, there's what you're asking about, which is how we're exploring ways to highlight the value of our spectrum. So I'm going to start on that, and then I'm going to hand it over to Wayne to give a bit more detail. But clearly, recent activity in the market has supported the point that high-quality spectrum is increasingly strategic and particularly as these new use cases have emerged like direct-to-device. So from our perspective, just as a reminder, we have a very unique position. We control 35 megahertz of contiguous spectrum in the 2 gigahertz band, which is a scarce and valuable asset. And of course, 25 megahertz of that today supports our core satellite radio broadcast operations. And we also recently acquired the 10 megahertz of WCS C&D block licenses, which are the 2 5 megahertz bands around the Starz band. These already support emergency and public safety services, but also obviously act as a guard band against potential interference from adjacent terrestrial use alongside Starz. So we have been regularly assessing monetization opportunities in our normal course of business. And as we have said in the past, we are in discussions with potential partners regarding various options because we see a path to value creation as starting with incremental partnership-driven opportunities, and that's going to allow us to capture some value while we maintain flexibility and upside over time. So maybe I'll turn it over to Wayne to give a few more details. Wayne Thorsen: Yes. And just to add to that, importantly, we do see the path to value creation being partnership focused as well as evaluating things internally, which we've said in the past, and our position there remains consistent. We've also said previously that we're engaged in discussions around potential opportunities with partners, and we continue to evaluate those as part of our broader effort to maximize the value of these spectrum assets. That said, we're not going to comment on specifics of any discussion as is our policy. What I would emphasize, though, is that we view spectrum as a strategic asset with meaningful long-term potential. And our priority here is ensuring that any potential use, whether internal or with third parties, fully protects our core services while creating the opportunity to generate incremental value over time. That includes support for, of course, our public safety initiatives, any new partnerships discussions, the in-house services that we may make use of given our dramatically increasing footprint of our wideband chipset and then, of course, making sure that we meet all of our regulatory commitments. Operator: Our next questions are from the line of Jessica Reif Ehrlich with Bank of America. Jessica Reif Cohen: I have 2 questions. The second one is a bit of a multiparter, so I'll start with the first. As media -- and I mean like video and audio continues to consolidate around scaled platforms, how do you think about the importance of incremental audience and advertiser reach, particularly across podcasting, streaming, national versus local ad sales relative to your current portfolio? And if you do conclude that there are assets or capabilities that could accelerate your strategy, how should we think about your willingness to use your balance sheet for more flexibility versus staying firmly within your current leverage framework? That's one, and I'll come back to the second. Jennifer Witz: Okay. I'll let Zach handle leverage in a minute. But first of all, I'm very pleased to have Scott Walker, our Chief Ad Revenue Officer and the Chief Architect of our partnership with YouTube on the call today. So I'm going to turn it over to him in a minute. But I think YouTube is so core to what you're asking about. So scale for us is 255 million listeners, which is access to 90% of the U.S. population, 13 and older. So we are very focused on this as our opportunity to expand scale. And a good way, I think if I just take a step back, to understand this partnership is to first focus on the consumer behaviors that you alluded to about video and audio and how these behaviors aren't necessarily fitting into these neat format boxes we've used as an industry, right? So consumers are moving more fluidly between formats. They're watching and listening as they go about their days. And for instance, they might start a video on their phone and then minimize the screen on their commute while they keep listening. So this behavior is happening at enormous scale on YouTube. And as a result, YouTube has become one of the largest audio consumption platforms in the U.S. So there are numerous examples of this, whether it's listening to music on smart speakers or listening to a podcast or an interview while your phone is in your pocket. All of these are examples of content consumed the same way people use traditional audio platforms. And this partnership that we have with YouTube brings that massive amount of untapped audio-first engagement to advertisers for the first time. And that's alongside a native ad format that actually matches the listening experience. So again, combined with our existing portfolio across music streaming, podcasting and SiriusXM, we will now reach 255 million monthly listeners, which is massive scale. And this tremendous reach positions us not only to grow overall ad spend, audio ad spend, but also to capture a greater share of that audio ad spend over time. And maybe, Scott, you can give a couple of more comments, and then we'll go to the sort of broader leverage question. Scott Walker: Sure. Thank you, Jennifer. I want to touch on one of the things that Jennifer mentioned anytime you can match up the ad format and natively integrate it based on how consumers are actually experiencing the content, it's better for the user and better for the advertiser in terms of performance, and that's exactly what we're doing here with this partnership with YouTube. In the battle for finite attention that is increasingly scarce to your question, we've just unlocked this massive untapped opportunity based on the insights that Jennifer referred to earlier, that consumers are much more fluid in how they use YouTube, switching back and forth across listening and watching. And one of the reasons why we are so confident in this opportunity is that it's a true partnership with YouTube. We are co-developing proprietary technology in terms of integration with our scaled systems with Google's ad platform, ensuring that we can scale our go-to-market and deliver a product that we know meets the criteria of the world's most discerning and largest audio buyers. Zachary Coughlin: Okay. And then Jessica -- sorry, to your question, Jessica, around the balance sheet -- sorry about that. Our capital allocation framework remains consistent with what we've outlined previously. First, we're prioritizing investing in the business, funding those initiatives that support our key strategic priorities. And I think we saw in the first quarter, those investments are increasingly translating into tangible financial results, especially in profitability and free cash flow. Second, we remain committed to a disciplined balance sheet. Our target leverage in the mid- to low 3x range, which we've communicated previously. We ended the first quarter at 3.6x and feel confident in our path to reach that target by year-end. And from there, it's really focused on returning capital to shareholders. We have a consistent dividend that we intend to maintain, and we see share repurchases as an important lever from that. So while buybacks have been more modest recently, as we've been working on deleveraging, achieving that leverage target will create additional capacity, giving us flexibility to potentially increase repurchases. So I think -- and finally, we'll remain opportunistic around incremental value creation, areas like our spectrum assets, which we've talked about a moment ago, or places we see longer-term optionality to unlock additional value as well as selective inorganic opportunities that must meet our strategic and financial criteria. So I think we see -- overall, it's a balanced and disciplined approach, both investing in the business, strengthening the balance sheet and positioning ourselves to enhance shareholder returns as we execute against those leverage goals. Jessica Reif Cohen: If I could just -- my second question is actually more specific on YouTube. If you could just dive a little deeper into like how you see this evolving. Google owned TV 360, which you mentioned earlier, does that now become your main programmatic DSP? And actually, maybe you can unpack a little bit about what you're seeing in programmatic in general, how -- what percentage is, how fast it's growing. But the other part of YouTube is that it is a global platform. And you have so many channels that lend themselves to global audience. I know this hasn't come up in probably years, but would you rethink that strategy? Jennifer Witz: So Scott Walker, why don't you start on the advertising side? And then Scott Greenstein pick up the content side. Scott Walker: Sure. On the programmatic question specifically, we feel like we're strongly positioned with our proprietary ad technology platform, as was in terms of our ability to plug into all of the major DSPs in order to make that buying as flexible and easy as possible. And as it pertains to this YouTube partnership, specifically, initially, programmatic is not part of the partnership, but we see a massive opportunity to unlock advertiser demand based on this incremental reach that we speak to despite that. In terms of where programmatic is growing, it's certainly growing as a percentage of the overall spend in digital media. And that trend continues in our business as well. Programmatic is growing at a healthy rate. Our partnership with the Amazon DSP is an example of where we see incremental budgets being unlocked. And programmatic with respect to podcast is also growing. Jennifer mentioned triple-digit growth rate year-over-year in Q1, reaccelerating. Scott Greenstein: Great. And Jessica, on the international question, the podcasts are currently distributed where they make sense overseas on that side. And then as far as the content goes, we're open for any deal or any licensing situation. It just has to make sense. The good news is with the amount of content we have under license, a lot of it is worldwide and the relationships are there. So if ever it comes a point where whether it's through technology or a licensing deal, the relationships will be there, and it will be a pretty easy transition to open up negotiations to go further on that. And we also have the unique ability to create content for any market that might be adjacent to what we're doing. Jessica Reif Cohen: Million more questions, but I won't hog the call. . Operator: Our next question is coming from the line of Barton Crockett with Rosenblatt Securities. Barton Crockett: Okay. Great. Congratulations, again, on the YouTube deal. To kind of ask a little bit more about this deal there could be such a large kind of funnel of revenue flowing through. But I was wondering if you could give any sense of the degree to which the lion's share of that would be stay on Google's kind of side of the ledger and how much of that you guys might be able to extract for your efforts? How do you kind of think about the take rate essentially on the deal? Anything you can say about that? Jennifer Witz: I think -- look, there's -- right now, we're prepared to talk about the size of this, the magnitude of the scale and how we're going to increase our reach. And we expect to launch in the fall, as we've said. And I think we're going to ramp this up over time. I don't think it will have a meaningful impact on this year's numbers. But as we go into 2027, we'll have the opportunity clearly when we provide guidance to give you a better sense as to the magnitude. But we've given you some general numbers on the scale of it. And I think we will be watching, obviously, the magnitude of the incrementality of this audience reach relative to where we are today, which is very significant, obviously, with $1.8 billion in ad revenue across our properties. So that's what we're prepared to share today, but we do believe it's a significant opportunity for us, and we can share more on general economics as we get closer to the end of the year. Barton Crockett: Okay. All right. That's fair. And then I apologize if this has already been covered, but with all of the kind of activity around space with SpaceX and with Globalstar and Amazon and the recent kind of SEC weird space NPRM giving you guys some telemetry trafficking and control capability potential with your spectrum if that moves ahead. To what degree do you think there's potential for you guys to be meaningful players in the space ecosystem, leveraging some of your spectrum rights? And how could that kind of play out? Jennifer Witz: So look, I think you mentioned the weird space testing, so I'll just touch on that. We have had discussions with the FCC related to this. And from our perspective, this is a constructive step as it continues to formalize, clarify the rule of TT&C. And it's a legitimate important use of satellite spectrum. And so it recognizes that we have the right to be protected from interference and also helps direct how other parties could use the satellite spectrum productively. And look, there's going to be a lot of different ways that I think spectrum -- the use of spectrum evolves over time. And this is a good example of where multiple tenants could use the same spectrum in a very methodical way. And we -- that's one of the examples, I think, of the things that we could look at going forward to unlock more monetization opportunities. Wayne Thorsen: Yes. Thanks, Barton. This is Wayne. And I would add that we do see optionality here, as we've mentioned previously, but we see this optionality will be realized over time. So not through a single step, but along a multiyear glide path sort of shaped by what we think of as 3 factors. First, the subscriber and hardware ecosystem that we have. We have an installed base throughout the entire satellite radio band, including on the legacy Sirius band and more importantly, millions of vehicles on the road with embedded radios and OEM commitments tied to the spectrum. Second, the technology migration. So we're already developing next-generation chipsets and 360L hybrid radios that can use both Sirius and XM bands. And so this gives us increasing flexibility over time to make use of this. So today, we have millions of vehicles that are already enabled with this new chipset. We expect this to grow to more than 65 million by 2029. And then third, regulatory obligations. Like our licenses come with requirements to provide specific services that, of course, we will need to continue to meet. Operator: Our next question comes from the line of Bryan Kraft with Deutsche Bank. Bryan Kraft: I had a couple on advertising as well. I guess, first, could you talk about the capabilities that 360L has the potential -- sorry, the capabilities 360L has the potential to bring to your advertising business? And what plans you have to activate those capabilities? And also things like addressability, measurement, those sorts of opportunities? And could you give an update on the advertising supported tier and at this point, where you see that going? And then I just had a follow-up on YouTube. Google is obviously quite a large sophisticated player in digital advertising with scale and technology. Can you just talk about why a player like YouTube would view working with Sirius as better than doing it themselves? And if you could also talk about whether you see this partnership maybe leading to additional major partnerships in the future? Does it sort of open the door to more opportunities like this? Jennifer Witz: So I'll let Scott address the second part, and I'll talk a little bit about 360L and Play. With 360L, we do believe there's an opportunity for more addressability for audio advertising in the car. And we're expanding, obviously, the volume of vehicles on the road that have 360L -- we haven't yet unlocked real targeted ad capabilities inside 360L. We are looking to do that over the course of this year even potentially. But clearly, the focus now is on executing on YouTube and making sure that we can launch that as it's a much bigger scaled opportunity. And then on Play, I'd say it's similar. We are leveraging play as an opportunity to broaden the top of the funnel as with many other of our lower-priced packages, and it's been helping there to do that. The ads inside of it are -- today, the scale isn't as significant because, again, we're using it as a way to market and get customers into higher-priced packages. But in the future, as we unlock more addressability in the car, obviously, it would benefit Play as well. And Scott, do you want to handle YouTube? Scott Walker: Sure. When YouTube first came to us, the insight that they brought was that audio is a unique channel. And relative to other media channels, YouTube is very much considered a default video platform, and that was the focus for most of the advertisers. And the awareness that there was massive listening behavior happening on the platform was just not there. So the first point is that the recognition audio is a unique channel that requires a sales team that has honed a different approach or a different craft in terms of the relationships with the buy side, the creative nuances around audio, our measurement expertise, and we have a proven track record of over 20 years of defining the digital audio category and really the ad market within that. So I think our reputation in the market with advertisers and with creators speaks for itself and Google and YouTube recognize that. And on that last piece, it was clear that we have delivered for YouTube creators on the podcast side. Some of our biggest podcast creators in our network, whether it's Mel Robbins, Konan O'Brien, Alex Cooper, they're all massive players in terms of usage and engagement on YouTube. And we have clearly demonstrated best-in-class monetization through our embedded sponsorships on YouTube, and that was yet another signal that we were the right partner for this opportunity. Bryan Kraft: And the last part of it was, do you think that this is something that could open up additional partnerships? YouTube is obviously very unique, but are there other potential players that may see this, what you're doing with YouTube and say that's probably a party that we ought to join? Scott Walker: Yes. We have certainly expanded and diversified our advertising business over the years by broadening into a larger network of both streaming partnerships with the likes of SoundCloud and our #1 podcast network, where we have the most shows in the top 20, 4 of the top 10 and #1 position in terms of weekly reach. So this was a natural evolution of that strategy of diversifying and leveraging this amazing demand engine that we've created on the audio side to help YouTube monetize this content. And success here and demonstration of our ability to be successful, I think, opens up doors beyond this certainly. Operator: The next question is from the line of Sebastiano Petti with JPMorgan. Sebastiano Petti: Just closing the loop on the spectrum stuff. So I guess, Wayne, based on your comments to "protect core services and that this will take a number of years and FCC obligations as well as OEM obligations. My interpretation is that any notion that you could "force migrate subscribers off of the lower 12.5 megahertz is probably outside the bounds of probably something you guys are contemplating? That's my first quick question, and then I have a follow-up. Wayne Thorsen: Yes. Thank you, Sebastiano. I'd say that we don't have any plans at this point right now to force migrate, of course, but we're always evaluating how we can best serve our customers, and we have millions of customers currently on this band. And so as we're thinking about the opportunities to do something more strategic or create more strategic value here, certainly, we're thinking about timing. But timing in all of these cases, the timing of a start of an opportunity is, of course, different than the timing of being able to catalyze an opportunity. So we're -- all of these plans need to be thought through in multiyear stages, even if other things happen first and with partners or others. Sebastiano Petti: Got it. And then in terms of timing, I mean, my understanding, I think, is you're unable to really kind of do anything with this lower 12.5% until it is fully cleared. And I think based upon I think, Jennifer, you may have touched upon in previous conferences recently, but we're looking at, what, 5 years for the spectrum to still be cleared. And so is that like the inside of how we should think about when monetization could potentially occur on the spectrum? Jennifer Witz: I don't want to be too specific because as we've said in the past, we've had a long runway on the spectrum with the subscribers there being very sticky. But I would suspect it's inside of 5 years. We've also talked about C&D, where there's maybe more opportunities in the nearer term, the 10 megahertz on either side. But I also think just with the NMPRM about weird space stuff, again, that there are some opportunities to do things while we have active subscriptions in that spectrum, probably limited, but there are opportunities. And of course, I think Wayne touched on this a little bit. There's just -- there's a long runway for how another potential partner would actually execute on this. And so that timing actually could be quite consistent. Operator: The next question is from the line of David Joyce with Seaport Research Partners. David Joyce: You had impressive uptake with the companion strategy earlier this year. Do you see that continuing? What strategies do you have to keep driving that for the overall subscriber platform? Jennifer Witz: Sure. So first of all, we're very pleased with our Q1 subscriber performance, especially after a strong Q4 last year. And the companion subscriptions clearly contributed to that, and we noted that they were 124,000 in the first quarter and as well as continuous service and expansion of our auto dealer extended duration plans. And with companions, the great thing about it is that we've been talking about kind of 2 themes as it relates to our subscriber performance and future growth as well as revenue, one being enhancing subscription value and the other being expanding access. And companion really does both, right? It expands access to SiriusXM to more listeners across the household and also enhances the value and improves retention of that subscription household. So we're really pleased. I think the question really is, as we -- we've been successful in the marketing, I think beyond our expectations actually. But how long does that last? And does the -- sort of do the take rate start to mature at some point over the course of the year. But we're also looking at where it may make sense to expand availability. So that's why we're being cautious and not changing the context we've provided about subscribers for this year. That as well as what Zach noted earlier in terms of auto sales and how those could materialize. There's still pressure on gas prices and impact on the consumer. Operator: The next question is from the line of Kutgun Maral with Evercore ISI. Kutgun Maral: I wanted to ask another one on advertising. You made a lot of progress building out the ad business with new capabilities and innovative partnerships. But it still feels like that opportunity doesn't get full attention from investors given the much larger satellite subscription revenue base. So as you think about the portfolio from here, is there any interest in reshaping the business to better highlight your advertising capabilities and opportunities, whether it's through additional scale via M&A or potentially a clear separation between the satellite subscription business and the Pandora and off-platform side. And I know we're, of course, not talking about specific deals, but what I'm really trying to get at more so is if there's a big focus right now to better match what I see as the strong execution you're demonstrating on advertising against unlocking value in the share price? Jennifer Witz: So we have the 2 segments, which gives you, I think, some exposure to the Pandora and off-platform segment, which is the vast majority of our advertising. And so -- and we provide a fair number of metrics there, but it's a good point. And obviously, with the increasing scale, we will find ways to provide, I think, more metrics around the advertising business going forward. I do want to touch on M&A because you mentioned it. And just note that we see significant opportunity within our existing businesses and whether that's obviously executing and expanding our reach through partnerships like YouTube, but also improving monetization across our ad-supported businesses, like we've done with Creator Connect or Apple Podcast better targeting and measurement tools and of course, enhancing the value of in-car subscriptions and unlocking the value of our spectrum assets like we've talked about. So these are the areas we're focused on day-to-day, and we believe they offer the clearest line of sight to high-return opportunities. And Zach mentioned that we'll continue to look at and be opportunistic on inorganic M&A and inorganic growth, but we're going to be very disciplined about that. Operator: The next questions come from the line of Steven Cahall with Wells Fargo. Steven Cahall: So I just wanted to make sure I understand the subscriber guidance for the year. I think you said that you'll see modestly lower self-pay net adds. I think you lost around 300,000 last year. So should we kind of think about companion as slowing as you get through the rest of the year? Could we annualize what you did in the first quarter for companion for the rest of the year? I'm just kind of trying to understand what core net adds are doing. I don't think companion comes with any revenue contribution. So just trying to understand kind of what the core base looks like, excluding companion. And then I have a quick follow-up. Jennifer Witz: So I can ask Zach to comment on the sort of context we provide around subs. But I do want to note that you're correct about companion in terms of not adding specific revenue for those subscriptions. However, it was part of our strategy to ensure that we're adding value before we increase subscription prices. And so we've now done this 2 years in a row very successfully. And we see actually higher retention among households that are taking companion subscriptions. And it's logical because there is more engagement across the household. So it does result in not only providing a benefit for us to successfully execute on rate increases, but also just driving more engagement. So I do believe it translates through to overall revenue. And as I mentioned a bit before, we're just being cautious, I think, about the year in general. But on companion specifically, that we continue to market and look for other opportunities to perhaps use it, especially perhaps in acquisition as more of a family plan. But I would expect the program to mature as we offer it to a specific set of our full-price subscriptions. Zachary Coughlin: Yes, for sure. I think you've got it right, Stephen, regarding our guidance and the numbers around the self-pay net adds. I think one thing to add to what Jennifer was saying, just numerically, if we take a look at ARPU, we're actually really pleased with that as well. So we're getting the subscriber growth, partially companion program, and we're also seeing ARPU up 1% versus last year. Obviously, the primary driver of that was pricing, reflecting the rate actions. But I think what's important is that the ARPU growth is not coming at the expense of the broader health of the business. Alongside the higher ARPU, we're seeing improved subscriber trends, record low first quarter churn stronger engagement and continued gains in customer satisfaction. So I think you have to look at all these together. And as is really a measure of the quality of the subscriber base. So we're driving higher monetization while strengthening retention and overall customer value. And I think this is our third quarter of ARPU growth, and we would expect that to carry through the rest of this year as well. So I think the composition of all of that shows the strength of sort of the actions that we're taking. Steven Cahall: And just a quick follow-up on conversion. I think there's a few things going on in conversion. So I think a tailwind for how you account for the auto dealer duration plan. So can you give us any more color on contribution from those plans, which seem really positive? And then you did call out a little bit lower conversion, I think, on self-pay. I think those historically were in the mid-30s. Any sense of where they're kind of running today? Jennifer Witz: Yes, Steven, we continue to see some of the same trends we've seen in the past on conversion rates. And we have had slight declines as younger car purchases come into the trial funnel and then, of course, used conversion rates lower than new. And the good news is that we just have so much more data. And with all the personalized marketing capabilities we're building, and are coming even later this year, we can address customers in a much more personalized way in our marketing, whether they're listening or not or based on their content preferences. So I think the single biggest opportunity for us continues to be with 360L rollouts. And we're at about, I think, 55% of sales by the end of the year with the OEMs that are ramping, we'll be at 70%. And we do continue to see 360L conversion rates better than non-360L. And as we ramp 360L on AAOS, which can be updated much more quickly, we see those conversion rates even higher. So these are the tailwinds. Our extended duration plans also help. And we're hopeful that we can start to stabilize some of these trends and we're intently focused on conversion rates as a measure of demand, but we also have many other demand-focused programs in place that wouldn't necessarily show up there, right, such as companion subscriptions or Podcast Plus and some of these other programs that we put in place. Operator: The next question is from the line of Cameron Mansson-Perrone with Morgan Stanley. Cameron Mansson-Perrone: Jennifer, you started the Q&A talking about the way the team has executed over the past couple of years. First quarter results are pretty encouraging. I'm wondering if you could provide some color given the reaffirmation of the full year guide, just how you're thinking about growth in the balance of the year. Jennifer Witz: Yes. Maybe I'll let Zach take that one. Zachary Coughlin: Yes, for sure. I think thanks, Cam, for the question. I mean it was a really good first quarter, revenue growth of the 1% and importantly, growth across subscriber revenue and advertising, both sides of that. And then combined with the strong cost discipline, EBITDA growth of 6%, net income, 20% EPS, 22%. So some really good metrics. And I think in cash flow, cash flow -- free cash flow tripled and free cash flow per share increased 217% to $0.51. So when we provided guidance last quarter, we talked about how important it was to provide the stable outlook, and we're off to a great start. So I think beyond that, we feel very good about the start of the year and the progress we've made, which does increase our confidence in the plan. But that said, it's still early in the year, and there's a lot of time ahead of us. When we look at the full year outlook, the underlying assumptions of our plan really haven't changed. But we are continuing to monitor the auto environment closely. We've seen some softness there, particularly in the OEM funnel. And while we haven't seen any change in customer behavior to date, churn and engagement remains very strong. We're also mindful of the broader macro backdrop. So given that, we just think at this point in time, it's appropriate to remain disciplined order outlook while staying focused on executing through the rest of the year. So as we continue to see strength in the business, it's something we'll revisit as the year moves forward. Operator: Our last and final question is from the line of Clay Griffin with MoffettNathanson. Clayton Griffin: I just got a quick one on the inventory scope attached to this YouTube partnership. Just if you could put some detail around what exactly it includes, for example, does this include the inventory on the ad-supported version of YouTube Music -- and then maybe just sizing the overall sort of impression scale at this point, given that, obviously, YouTube is dominated by video ads today. And then as a follow-up, just to confirm, Jennifer, it sounds like that this deal is likely to be accounted for on a net basis. Did I hear that right? Just maybe just walk through the mechanics of the accounting. Jennifer Witz: No, it will be like our other ad representation deals where it's growth, and it will be in the Pandora and off-platform segment. And Scott, do you want to address the inventory? Scott Walker: Sure. Thanks for the question. So in terms of the scope of this, -- the primary use cases are both YouTube Music, the ad-supported YouTube Music tier and the YouTube main app, where listener -- where users of YouTube are primarily listening versus watching. So this could be static image music videos or LYRIQ videos. This could be YouTube connected via Android Auto or CarPlay in the car. This could be long-form content, whether it's podcast or interview content on smart speakers in the home. All of these are examples. And the scale here is matched or commensurate with the reach. We talked about the Edison research that we recently conducted where the reach of this YouTube listening-first audience is 212 million monthly listeners. And combined with our 170 million across our podcast network, our Pandora streaming network, et cetera, we're now reaching 255 million users overall. So the scale of this is significant. I'll reiterate Jennifer's earlier comments about the ramp of this. We are launching this in the fall during the Q4 planning cycle. So we expect the growth and the ramp to happen more in '27 and beyond. Jennifer Witz: Okay. So in closing, thank you all for joining. I'd just like to say that we're very pleased with the strong start to the year. and the early progress we're making across each of the strategic priorities we laid out in December of 2024, and we continue to see that strategy translating into tangible results. whether that's the strength of our in-car subscription model, our growth in advertising or the broader efficiencies across the organization. And we are well positioned to build on this progress as we move throughout this year. and we remain thoughtful and disciplined in how we allocate capital and invest for future growth. So our focus remains on execution. And we're confident in our ability to deliver on our full year objectives and our guidance and drive sustainable long-term value for shareholders. So thank you for joining us this morning. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.