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Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Real Estate Finance, 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 your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Kristen Griffith, investor relations. Please go ahead. Kristen Griffith: Thank you. Good day, everyone, and welcome to the NexPoint Real Estate Finance, Inc. conference call to review the company's results for the first quarter ended 03/31/2026. On the call today are Paul Richards, executive vice president and chief financial officer, and Matthew Ryan McGraner, executive vice president and chief investment officer. As a reminder, this call is being webcast to the company's website at nrep.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions, and beliefs. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's annual report on Form 10-Ks and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect the forward-looking statements. The statements made during this conference call speak only as of today's date and, except as required by law, NexPoint Real Estate Finance, Inc. does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, see the company's presentation that was filed earlier today. I would now like to turn the call over to Paul Richards. Please go ahead, Paul. Paul Richards: Thanks, Kristen, and good morning, everyone. I will walk through our quarterly results, cover the balance sheet, and provide guidance for Q2 before turning it over to Matt for a deeper dive on the portfolio and macro lending environment. For the first quarter, we reported net income of $0.42 per diluted share compared to $0.70 for Q1 2025. The decrease was driven by small mark-to-market declines on preferred stock and warrants, as well as a decrease in the change in net assets related to consolidated CMBS VIEs. Earnings available for distribution was $0.43 per diluted share in Q1 compared to $0.41 per diluted share in the same period of 2025. Cash available for distribution was $0.58 per diluted share in Q1 compared to $0.45 per diluted share in the same period of 2025. We paid a regular dividend of $0.50 per share in the first quarter, which is 1.16 times covered by cash available for distribution. On 04/28/2026, the board declared a dividend of $0.50 per share payable for 2026. Book value per share decreased slightly by 0.3% from Q4 2025 to $18.96 per diluted share, primarily driven by unrealized losses on our preferred stock investments and stock warrants. Turning to new investments during the quarter, the company funded over $30 million on two loans; both pay a monthly coupon in the mid-teens. I want to highlight what is, in our view, the most important development of the quarter and, frankly, of this week. We have successfully refinanced $180 million of senior unsecured notes that were maturing on May 1. We replaced those 5.75% fixed-rate notes with a new $242 million total return swap facility priced at SOFR plus 375 basis points with a three-year term and one-year extension option. This transaction does several things. First, it removes the largest near-term liability overhang on our balance sheet. Second, the floating-rate structure aligns with our floating-rate asset base and gives us refi optionality as the curve evolves. Third, the upsizing gives us approximately $45 million of incremental capacity to deploy into our pipeline at the double-digit coupons we are seeing today. And fourth, the facility allows back-lever optionality on eligible positions, which expands our origination capacity without requiring additional unsecured note issuances. We engaged more than 20 counterparties across bank and nonbank channels to optimize the structure, and the SOFR plus 375 pricing came inside comparable mortgage REIT executions in the high-yield baby bond and term loan markets. Importantly, we did this without diluting common shareholders at a discount to book. Combined with the $21 million we raised in our Series C preferred and the re-REMIC execution I will discuss in a moment, we head into the back half of 2026 with one of the cleanest, most flexible capital structures in the commercial mortgage REIT sector. Capital recycling and book value accretion: We executed a re-REMIC of our FRAN 2017-K62 B-Piece during the quarter. We sold the B-Piece to Mizuho at 92.7, having purchased it at 68.69 in 2021, and reinvested into the HRR tranche of the new structure at an 18.5% yield. That single transaction generated $0.46 per share of book value appreciation, reduced repo financing by $75 million, and is expected to drive approximately $0.34 per share of annual CAD accretion going forward. This is the kind of execution that does not happen by accident, and it speaks to the value we extract from a portfolio of seasoned, well-constructed credit positions. Moving to the portfolio and balance sheet. Our portfolio is comprised of 90 investments with a total outstanding balance of $1.1 billion. Our investments are allocated across sectors as follows: 39.4% multifamily, 35.9% life sciences, 17.1% single-family rental, 3.9% storage, 0.6% marina, and 2.1% industrial. Our fixed income portfolio is allocated across investments as follows: 19% CMBS B-Pieces, 22% mezz loans, 24.5% preferred equity investments, 15.6% revolving credit facilities, 10.1% senior loans, 4.2% IO strips, and 4.6% promissory notes. The assets collateralizing our investments are allocated geographically as follows: 28.7% Massachusetts, 17.6% Texas, 5.9% Florida, 4.9% Georgia, 5.2% California, and 4.7% Maryland, with the remainder across states with less than 4% exposure, reflecting our heavy preference to Sunbelt markets, with Massachusetts and California exposure heavily weighted towards life science. The collateral on our portfolio is 81.2% stabilized with 59.9% loan-to-value and a weighted average DSCR of 1.32x. We have $665.2 million of debt outstanding with a weighted average cost of 5.2% and a weighted average maturity of 0.8 years. Our secured debt is collateralized by $571.3 million of collateral with a weighted average maturity of 3.8 years and a debt-to-equity ratio of 0.7x. Moving to our guidance for the second quarter. Earnings available for distribution: $0.43 per diluted share at the midpoint, with a range of $0.38 on the low end and $0.48 on the high end. Cash available for distribution: $0.54 per diluted share at the midpoint, with a range of $0.49 on the low end and $0.59 on the high end. With that, I would like to turn it over to Matt for a detailed discussion of the portfolio and the current market environment. Matthew Ryan McGraner: Appreciate it, Paul. I am excited to walk through another strong quarter for NexPoint Real Estate Finance, Inc., and to thank our team and our partners for executing in what continues to be a noisy macro backdrop, including and especially the exciting and accretive financing completed with Mizuho that Paul just mentioned. Now on to the verticals. On the residential front, this is where we have our largest exposure at roughly 56% of the portfolio between SFR and multifamily. We are now firmly in the supply trough that I have been describing on these calls for several quarters. The thesis is playing out. We are coming off of a record national multifamily supply cycle. Net deliveries peaked at approximately 695,000 units in the trailing 12 months ended Q4 2024. For context, that compares to roughly 282,000 units of average annual deliveries since 2001. CoStar now forecasts 2026 deliveries to fall approximately 49% from their 2025 levels, with another 20% decline forecast for 2027. 2027 and 2028 forecasts have been revised down meaningfully from prior estimates as well. On the supply side, multifamily construction starts are running approximately 70% below their 2022 peak, and that is locking in a multiyear supply trough. On the demand side, the structural backstop has not changed. The cost to own a home in our markets remains roughly three times the cost to rent, and there is no reasonable mortgage rate scenario that closes that gap quickly. Our on-the-ground leasing data is consistent with the inflection thesis. By putting it all together, we believe 2026 and 2027 will be meaningfully better than 2025 for residential operators and, by extension, for the residential debt collateral on our balance sheet. On life sciences, I want to spend a minute here because I know it is a sector that has attracted some discussion; I think the conversation deserves a little more nuance than it has been getting. Our exposure is concentrated, intentional, and increasingly de-risked. Our Alewife project is now 71% leased, anchored by Lila Sciences, a pioneering AI and life science company, on a long-term lease for 245,000 square feet with options to expand. The active pipeline of RFPs, LOIs, and leases on the project today represents approximately 92% of the remaining vacant square footage. This is a high-conviction underwrite into a project where leasing momentum and credit improvement are visible in the data, not aspirational. An additional and increasingly relevant point I want to drive home is the demand funnel of our life science collateral has widened materially because of AI, not in spite of it. AI companies need exactly the same purpose-built infrastructure that traditional lab tenants need: power density, cooling capacity, structural floor loads, ventilation, and vibration tolerances. They cannot retrofit older converted assets at any rent. They need the bones, and they will pay for the bones. Alewife is exactly that asset in the right submarket adjacent to MIT and the broader Cambridge cluster. Our life science exposure is not a generic bet on the sector. It is a concentrated bet on first-to-fill, infrastructure-grade assets in elite educational districts that are now also AI corridors. The credit profile of these assets is improving, not deteriorating, as the tenant universe widens. Moreover, our capital is largely placed in the last 12 to 18 months at a reset basis that primes billions of dollars of equity versus loans originated in the go-go days of the post-COVID liquidity craze where capital was much less discerning. On to self storage. Storage is in the cyclical bottoming process. Industry-wide second quarter earnings for the public REITs were consistent with guidance and largely in line with sell-side estimates. Expectation for the full year is roughly flat, with flat revenue and 50 to 150 basis point declines in NOI. Supply remains muted also. According to the data, facilities under construction are less than 3% of existing supply; that is the equilibrium benchmark. Forecasted deliveries over the next several years could be as low as 1% of existing stock, and combined with the difficulty of bank financing for new development, the cost of land and materials, and a higher-rate environment than the 2015 to 2020 development cycle, we expect supply discipline to persist and pricing power to return. Our NSP portfolio continues to outperform the industry meaningfully, with occupancy in the low 90s near the top of the industry, and rent growth and NOI performance materially ahead of the sector decline by almost 300 to 500 basis points. Moving to our pipeline. Today, it consists of approximately $190 million of NexPoint Real Estate Finance, Inc. investment across 11 active deals, three closed and eight under executed LOI, plus an additional $275 million of structured product opportunities, specifically across multifamily senior loans and CMBS pools. These are real deals at real spreads. The pricing power remains very much in our favor for disciplined capital providers like us. The pipeline's blended return profile is well in excess of our cost of capital and the new TRS facility that Paul mentioned, which is already driving modest increases in CAD, which we expect to see continuing throughout 2026. Before I close, I want to take a moment on something that I believe will be a meaningful differentiator for NexPoint Real Estate Finance, Inc. over the next several years. We are deploying AI across our underwriting, portfolio monitoring, credit risk, and operations functions, and we believe we are ahead of the commercial mortgage REIT peer group on this. On the underwriting side, we are piloting AI-assisted deal screening and diligence across CMBS, mezzanine, and preferred equity originations. The system ingests rent rolls, comps, and market data, and our target is a 50% reduction in underwriting cycle time. That means more deals are being evaluated, sharper credit work, faster execution, all without expanding headcount. On the portfolio monitoring side, we are deploying always-on surveillance across all 92-plus investments. Machine-learning-driven signals on occupancy, rent growth, debt service coverage ratios, and sponsor health flag risk before it shows up in the financials. We believe this will result in earlier identification of watch list assets and meaningfully tighten the feedback loop between credit underwriting and portfolio surveillance. We are also building predictive credit models for borrower default probability, LTV stress paths, and loss given defaults. This reinforces our existing disciplined underwriting with data-driven early warnings. It does not replace our investment committee process. In our operations and reporting, we are using generative AI to accelerate investor reporting, SEC filings prep, earnings supplemental drafting, and internal research, freeing our team for higher value analytical work. Our roadmap is the sequence foundation in Q2 and Q3 of this year, scale across the full portfolio by Q4, and full optimization throughout 2027. We expect this to translate into faster decisions, sharper risk management, and a more scalable platform for growth. A few closing points on capital and the balance sheet. Net debt to equity continues to run below 1x, among the lowest in commercial mortgage REIT space. Combined with the re-REMIC execution that Paul just mentioned and the new TRS facility, we do indeed have the capital structure flexibility to be opportunistic on origination and on our own stock. Speaking of which, at current levels, we continue to trade at a meaningfully deep discount to book value of approximately $19 per share. To be clear, we view buybacks at this discount as an accretive use of capital, and you should expect to see us continue to buy back stock opportunistically alongside funding the pipeline I just walked through. Given our liquidity position and having successfully refinanced near-term maturities, the two are not mutually exclusive. Our Series C preferred programs continue to provide flexible, nondilutive capital. Our book value is stable. Our dividend coverage is sound. Leverage is low, and the portfolio's credit profile is improving. That is a setup we feel very good about heading into 2026. To summarize, strong quarter on earnings and credit, a transformative refinancing on the liability side, a continuing supply-driven tailwind in the residential space, a de-risking and broadening demand picture in life science, a robust pipeline of accretive deployment, and an AI platform initiative that we believe will set NexPoint Real Estate Finance, Inc. apart over the coming years. As always, I want to thank the team here for their hard work, and now we would like to turn the call over to the operator to take your questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, to ask a question, please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment please for your first question. Your first question comes from the line of Jade Joseph Rahmani of KBW. Please go ahead. Jade Joseph Rahmani: Thank you very much. Rates are trending higher year to date, and I was wondering what you think the impact to the CRE recovery outlook will be, particularly around multifamily as bridge loans taken out during the COVID years are up for maturity. Matthew Ryan McGraner: Yes, it is a good question. What I can say is in terms of the last, I would say, four to six weeks with rates going up as a result of geopolitical tensions, the processes that we have seen that started prior to that time, in terms of the capital markets transactions both on loan sales and investment sales, have all continued without, I would say, material disruption. There have been, I would say, some slight walkbacks in terms of buyers underwriting a 5.5% all-in rate on a Freddie or Fannie agency, and then the 10-year moves against them, and so they will seek a little retrace. So there is, I would say, a little disruption in the capital markets, but nothing that would halt it, and liquidity is still very, very plentiful on the multifamily side. And I think what is even more important than that is we, and I think the broader public REIT universe in the reporting yesterday and today, are really starting to see the fundamentals in the multifamily sector turn and firm up. Concessions are getting weaker. In our own portfolio, for example, concessions are down by 50% from Q4. All of that is offsetting, I think, any near-term interest rate rise as it relates to multifamily. Jade Joseph Rahmani: Life science update has been quite impressive, and I was wondering if you could give some thoughts. Do you view the Alewife exposure as unique to NexPoint Real Estate Finance, Inc., or are you also seeing green shoots elsewhere in the portfolio? And then overall, do you view NexPoint Real Estate Finance, Inc.'s exposure as better than the market? One of the commercial mortgage REITs downgraded a loan to risk five and took a quite large reserve on that. They are also expecting an REO in life science and much of it is vacant in the sector, so just looking for some additional thoughts there. Matthew Ryan McGraner: Yes, you bet. I think the important point on our project in Alewife is, again, it is brand new, it is purpose-built with incredible infrastructure. And the land that the asset is built on was assembled over years, three to five years; it was not just a spec build. It was very intentional and in the cluster submarket. I think that, for one, is unique. Our own investment in terms of the loan-to-cost is roughly 30%. That is our unique sponsor relationship there and the ability for us to provide capital at a time, like I said, in the last 12 to 18 months where there was literally no capital available in the life science sector. So I think the loans that I have seen as well that you are referring to were, again, originated in a more speculative environment with more hope to lease, on the outskirts of the cluster markets where we have exposure. Cambridge and the Longwood and Fenway districts are going to be the first-to-fill locations, and we are seeing real depth in the project leasing in terms of demand coming out of big pharma and the venture space. I think the green shoots you could point to are the biotech index nearing cyclical highs, venture capital at a high since 2021, and then, again, the AI spend and the assets that AI needs just widen the demand funnel for our assets. We are in the right locations where they want to be, and they have the critical infrastructure that is demanded by their compute and other real estate needs. So I do think we are different. I do think our exposure is different, and I think it is, again, more recent at a reset basis versus loans that were originated perhaps in 2020, 2021, and 2022. Gabe Poguey: Hey, guys. Thanks for taking the question. I want to actually piggyback on what Jade was just asking. It sounds like Alewife is doing great. Some other exposures, you know, Holly Springs and Vacaville, California. You guys have low attachment points, but it looks like the senior mortgages are due maybe by the end of the year. Just any color you can give on expectations for the underlying asset, whether it is a refi or a sale, etc., I think would be helpful as it pertains to life science exposure away from Alewife. And then one more kind of just on the accounting side. In the other income, the $17 million, can you guys break out the components of that for us before we get the 10-Q, or do we need to wait for the 10-Q for that? Matthew Ryan McGraner: Great question, and thanks for it, Gabe. So Holly Springs and Vacaville are both advanced manufacturing assets, which, if anything, is stronger in the last six months than life science. The Holly Springs underlying collateral, I believe, is now topped out, has a tenant, and I think we will likely be refinanced out of that deal. The tenant is a battery manufacturer for the Department of Defense. They are seeing a ton of growth right now, and I see that exposure being reduced by a loan payoff at some point this year. Same thing goes for Vacaville. It has eight to 10 project names in and around both semiconductor manufacturing and advanced manufacturing in the pharmaceutical side. To your point, the attachment is very low there, so I think there are a lot of ways to win, and I would say that we would probably be taken out of that asset in the next 12 months as well. And then one thing that is on the horizon that could be good and bad is Alewife being repaid. With the success of leasing there, going from zero to 71% leased, and the tenant quality and the clustering that is happening—like I said, there are RFPs and LOIs on that asset that almost get it to 100% full—we could see that capital come back to us in 12 months as well. Paul Richards: Yes, hey, Gabe. Great question. I think we wait until the 10-Q for that one. It will give you a good breakdown of the other income, and we can provide a breakdown in the supplement as well going forward for better analysis. Operator: There are no further questions at this time. And with that, I will now turn the call back over to the management team for final closing remarks. Please go ahead. Matthew Ryan McGraner: Thank you again for everyone's participation this morning, and we look forward to speaking to you next quarter and providing another good update. Have a great day. Thanks. Operator: Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Textron First Quarter 2026 Earnings Release. [Operator Instructions] I would now like to turn the conference over to Scott Hegstrom, VP of Investor Relations. You may begin. Scott Hegstrom: Thanks, Joe, and good morning, everyone. Before we begin, I like to mention that we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press releases. On the call today, we have Lisa Atherton, our Chief Executive Officer; and David Rosenberg, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. With that, I'll turn the call over to Lisa. Lisa Atherton: Thank you, Scott. Good morning, everyone, and thank you for joining us. Today is an incredibly exciting and important day for Textron. Our first quarter results highlight a very strong start to the year. We generated $3.7 billion in revenue, representing 12% growth for the quarter. We also grew segment profit in the quarter by 10% to $320 million. This reflects strong performance across each of our A&D businesses, including robust commercial order activity at both Aviation and Bell. We also generated $1.45 of adjusted EPS, up 13% from a year ago. Turning now to Slide 5. In addition to announcing our first quarter results today, we also announced our intent to separate our Industrial segment from our A&D businesses. This is a consequential and exciting step in our evolution establishing new Textron as a pure-play A&D company aligned to its core franchises of Textron Aviation, Bell and Textron Systems. In terms of structure, we intend to explore multiple paths to affect this planned separation, including a sale of the industrial businesses or a tax-free spin-off into a stand-alone publicly traded company. We will work through alternatives on the approach over the coming quarters and are targeting a completion of the separation within 12 to 18 months. In the interim, we will continue to operate in the normal course of business. Turning to Slide 6. We believe these actions will drive long-term value for our shareholders. First and foremost, this establishes New Textron as a pure-play A&D company. Each of our A&D franchises are aligned with highly attractive end markets with tremendous opportunities in front of them. For New Textron, this separation also enhances clarity around our capital allocation and investments as well as our strategic flexibility. The MV-75 Cheyenne program is a perfect example. We are pulling forward our investment as we support the [indiscernible] acceleration of the program, which is aligned with our long-term growth strategy. As for Industrial, these same principles apply. The business will benefit from a tailored capital allocation and new strategic flexibility. The investment in growth in opportunities such as Pentatonic, Allegro and PACE technologies are good examples of this. While we've considered variations of this in the past, now is the right time as both our A&D and industrial businesses are well positioned for the future. In A&D, Textron Aviation is in a very strong position having increased its backlog by more than 4x since pre-COVID from $1.7 billion in 2019 to $8 billion at the end of this quarter. Bell is advancing rapidly on the MV-75 Cheyenne and will soon move into prototype deliveries and Textron Systems is also showing solid growth across programs of record such as Ship to Shore and at ATAC. In Industrial, Kautex continues to perform well and Textron Specialized Vehicles is operating from a stronger footing following last year's powersports divestiture. So overall, Textron is well positioned to pursue the separation of our A&D and industrial businesses. Turning to Slide 7. New Textron would have approximately $12 billion in revenue and $1.2 billion in segment profit as a pure-play company. Aviation is a leader in each of these segments and continues to see healthy demand and utilization across its portfolio. That is at the forefront of an outsized growth stage as the MV75-Cheyenne program ramps -- the business is positioned to significantly increase its revenue as we move from development to production over the next few years and benefit from the Army's planned production run of over 25 years. Systems has compelling growth drivers across several areas, including advanced materials for hypersonic applications, shipbuilding, manned and unmanned air, land and sea vehicles. The Trump administration's recently proposed fiscal year 2027 budget that calls for $1.5 trillion in defense spending would be a strong tailwind for the industry, providing increased visibility and stability across our defense offerings. Moving to Slide 8. The separation significantly improved the financial profile for Textron. New Textron would have top line growth, 150 basis points higher. Segment profit margin would be 120 basis points higher, and our strong backlog of $19.2 billion is 100% related to the A&D businesses. On Page 9, we see New Textron's A&D franchises. Each of which excel at turning advanced aerospace and defense capabilities into practical advantages for our customers and their missions. Some of these key offerings include the Citation Latitude, the #1 best-selling midsized business jet, the recently certified Citation Ascend and the upcoming Beechcraft Denali. The Beechcraft King Air franchise is the best-selling Turboprop in history. The MV-75 Cheyenne flying twice as far and twice as fast is a fundamental step function for military aviation. The Ship-to-Shore Connector, the ATAC programs of record and our unique advanced material capabilities, which were most recently seen in action with the Artemis mission around the moon are core to the Sentinel program. These all leverage our world-class engineering capabilities across design, test, certification and build with a long track record of innovation. Underlying these offerings, we have a large installed base, which supports a robust aftermarket business that has experienced steady growth over the last few years. Textron Aviation has built approximately 25,000 aircraft in its history and has the largest installed base in general aviation, nearly 4x the next largest. Bell has an installed base of approximately 13,000 commercial and military aircraft. These significant installed bases drive an attractive aftermarket business that represents over 30% of New Textron revenue. We are very excited about how this positions New Textron to drive value going forward. On the military side, Textron sits where aerospace precision meets defense urgency, and this is exactly where our future is being built. As we continue to scale the MV-75 Cheyenne program and move toward production lots, we expect that the revenue and margin profile will follow. Beyond MV-75, we are well positioned on new opportunities that can leverage significant technology from the MV-75 like the U.S. Marine Corps Future Attack Strike program and DARPA's 76 X claim. Flight School Next, a new program to train Army Aviators at Fort Rucker for which we are competing is also positioned as a potential growth opportunity for Bell leveraging our proven 505 helicopter. Systems is anchored by strong programs of record with the growth drivers to include Ship to Shore, ATAC and Sentinel. In addition, the ARV preproduction contract advances a future growth opportunity for the business. The defense spending environment provides a very favorable backdrop for the longer term where our offerings are very well positioned. As this relates to the Textron Aviation and Bell commercial businesses, we are in a great place with the investments we have made over the last decade. Our product portfolio is second to none. Textron Aviation has a proven track record of clean sheet development programs like the Latitude, the Longitude, SkyCourier and soon to be the Denali. We have also been very successful at upgrades like the recent Gen 2s and Ascend as well as the upcoming Gen 3s for the light jets. And at Bell, the 525 will be the first commercial fly-by-wire helicopter. Our sizable backlog illustrates the market demand for our products is significant and continuing to grow. Looking ahead, we are focused on increasing our operational efficiency and performance to drive growth and enhance profitability. We will do this by reallocating some of our R&D investment into our supply chains and factories. To be clear, there are no silver bullets there, but it is where we will be putting our focus. Turning now to Industrial on Slide 10. This is a $3-plus billion business with strong operations, well-established brands, leading market positions and real growth drivers. We believe it will thrive independent from New Textron. It is composed of Kautex and specialized vehicles. Kautex is a Tier 1 auto supplier. Its primary product line is fuel systems for the automotive industry. Kautex has also built a meaningful position in hybrid fuel tanks which is a growing part of the industry. The Pentatonic battery and closure business supports EV and hybrid platforms, including the [ Rivian R1 ] and a major European OEM start of production plan for 2027. It's Allegro cleaning systems is another growth platform focused on solutions to clean autonomous vehicle cameras and sensors. Specialized Vehicles is anchored by the EZGO golf car business. EZGO was one of the most recognizable brands in golf. Specialized vehicles also includes personal transportation vehicles, ransoms Jacobs and turf equipment, Cushman vehicles and tug ground support equipment. This business stands to benefit from near-term growth driven by the lease renewal cycle and market recovery. Overall, our industrial businesses have well-established brands, product offerings and strong market positions. Before I turn it over to Dave to give you an update on our first quarter results, I'll quickly highlight a few of our achievements in the quarter, starting with Aviation on Slide 12. We got off to a strong start to the year with 37 jet deliveries and 35 commercial turboprop deliveries. These are both up nicely from a year ago as we continue to drive throughput in our factories. We also saw strong aftermarket performance, which resulted in 10% growth in aftermarket revenues. In terms of market conditions, order activity continues to be healthy as we grew our backlog in the quarter while also delivering double-digit growth in jets and commercial turboprops. Some notable wins for the team include Luminaire, a European jet operator placed a fleet order in the first quarter, which will bring its total to 9 latitudes, supporting its charter operations across Europe and an order from Belgium's special operations forces for 5 SkyCouriers marking our first military order for the aircraft and highlighting the utility of the Sky Courier, not only in the commercial market, but also in defense and special missions applications. From an industry perspective, gammas recently released 2025 annual report underscores Textron Aviation's leadership in general aviation as we once again topped the industry in total business jet deliveries, total turbine aircraft deliveries and total turboprop deliveries. Moving to Bell on Slide 13. The Army has announced the name of the MB 75 aircraft as the Cheyenne. This underscores the continued commitment by the Army and marks a pivotal moment for the program. all subsystem critical design reviews, or CDRs, have been executed with the exception of completing the weapon system CDR later this summer. The Army is preparing the for Tilt rotor technology with support from the V-22, helping the Army's 101st Airborne in training exercises to develop the tactics, techniques and procedures to take full advantage of the additional range and speed. Sales progress is supported by a series of investments Textron is making to support successful development and acceleration of production. As I mentioned earlier, the Trump administration's 2027 budget calls for a significant increase in defense spending. As this relates to the MV-75 Cheyenne, the Future Years Defense Program, or FYDP, calls for $2.3 billion of funding for 2027 scaling to $3.8 billion in FY '31 across research, development, test and evaluation as well as procurement. The procurement budget also shows quantities of 8 units in FY '28, scaling to 12 than 27 in FY '31, consistent with the Secretary of the Army's direction to accelerate the program. Regarding near-term funding for the MV-75 program, the Army has informed us that it is actively pursuing additional funding to support the acceleration profile for the remainder of the government fiscal year '26. This funding aligns with the Army's Directive last summer to accelerate the program, which occurred after their FY '26 budget request was submitted. We remain confident in the Army's commitment to securing this funding as evidenced by the ongoing process and the strong funding request in the recently released fit-up. During the quarter, Bell completed the critical design review on the DARPA Xplan program, which is now called the X-76. Bell will now begin building a brand-new explant with first-of-its-kind stop fold technology. Bell was also recently down selected to the fourth and final phase of the Flight School next competition. As part of this phase, Bell conducted flight simulator and digital twin demonstrations at Redstone Arsenal. We expect the Army to select a winner for the competition later this summer. Turning to Slide 14. Systems also continues to grow its business. They generated double-digit growth in the quarter and continued to make progress on new pursuits. Earlier this month, Textron Systems received a preproduction development award from the U.S. Marine Corps for its advanced reconnaissance vehicle, or ARV program. This $450 million award will include delivery of 16 vehicles, 3 systems integration labs and 4 blast holes. Textron Systems was also awarded a prototype agreement from the U.S. Army for the low altitude stocking and strike ordinance program, or Lasso. Under the prototype agreement, systems will deliver a loitering munition system and demonstrate it to the Army. As you can see on Slide 15, both Kautex and Textron Specialized Vehicles are executing very well and generating improving financial results. The segment had positive organic growth in the quarter, and Kautex secured its largest award to date for its hybrid plastic fuel tank offering. Overall, we had a very strong start to the year, and I'll now pass it over to Dave to provide some more details on the financials. David Rosenberg: Thank you, Lisa, and good morning, everyone. Turning to Slide 18 of the earnings presentation. We had a strong start to the year with revenues in the quarter of $3.7 billion, up 12% or $389 million from last year's first quarter. Segment profit in the quarter was also strong at $320 million, up 10% or $30 million from the first quarter of 2025. During this year's first quarter, adjusted net income was $1.45 per share compared to $1.28 per share in last year's first quarter. Manufacturing cash flow before pension contributions reflected a use of cash of $228 million, compared to a use of $158 million in last year's first quarter. During the quarter, we repurchased approximately 1.8 million shares, returning $168 million in cash to shareholders. Before we get into the segments, I'd like to remind you that we realigned the Textron Aviation segment business across Textron Aviation, Textron Systems and corporate at the beginning of this year, eliminating Textron Aviation as a separate reporting segment. The results here reflect that realignment for 2026 for the 2025 comparison period on a recast basis. Now let's review how each of the segments contributed, starting with Textron Aviation. On Slide 19, revenues at Textron Aviation of $1.5 billion were up $269 million or 22% from the first quarter of 2025. Aircraft revenue in the quarter was $954 million, up $221 million or 30% from a year ago. This was driven by volume and mix as we increase Citation jet deliveries from 31 to 37 and commercial turboprop deliveries from 30 to 35. Aftermarket revenue in the quarter was $531 million, up $48 million or 10% from a year ago. Segment profit was $154 million in the quarter, up $32 million compared with the first quarter of 2025. This represents a profit margin of 10.4%. We also continue to see solid order flow in customer demand across our product lines, ending the quarter with $8 billion of backlog, up $276 million from the end of 2025. Looking at Bell, revenues of $1.1 billion were up $87 million or 9% from the first quarter of 2025. Military revenues were $795 million, up $161 million or 25% driven by growth on the MV-75 Cheyenne program, partially offset by reduced revenue on V-22 production on our military sustainment programs. Commercial revenues were $275 million, down $74 million, reflecting lower volume and mix. Segment profit of $72 million was down $18 million from a year ago, primarily reflecting an unfavorable impact from the mix of military programs and lower commercial volume and mix. Backlog in the segment ended the quarter at $7.6 billion. At Textron Systems, we had a good start to the year with revenues of $338 million, up $39 million or 13% from last year's first quarter. Revenue growth was driven primarily by higher volume on the Ship to Shore program and military training programs provided by ATAC, partially offset by lower net volume on other programs. Backlog in the segment ended the quarter at $3.6 billion, an increase of $255 million in the quarter. Segment profit was $42 million in the first quarter, which generated strong segment profit margin of 12.4%. Looking at Industrial revenues were $786 million, down $6 million from last year's first quarter. Textron Specialized Vehicles revenue was $300 million, down $42 million, largely reflecting a $55 million impact from the divestiture of the powersports business in 2025. Kautex revenues were $486 million, up $36 million or 8% from a year ago, primarily due to a favorable impact of $20 million from foreign exchange rate fluctuations and higher volume and mix. On an organic basis, revenues in Industrial were up $29 million or 4% given the first quarter of last year still included the Powersports business. Segment profit of $40 million was up $10 million from the first quarter of 2025, largely due to manufacturing efficiencies. Finance segment revenues were $16 million and profit was $12 million in the first quarter of 2026, as compared to segment revenues of $16 million and profit of $10 million in the first quarter of 2025. With that, I will turn it back to Lisa for closing remarks. Lisa Atherton: Thanks, Dave. And as we wrap up, Slide 21 just highlights a few of the many attributes that make New Textron a compelling pure-play aerospace and defense business. We have the best-in-class brands and best-in-class products with leading segment positions. But I also want to highlight that we have the people in place to maximize our future with a deep bench of technical expertise and a track record of innovation and execution at scale. This concludes our prepared remarks, and we are happy to open the line now for questions. Operator: [Operator Instructions] Your first question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Can you maybe -- the industrial separation has been a long time coming. Can you maybe provide a little bit more on what led to the decision? Why now? Was it just the growth in the MV-75 portfolio at the Cheyenne and how you see that if you could elaborate? Lisa Atherton: Thanks, Sheila. Look, it's just -- it's the right answer for both of our A&D and industrial businesses at this moment in time, and it provides clarity and simplification on our capital allocation and investments and frankly, it also just aligns them both with their respective natural shareholder bases. And we're in a position, as you point out, like why now as compared to a few years ago, it's a result of all the hard work and accomplishments that we've achieved over the last 10 years in order to position the various businesses to have the strength of their own -- to stand on their own. And we've won, we're scaling MV-75. As I mentioned, we've added to an upgraded the aviation portfolio. We've got all these clean sheet programs like the Latitude, Longitude, SkyCourier Denali upgrades on the Ascend, the Gen 2 with systems and their key programs of record now scaling and a good pipeline. We just have the synergies and core context of all of those businesses to come together as a strong pure-play A&D. But what's different is as now with Kautex and TSV, both are very well run and their end markets are in a stronger place and in good positions right now with the progress Kautex has made with offerings on Pentatonic and Allegro and how it is gaining customer traction and growth as well as TSV being anchored by 1 of the most recognizable brands in golf with EZGO and candidly, the divestiture of Powersports just puts them in a better operating position. So we just believe that now is the right time in order to make this move, and we're excited to see what the future holds for us. Operator: Your next question comes from the line of Myles Walton of Wolfe Research. Myles Walton: On aviation, can you speak to the market environment for order activity and anything that's changing given the ongoing Middle East conflicts. And then, Lisa, you mentioned repositioning some of your R&D funding into the supply chain. Could you just elaborate on what that means in the quantity? Lisa Atherton: Sure. Look, so regarding order activity, we had a very strong quarter of order activity across both aviation and Bell. They had their best Q1 bookings in 4 years, frankly, since Q1 of 2022. So really strong orders for the folks out there. And aviation, I highlighted the Luminaire and Belgium special forces in the prepared remarks. But as we see that strong order flow and ending the quarter with our backlog of up $8 billion for aviation in particular, and we also have some pretty strong bookings that they're working forward to in Q2. So Bell also is winning that new business in the commercial market. They had the quarter with purchase order of 7407 for the National Transmission Company of South Africa. We talk about in the defense side of the booking orders, and Bell was down-selected to the final phase of [ Flight School Next. ] As I mentioned, the preproduction contract for the AR and the Army's prototype agreement for the last or the low altitude stocking and striking ordinance. So all of this kind of leads to that very strong order activity in that backlog of $19.2 million that we highlighted across the business. When you ask about the repositioning of some of the funding towards the supply chain and factories, look, that's really the area that we need to focus across on our business. What we're trying to signal here is we're not looking to increase investment. We're going to maintain the same levels of investment that we have across the business. But we're probably going to take a portion of that, and I'm not going to kind of go into the details of what ratio that is, but take a portion of that and focusing on making our factories much more effective. There's a lot of tools and capabilities that are out there now that we need to enable our workforce to have a better, more streamlined factory flow. And so we're going to -- we're looking at that as we go through this strategic review, and you'll see us start investing in that. And hopefully, we'll see the yield of that of better production output. Operator: Your next question comes from the line of Robert Stallard of Vertical Research. Robert Stallard: A couple of questions for you on Aviation. First of all, was wondering if you could give us an update on what you think the cadence of deliveries will be in this division through the year and whether you expect this aftermarket growth rate to be maintained? And then secondly, on the Aviation supply chain. Did you see any improvement in that in the first quarter? Lisa Atherton: Dave, why don't you take the first and I'll hit the supply chain. David Rosenberg: Robert, so as we look at Q1, this was expected that we're about 100 basis points below the midpoint of the guide. Just kind of the key factor there is some of the inefficiencies from last year are rolling through the income statement in Q1, and that's causing a little bit of headwinds. So as we kind of think about the cadence for the rest of the year, we would expect improvement sequentially each quarter with the margin peak being in Q4. You should expect deliveries to increase each quarter this year, and we'd also expect efficiencies to improve throughout the year, especially in the second half. Lisa Atherton: So on your supply chain question there. I mean, look, we continue to work with our key suppliers. It's mainly around engines, as we mentioned on the call last quarter that we continue to [indiscernible] I'll say, fight through every day to get those in. But I will say we're not seeing as many systemic supply chain issues as we have over the past several years. So we are seeing things start to improve. As we look at kind of what we call out the door statistics of some of our platforms, those are starting to improve. Things still get lumpy along the way. We still have things pop up. But I would say we're starting to see a trend here of better performance at large. But it's -- there's nothing easy. The teams are still fighting through the different little fires that pop up. But overall trends, we are starting to see improvement of on-time delivery from suppliers, and we're starting to see folks performing at better, higher quality. Operator: Your next question comes from the line of Peter Arment of Baird. Peter Arment: Nice results. Lisa, maybe just quickly on [indiscernible] the year kind a low point, maybe just to give us a little -- the puts and takes you're thinking about for the year and just when you -- given your annual guidance, just how we should be thinking about from here just given the volume that you're seeing on the MV-75? Lisa Atherton: Yes. And I appreciate that. I think there's -- it was a good strong start to the year. I think it's a little early for us to start thinking about the guide. But if we continue to see strong performance, we'll evaluate that as we go forward for the back half of the year. I think on MV-75, I don't see us changing what we saw there was going to be flat kind of year-over-year of expected revenues. We do continue to see that acceleration pull from the Army, as we mentioned. And if they receive those additional funds, we'll see that kind of flow into the business, but we need to see the Army get those additional funds as they go through their procedures and processes to get those dollars. Operator: Your next question comes from the line of Seth Seifman of JPMorgan. Unknown Analyst: This is Alex on for Seth. Maybe I want to ask follow-up on the industrial situation. As you guys are kind of evaluating your options here between either selling the business or spinning it off, curious if you guys have any initial thoughts on which option you think is more likely at this point? And then two, when we're thinking about the 2 businesses here between Kautex and specialized vehicles, is the expectation that those would be spun off or sold together? Or could they be kind of broken up into separate pieces? Lisa Atherton: I think, Alex. So look, I think you kind of outlined all the options that we're looking at. And I don't think we necessarily have a course of action just yet that we're ready to declare. We are going to do the process and work to explore all of those alternatives. And I think that when we look at the spin, we just know that that's the certainty. It will be the longest path. We're going to do the work in order to prepare for that. But as we do that, we're exploring all avenues that you kind of outlined, selling them together or selling them apart. Those options are all on the table. And as the process evolves and folks are interested, we'll do what's in the best interest of our shareholders. So yes, I think we're -- we've got an exciting future ahead of us, but we'll keep you guys posted as we come along those decisions. Operator: Your next question comes from the line of John Godyn of Citi. John Godyn: Lisa, I just really wanted to think through the conflict in the Middle East and what that means for Textron, sort of to state the obvious. There's a lot of activity there and fuel prices have doubled. So on the aviation side, it's hard to believe that a doubling in fuel prices doesn't impact things. On the other hand, some of us on the call are old enough to remember the boom years in bizjet in and '06/'07, which were positively correlated to oil prices and all the economic implications of that? And then in your defense exposures, anything kind of pivoting on the back of what's going on in the Middle East? Any imminent demand signals or anything like that, how the portfolio is expected to respond to that would be helpful. Lisa Atherton: Yes, thanks. And I recall now I kind of missed that. Somebody asked a follow-on question on Iran. I didn't get that earlier as well. So look, to date, we have not seen a material impact on the ongoing conflict. We monitor the impact of those higher oil prices. And as you point out, has both positives and negatives to our various end markets. So -- and I think on the -- as you correctly stated, on the aviation and helicopter side, in particular, that's where we see some of that positive correlation. So we're watching that very closely. I think it's a little early days as folks use their capital there, but we will continue to monitor that and discuss that in future quarters. With respect to the defense side of the business, on all of our programs, I think you're starting to see them continue to perform. I think when we see this investment across all of the defense portfolio from the Trump administration's most recent fit-up is a signal from them that they see an increased need and robusting, I'll call it, the magazines or the various platforms in order to be prepared. And so I would say it's a secondary correlation to it, but you're starting to see support broadly across all the defense business. Programs, in particular, I wouldn't necessarily go into any specific programs on that in that way. Operator: Your next question comes from the line of Noah Poponak of Goldman Sachs. Noah Poponak: Two questions. Lisa, on Aviation, your discussion around investing in supply chain and manufacturing improvements suggests a view that supply should be higher. Curious how you -- when you look at the backlog and the coverage, how are you balancing you want to grow and you want to get customers' jets, but you also want to protect the downside nodes of cyclicality. Just how are you thinking about where you want supply over the medium term? And then, Dave, just on the Bell margin, if you could give us a little more color on the year-over-year change and how it progresses to get to the guidance for the year? Lisa Atherton: It's a great question. And you're exactly right. And when we look at the various type models, we want to make sure we don't disrupt this very strong backlog that we have. And so there are certain type models that if we put a little more investment, we could reduce the amount of time it takes to build those aircraft. Some of those type models are sold out for years. If we were to bring them in to say like 18 months or so as a lead time, I think that much more aligns with customers' expectations. And those are the areas in which we would do focused improvements on, in both the factories and the supply chain. David Rosenberg: So Noah, I'll take that question on Bell. So I mean, as a starting point, if we look at kind of Q1 of this year versus last year, we're obviously down on the margin percent as well as in dollars. So kind of 2 factors there to think about. We were off on commercial helicopter deliveries. Some of that was just timing of deliveries and contract milestones. Some of that was just delays in finishing up the last couple of helicopters for the quarter. We would expect on the commercial side for that to normalize out throughout the year, not too dissimilar to patterns you've seen in the last couple of years with a peak in -- We also had higher MV-75 revenue in the quarter, but the offset of that was some of our military legacy business was down. So net-net, that does result in overall lower margins. So I think what you could expect to see from a cadence perspective as we go through the next 3 quarters, as you'd see overall improvement, particularly because you'll have higher volume on the commercial side, getting us to where we're currently at on the guide of between 8% and 9%. Noah Poponak: Thanks. Lisa, I guess just getting some of the -- getting -- if I took the entire portfolio to 18 months, it would imply pretty nicely over 200 total deliveries. I guess maybe you're saying it's not everything should be at 18 months, but is it -- do you think the equilibrium is 200 or 220, or hard to put a number to it? Lisa Atherton: No, I think you're hearing the right ballpark, right? I think the right number is right there around 200. I think that's accurate. Operator: Your next question comes from the line of David Strauss of Wells Fargo. Unknown Analyst: This is Josh Corin on for David. I wanted to ask, I think you were planning on taking that charge on MV-75 later this year or early next as the program ramps. Is there any change to your expectation in the size or timing of the charge? David Rosenberg: No change in our expectation on the size, which was the cum catch-up was $60 million to $110 million. As we said when we announced it previously, it all depends on the timing of when the LRIP [indiscernible] is exercised by the government, and there's no change in our expectation right now that, that could be as early as the second half of this year or possibly could flow into the first half of next year and nothing's changed from our perspective, right, as we sit today. Operator: Your next question comes from the line of Gavin Parsons of UBS. Gavin Parsons: Lisa, you mentioned Textron is considered strategic alternatives on industrial in the past. I guess what are the hurdles to getting this done? And is there a minimum return threshold you're looking forward to ensure it's not a dilutive transaction? Lisa Atherton: Look, it's a little early to comment specifically on the level of dilution. It's going to depend on what that structure and value -- whatever proceeds we would get on that. But look, in addition to the benefits of clarity and flexibility, we had just had different natural investor bases and different valuation frameworks inside those investor bases. And so we're going to have to leave it to the market to assess that valuation, but I do think that New Textron has higher growth and stronger margin, which should support stronger valuation over time. And so I think on that side of it, it's is going to prove out to be a very well-done alternative for us. So in terms of in the past, I think the ideas there were around where we were as far as strength of the end markets of the industrial business, it just wasn't the right time. And as we see the positive growth and the positive performance out of both Kautex and specialized vehicles now just makes the right time for us to do this. Operator: Your next question comes from the line of Kristine Liwag of Morgan Stanley. Kristine Liwag: Lisa, post the industrial spend, and you'll have more time to allocate to the core aerospace defense. I was wondering, can you talk more about how you're thinking about potential capital allocation within that core business? Are there platforms or capabilities you would -- you plan to spend more time on focusing and are there areas you're willing to lean in more versus potentially rationalize? Lisa Atherton: Look, I think our intent here is to lean in more versus rationalize on the A&D space. And in fact, I think what we would look to do is as we have this pure-play combination and how they're anchored across the commercial and military aircraft, leverage the engineering capabilities we have across the business. And then we will look to see where we could be additive to that portfolio, particularly probably in the areas around systems. And what it is that systems does how we could grow that area of our business much more strongly. Kristine Liwag: Super helpful. And maybe a great follow-up on systems. I mean the U.S. accelerates towards drone dominance. We're seeing a lot more nontraditional players lower-cost competitors in this unmanned space where you have a fairly robust offering within systems. Can you talk more about how you balance cost, speed, autonomy with the performance that the DoD wants today, and also what that competitive dynamic is like and where you think systems could leverage the strength in that industry? Lisa Atherton: Yes. Thanks,. So I think when we look at what the strengths are across systems, not only is it decades and candidly, millions of hours of proven capabilities across the unmanned space across 3 domains. A lot of our offerings are, I will say, are more of the complicated and technical aspects of unmanned. Some of the lower entrants, I think, are much more attributable where what we have are capabilities that the services want to use over and over again. So it requires a more robustness in design and durability of the platform. So what you see in things like the Ripsaw platform that we are currently designing for the Marine Corps and what you see in our [ Arson ] 4.7 and 4.8 that provides a loitering ISR capability for many hours up to 13 hours. So I think what we see there is still continued strong demand for those. But we're also having growth opportunities in our unmanned surface vehicles, on the custody program and how they take their platform on the sea and put new capabilities, mine hunting capabilities into that platform system is providing the systems integration pieces that are much more complex than maybe what we see in some of other platforms. That said, we're also very open to working with folks and being partners in various entrants with various entrants, and you'll see systems do that over time. Operator: Your next question comes from the line of Ron Epstein of Bank of America. Ronald Epstein: Yes. Maybe 2 questions, just following up on some stuff that other folks asked. When you think about moving forward with an A&D focused business, how are you factoring AI and AI-driven autonomy into systems? And when I look at something like X-76, it seems like a platform that could generate a lot of interest. How are you thinking about that and the opportunity there? And one area where it does seem -- I don't want to say that tech underperformed, but maybe you could have done more, given all the technologies the company has is in specifically aerial unmanned systems, given the prowess you all have in electronic propulsion and everything you've done in Textron Aviation and all the stuff systems. So I don't know, sort of a broad question, but... Lisa Atherton: Yes. So I'll try to tackle the second question upfront in the sense of what you're talking about there is collaboration and synergies across the businesses. And what I would like to drive, it's how we're able to combine the engineering technology and talent that we have across systems, Aviation and Bell in order to come up with those ideas and platforms and breakthroughs, if you will, because we have that detail, as you mentioned. On the X-76, whether or not they would actually use AI autonomy in terms of the brain of the platform itself. Right now, the proving out of the X-76 is a stop bold technology itself. -- and it will be an unmanned platform. And so I think as that program evolves, you'll see a lot of the expertise that we have on the -- or the with the [ MOSA ] architecture will probably naturally follow it into the X 76. So there was just a lot of capability across Textron that I think we can now really come together in this pure-play A&D space. And I plan to continue to drive that. I mean we've done it in the past. We've got examples of where we have helped each other between the various businesses. but really driving towards an A&D strategy amongst ourselves that think would generate what you're alluding to. Ronald Epstein: And then, I mean, culturally, how do you achieve this, right, because you have no organization, I guess, in some parts that's used to being more independent. I mean you're going to have a core A&D engineering group that will serve the whole company. I mean, I don't know if you're there yet, but how do you think about shifting a culture to support it? I mean, just to be blunt, if you can't tell, I think this is a great idea. But in terms of executing it, how do you get the culture to buy into it? Lisa Atherton: Yes. I mean, as you know, culture takes a minute to evolve, but we are certainly on that journey. And part of my expectations is how we will continue to collaborate with each other. I mean things as simple as sharing each other strategic business reviews with each other. And so we're just driving various different opportunities for the businesses to be exposed to what the other business is doing as a way for them to say, "Hey, that's a great idea. I've got somebody over in this area that can help with that. " So I hope that you will see that continue to evolve over time, and I'm optimistic that the team is very excited about doing it. Ronald Epstein: Yes. And then maybe just one quick financial detail. the industrial business over the years, we heard that there'd be too much tax leakage to spin it or do whatever -- how should we think about that the tax impact? David Rosenberg: I mean, you obviously have the different [indiscernible] to tax impact. So you have the potential repatriation of cash, which would be we are thought about in terms of what the transaction expenses would be and then the tax leakage on the transaction itself. Both of those, we believe, would be manageable in whatever structure we end up doing. And as we mentioned in our release, we believe in a spin scenario, it would be done on a tax-free basis. Operator: Your next question comes from the line of Doug Harned of Bernstein. Douglas Harned: In Systems, I find this to be the most difficult business to really kind of look forward long term. AAC the Ship-to-Shore Connector, this has been going well. But if we think on more of a 5-year view, what do you see as the underlying differentiated capabilities there and the types of programs that you see you're best positioned for as you look longer term? Lisa Atherton: Yes. So I would say there's -- to stand out for me. First, being the Sentinel program as that A&D program continues to mature into a production program and as we are a key Tier 1 supplier to Northrop Grumman on that program, we will follow where that sentinel program continues to grow. So I think that's a key aspect of the systems portfolio. And then additionally, on the ground side of the business, the armored reconnaissance vehicle as well as the XM30, which we haven't mentioned so far in this call, Textron Systems is competing in both of those and those will both be decided in the coming 2 to 3 years. And I believe that you will see us have a position on 1 or both of those programs. So I think those underpin the go-forward on the systems performance. Douglas Harned: And then if you do the same -- sort of the same thing at Bell, when you look beyond MV-75, you mentioned the FSN program. Is -- can you give us a sense at all of kind of the timing and scale of potential new opportunities over the next few years and beyond what you're doing on MV75. Lisa Atherton: Yes. So timing and scale. So the Flight School Next program will be decided by the end of next quarter. So we will know how that's going to impact the future of Bell's prospects here within the next 90 days or so. So there's -- when we see what that comes out, and I don't want to go into numbers right now because we are in, I'll say, active negotiations there of Phase but it is a strong opportunity for Bell for the next, candidly, 25 years for Flight School Next. When you look at what the Marine Corps is doing with their H1 program, and frankly, I mean, we focused on MV-75 and X76, but there's still a lot of work going on, on the H1 and the V-22 platforms and the sustainment of those platforms for the coming decades. So there's a lot of work going on both in the nacelle improvement program for the V-22 as well as the structural improvement in electrical power upgrade program for the H1. So they have upside on both of those programs. That's just on the defense side. On the commercial side is the 525 platform, reaches its certification and moves into the commercial backlog, we'll start to see strong growth on that towards the back end of this decade, beginning of next. Operator: And your last question comes from the line of Gautam Khanna of TD Cowen. Gautam Khanna: Yes. Congratulations on the announcement. Wanted to ask if there are any dissynergies that you can point to? I know you talked a little bit about tax, but any sense of dis-synergies early on from the separation? David Rosenberg: So we've obviously, as part of this process, analyze all those, there'd be a minimal level of stranded cost that we can -- we do strongly believe we can manage through. But otherwise, there is nothing of a significant nature from a dis-synergy perspective, but the stranded costs are very minimal. Gautam Khanna: And Lisa to Kristine's earlier question, I just wanted to understand better. Is that -- do you think this is kind of the end of the portfolio review? Or what will be part of the AMD franchise is that you're looking to maybe scale back as part of this process? Lisa Atherton: Yes. So again, great question. And I would say I'm looking to lean in and grow versus scaling back. Operator: With no further questions, that concludes our Q&A session, and this also concludes today's conference call. You may now disconnect.
Operator: Good day and thank you for standing by. Welcome to CONMED's First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Before the conference call begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook, its plans and objectives. These statements represent the forward-looking statements that involve risks and uncertainties as those terms are defined under the federal securities laws. Investors are cautioned that any such forward-looking statements are not guarantees of future events, performance or results. The company's actual results may differ materially from its current expectations. Please refer to the risks and other uncertainties disclosed under the forward-looking information in today's press release as well as the company's SEC filings for more details on the risks and uncertainties that may cause actual results to differ materially. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call, except as may be required by applicable law. You will hear management refer to non-GAAP or adjusted measurements during this discussion. While these figures are not a substitute for GAAP measurements, management uses these figures to aid in monitoring the company's ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits or charges that are considered by the company to be special or outside of its normal ongoing operations. These adjusting items are specified in the reconciliation supporting the company's earnings releases posted to the company's website. With these required announcements completed, I will turn the call over to Pat Beyer, President and Chief Executive Officer, for opening remarks. Mr. Beyer? Patrick Beyer: Thank you. Good afternoon, and thank you for joining us for CONMED's First Quarter 2026 Earnings Call. With me on the call today is Todd Garner. The search for our new CFO is progressing well, and we look forward to providing you with an update soon. I ask Todd to join me today as he is assisting us as our adviser with our Q1 earnings report. I'll start and provide you with an update of our first quarter results and updates on our strategic priorities. Todd will then take you through the financials and our 2026 guidance in more detail before we open the call for your questions. Before turning to the quarter, I want to recognize our teams around the world for their continued focus and execution. Across the business, their work is making a real difference for our customers and for the company. During the first quarter, we reached an agreement to divest certain GI products. And in April, we reached a second agreement to divest our remaining GI products. As is customary, we will provide transition services under TSAs through the end of this year and into 2027. This decision was intentional and strategic. It allows us to concentrate resources and investment on our higher growth, higher-margin offerings and better focuses the organization on driving improved execution and delivering long-term shareholder value. I'll start by briefly reviewing our first quarter results. Total sales for the quarter were $317 million, a decrease of 1.3% compared to the prior year quarter. Excluding the impact of our previously announced exit from our gastroenterology product lines, total sales increased 3.8% year-over-year as reported and 2.1% in constant currency. Orthopedics delivered sales growth of 4.5% on a constant currency basis, while general surgery sales declined 7.4% in constant currency but were flat after adjusting for the gastroenterology exit. From an earnings perspective, excluding special items that affected comparability, our adjusted net income of $27.1 million decreased 8.5% year-over-year, and our adjusted diluted net earnings per share of $0.89 decreased 6.3% year-over-year. These were, of course, impacted by the exit of our GI business. Now I want to turn to our 3 key growth platforms: AirSeal, Buffalo Filter and BioBrace. These platforms sit at the center of our long-term strategy and provide a durable foundation for growth and margin expansion. Our decision to exit gastroenterology and place a strategic focus on minimally invasive surgery, smoke evacuation and orthopedic soft tissue repair reflects our intent to allocate capital, talent and attention towards the area where we see the greatest opportunity. I'll walk through each platform and highlight what we're seeing develop in the market. Starting with AirSeal, our clinical insufflation platform that is supported by 2 durable growth vectors, robotic and laparoscopic surgery. AirSeal benefits from a large installed base of over 10,000 systems globally, which continued to grow in quarter 1, giving us broad clinical presence and deep surgeon familiarity. AirSeal plays a critical role in complex procedures where conventional insufflation systems may be less reliable. AirSeal's clinical differentiation underpins its role in robotic surgery, particularly as these procedures continue to expand across subspecialties and migrate into ambulatory surgery centers. AirSeal follows surgeon preference. Beyond robotics, the laparoscopic opportunity remains significantly underpenetrated. In the United States alone, more than 3 million laparoscopic procedures are performed annually. And today, AirSeal is used only in 6% to 7% of those cases. We continue to see good traction in laparoscopy market, including continued growth in the first quarter. Taken together, AirSeal's installed base, differentiation among high acuity specialists, importance in ambulatory environments and expanding laparoscopic adoption support our confidence that AirSeal can deliver high single-digit to low double-digit growth over the long term. Turning to Buffalo Filter, our smoke evacuation platform. This continues to be one of our most compelling long-term growth opportunities. On the legislative front, we now have 20 U.S. states with smoke-free operating room laws on the books, covering approximately 51% of the population. We continue to see additional states moving towards legislation and expect this trend to persist, giving the safety benefits for health care professionals. We are continuing to see traction internationally, particularly in the Nordic countries, Canada and Australia. On the product side, our PlumeSafe X5 launched in the first half of 2025 continues to gain traction. Its smaller footprint, quieter operation and faster smoke clearance are resonating in outpatient and ambulatory environments. Importantly, we remain disciplined in how we are scaling this area. Our strategic focus is on direct smoke evacuation, where we control the customer relationship and capture the full margin profile. While OEM remains part of the portfolio, over time, we expect direct smoke to represent a larger share of smoke evacuation revenue, consistent with our broader focus on higher growth, higher-margin opportunities. Our third key growth platform is BioBrace, which continues to perform exceptionally well and remains a signature element of our sports medicine strategy. BioBrace is increasingly recognized by surgeons as a differentiated solution in soft tissue repair, addressing both the mechanical and biologic drivers of failure. It is the only FDA-cleared implant that delivers structural reinforcement while also promoting biologic healing, a combination that is reshaping how surgeons approach complex repairs. As surgeons gain experience with the technology, we are seeing broader utilization across both primary repairs and more complex cases. Clinical validations remain a critical component of the platform's long-term value proposition. There are currently over 30 published studies on BioBrace. Our 268-patient randomized controlled trial remains on track to complete enrollment in 2026 with publication expected in 2027. In the interim, the growing body of existing clinical data, along with the American Academy of Orthopedic Surgeons guidelines recommending augmentation in rotator cuff repair are reinforcing surgeon confidence and supporting adoption. We believe BioBrace is still early in its life cycle. As BioBrace becomes further embedded into surgical workflows and expands across additional soft tissue procedures, we see a long runway for sustained growth and increasing contribution to our orthopedics portfolio. From an operational standpoint, we finished 2025 strong and continue to improve supply chain performance during the first quarter. We are moving into a position in which we are able to provide customers with the consistent service they expect. This allows our orthopedic sales team to get back on offense and engage more proactively with surgeons and accounts. To support this momentum, we continue to expand capacity across both our internal manufacturing footprint and through qualified external partners. This dual approach gives us greater flexibility, improved resilience and positions us to support sustained growth. Importantly, these improvements are now showing up in our results. Orthopedics delivered mid-single-digit growth in the first quarter, marking the third consecutive quarter of at least mid-single-digit growth, a trend that reflects improving supply reliability alongside continued strength in our core platform. We are making sustained progress, and we believe we are on a clear path toward where we ultimately want to be, operating a more durable, high-performance supply chain that can support long-term growth. Our capital allocation priorities remain unchanged. We continue to balance organic investment in innovation, manufacturing and commercial effectiveness, disciplined acquisitions that strengthen our existing platforms and returning capital to shareholders, supported by strong and consistent cash generation. Our balance sheet continues to strengthen, and we believe CONMED is well positioned to invest in our business while maintaining financial discipline. In summary, we enter 2026 with a focused portfolio, improving execution and differentiated growth drivers operating in attractive markets. We remain committed to delivering reliable performance and creating long-term value for our shareholders. With that, I'll turn the call over to Todd, who will provide a more detailed analysis of our quarter 1 financial performance and discuss our 2026 financial guidance. Todd? Todd Garner: Thank you, Pat. All sales growth numbers I reference today will be given in constant currency. The reconciliation of GAAP to constant currency is included in our press release. The organic numbers referenced exclude GI sales from 2025 and 2026. As usual, we have included an investor deck on our website that summarizes the results of the quarter and our financial guidance. It also includes a reconciliation of GAAP to constant currency organic growth. For the first quarter of 2026, our total sales decreased 2.9% year-over-year. Organic sales increased 2.1% year-over-year. For Q1, total sales in the U.S. decreased 5.8% versus the prior year quarter, and total international sales grew 1.0%. Organic sales in the U.S. increased 2.8% and organic international sales grew 1.3%. Total worldwide orthopedic sales grew 4.5% in the first quarter. Total U.S. orthopedic sales increased 5.5%. And internationally, orthopedic sales increased 3.9%. Total worldwide general surgery sales decreased 8.5% in the quarter. Organic worldwide general surgery sales were flat over prior year. Total U.S. general surgery sales decreased 10.4% while total international general surgery sales decreased 3.8%. Organic U.S. general surgery sales increased 1.5% while organic international general surgery sales decreased 3.3%. AirSeal and direct smoke both grew in Q1, and we continue to expect AirSeal and direct smoke to be in the high single-digit to low double-digit range for the full year. But as expected and included in our original guidance for the year, in Q1, both product lines were below our expected range for the full year. We are seeing positive signs with AirSeal as more capital units entered the market in Q1 than robotic systems from the market leader. We are also seeing good early returns from our increased focus on laparoscopic procedures. The data points we can see give us confidence that AirSeal should continue to grow in the high single-digit to low double-digit range in 2026. The OEM smoke products were again a meaningful headwind in Q1. These non-focused products for us can be very lumpy quarter-to-quarter, and that was the biggest drag on general surgery sales in Q1. Now let's move to the expense side of the income statement. We will discuss expenses and profitability in the first quarter, excluding special items which are detailed in our press release. Adjusted gross margin for the first quarter was 57.4%, which is 100 basis points higher than the prior year quarter, driven by favorable product mix and positive foreign currency impact. Adjusted research and development expense for the first quarter was 4.8% of sales, 80 basis points higher than the prior year quarter. This increase was driven primarily by increased investment into our key growth drivers. First quarter adjusted SG&A expenses were 40.0% of sales, 130 basis points higher than the prior year quarter. As we said in January, we expect the first quarter to be the highest quarter of the year. On an adjusted basis, interest expense was $5.8 million in the first quarter. The adjusted effective tax rate in Q1 was 24.2%. First quarter GAAP net income was $13.8 million compared to $6.0 million in 2025. GAAP earnings per diluted share were $0.45 this quarter compared to $0.19 a year ago. Excluding the impact of special items, in the first quarter, we reported adjusted net income of $27.1 million, a decrease of 8.5% compared to the first quarter of 2025. Our Q1 adjusted diluted net earnings per share were $0.89, a decrease of 6.3% compared to the prior year quarter. Turning to the balance sheet. Our cash balance at March 31 was $35.0 million compared to $40.8 million at December 31. Accounts receivable days at March 31 were 65 days compared to 62 days at March of 2025 and 60 days at December 31. Inventory days at quarter end were 246 compared to 222 days a year ago and 207 on December 31. As we continue to focus on service levels, we have purposely built more inventory. Long-term debt at the end of the quarter was $860.2 million versus $834.2 million as of December 31. Our leverage ratio on March 31 was 3.1x. Q1 is typically our biggest cash outlay, and we continue to expect this ratio to hold at roughly 3x as we balance debt leverage and share buybacks. In Q1, we bought back approximately 858,000 shares for a total of $37.4 million. Cash flow provided from operations in the quarter was $13.5 million compared to $41.5 million in the first quarter of 2025. Capital expenditures in the first quarter were $2.9 million compared to $3.8 million a year ago. We continue to expect operating cash flow for the full year to be between $145 million and $155 million and capital expenditures between $20 million and $30 million, resulting in free cash flow around $125 million. No change from our prior guidance at the beginning of the year. Now let's turn to financial guidance. We'll start with revenue. We are pleased to be able to raise our organic growth expectation for 2026 to 5.0% to 6.5% from our prior range of 4.5% to 6.0%. Pat outlined the good signals we are seeing in the business, and we are pleased with the improving outlook. Currency has also improved slightly, and we now expect foreign exchange rates to be a tailwind to revenue of between 40 and 50 basis points. When we provided initial 2026 revenue guidance in January, we had recently announced our strategic intention to exit the GI product lines, but the only transaction that was complete was the agreement with Gore that was announced in December. In January, we did not have clarity on how or when we would exit the remaining product lines, and our guidance included that lack of clarity. In March, as Pat said, we closed on the sale of certain GI products to Micro-Tech. And in late April, we closed on the sale of the remainder of our GI portfolio to a strategic acquirer who we will be able to disclose in the coming few weeks. As Pat said, these agreements include a period of us providing product and services that may likely extend beyond 2026. So we now have much better clarity on what to expect for the remainder of 2026. In January, we estimated that we would sell between $21 million and $25 million of GI product lines in 2026. With these 2 agreements complete and happening faster than originally anticipated, our 2026 revenue guidance for the GI product lines is now between $14.5 million and $17.5 million, which is about a $7 million reduction from our prior guide at the midpoint. Fortunately, the lower revenue also comes with lower costs. And so our EPS guidance of $0.45 to $0.50 impact for the full year is still consistent with our January expectations. Because of our improving growth profile, despite that approximate $7 million of lower GI revenue for the year, we are raising the lower end of our reported range by $5 million and keeping the high end of the range the same. That results in expected reported revenue between $1.35 billion to $1.375 billion for 2026. We expect reported revenue in Q2 to be between $336 million and $340 million. And we've provided a detailed look at the assumptions of the organic growth and currency impact for the remainder of the year in our investor deck. We expect to refinance our debt during Q2 before the outstanding convertible notes go current. We have strong banking partners, and we are seeing attractive rates and plenty of capacity available to us. Given the historic trough in med tech multiples, we have determined that issuing new convertible notes at this time would not be in the best interest of CONMED shareholders. So our intent is to refinance with bank debt, which we expect could increase our full year adjusted interest expense, impacting adjusted EPS for the full year by at least $0.10. Despite this increase, thanks to the strength in the profitability we saw in Q1 and the increase in our organic growth profile, we are able to keep our adjusted EPS guidance for the full year unchanged at the range of $4.30 to $4.45. For Q2, we expect adjusted EPS to be between $1.09 and $1.14. With that, we'd like to open the call to your questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Travis Steed of Bank of America. Gracia Mahoney: This is Gracia on for Travis. On the first one, I wanted to ask a little bit more about the debt refinancing that you called out that you're starting in Q2. And just a little bit more about the strategy and what levers you can do to mitigate potential EPS dilution both in 2026 and then also in 2027 as well. And then I had one follow-up. Todd Garner: Sure. Thanks, Grace. So we're starting those discussions with our banking partners. We have a very strong banking group, some of the best banks in the world. We have ample capacity. We're seeing good rates. The change from what we thought -- what we planned for the full year is we thought that there would be a mix of bank debt and convertible notes that was in the prior original kind of intention. As we look at the historic low multiples in med tech, we determined that it was not in the best interest of CONMED shareholders to do new convertible notes at this time. So that raises the cost of capital just a little bit. As I said in my script, we see that as at least $0.10. I'm not being terribly precise there, obviously, because the negotiations are not done. We don't know exactly what we're going to get. And there's a lot of year left in cash flows and what the rates may do. And so it's going to be more than we originally thought as we laid out 2026, but thankfully, the strength in the business the results of Q1 allow us to keep EPS the same despite that increased headwind from interest expense. Gracia Mahoney: Great. Helpful. And then the second one, earlier this morning, just saw a company come out and talk about inflationary pressures. So I think that's top of mind. I was sort of wondering what you're seeing on the macro front in terms of inflation impacting margins and any framework to think about how that could impact CONMED over the rest of the year and what is sort of implicit in your margin guide there as well? Patrick Beyer: Grace, it's Pat here. Thanks for the question. Again, any macro geopolitical or economic margin pressure or price pressure would be included in guidance. I just want to let you know that. We are seeing some pressure on some commodity products like oil, gold that are affecting our cost of goods sold, but we're working hard with our vendors and our partners and our supply chain to mitigate as much as we can there. At a macro level, we're seeing some component prices go up. We're partnering with our supply chain to mitigate those, and we're also partnering with our hospital systems to partner with them on cost-effective clinical solutions. And we don't expect any more of the macro influences on the cost side to impact our guidance here. And so we've included that in there. Operator: Our next question comes from the line of Ross Osborn of Wells Fargo. Ross Osborn: Starting out with AirSeal, and apologies if I missed this, but what was the attach rate to DV5 during the quarter? Patrick Beyer: Ross, Pat here, and welcome. We did not state the attachment rate for the quarter. What I would say to you is the attachment rate for AirSeal in quarter 1 followed the guidance that we have given in the past, and that was on the DV5. We have guided between 10% and 20%, and we continue to be in that zone, Ross. Ross Osborn: Okay. Sounds great. And then for my second question, what is your level of visibility into state legislation on ORs may result in a tailwind? Patrick Beyer: And I'm sorry about that. And you're talking about smoke evacuation? Ross Osborn: Yes. Just curious regarding guidance, how much is baked in for new states coming on board? Patrick Beyer: Again, anything would have been built into it. Again, I think we stated 20 states have enacted 45% of the hospitals in the U.S., 51% of the population. We have line of sight of 13 additional states have bills pending, and we believe Maryland and Massachusetts are the most likely ones to pass. In fact, Maryland is actually at the governor's desk. And so we continue to see legislation play a role in the background as well as the clinical benefits of it, and societies continue to play as equal or more important role as societies like AORN are pushing for legislation and action from hospitals to standardize on smoke evacuation. Operator: Our next question comes from the line of Robbie Marcus of JPMorgan. Robert Marcus: Congrats on a nice quarter. Two for me. Hoping you could walk us through the bridge on second quarter. It seems like a larger-than-normal step-up in dollars. And I realize the last few years maybe aren't the best proxies for 1Q to 2Q. I know 2Q is historically a stronger quarter. Maybe just give us a bridge of how you get there on a dollar basis. What's getting better and how to think about that? And then I have a follow-up. Patrick Beyer: Sounds good. Todd can talk you through the dollars. And then if there's any questions on the background and clinical spaces, I'll jump in on that side. Todd Garner: Yes. And I know, look, we're only half an hour from releasing the deck on our website. But Robbie, I do want to make sure you see the deck, specifically, I think it's Slide 5. We provided much more granularity on the pieces of organic, the GI sales and currency. So that will just give you some extra visibility. And I would say, in general, if you remember, Q4 was a pretty strong quarter for us. Because of that, we were pretty cautious on the Q1 guide. It came in better than we expected, but we were right in that Q1 was a little softer because Q4 was so strong, particularly internationally. And so it is true that we are expecting to see an acceleration in Q2 better than what we saw in Q1. But I think that fits with how we saw the year to start with, and the signals we're seeing in Q1 have given us confidence that the Q2 numbers are in a good place. Robert Marcus: Yes. I see the slide. I guess I'm asking what businesses are getting better because it's just -- it's a larger dollar amount from first quarter to second quarter, especially with the GI numbers going down year-over-year. So I was wondering if you could kind of give us a bridge. What's getting better in second quarter to get us to that dollar amount? Patrick Beyer: Robbie, I'm going to be focused on the growth drivers. And so our orthopedic business and BioBrace will continue to accelerate its growth. We will continue to work through our supply chain historical challenges that have gotten a lot better, and we're moving more towards on offense. So you can expect the orthopedic business to continue to accelerate, number one. Number two, we called out that international would be much slower in the first quarter because of the big quarter 4 they had. Their absolute value dollars will accelerate in quarter 2. Then you're going to see the natural drivers of AirSeal and our smoke evacuation from a dollar standpoint and a growth standpoint accelerate there. The AirSeal business, although it grew, the absolute growth wasn't as much as we would have liked to have seen, but the absolute capital units that have hit the market were pretty attractive for us, and they accelerated in quarter 1, and we expect to see the disposable trends grow in quarter 2 and throughout the year. So that will also play a role in accelerating that absolute dollar growth value from quarter 1 to quarter 2, Robbie. Robert Marcus: Perfect. And then just quickly on gross margin. You had a really good result, your best one in many quarters. Any color there and just how to think about that through 2Q through 4Q? Todd Garner: Thanks, Robbie. We did -- we grew 100 basis points over the prior year quarter. Our full year guide for gross margin was 50 to 100 for the year. So we were at the top end of that for Q1. As we look at the rest of the year, we think we should be in that 50 to 100 every quarter. So Q1 was good at the top of the range, and we continue to have the guide of 50 to 100 basis points of improvement in 2026. Operator: Our next question comes from the line of Matthew O'Brien of Piper Sandler. Anna Runci: This is Anna on for Matt. I want to touch on the laparoscopic opportunity in AirSeal specifically. I know you've mentioned that market penetration is fairly low there for a while now. So I'm just wondering what the gating factor is there and how we should think about the laparoscopic application as a growth driver long term for AirSeal and then any investments you're making to accelerate penetration into that market. Patrick Beyer: Thank you. So as we think about laparoscopy, historically, we've done a strong job internationally where the robotic penetration was lower. Internationally, we're selling AirSeal in the laparoscopic market successfully. So we know there's an economic and clinical benefit to the hospital systems and patients around the world. To give some detail on the U.S., there are over 3 million procedures in the U.S. laparoscopically, and we address -- and we have a penetration rate of about 6% to 7%. So we have a strong programs in the United States towards standardization in the laparoscopic market. We know that the clinical benefit and the economic benefit is there, but we're taking a pretty focused approach. For example, in the laparoscopic market, 2 procedures, colorectal and hysterectomy have over 350,000 procedures done laparoscopically. These are complex surgeries in nature. They're 3 hours plus in length of procedure, and we know the benefits of AirSeal and stable low-pressure clinical insufflation make a real difference. And so we have an active program in the United States around standardization and laparoscopy. We had a good quarter 1 where our pipeline is growing strongly. And I commented that the actual units of AirSeal going into the market in the United States was really strong in quarter 1. We put over 50% more in quarter 1 in the market than we did in quarter 1 2025. So some good moves are happening there. Anna Runci: Awesome. That's great to hear. Super helpful. And then I also just wanted to ask on the supply chain. Just any additional color on the progress you've made there. And then once these issues are fully subsided, I'd imagine it might take some time for you to recoup any lost business or any dislocated business. So just wondering if there is an expected lag there and when you expect to fully be back on offense with the supply chain issues? Patrick Beyer: Yes. So I appreciate the question. So I'll remind you that at the end of 2025, we said we made real progress. The good news was it wasn't a moment, it was a movement, and we've continued to make progress. And the gains we made at the end of 2025, we've sustained. That's number one. Number two, it's allowed us to grow our orthopedic business, and we commented that we've had 3 quarters in a row where we've actually achieved minimum mid-single-digit growth. The good news is BioBrace had never gone on back order. So our sales professionals, even though they weren't on offense on our core orthopedic product lines, they were connecting with clinicians, taking care of clinicians, clinical issues and maintaining their relationships. So we believe that while we will not take all of the previous business we may have lost back quickly, we believe our relationships are strong with the hospitals. And as contracts continue to come up and we have opportunities, we'll continue to take the appropriate market share that we deserve and we've earned. And again, I would remind you, the sports medicine market is a large market, growing mid-high single digits. And our expectation is we're a winning company, and we would expect to, over time, move to that mid-single-digit, high single-digit growth trajectory. Operator: [Operator Instructions] Our next question comes from the line of Mike Matson of Needham & Company. Michael Matson: So just on Buffalo Filter, the OEM business, is there any way you can help us understand how big of a part of Buffalo Filter, that general surgery business that is? And what's the expectation around when that stops potentially being a drag on Buffalo Filter overall? Like when does it kind of get small enough or level off in terms of the declines? Patrick Beyer: Mike, the Buffalo Filter piece of our smoke evacuation is smaller than our direct, number one. We grew our direct business in quarter 1. And we believe over time, it will continue to get smaller. And we believe the leading indicators we saw in quarter 1 tell us that total smoke will in 2026 be high single digits, low double digits. And so over time, it will phase away, and we'll continue to focus on our direct business. Michael Matson: All right. And then just on the interest expense commentary. So it sounds like you're saying that there's -- it's going to be -- and I know it's rough numbers at this point, but approximately $0.10 greater impact from the added interest expense than you previously expected, but you're able to kind of absorb that and you're maintaining the EPS guidance. But I guess looking into '27 then, and I know you're not giving guidance for '27, obviously, but I mean, is it -- it's probably going to kick in midyear. So is that like a $0.20 annualized impact? And would that $0.20 be kind of a headwind in '27? Todd Garner: Yes. Fair question, Mike. We don't want to get ahead of ourselves. Obviously, we said that with where things are right now, we've determined to not access the convertible part of the market. That doesn't mean that we wouldn't between now and '27, right? So there's a lot of things that can move between now and then. We have a very strong cash engine. And so we'll give '27 guidance at the right time. But -- so I'd ask you to just kind of stay open-minded to where this goes. And I will remind you, we said at least this is still a little bit of a moving target. So we don't want to be too precise with it, and we certainly don't want to be precise into next year. Operator: Thank you. I would now like to turn the conference back to Pat Beyer for closing remarks. Sir? Patrick Beyer: Thank you, Latif. I want to thank everybody for joining us on the call. We entered 2026 with a clear focus on execution. We are concentrating on our key growth platforms and continuing to build a strong foundation for long-term performance. Exiting the GI portfolio further sharpens our focus and positions CONMED as a more disciplined company going forward. I'm really proud of our team and the positive impact they're having on patient outcomes as well as their continued commitment to creating value for our shareholders. Thank you for joining us today, and I want to thank you for your continued interest and support. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the TETRA Technologies, Inc. Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Press star one again. Thank you. I would now like to turn the call over to Kurt Hallead. Please go ahead. Kurt Hallead: Good morning, and thank you for joining TETRA Technologies, Inc.’s first quarter 2026 earnings call. Speakers on today’s call will be Brady Murphy, President and Chief Executive Officer, and Matt Sanderson, Chief Financial Officer. Before we begin, I would like to call your attention to the safe harbor statement in our Form 10-Q. Some of the remarks we make today may be forward-looking and are subject to risks and uncertainties as outlined in our SEC filings. Actual results may differ materially from those expressed or implied. In addition, we may refer to adjusted EBITDA, free cash flow, and other non-GAAP financial measures. Please refer to our press release for GAAP reconciliations and note that these reconciliations are not a substitute for GAAP financials. As such, we encourage you to refer to our 10-Q that was filed yesterday. After Brady and Matt provide their comments, we will open the line for Q&A. I will now turn the call over to Brady. Thank you, and good morning, everyone. Brady Murphy: Welcome to TETRA Technologies, Inc.’s first quarter 2026 earnings call. I will walk through the very positive first quarter highlights, TETRA’s position in this uniquely uncertain time, and the progress towards our 2030 targets before turning it over to Matt to cover more detailed financials and the balance sheet. Despite the backdrop of one of the most tumultuous periods in the history of the oil and gas industry, we started 2026 with one of the strongest first quarter performances in the company’s past ten years. If we exclude the benefit of the Gulf of America Neptune project in the first quarter of last year, revenue of $156 million and adjusted EBITDA of $26 million were ten-year highs, as were the first quarter results for both Brazil and the Gulf of America. In addition, the industrial chemicals and production testing subsegments each delivered ten-year high revenues with strong margin contributions. What encourages us most about our results is that the operational and financial fundamentals for each of our segments and many of our subsegments are improving, even before the benefit of current elevated oil prices and potential increased customer spending activity. At current oil prices, we anticipate offshore projects could be pulled forward and unconventional activity in the U.S. will eventually respond. Combined with the significant growth opportunities laid out in our One TETRA 2030 strategy, which we will update later on our call, we feel very good about how TETRA is positioned for 2026 and the coming years. Regarding the ongoing conflict in the Middle East, and given that this region has historically accounted for about 5% of the company’s revenue, we do not expect an overall negative impact on our financial results. That is because what we have seen so far is activity in our core business regions of the U.S., Europe, and Latin America will likely offset any reductions that may occur in our Middle East business. This applies to our supply chain as well, since all of our chemical manufacturing plants are located in the United States and Europe, and our elemental bromine is sourced from Arkansas, which is also the location of our critical minerals resources. Over the longer term, it remains to be seen how developments in the Persian Gulf and the Middle East will impact the global oil and gas markets and our business. In general, we believe it could boost investment in U.S. and international unconventional activity and provide tailwinds to an already robust offshore and deepwater outlook. Completion Fluids and Products, our industrial chemicals business, had a record-setting first quarter with revenue up 15% year over year and 13% quarter over quarter. For the first time since 2021, when energy services were suppressed due to COVID-19, it accounted for over 50% of total first quarter segment revenue. Higher-pressure gas plays in South Texas and the Western Haynesville supporting Gulf Coast LNG plants are driving higher volumes of higher-value completion fluids. Increasing pressures in West Texas due to disposal well pore space are also contributing to higher-density fluids for well workovers. Looking forward, we are well positioned heading into our traditional European seasonal second quarter peak. Q1 revenue and adjusted EBITDA in Brazil were at a ten-year high. Although we did not execute any Neptune jobs, our first quarter fluids business in the Gulf of America, excluding Neptune work in the first quarter of last year, also recorded a ten-year high in revenue and adjusted EBITDA. Regarding Neptune projects, we are very encouraged by the growing pipeline. The trend toward deeper, hotter wells in the Gulf of America continues, as evidenced by very strong first quarter revenues for our highest-density zinc bromide completion fluid. The Water and Flowback business, despite U.S. frac fleets down 24% year over year and a slow January due to freezing weather, delivered overall revenue up 1% year over year and 3% quarter over quarter. Our production testing subsegment reached a ten-year high in Q1 revenue as our automated SandStorm technology continues to gain market share across the unconventional land operations in the U.S., Argentina, and the Middle East. Our strategy to grow this segment internationally has been successful, and for the first time in the last ten years, international production testing revenue was over 50% of the total PT subsegment revenue. Looking ahead to the rest of 2026, significant uncertainty remains for oil and gas prices. However, given our geographic footprint, we believe any headwinds from the Middle East will be offset by strength of our other geographies. We expect to gain further clarity on customer activity offshore and outside of the Middle East as we move through the second quarter. For now, we are maintaining our prior 2026 guidance of single-digit revenue growth over 2025 with completion fluid margins between 25-30% and Water and Flowback in the mid-teens. Turning to our strategic progress towards our One TETRA 2030 objectives: At our Investor Day last September, we outlined a clear strategic path for the company. Although much has changed in the world since that event, our view of the company’s key growth trajectories across deepwater, specialty chemicals, electrolytes for battery energy storage, critical minerals, and desalination of produced water has strengthened. We expect bromine demand to support our deepwater completion fluids and battery storage electrolytes to double by 2030, driving the need for and reliable access to cost-effective bromine, a critical feedstock. This has become more evident with the current events in the Middle East, as well over 50% of the global bromine supply comes from that region. Our bromine plant project in Southwest Arkansas continues to proceed on time and on budget. Phase two of the project is underway with phase three slated for 2027, and first production at the start of 2028. The plant is designed to have an annual capacity of up to 75 million pounds, more than double our existing long-term third-party supply agreement. TETRA’s electrolyte revenue grew meaningfully in 2025, as U.S. Energy Information Administration reports that a record 15 gigawatts of utility-scale battery storage was added to the grid in 2025. The EIA projects another record 24 gigawatts planned for 2026, representing a 60% growth rate. As artificial intelligence and cloud computing drive rapid growth in data center power demand, scalable long-duration energy storage is becoming increasingly critical. TETRA’s proprietary PureFlow zinc bromide is a key input for these systems, supporting safe, nonflammable performance at utility scale. TETRA’s OASIS TDS end-to-end desalination of produced water for reuse continues to gain momentum, with multiple engineering efforts and customer commercial engagements. Since achieving 24/7 steady-state operations 60 days ago, our Permian Basin pilot project has operated at over 96% uptime and continues to meet our performance specifications. We believe that behind-the-meter power generation, access to affordable natural gas and land, and other factors will drive significant data center growth in West Texas and accelerate the produced water desalination market well ahead of our 2030 targets. Regulatory agencies continue to focus on understanding the technology, setting permitting standards, and encouraging the industry to bring solutions to the produced water disposal challenge. TETRA is honored to participate in the National Petroleum Council produced water committee and to support the recently announced U.S. Environmental Protection Agency Reuse Action Plan 2.0. Regarding TETRA’s lithium and magnesium critical mineral resources in Arkansas, we continue to advance relationships with technology providers and conduct engineering studies. We have formed a joint venture with Magrathea Metals to advance domestic magnesium metal production and monetize this asset. The JV will leverage our specialty chemical processing expertise and large-scale magnesium resource base combined with Magrathea’s proprietary electrolytic magnesium production technology, which has been partially underwritten by the U.S. Department of War. In April, Magrathea successfully converted TETRA’s MacOver brine, rich in magnesium, into a high-purity magnesium metal at its small pilot operation in the San Francisco Bay Area. The JV, named Arkansas Magnesium, is currently conducting engineering studies for a first-of-a-kind demonstration plant planned for co-location at the Evergreen Bromine site in Arkansas. For lithium, a strong rebound in lithium carbonate prices over the past six months has led us to look at options to accelerate the development of our Evergreen 585,000 metric ton lithium carbonate resources. As a reminder, Evergreen is a 6,900-acre brine unit in Southwest Arkansas on which TETRA owns 65% of the brine mineral rights and ExxonMobil owns 35%. The combination of current LCE prices of around $25,000 per metric ton and efficiency advances in direct lithium extraction technology are making this a very attractive option to accelerate. More to come as we look at ways to advance this opportunity. With that, I will turn the call over to Matt. Matt Sanderson: Thank you, Brady. Good morning, everybody. Completion Fluids and Products revenue of $92 million and adjusted EBITDA of $26 million increased 10-12%, respectively, relative to Q4 2025. The sequential increase was driven by higher sales volumes in our industrial chemicals business and ongoing deepwater projects in the Gulf of America and Brazil that Brady referenced earlier. Year over year, Completion Fluids and Products revenue and adjusted EBITDA decreased 12-3%, respectively. As a reminder, our first half 2025 results included high-impact TETRA Neptune projects we previously noted we do not expect to repeat in the first half of this year. That said, the pipeline of deepwater and high-pressure, high-temperature completion opportunities continues to grow. With our best-in-class service delivery and unique fluid chemistry solutions, we are well positioned to participate in the forecasted growth in offshore deepwater activity. As Brady mentioned earlier, geopolitical unrest in Europe and the Middle East has led to a rapid shift in global market dynamics. As a result, offshore activity in the Middle East has slowed, and logistics into the region continue to face higher costs and shipping delays. Our exposure in the region is relatively small compared with our overall business, but some of our Q2 2026 completion fluid sales in the Middle East could be delayed. However, as mentioned, our calcium chloride and bromine-based completion fluids are manufactured outside the Middle East. As such, our fluid production has been unaffected, and we are seeing an increased number of spot sales inquiries from regions and customers we have not historically supported, which could more than offset any delays. For Water and Flowback Services, revenue of $65 million increased 3% sequentially and 1% year over year. To put our performance in context, during the same twelve-month period, U.S. frac activity declined more than 24% year over year. Adjusted EBITDA of $9 million increased 20% sequentially and 9% from the prior year. The improvement in profitability was driven by cost reduction initiatives and continued market penetration of higher-margin automation technology. Outside the U.S., project startups in the Vaca Muerta Basin will enable us to double revenue in Argentina in 2026 at margins that are overall accretive to this segment. Compared with the broader market conditions, our outperformance highlights the strength of our service delivery, our differentiated technology, and our geographical diversification. As commodity prices have increased, and a twelve-month strip price remains above what the market projected at the start of this year, we are seeing our customers consider increasing their activity plans for 2026. Should this occur, we are well positioned to incrementally benefit from any increase in activity in U.S. shale basins that may result from higher oil and gas prices. Regarding our capital structure, we had $36 million in cash and total debt of $182 million at the end of the quarter, resulting in a net leverage ratio of 1.5x. Cash used in operating activities was $12 million. Total CapEx was $19 million, including $8.4 million for our Arkansas bromine project. Total adjusted free cash flow was a use of $32 million and base business adjusted free cash flow was a use of $23.5 million. The use of cash was driven by higher incentive compensation tied to our strong 2025 financial results, our three-year return on net capital invested, and our exceptional total shareholder return performance. Cash use also reflected a build in our AR balance at the end of the quarter, and the seasonal inventory builds in Europe, which will be monetized in Q2. We expect to generate positive base business free cash flow in 2026, with that cash being reinvested in our Arkansas bromine plant. Overall, we are off to a strong start and remain confident in our ability to deliver solid financial results this year while continuing to advance towards our 2030 targets. The global market conditions continue to evolve, but overall, they are providing modest tailwinds for the markets that we serve. I will now turn the call back to Brady for his closing comments. Brady Murphy: Thanks, Matt. Again, despite the continued uncertainty caused by the conflict in the Persian Gulf, the long-term outlook for our business appears to be even better than when we had started the year in 2026. Overall, we are very confident in TETRA Technologies, Inc.’s ability to execute in these market conditions, make prudent financial decisions to support our growth, and continue to make progress towards our 2030 targets. With that, we will now open the call for questions. Operator: At this time, if you would like to ask a question, press star followed by the number one. Your first question comes from Bobby Brooks with Northland Capital Markets. Bobby Brooks: Hey, good morning. Thank you for taking my question. It seems like OASIS commercial discussions are progressing well, and what really stuck out to me in the script was the “multiple engineering efforts and customer commercial engagements.” Could you pull back the curtain a little bit more about what that looks like, and add some comparison to what that looked like at the start of the year or six months ago? Brady Murphy: Good morning. Sure, Bobby, appreciate the question. We are very encouraged with the ongoing dialogue that we have. Remember, we mentioned in our last call that we were engaging in a 100,000 barrels per day plant. We actually now have several parallel engineering studies going on for a smaller-sized plant as well as a 100,000 barrels per day plant. Those engineering studies take time, and we are still on track to have what we need from those projects to get into more commercial discussions with our customers before the end of the second quarter. We are encouraged by what we see from the preliminary engineering studies in terms of OpEx and CapEx and socializing some of those discussions with customers, but we still have a ways to go to finish those efforts, and we will continue to do so. We are in the middle of engineering studies that we will need to complete before we can really get into any long-term contracts, Bobby. Thanks, Bobby. Bobby Brooks: Got it. And then on the customer discussion side, it seems like since the Investor Day there have been more folks reaching out, wanting to hear about the technology and learn more. Is that trend still continuing? Any color on that dynamic? Matt Sanderson: Yeah, Bobby, this is Matt. Absolutely. We cannot disclose the customers that we are engaged with, but those engagements, dialogues, and engineering studies, like Brady referenced, have increased. And as you say, you picked up on the fact that it is not one engineering effort. This is from different customers and multiple opportunities. We are very encouraged. We are also very encouraged by the performance of our technology, our patented OASIS offering, and the economics associated with it. I think, as you are well aware, some of the challenges with disposal and the costs associated with disposal continue to rise. As we continue through our engineering efforts, we are able to demonstrate that the TETRA OASIS solution is, in our view, very cost competitive with alternatives. Operator: Your next question comes from Martin Malloy with Johnson Rice. Martin Malloy: Good morning, and congratulations on a solid quarter. My first question is on the deepwater side. I know there are no Neptune projects in your 2026 guidance. Can you talk about what you are seeing in terms of conversations with customers for deepwater completion fluids, and particularly with respect to Neptune potential projects in the second half of this year or next year? Brady Murphy: Sure, Marty. We have been feeling good about the deepwater outlook going back to our Investor Day when we outlined strong compound annual growth as we march towards 2030. I would say the recent events have only strengthened that outlook. As you look at cutting off the amount of oil that is currently happening in the Middle East, projects that were already looking very strong financially for our customers are being evaluated for what can be pulled forward. We are hearing some of that churn. We actually picked up work outside of the Middle East that we have seen already will offset whatever impact we see from our Middle East business, even though it is roughly 5% of our revenue. We have seen opportunities already well overcompensate that potential loss. So yes, we are seeing some churn in that regard, but it has already been a strong outlook in terms of our base business deepwater completion fluids. Regarding Neptune, as we said, the pipeline continues to grow. The wells are getting hotter and more challenging. Zinc is still an option in the Gulf of America, but it has its own challenges as you get hotter with corrosion and as you deal with production facilities. We are seeing that pipeline continue to grow, and we are also seeing opportunities outside of the Gulf of America continue to build. You may or may not see a Neptune project this year, but I would say the probabilities for next year are continuing to increase pretty significantly. Martin Malloy: Great. Very helpful. And a follow-up: in your press release, you talked about evaluating options to accelerate lithium and magnesium development. Is there more you can share now? Would that be in conjunction with accelerating the bromine project, is it dependent on that, or is this separate, related to the Exxon joint venture? Brady Murphy: We are accelerating the bromine project at the fastest pace we can. That project is our priority, and we will prioritize that project to have completion by 2027 and start in 2028. The benefit is that all the upstream—brine wells, pipelines, and some of the pretreatment plant capabilities to take out H2S from the brine field—will be in place for whatever additional plants we put on that site. As we mentioned, we are currently doing engineering studies and plan to put a demonstration plant for the magnesium JV with Magrathea, and we have already done quite a bit of engineering for a lithium plant that will be on the same site. That will benefit from a lot of the infrastructure and investments that we have already made for bromine, so there are a lot of synergies. We are not ready to publish any financial information on those projects yet, but as we move forward, you can anticipate we will at the appropriate time. Operator: Your next question is from Tim Moore with Clear Street. Tim Moore: Thanks. My first question is about battery energy storage. EOS has had some supply/manufacturing hiccups, which seem temporary. Do you get a rolling update on that, and do you have enough feed supply for electrolytes to quickly get it to them if they start ramping up more seriously after the summer? How are you thinking about that logistically on the supply side? Brady Murphy: Yeah, Tim, we do not want to comment or forecast ahead of EOS, but we are very plugged into their forecasts so we can plan for not only the bromine but the full electrolyte production that we need to produce. We do have good visibility into that, but we cannot talk about specifics. As we have mentioned before, in addition to our long-term supply agreement, we have secured additional third-party bromine supply that is in place to meet the forecasts we are getting from EOS. That is not a concern. Once we have our own plant operating in 2028, if they continue their path to the 8 gigawatt-hours of production they have stated publicly, we will be in a great position to supply their requirements and the deepwater growth we have projected. Tim Moore: That is helpful, Brady. Switching gears, on the Arkansas bromine project, it was nice to hear production still expected early 2028. Could you walk us through some of the next construction milestones, and where you would anticipate CapEx to uptick in the coming quarters? Brady Murphy: Sure, I will take that one, and Matt can add anything. The project is on schedule. We completed phase one. Phase one was important because standing the bromine tower up on-site was a logistics challenge. It is a large 130-foot titanium structure. Having that up and secured was a really important milestone. A lot of the actual on-site construction around the bromine tower, the pipelines from upstream, and the pretreatment still have to be constructed. Yes, there will be more construction activity in 2027-2028. We are projecting good cash flows for the rest of this year and 2027, so we are looking to finance as much of that as we can from our free cash flow, and if we do need additional capital, we have very good options available. For now, we are funding from our cash flow, and that is the plan. Operator: Your next question comes from Analyst with Stifel. Analyst: Hey, it is Pat on for Stephen Gengaro. Thanks for taking the questions. Could you talk about the opportunity you have for magnesium production, including any sense you have for demand and any color on the joint venture? I believe I saw the JV partner referenced 7,000 tons per year by 2029. Brady Murphy: We are having ongoing discussions. We have finalized the joint venture, which is great. We had our first formal board meeting a week or so ago. We really like this technology. As you are probably aware, the U.S. really does not produce any magnesium. The world is heavily dependent on China for magnesium production. Being on the critical minerals list, it has the attention of the current administration and the Department of War. It is a little premature to state how large the first commercial plant will be; we are having discussions along those lines. We will have plenty of brine flow to make the plant as large as we want, but there are other considerations like offtake agreements well ahead of time and potential government funding support. The demonstration plant will be small-scale to prove out the technology. For commercial scale, we have not made any final determinations yet. Analyst: Okay, thanks for the color. Shifting gears a bit, thinking about fluids, it seems like the timing of completions versus rig activity in deepwater would lead to maybe sharply higher 2027 fluids demand. Is that reasonable, and any way you would translate deepwater rig additions to the demand? Matt Sanderson: Patrick, on the earnings call back in February, we gave some soft guidance around what to expect in Completion Fluids and Products this year. We highlighted that we came off a very strong performance in 2025, where a lot of the rigs in the markets we serve were in completion activity, and then we guided that we expected those rigs to move into more drilling activity in 2026, shifting back to 2027 for higher completion activity like you referenced. As Brady touched on, the geopolitical events highlight global demand and where that demand is fulfilled. We are seeing projects coming online, FIDs, and leasing activity. These tend to be deeper, hotter, more challenging environments requiring higher-density brines and more exotic chemistries, which plays to TETRA’s strength. We are very pleased with what we are seeing already in 2026—modest tailwinds and a strong Q1—and we expect that 2027 completion activity, and the type of completion activity, will really benefit TETRA. Operator: Your next question is from Analyst with CJS. Analyst: Good morning. Thank you for taking my questions. My first one is: could you talk about your partner’s lithium project FID status and whether you may need to pursue your own investments there to keep the bromine project on time? And if you do decide to drill your own wells, would that be feeding into your own production endeavors if you want to accelerate that? Brady Murphy: Let me clarify. The wells that we drill in the upstream for the brine contain lithium, bromine, and magnesium. All three minerals are within the same brine. The wells we will be drilling for our bromine project that will feed the bromine tower already have lithium and magnesium in them, so we do not need to drill additional wells to extract lithium or magnesium. That is the real benefit: we are getting three critical minerals from the same upstream investment. The plant itself is a different issue. We are building the bromine plant now. The lithium plant will come later. We are not at a point where we are ready to FID a lithium plant. There is still more technology evaluation and engineering work to be done before we are ready. But as I said, current lithium economics make it attractive enough for us to put accelerated time into that. Analyst: Right, thank you. Are you expecting your partners to drill the wells, or are you expecting to drill your own wells? Brady Murphy: When you say our partners, who are you referring to? Analyst: Standard Lithium and Equinor. Brady Murphy: They have their own project on our brine leases. That is a separate project. They have the Reynolds Unit that has been approved. We get a royalty on lithium off of that production. They are partners with each other, but we own the brine leases and we get a royalty off that production. Our Evergreen Unit is where we will be drilling and producing brine for bromine and future lithium and magnesium. They will be drilling on their Reynolds Unit, where we get a royalty off lithium, and we also get the tail brine from that production when we need it in the future, and we have the other mineral rights within that brine. Hopefully, that clarifies it. Analyst: It does. Thank you. And what is happening in calcium chloride markets? Is that being impacted by the conflict in Iran and how that flows through supply chains and industrial demand? Brady Murphy: The calcium chloride business for us continues to perform extremely strong. It is a big part of our industrial chemicals business that had a record first quarter, up significantly year over year and quarter to quarter. We are not seeing any material change due to the current conflict. We really do not have supply chain issues related to that market. We do not have a large presence selling calcium chloride into the Middle East. Our European business is very strong. Our U.S. business is very strong. We mentioned on our last call we saw some new emerging markets related to chip manufacturing requirements. That business is performing very well for us, and we fully expect it to continue. Operator: Your next question comes from Analyst with Daniel Energy Partners. Analyst: First one is on international production testing. You talked about revenues being greater than 50% internationally. Where do you see that going over time, and could you walk through some of the markets where you are seeing strength today and how recent events have potentially changed your outlook there? Brady Murphy: Thanks. As mentioned, we are seeing strong performance in Argentina, and we expect to more than double our revenue in 2026. We also have some exposure in the Middle East, although it is relatively small, and we see opportunities in those regions to continue to deploy technology and automation. We have been very successful in North America automating and bringing differentiated technologies such as SandStorm and automated drill-out to our customers, and these technologies can be exported and deliver value in international markets. We are pleased with our geographical diversification. As the world looks at where energy is produced and how to secure it, it is not just U.S. land; other markets are looking at securing their own energy, and we are pleased to participate. Analyst: On that point, has the game changed when we think about energy security longer term and the opportunity set across multiple business lines, international and offshore, as a result of what has happened over the last eight weeks? Are you having incremental conversations with customers you may not have been having eight to twelve weeks ago? Brady Murphy: When you look at the current situation and the future energy markets where you want to be positioned, offshore deepwater is clearly a key market for future barrels. Also, unconventional activity in the U.S. and Argentina, because relatively speaking, it is a short cycle time to get additional production as you put more rigs and frac crews into the unconventional markets. We are also seeing more unconventional activity start to grow in the Middle East. We will see how the current environment may or may not impact that activity. The markets where we want to be right now—strong positions in Europe, the U.S., and Latin America; offshore deepwater; unconventional—are where we really want to be to support security of future supply. Matt Sanderson: The other aspect we touched on is that we are seeing increased inquiries for spot sales from different customers and regions than we have historically served for our completion fluids. More than half of the world’s bromine is derived from the Middle East. The challenges in that region are well publicized. Some customers are having those conversations with us, asking about supporting their business with our fluids, with bromine-based fluids being manufactured in North America from Arkansas. We are pleased with that. More broadly, everyone is appreciating that the world needs all forms of energy, and it will need all forms of energy for a long time. Operator: Your next question comes from Bobby Brooks with Northland Capital Markets. Bobby Brooks: Thanks for letting me jump back in the queue. Turning to the domestic onshore completion fluids market, what are you hearing from customers on their back half 2026 activity outlook? Are they in a wait-and-see mode on whether these higher oil prices are here to stay? Brady Murphy: So, Bobby, you are asking about our U.S. land completion fluids business, right? Completion fluids for us are largely an offshore business. We do have some land business for our completion fluids, but it is generally small relative to our offshore and deepwater markets. We are seeing interesting trends on land: very high-pressure Western Haynesville and South Texas gas wells feeding LNG projects require heavier-density brine for completion work, and in West Texas, pore pressures are getting so high that additional workover activity also requires heavier brine. Those two areas are where we see most of the growing land opportunities for completion fluids. It is still relatively small versus deepwater, but it is starting to grow in a meaningful way. Operator: Your next question is from Martin Malloy with Johnson Rice. Martin Malloy: Thank you for taking a follow-up question. I wanted to focus on Argentina. You cited projects coming on later this year, giving you confidence in the outlook. Could you talk more about the services you are providing down there? Are you expecting demand for the early production facilities—historically pretty profitable—to be utilized there, or is this more on the flowback and testing side? Matt Sanderson: Really, all of the above. We did see continued interest and secured some early production facility projects for this year. Also, technologies such as SandStorm automation, which has been deployed and proven in unconventional plays in the U.S., are being deployed into Argentina. We have SandStorm down there today. Historically, our business there was more levered to early production facilities. Now we are seeing a combination: an increased number of early production facilities and deployment of our differentiated technology for operators in Vaca Muerta. We are quite pleased with how that business continues to progress. Operator: There are no further questions at this time. I will now turn the call back over to Brady for any closing remarks. Brady Murphy: Thank you all very much. We appreciate your participation in our call, and we look forward to talking to you at our second quarter earnings call. We will conclude the call now. Thank you. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Good day, everyone. Welcome to the NNN REIT, Inc. First Quarter 2026 Earnings Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Stephen A. Horn. The floor is yours. Stephen A. Horn: Thank you, Kelly. Good morning, and thank you for joining NNN REIT, Inc.’s first quarter 2026 earnings call. I am joined today by our chief financial officer, Vincent H. Chao. NNN REIT, Inc.’s disciplined, efficient, and self-funded growth strategy continues to deliver results. Our proven long-term operating platform and consistent capital allocation focused on sufficiently accretive acquisitions remains central to our approach. We are committed to long-term value creation, navigating market conditions with discipline, and capitalizing on opportunities to support durable growth. As detailed in the press release this morning, NNN REIT, Inc. delivered a strong quarter. We closed 15 transactions comprising 41 properties for a total investment of $145 million, with an initial cash yield of 7.5%. At the same time, we maintained significant balance sheet flexibility, ending the quarter with $1.2 billion of total liquidity and an industry-leading weighted average debt maturity of nearly 11 years. Reflecting our consistent performance and visibility into the remainder of the year, we are raising our 2026 AFFO per share guidance to a range of $3.53 to $3.59. This increase underscores the strength of our portfolio and the effectiveness of our multiyear growth strategy. One additional item before I get into operations: if you have not reviewed our updated investor presentation released during the quarter, I encourage you to visit the website and take a look. Turning to operating performance, our portfolio of approximately 3,700 freestanding single-tenant properties across all 50 states continues to perform well. During the quarter, we renewed 36 of 43 lease expirations, consistent with our historical renewal rate of approximately 85%, and rental rates were 2% above prior levels. Additionally, we leased seven properties to new tenants at rent rates about 10% above previous levels, demonstrating the continued demand for our assets and the outstanding job our asset management team is executing at high levels. Our tenant base remains healthy with no material credit concerns currently. Occupancy increased sequentially by 30 basis points to 98.6%, now above our long-term average. This improvement reflects the strong execution of our leasing and disposition teams, who are actively repositioning vacant assets to maximize value. In several cases, the team has secured high-quality investment-grade tenants, further enhancing asset value and contributing incremental value creation. With only 53 assets remaining and active solutions underway, combined with the solid overall performance of the portfolio, we expect occupancy to continue trending upward in the near term. On the acquisition front, as I said earlier, we invested $145 million across 41 properties with a cash cap rate of 7.5%, and, more importantly, with a weighted average lease term of 19 years. The sale-leaseback nature of our transactions continues to provide accretive, risk-adjusted returns with long-duration, predictable cash flows. Regarding market conditions, cap rates in the first quarter remained largely consistent with recent quarters. While we are seeing some modest compression early in the second quarter, we expect relative stability going forward. As always, our platform is designed to operate effectively across many macro environments. We do benefit from a stable interest rate backdrop, and the 10-year has remained fairly range-bound, which continues to support transaction activity. We had elevated volume in 2025, and we are seeing a good amount of investment opportunity for the first half of the year. During the quarter, we sold 25 properties, including 16 vacant assets, generating $36 million in proceeds for redeployment. Dispositions of income-producing assets were primarily non-core, and we executed approximately 30 basis points below our acquisition cap rate. As discussed previously, we expect to take a more proactive approach to asset sales in 2026 to further optimize portfolio quality for the long term. As you know, tenant credit evolves, markets shift, and consumer behavior changes, which results in active portfolio management becoming essential to maintaining high-quality, durable cash flow. Our balance sheet remains one of the strongest in the sector. We ended the quarter with just $80 million drawn on our credit facility and maintained a weighted average of debt maturities, as I said before, of nearly 11 years. NNN REIT, Inc. is well positioned to fund the remainder of the 2026 acquisition pipeline and support continued growth. With a robust pipeline, strong financial position, and proven leadership, we are confident in our outlook. We remain committed to our self-funded model, disciplined capital allocation, and delivering sustainable long-term value for our shareholders, targeting mid-single-digit earnings growth plus a dividend we have increased for 36 consecutive years, one of only three REITs. I will now turn the call over to Vincent H. Chao for the financial results and updated guidance. Vincent H. Chao: Thank you, Stephen. Let us start with our customary cautionary statements. During this call, we will make certain statements that may be considered forward-looking statements under federal securities laws. The company’s actual future results may differ significantly from matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after the statements are made. Factors and risks that could cause actual results to differ from expectations are disclosed in greater detail in the company’s filings with the SEC and in this morning’s press release. Turning to results, this morning we reported core FFO of $0.86 per share and AFFO of $0.87 per share, each flat over the prior year. As disclosed on page 8 of today’s earnings release, we booked $739 thousand of lease termination fees this quarter versus $8.2 million a year ago, representing a $0.04 headwind, without which AFFO per share growth was a solid 4.8%. Results were modestly ahead of our internal projections, with upside driven primarily by lower-than-expected bad debt and net real estate expense. Bad debt represented about 15 basis points of quarterly ABR and was better than our 75 basis point assumption. Our NOI margin was 95.9% in the first quarter, reflecting the efficiency of our triple-net lease structure. G&A as a percentage of total revenue was 5.9%, in line with our expectations, while our cash G&A margin was 4.2%. Annualized base rent grew 7% year over year to $935 million, driven by our strong acquisition activity, while free cash flow after dividend was about $52 million in the first quarter. Regarding our watch list, as Stephen mentioned, we are not currently tracking any significant near-term credit issues in the portfolio, and we are optimistic that we can outperform our bad debt assumptions for the year. That said, we remain proactive portfolio managers and will continue to look for ways to de-risk the portfolio ahead of potential future issues without incurring unwarranted dilution. Included in this quarter’s dispositions was one AMC as well as an entertainment property. Our occupied dispositions had only three years of remaining lease term and, despite the de-risking nature and shorter term of the properties sold, we were still able to generate an economic gain of over 6% on the sales, given our low cost basis in the assets, which is a key component of our risk controls. Turning to capital markets, during the quarter, we drew down the full $300 million available to us on our delayed draw term loan. The rate on the term loan has been swapped to a fixed all-in rate of 4.1%. We also sold roughly 1.7 million common shares on a forward basis through our ATM at just under $45 per share. We did not settle any forward equity, leaving us with expected future net proceeds of $74 million as of March 31. Our next debt maturity is our $350 million unsecured note due in December. As a reminder, we have an accordion feature that allows us to expand our existing term loan by $200 million, and IG credit spreads have recently revisited historical lows following a brief widening in the immediate aftermath of the Iran conflict. This gives us multiple options with which to address our pending maturity as well as financing our investment plans on a leverage-neutral basis. Moving to the balance sheet, our Baa1-rated balance sheet remains a competitive advantage that provides us with the flexibility to fund future growth while protecting against downside risk. At the end of the quarter, we had no encumbered assets, $1.2 billion of available liquidity, and just 1.6% of our debt tied to floating rates. Including the impact of our unsettled forward equity, pro forma net debt to EBITDA was 5.6x, unchanged from last quarter. Our debt duration remains the highest in the net lease space at 10.5 years, well matched with our lease duration of 10.1 years. On April 15, we announced a $0.60 quarterly dividend, representing 3.4% year-over-year growth, equating to an attractive 5.7% annualized dividend yield and a conservative 69% AFFO payout ratio. I will end my opening remarks with some additional color on our updated 2026 outlook. Based on our better-than-expected first quarter performance and our growing pipeline of investment opportunities, we are raising the midpoint of both our AFFO and core FFO per share guidance by $0.01 to new ranges of $3.53 to $3.59 and $3.48 to $3.54, respectively. The midpoint of our increased AFFO per share guidance represents an acceleration of year-over-year growth to 3.5% from 2.7% last year. Line item guidance, which is summarized on page 3 of our earnings release, remains unchanged, although I would highlight that we are tracking to the low end of the $14 million to $15 million range for net real estate expenses and towards the high end of our $550 million to $650 million acquisition guidance, based on our near-term pipeline visibility. With expected free cash flow of about $212 million, $130 million of expected dispositions, and $1.2 billion of available liquidity, we are well positioned to fund our acquisition plans for the year. From a credit loss perspective, we are lowering our bad debt assumption for the full year from 75 basis points to 60 basis points, reflecting the outperformance in the first quarter. Our assumptions for the balance of the year are unchanged, but as I mentioned earlier, given year-to-date trends, we are hopeful we can outperform our bad debt projections in the coming quarters. We will now open the call for questions. Operator: Can you hear me? Vincent H. Chao: Yes, we can hear you, Kelly. Operator: Okay, sorry about that. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from William John Kilichowski with Wells Fargo. Please pose your question. Your line is live. William John Kilichowski: Hi. Good morning. Thanks for taking my question. Very helpful color in the opening remarks on the funding for the acquisition guide. If I think about the incremental $74 million that you have raised and the term loan, it sounds like you have capacity to go well above the guide here and you are trending up. What is keeping that acquisition guide sort of consistent here in 1Q? Stephen A. Horn: Hey, John. I will take that. We have a very robust pipeline and opportunity set that we are looking at currently, but the old adage applies: you do not want to count them until they are done. We are actively in negotiations, trading paper, but until they are in a well-advanced closing stage, we do not want to get above our skis here. Vincent H. Chao: Yes, but, John, you are correct in the sense that the $74 million of equity does give us a little bit of additional capacity. So at our typical 60/40 equity/debt mix, it would be about $125 million of additional capacity. William John Kilichowski: Very helpful. Thank you. And then the second one is just on the credit loss guide. Appreciate the updated color on the 60 basis points. Of that, what is pure conservatism versus what is something you feel like you have an outlook on? And maybe an extension of that would be the 7‑Eleven headlines on store closures. Have you had any discussions with them? Is there any impact to you that would be in that guide? Vincent H. Chao: As far as the credit loss assumption, there is very little in terms of embedded or something that we expect to happen other than there was a small amount—15 basis points—in the first quarter. Beyond that, there is really nothing material that is known that we would put into that number. Stephen A. Horn: As far as 7‑Eleven, we have never done quote business directly with 7‑Eleven. They acquired a lot of our large regional operators that we did business with over the years. Our average cost basis in our 7‑Eleven portfolio is about $2.2 million. We completed a significant renewal in 2025 with 7‑Eleven, and our average lease term with 7‑Eleven is about eight and a half years. We are very confident. We have not had any discussions indicating concern, and none of our stores are on the closure list. Operator: Your next question is coming from Analyst with Bank of America. Analyst: Morning. Following the recent ATM issuance, could you characterize your current overall WACC and your investment spreads today? Vincent H. Chao: The WACC does change on a daily basis, but if you are talking about near-term AFFO yields and debt mix, we are probably in the high-6% area—call it 6.75% to 6.8%. Analyst: And then for my next question, last quarter you expected cap rates to compress more in 2Q and 3Q. Is that still your view, or is it a higher-rate environment and reduced competition? Stephen A. Horn: My view is the same on cap rates as it was in the first quarter, and it is coming into reality. Our first quarter cap rates were in line with the past many quarters, and we expected second-quarter compression. I still expect that for the deals I see being priced, and then I see them staying at that compressed level. For modeling purposes, we always have a watch list—we are always watching tenants. Case in point, AMC is on our watch list; we have talked about that before. We were able to sell one in the quarter, and we were pretty pleased with that outcome given the nature of AMC sales. On net for the quarter, we came out with an economic gain—not a GAAP gain—for our occupied properties. That is the kind of thing we are going to look at. So yes, in the near term—meaning this year—we are not seeing any material concerns worth calling out. That does not mean we do not have tenants that we think are maybe medium- to longer-term ones that we are watching a little more carefully, and we will look to address some of those as we can. I will just add one more thing. Our active portfolio management is not just focusing on credit. You always have credit risk; credit changes. More importantly, you might have real estate risk and the probability of renewal at the end of the term. We are trying to get ahead of that, looking years out, and making the portfolio a more stable platform because things do change. Analyst: Thanks for the color. And then you also mentioned you leased seven properties to new tenants in the quarter. Are you able to share details on what industries these tenants operate in? Stephen A. Horn: It was a combination primarily of quick-service restaurants and convenience stores. I think there was one car wash in there. Analyst: Okay. Great. Thank you. Your next question is coming from Analyst with Citi. Analyst: Hi. This is Nick Kerr on for Smedes. Morning. Thanks for taking the question. Are you seeing or hearing anything from any of your tenants that might suggest any changes in underlying consumer spending habits, maybe across the restaurant or more of the experiential touch bases? Vincent H. Chao: Many of our tenants—about 10%—are public, so we do get those reads, and we also have our own conversations privately with our tenants. There is nothing I would say that is a broad-strokes takeaway. Certain restaurant tenants are doing better than others. To the extent there is continued pressure on the consumer, you would expect that to pressure some of the more cyclical businesses, but nothing has bubbled up that is a meaningful broad-stroke takeaway. Analyst: Got it. Thank you. And then you mentioned you are trending towards the high end of your acquisition guidance. Could you just remind us what your visibility into your pipeline is like from today, and then any color on what that quarterly cadence of acquisition volume would look like through the balance of the year? Stephen A. Horn: I encourage you to look at volume on an annual basis because quarter to quarter it can be very volatile. As I said in the opening remarks, our acquisition opportunity set is really healthy currently, and, as Vincent mentioned, we are trending to the high end of our range currently—if everything closes. Operator: Your next question is coming from Jenny Leeds with Morgan Stanley. Please pose your question. Your line is live. Jenny Leeds: This is Jenny on for Ron. First question on sale-leaseback: you talked about a lot of the acquisitions from longstanding relationships. Are you seeing any acceleration in sale-leasebacks given the current macro environment? Stephen A. Horn: I think that is reflected in our pipeline. There is a big opportunity with sale-leasebacks currently. It is elevated this year versus 2025, even though we had record volume in 2025. It feels like there are a lot of sellers using sale-leaseback for debt refinancings and balance sheet management. Jenny Leeds: That is helpful. Thank you. Second, can you confirm the latest status of Frisch’s and Badcock? Are they all cleaned up? What is the current status? Stephen A. Horn: All our Badcock assets are currently accounted for and cleaned up, and we had near 100% recovery—so we are in great shape there. For Frisch’s, we are well on our way. All the Frisch’s are within our 53 vacant assets, and we are working all the assets currently. We have a tremendous amount of interest in those assets, and I am expecting some really positive outcomes as we move through the year. Vincent H. Chao: With occupancy back to 98.6%, above our long-term averages, there is not strong pressure to fire sale anything or move too quickly. We are in a good position and can be a little bit pickier. Operator: Your next question is coming from Alec Feygin with Baird. Alec Feygin: Hey, thanks for taking my question. First one: what is the term income currently assumed in guidance? Vincent H. Chao: We do not give lease termination fee guidance per se. We have commented that we think this year will be a normalized year, typically between $3 million to $4 million. Again, not guidance, because these things are episodic. If it is the right thing to do for the business to take a lease termination fee because we can solve a future problem and get a fee on top of it, we will do that. Historically, $3 million to $4 million is about what we averaged—maybe a little less—and what we did in the quarter is pretty consistent with that. Alec Feygin: Got it. And second for me: are there any categories currently seeing a bid from private market participants where you can be opportunistic in asset sales—not from a real estate or credit perspective, but just seeing a high bid? Stephen A. Horn: There is not a particular segment with a distinct high bid right now. We are looking to sell about $130 million of assets in the market, and there is no big private capital market bid for those. If pricing were super attractive, we would consider it, but that is not what we are seeing at the moment. Operator: Your next question is coming from Michael Goldsmith with UBS. Michael Goldsmith: Good morning. Thanks a lot for taking my question. You touched a little on expected cap rate compression from the first to the second quarter. Is that just broad compression, or are there specific asset categories where you are seeing that compression? Stephen A. Horn: It is broad across our opportunity set. As you know, we do a lot of mining of our portfolio. The auto service and convenience store sectors are primarily where we are seeing minimal compression—around 15 to 25 basis points. Michael Goldsmith: Anything specific you think is driving that? Stephen A. Horn: As I always say, in the first half of the year people want to do deals, so the competition gets a little more aggressive and is willing to compress their spreads. Michael Goldsmith: And then in terms of specific categories, you mentioned that you leased to a car wash. Can you talk about your comfort level in that category? I think you mentioned that you sold an AMC. Are you able to provide the cap rate on where theaters are trading right now? Stephen A. Horn: We do not provide cap rates on individual deals. Overall, our income-producing dispositions were about 30 basis points inside our acquisition cap rates. Regarding car wash, to clarify, we did not buy a car wash this quarter—it was one of the seven assets we leased. That said, I am very comfortable with our car wash holdings. We have done them since 2005, our basis is extremely low, and we did not get into the “pie-eating contest” when there was a lot of availability for car washes over the years. Michael Goldsmith: Got it. Thank you very much. Good luck in the second quarter. Vincent H. Chao: Thanks, Mike. Operator: Star 1 at this time to enter the queue. Your next question is coming from John James Massocca with B. Riley Securities. Please pose your question. Your line is live. John James Massocca: Good morning. Sticking with the theme around cap rate compression you are potentially seeing in the pipeline and on the horizon for the remainder of the year, is that changing at all based on any changes in the competitive environment? With interest rates moving around and maybe some dislocation in certain other capital sources, are you seeing less competition outside of other REITs, and if you are, are other REITs filling that gap? What is the overall competitive environment for your potential partners here? Stephen A. Horn: For the 20-plus years I have been doing this, it has been a highly competitive environment. The names have come and gone, and a couple of us REITs have been around for the 20-plus years. Private capital has always been involved. It was non-traded REITs; now financial institutions are raising money and creating REITs. It is highly competitive—it always is. The names change. I do not view there as being more competition; I view it as people wanting to do more deals right now in the first half of the year. John James Massocca: Have you seen any pullback in non-REIT capital over the course of year-to-date, given some of the changes in that environment? Stephen A. Horn: Most of the non-REIT capital is playing in segments we do not play in—large industrial—so they can deploy vast amounts of money at one time. They are not buying a Taco Bell in Terre Haute, Indiana, with a franchisee. John James Massocca: Fair enough. And then I know you do not want to disclose the cap rate on the AMC asset sale, but can you maybe talk about who the buyer was? Was it another landlord, a tenant, someone looking to redevelop? Was this a true theater-to-theater transaction? Stephen A. Horn: It was somebody looking to redevelop the asset. John James Massocca: Okay. Alright. That is it for me. Thank you very much. Operator: There are no further questions in queue at this time. I would now like to turn the floor back over to Stephen A. Horn for closing remarks. Stephen A. Horn: Again, thanks for joining us on the call. NNN REIT, Inc. is in really good shape going forward. We are optimistic and look forward to seeing many of you in the next few weeks at NAREIT. Thanks, and good day. Operator: Thank you, everyone. This concludes today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Good morning, and welcome to Carrier's First Quarter 2026 Earnings Conference Call. I would like to introduce you to today's host for the conference, Michael Rednor, Vice President of Investor Relations. Please go ahead. Michael Rednor: Good morning, and welcome to Carrier's First Quarter 2026 Earnings Conference Call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer; and Patrick Goris, Chief Financial Officer. Except where otherwise noted, the company will speak to results from continuing operations, excluding restructuring costs and certain significant nonrecurring items. A reconciliation of these and other non-GAAP financial measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements, which are subject to risks and uncertainties. Carrier's SEC filings, including our Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Dave. David Gitlin: Thanks, Mike, and good morning, everyone. Let me start by thanking our team globally who continue to deliver differentiated solutions for our customers and help preserve the planet for generations to come, while also delivering financial results that exceeded our expectations. Demand for our commercial HVAC and aftermarket solutions remained strong, while our shorter-cycle businesses have performed better than expected. Company orders in 1Q were up 11% led by global CHVAC up 35%, including CSA commercial HVAC up over 80%. Global data center orders were up over 500%, reflecting continued customer demand for our differentiated solutions. Our current data center backlog now fully covers our expected $1.5 billion of data center sales this year. Of course, we are targeting to exceed that number. Organic sales were about flat as CSA Resi and Light Commercial both performed better than expected. CSA Resi movement was better than expected and field inventory levels remain healthy. CSA Light Commercial was up nearly 10%, driven by share gains in large retail accounts and continued traction from our recently introduced highly efficient hybrid fuel rooftop units. In Europe, encouragingly, the increase in natural gas prices supported strong demand for heat pumps. With the ratio of electricity to natural gas in Germany below 3 for the first time since early 2023, strong demand for heat pumps has continued into April in Germany and across Europe. Both EPS and free cash flow were better than expected, and we returned about $500 million to shareholders through dividends and share buybacks. In summary, I am proud of our team for navigating macro headwinds and delivering better-than-expected results. Our growth algorithm is centered on products, aftermarket and system differentiation, and we are making strong progress across all 3. I'll start with products on Slide 4. Our CSA RLC business is a superb business with high share and strong margins, ROIC and free cash flow, and we continue to invest in differentiation. On the product side, for example, we recently introduced a new highly efficient fan coil with a significantly smaller footprint and lower weight, which is very attractive to our extensive dealer network as it is easier to install and service. We are also expanding our TAM with new system offerings focused on hydronics. Last year, we introduced an air-to-water heat pump that delivers heating, cooling and domestic hot water. In 2027, we will expand the Viessmann boiler lineup with an entry tier offering and will then further expand into the attractive North America domestic hot water adjacency through a differentiated system solution that combines our air-to-air heat pump expertise with Viessmann's deep knowledge of hydronics. Carrier Energy continues to progress well with utilities and key hyperscalers, and we plan to introduce our Gen 1 units in the market this summer. The resi digital ecosystem is another key opportunity. We expect that connecting homeowners, dealers, distributors and Carrier into a single 360-degree digital stack will provide greater customer satisfaction, increased renewal rates and parts capture as well as improved forecasting and working capital performance across the value chain. In Light Commercial, we're executing the same disciplined playbook. Our field retrofit kit is converting existing rooftop units into connected assets, improving operational insights and expanding parts, service and aftermarket opportunities. Our recently launched multistage ultra-high-efficiency WeatherMaster platform has the best-in-class efficiency to weight ratio. While I am highlighting CSA RLC as an example of product differentiation, we're seeing similar progress globally. In the fall, ahead of the heating season, CSE RLC will be introducing a new differentiated high-tier Viessmann branded heat pump that is complementary to our current premium offering. Our CSAME business introduced a new Toshiba-branded side-discharge VRF platform, featuring best-in-class efficiency, distinctive aesthetics, low noise performance and high reliability. So product differentiation is a consistent theme across the portfolio. Turning to Slide 5. On the CHVAC side, our product portfolio, field network support and operational capacity are night and day versus where we were at spin. We now have -- not only have a comprehensive product portfolio, we are winning head-to-head what you see in our orders, share gains and backlog. We've invested in the right products with new offerings such as 2- and 3-megawatt maglev bearing air-cooled chillers with free cooling and a range of water-cooled chillers enabling reliable data center operation in high ambient environments. And by the end of this year, we will have introduced an expanded suite of very attractive CDU offerings. Our high-margin controls business has also significantly increased share in the U.S. and is a key differentiator in our system-wide offerings. Significant capacity expansion and superb technical talent additions have supported growth in this important business. The team's great work and investments are driving results, as you can see on Slide 6. Sales in our global CHVAC business are up 80% since spin. Our backlog is up 130%. We've gained 500 basis points of share, and our margins are up 3x. Not only is the applied business driving great growth for today, the related aftermarket business will drive great growth for years to come. And the good news is that we have the aftermarket playbook to ensure that we capture the opportunity as you see on Slide 7. Similar to our commercial HVAC business, we have transformed the way we think about aftermarket. Our playbook starts with how we design products with aftermarket as a focus. We continue to expand our parts capture availability and partnerships to deliver growth. We've added highly scaled salespeople and technicians globally and we are focused on providing solutions for customers that meet their mid- and late-life upgrade and modification needs. Importantly, we continue to lean into the opportunities created by AI and digital connectivity with the number of connected devices in the field, up over 25% in the quarter. All segments have plans to deliver on their aftermarket targets, and we feel good about our start to the year and our expectation to deliver our sixth year in a row of double-digit growth. Last on systems on Slide 8. Data centers present a clear opportunity to bring together the full power of One Carrier to provide our customers with unique solutions. Our QuantumLeap offering leverages our unique capabilities and is gaining great traction with our customers. Since launching this integrated holistic offering about a year ago, we've won hundreds of millions of dollars in orders. Our differentiation lies in integrating previously discrete systems, including chillers, CDUs, our Nlyte data center infrastructure management system, our building management system, leveraging new digital twin capabilities, air handlers and complete life cycle support. Earlier this week, we announced our expanded investment in partnership with ZutaCore, which will further enhance our technology differentiation in this space. In transportation, we've been building visibility across the cold chain, which creates value for our customers and drive subscription and aftermarket revenues for us. Our Lynx subscriptions cover nearly 240,000 units, and we expect to triple this number in the next few years. Before I turn it over to Patrick, a brief comment on our full year outlook. Compared to our February guide, we are seeing an increase in input costs as a result of new tariffs, fuel and raw material prices. We expect to offset these headwinds dollar for dollar through supply chain actions, cost reduction and increased pricing. On the latter, we now expect to realize an additional 2 points of pricing globally this year. I am pleased with the better-than-expected start to this year, but with just 1 quarter behind us and still a lot of macro uncertainty, we are reaffirming our full year guide. With that, I will turn it over to Patrick. Patrick? Patrick Goris: Thank you, Dave, and good morning, everyone. Please turn to Slide 9. For the quarter, reported sales were $5.3 billion. Adjusted operating profit was $594 million, and adjusted EPS was $0.57. By comparison to last year, this was a challenging quarter, although company results were better across all metrics compared to our Q1 guidance. Better-than-expected total company sales and operating profit performance was mainly driven by CSA Resi and Light Commercial. The year-over-year decline in adjusted operating profit and adjusted EPS largely reflects lower sales and absorption in our CSA Residential business and continued headwinds in China Resi and Light Commercial. Adjusted EPS declined 12% as tailwinds from a lower effective tax rate and a lower share count were more than offset by the lower operating profit, I just mentioned. You will find a year-over-year adjusted EPS bridge in the appendix on Slide 19. Free cash flow in the first quarter was a cash outflow of $15 million, which reflects normal seasonality and was also better than expected. Moving on to the segments, starting with CSA on Slide 10. Organic sales for the segment were down 3%. Residential sales were down 12%, driven by movements that is the unit volume from distributors to dealers, which was down 8% in the quarter and lower field inventories, which were down about 35% year-over-year. As Dave mentioned, Light Commercial was up 9%. Commercial sales were up low single digits, in line with expectations, and we continue to expect significant sales growth in the second half, driven by data centers. Segment operating margin of about 15% was as expected and largely reflects the impact of lower sales and associated under-absorption in our Resi business. Moving to the CSE segment on Slide 11. Flat organic sales were a few points better than expected, driven by Residential and Light Commercial, which grew low single digits, offset by a mid-single-digit decline in Commercial. We're seeing a continued shift toward electrification and heat pump adoption in this region as evidenced by strong heat pump sales, up low teens and partially offset by continued declines in boilers down mid-single digits. Similar to the CSA segment, we expect a significant ramp in commercial deliveries in the second half mainly driven by data centers. Segment operating profit and margin performance was disappointing in the quarter, driven by lower commercial volume and higher temporary promotions only partially offset by RLC volume growth and strong productivity. RLC price increases and surcharges went into effect in April. Turning to the CSAME segment on Slide 12. We're seeing continued very strong performance in Commercial in this segment outside the China region with sales up high teens, led by strength in India and Australia. This was more than offset by ongoing weakness in Residential and Light Commercial China, leading to an overall 1% organic sales decline. Overall sales in China were down low teens with the RLC business down around 25% and Commercial down low single digits. Sales in the Middle East were down mid-single digits, impacted by the ongoing conflict in the region. The decline in segment operating margin to about 10% was mainly driven by the weakness in China RLC as expected. Moving to the CST segment on Slide 13. CST had a third consecutive quarter of solid organic growth with another very strong quarter in Container, partially offset by pressure in Global Truck and Trailer. Our Container business was up nearly 40%. The decline in segment operating margin reflects unfavorable business mix. Turning to Q1 orders on Slide 14. Total company orders in the quarter were up 11%, mainly driven by our commercial businesses globally, which were up about 35%. CSA commercial orders growth reflects some large data center wins in the quarter. We've seen positive momentum in RLC orders in CSE continue into April. CSAME remains a tale of 2 halves, with strong performance outside of the China region, offset by China RLC. Within transportation, Global Truck and Trailer order intake was weak, while Container continued to outperform. Moving on to Slide 15 and shifting to our 2026 organic sales outlook. As Dave mentioned, we had a better-than-expected start to the year, but given the current macro uncertainty, we are reaffirming our full year sales outlook of approximately $22 billion with organic growth of flat to low single digits. Think of our prior guide being a bit below $22 billion and our current outlook a bit above $22 billion, both round to $22 billion. This includes a roughly $250 million year-over-year revenue headwind from the exit of Riello, mainly reported in the CSE segment with the sale now expected to close before the end of the second quarter. The building blocks of our full year outlook have not changed and largely reflect our expectations for continued double-digit growth in commercial and aftermarket globally, offset by softness in our short-cycle businesses. Moving on to Slide 16, profit and cash guidance. Same as prior slide, we are reaffirming our full year outlook for operating profit and adjusted EPS, no change in CSA and CSE expected margins, and we now expect CSAME margins to decline approximately 50 basis points, reflecting the impact of the Middle East conflict offset by margin expansion in CST by approximately 50 basis points. A quick comment about Middle East. Our total sales in the Middle East were about $400 million in 2025 with the vast majority reflected in the CSAME segment and the balance in CST and CSE. The CSAME segment also benefits from equity income related to unconsolidated JVs we have in the Middle East, which is reflected in the updated margin guide for this segment. No change in outlook with respect to free cash flow and share repurchases. Moving to Slide 17. We expect adjusted EPS of approximately $2.80, up high single digits versus 2025. The bridge is unchanged from our February guide. As usual, additional guide items are in the appendix on Slide 20, and you will note there is no change for our February guide on these items. Finally, let me provide some color on the second quarter. We anticipate Q2 revenues to be just below $6 billion. This includes about $100 million more revenue from Riello compared to our prior guide and about 2 points of incremental pricing to offset increased input costs. We expect operating margin of about 17%, a 24% tax rate and about $0.80 of adjusted EPS. For cash, we expect normal seasonality, which would imply a few hundred million of free cash generation for the quarter. With that, I would ask Elizabeth to open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Jeffrey Sprague with Vertical Research. Jeffrey Sprague: Just on the -- maybe kind of unpacking the guide a little bit more, right, with 2% more price, the organic growth is unchanged. So maybe just kind of talk a little bit about maybe the price volume kind of trade-off you're expecting there. And also sort of interesting that we don't see margin pressure on kind of the inflation. Usually, we get kind of the arithmetic pressure there. Maybe that's inside the ranges. Could you touch on that? And how much of that inflation is 232 related versus general inflation? Patrick Goris: Okay. I'll begin with the comment you had about the revenue guide and organic sales growth for the year. Our original guide was $22 billion in revenue. Think of that, that was really a little less than $22 billion. We added 2 points of price, which basically still rounds to $22 billion, but we're a few hundred million dollars above $22 billion now and both end up being low single digits organic growth, Jeff. And so it's really in the rounding to the $22 billion, and it remains within our LSD organic growth outlook for the full year. In terms of the impact of pricing on the margin outlook, at the total company level, it's about a 30 basis point headwind to margins for the full year, which remains within the range that we've provided really on that. The third element of your question was related to input costs. Of the 2 points of price that we are realizing or expect to realize for the year to increase -- to offset increased input costs, think about 75% of that related to tariffs, and that is really 232 related. And think of the balance, the other 25% related to other input costs, which includes fuel and some of the commodities. Jeffrey Sprague: Great. Dave, and then just back to resi, kind of good to see this sort of initial evidence of things kind of normalizing and the like. Could you just elaborate a little bit more on what's going on in movement, kind of the signals you're seeing from the channel and just how you see the early part of kind of the season beginning to unfold here? David Gitlin: Yes. I'll -- I guess, Jeff, I'll start at 30,000 feet at kind of the macro level, which is that on the challenging side, the 30 year is above 6, and there's still some stress on the consumer with the high fuel prices, but I will say, on the other hand, there's clearly pent-up demand, both at a housing level, there's 4 million too few homes in the United States and for HVAC replacements because there was probably a bit of repair over replace last year. So we think existing home sales will be up in the mid-single-digit range, which would be very important. New home construction, probably flattish. And yesterday, it was reported that applications for mortgages to buy a home were up 20%, which was good to see. So there's some counterbalancing macro indicators. What we're seeing -- what we saw is that 1Q was better than we thought. We thought movement would be down in the 20% range, and it was kind of down more in the 10% to 12% range. So it was about -- it was a little bit better than what we thought. April has started better than we thought. But having said that, we'll go the way of May and June in 2Q. So orders were up in the 5% or 6% range in 1Q. And I think what's really good for us this year is that field inventory levels are very, very healthy. They ended the quarter, as Patrick said, down 35%. As we look at it today, they're still down about 35%. So we're being very cautious on managing field inventory levels. So things so far year-to-date are better than we thought. But again, we have a long way to go. Operator: Your next question comes from the line of Nigel Coe with Wolfe. Nigel Coe: Patrick, can you maybe unpack the 2Q guide? It looks like you point towards low single-digit core sales decline in 2Q and the 17% margin, maybe just unpack that between the Americas and other segments, please? Patrick Goris: Yes, you're right, Nigel, that for the second quarter, we expect flattish to down low single-digit organic sales and some inflow there by segment. We expect the Americas to be about mid-single digits down, with margins last quarter, I said, mid-20s. We're still in that range, probably closer now to about 24% for the Americas. In Europe, we expect organic sales low single digits, so positive with margins closer to 10%. And then we expect both Asia and Transportation to be down low single digits. Margins for total company down around -- margins, total company at about 17%, as I mentioned, and then Asia closer to 12% and transport in the mid-teens. Nigel Coe: Great. Any color on margins, Patrick? And in particular, just double-clicking on the mid-single-digit decline in the Americas. How does that [ shake out between ] residential? Patrick Goris: Yes. Sorry, I forgot that part of your question. The story is actually similar to Q1. If I look at our resi sales in the second quarter, we expect them to be down similar to what we've seen in Q1, meaning close to the about mid-teens, which means that we expect to see the similar headwinds from mix in the second quarter that we've seen in the first quarter, which explains the -- still the margin headwind from a mix point of view in CSA. Similarly, we expect Light Commercial to be down as well in about the mid-single-digit range. And so that basically our 2 most profitable businesses will represent a headwind on margins for CSA in the company in the second quarter of the year, just not as much as it was in Q1. Operator: Your next question comes from the line of Julian Mitchell with Barclays. Julian Mitchell: Maybe just wanted to circle back to the price and cost aspect. So I suppose -- I think you said it's dollar for dollar offset. So if it's sort of 2% more price is maybe $400 million, and then it sounds like over $300 million of that is the result of the tariff movements. So I just wanted to double check that. And how should we think about the extra several hundred million of costs kind of phasing in through this year and then the mitigation efforts into '27 on the tariff front? And any sort of update on the phasing of price? Does that sort of match and move with the costs moving up? Patrick Goris: Yes. First of all, Julian, your math is correct. It is in that $400 million, $450 million range for the total year with the impact being overweight, of course, on the 232, as I mentioned earlier. In terms of phasing of the 2 points of price, we'll see more of that in Q3, Q4 than in Q2 because the -- as you know, this was all effective April 6. And so the pricing followed a little bit after that, but it is in effect now. So in Q2, it will be -- the net of the 2 will be a little bit of a headwind, and we expect that to become neutral in Q3, Q4 and for the year then as well. And so as you may recall, we're on LIFO, and so we see the impact immediately. And so there is a little bit of a gap in Q2, but there won't be a gap or at least that's our expectation in Q3 and after that. Julian Mitchell: That's helpful. And maybe just following up on sort of how to think about the CSA margin progression? Because I guess, as you said, you've got the most profitable parts of CSA are down decently still in the second quarter on the revenue front year-on-year in both R and LC but you're sort of saying the margin decline is much narrower year-on-year second versus the first quarter. So maybe just help us understand sort of the movement in CSA margins as we go through the year to hit that guide you have of the full year margin there being stable, up a bit? Patrick Goris: Yes, as I mentioned earlier to Nigel, we expect about 24% margins in Q2. We expect Q3 to be a little bit better than that, so mid-20s. And then we expect high teens in Q4 for the full year to be around 21% segment margins for the Americas. And so sequentially, very typical to go up for the Americas, of course, Q1 to Q2, given the ramp-up for the cooling season and distributors building inventory. And then in Q3, as I mentioned, we do not expect there to be a gap between price and the input cost headwinds. We see a little bit of that in the second quarter. And then, of course, year-over-year, we expect significant growth in CSA in the second half. It's going to be in the teens. And we expect very significant margin expansion given much better volumes in the absence of the really strong headwind of under-absorption we had in the second half of 2025. Operator: Your next question comes from the line of Scott Davis with Melius Research. Scott Davis: Do you guys think we're close to a bottom in China? It's been kind of sloppy for a while, and I know it's probably not the most visible market in the world, but a little color there on what your local guys are saying, I think, would be helpful. David Gitlin: On the residential side, Scott, it's really hard to call a bottom. It's just been bad for a while, and we're seeing no real signs of it turning. What I would say is that the team is taking the right actions to position us to start to perform better than we and the market have been performing. But it's hard to call a bottom on the housing side. I think there are other parts on the CHVAC side that actually look quite encouraging. Data centers, there's a lot of opportunity. We're in great discussions in China on the commercial HVAC side for data centers, where I do expect some good wins as we go forward. Some of the EV battery type areas continue even though that there are some challenges globally, that part of China continues to do well. It's an aging population. So things in health care are good. Semiconductor fab is good over there. So there are some verticals of real strength in China. So we were kind of flattish in 1Q on the CHVAC side. I think with the momentum around some of the orders that we'll start to see, I can see CHVAC starting to, I guess, you could say, "bottom", but on the housing side, there probably are challenges as we go through the year. Scott Davis: Okay. That's helpful. And just to switch gears a little bit. I would imagine you're pretty much sold out on data center and applied for '26. So when you get a new order in, what you say, in the month of May, I would imagine that's for '27 delivery. Is that -- or can you still book and ship in this calendar year? David Gitlin: No, we could still book and ship. I mean the reality is that we are very back-end loaded. So as it is, there's quite a ramp in the second half of this year for data centers. I mean, most of the growth is really in the second half. And we've actually taken orders for the second half of this year where we got to complete the design and then order the parts and deliver it in the second half. So it's a little bit back-end loaded, but we still have capacity to take additional orders. We had committed to $1.5 billion of data center sales this year. Our backlog, as it is today, at least covers that number. But we would still take some additional orders for this year. We are starting to book a fair amount for '27. We track that by quarter. So next year, we are not as back-end loaded as this year, but we still have additional capacity for some additional orders on top of where we're currently booked. Operator: Your next question comes from the line of Joe Ritchie with Goldman Sachs. Joseph Ritchie: So yes, a lot of helpful color already. Just I wanted to follow up on the pricing comments. There's some concern in the market just given what's happened over the past year on your ability and not just you, but the other OEMs as well to continue to push price through this. Dave, can you maybe just talk about your conversations with your customers, your dealers, distributors on your ability to continue to get pricing even in this -- if the tariff environment continues to worsen? David Gitlin: Yes. Look, no one likes it, to be honest. The distributors, we've had some tough discussions with them, the dealers as well. I will tell you that our extended channel gets it, though. They understand that when we get a sudden input cost increase, we'll take every action we possibly can to mitigate it with supply chain actions. We're actually doing everything we can to optimize activities in the United States. But we've done a lot of actions to differentiate ourselves through the product, through digital, through some new TAM introductions like around hydronics. So our channel knows that we wouldn't be doing it unless we had to. We are spending a lot on R&D to innovate. We are spending a lot on branding and with the Viessmann opportunity here in the Americas. So we all basically get together. We've been offsite with our distributors and our dealers. We stack hands and we say, let's go at it. Now if tariff change, we'll take not all of it off because some of the price increase was related to some of the fuel surcharges and other raw materials that Patrick mentioned. But I will tell you that to President Trump's credit and this administration listens, I know that industry -- a lot of industries have been talking to the administration about this, the new 232 tariffs. And we remain optimistic that something changes there. And if it does, then we would change the pricing that we put in place, both in resi and light commercial here in the Americas. But we have to take actions assuming they don't change, and we'll just have to see. But I'm confident that the pricing that we expect to stick will stick. And we're confident because of the investments that we've made that we will maintain the share. Joseph Ritchie: That's helpful. And then just a quick question on data centers. Clearly, you're expecting a pretty significant ramp as the year progresses. Just any color just around like how your CDU offering is going? Is that part of some of the order growth that you've seen at this point? And just talk to us about the trajectory there. David Gitlin: Yes. I got to tell you, I'm really proud of the team on the CDUs. We've looked at some of the acquisitions that have been out there, but we decided that we can not only organically design and develop and produce our own CDUs because it's effectively a mini chiller. It's what we do. But we could do it in a differentiated way. So we've already introduced our 1-megawatt CDU. We'll have a 3-megawatt that will be out in the third quarter or so. 5-megawatt will be out, I would say, towards the end of this year, maybe into early next year. And we've sold them to a few hyperscale -- a few colos. We're in great discussions with the hyperscalers. The ZutaCore investment, we already had one. We increased it a couple of days ago. And they're a great partner for us. It's a very, very strategic relationship that we have with ZutaCore. They're one of the few guys that has 2-phase solutions, which I think is where the puck is going overall. So it's nice to get in early with them. We'll continue to look at M&A in the liquid cooling space. But right now, our engineering team is doing a superb job designing our own products and the traction, I mentioned that we've won probably, I think, something like $300 million or $400 million of these QuantumLeap sales and a lot of it is in the CDU area. So that's gone very well, and I can tell you, we got a lot of irons in the fire globally to sell more. Operator: Your next question comes from the line of Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Dave, could you give us a little more color into what you're seeing in CSE? I know you mentioned the strength in heat pumps. You didn't change your revenue guidance. I don't think for CSE, but could you talk about what you're seeing? And then can you talk about CSE margin and the need to drive promotions? I know you focus on productivity and cost-out efforts in CSE. So does that help mitigate the margin pressure that you're seeing in that business? David Gitlin: Yes. Let me speak, I guess, Andy, specifically on the RLC side, and then we can expand it to overall CSE. But what we're seeing on the resi side is clearly sales were up in the low single-digit range. Orders were up in mid-single digit. But here's the good news is that it appears that with heat pump demand, we did see a bit of an inflection point here in 1Q. The ratio I mentioned in my prepared remarks that the ratio of electricity to natural gas in Germany is now about 2.5. And that's the first time it's been less than 3 since early 2023. And that's about the time that we were seeing the big demand for heat pumps in Germany and across Europe. Germany subsidy applications were up 30% in the first quarter. They were at very, very high numbers. So we saw demand for Germany heat pumps on the sales side up about 20% in Germany. It was up more on the volume side and low teens across Europe, and it was, frankly, in many countries in Europe, quite strong. Boilers were down a bit, but we expected that. So the disappointment, as you mentioned -- so look, I think on the sales side, we are seeing a moment around heat pumps that we've kind of long expected, and now we're starting to see that, not only in Germany, but across Europe. The margins were impacted by some of these onetime promotions that we did that were a little bit heavier than planned, and I will tell you the team recognizes that, and they've now taken actions to address that, and we've implemented both price increases and surcharges effective April 1. The good news is that we did convert about 150 new installers, and we converted over 500 homeowners that were first time to the brand, and we expect those conversions to be sticky. We've also -- we will be introducing this -- it's a high-end unit, but it's a little bit lower end than the premium current Viessmann brand. That's coming out in the fall. And I think that's going to be perfectly placed to address some of the key parts of the market, not only in Germany, but in places like Poland as well. So look, I think we did take some pricing actions. They were a little bit more than we planned. They are behind us. We've now increased prices and surcharges going in. The margins were a little bit disappointing, but we see margins for the full year getting back 100 bps year-over-year because we're taking cost actions, driving productivity. And I think we've actioned some of the pricing to compensate for what we did in the first quarter. Andrew Kaplowitz: Very helpful. And then can you give us more color into what you're seeing in the CSA Light Commercial, I think, up 9%, I think you said in Q1. You said it was better than expected. And I know you said down and Patrick said down in Q2, but can you talk about your share gains there, the potential that you can end up trending better than that, I think down high single digits that you have for the year? David Gitlin: Yes. I'll tell you, we had guided it down for the first quarter. I think a few weeks before the end of the quarter, I had indicated in one of the conferences that there was some upside. And it did -- the team did well. We were up 9% in 1Q. I'll tell you, the area that we're seeing the best strength is in retail, especially on national accounts. We've had some really major wins, which is helping us significantly on the share side. We get a little bit of favorability from price mix. We had some new products that were introduced last year that are doing really, really well in the marketplace, especially this hybrid unit. So -- and the other thing, we talk a lot about field inventory levels on the Resi side, which are very healthy, but they're very healthy on the Light Commercial side. They were down about 25% year-over-year, ending the quarter. So we came into 2Q pretty well positioned. I think that we're in the same boat as resi is that we're just being very careful to get out over our skis. There's a lot of macro uncertainty. There's some watch items around consumer confidence and inflation and some of the related pricing with tariffs. So we expect sales in Q2 to be down in the mid-single-digit range. We'll have to see. April was okay. And the team is doing well. But again, there is a lot of macro uncertainty, and that's why we haven't changed the full year guide down high single digits because it's kind of early, and there's still some uncertainty. But from a performance perspective, new products, major new wins with national accounts, team performing well. So pleased with the start to the year, and we'll have to see how the next couple of months and the rest of the year play out. But so far, so good. Operator: Your next question comes from the line of Deane Dray with RBC Capital Markets. Deane Dray: Dave, I was hoping you'd give us the update on services. How do you feel about the growth there and the outlook for the year? David Gitlin: Great is the short answer. We -- this is kind of what we do. It's now -- I mentioned in the prepared remarks, the key for the whole aftermarket playbook is it has to be in the DNA of how you run the business. We have to design for aftermarket. We have to work all of our supplier contracts for aftermarket. Every distributor discussion has to include about not only our performance around fill rate, but it has to include getting to 100% of their part needs coming from us and what do we need to do with each other to make sure that we're getting 100% of our own parts. And this is something that has cascaded the world. We have a whole focus on talent in the aftermarket. We've recruited some great folks across the world in aftermarket, and we keep pushing some more and more of our top talent into this area. So we've said double digit forever. We got a playbook around mods and upgrades, connecting our devices, driving parts, driving service attachment, and I think we're in the very early innings of this. So we feel extremely confident. It will be our sixth year in a row of double digit. We target a number that's, I think, closer to 13% or 14% internally, and we expect our teams to drive that. Deane Dray: Great to hear. And then just as a follow-up, and I recognize this is a sensitive question, but are you able to comment at all about the recent litigation against the resi HVAC manufacturers? And if it helps you, we did an expert call where someone who has looked at this case, declared it to be weak. So I guess that it still has to play out, but I'd be interested if you're able to provide any comments. David Gitlin: Yes, Deane, I think weak is being generous to the plaintiffs. So I think the case is meritless and we'll defend it vigorously as you'd expect. And look, you're not going to find a more compliant company or a more compliant industry than us. So it's meritless, and we're going to fight it. Operator: Your next question comes from the line of Andrew Obin with Bank of America. Andrew Obin: Just a follow-up on ZutaCore and your comment on 2-phase cooling. There is chatter in the industry that with transition to sort of direct current, the industry already has too much on its plate to sort of manage a transition to 2 phase. I found your comment to be very interesting in terms of this is where the puck is going, clearly, your acquisition reflects it. Any commentary from you as you talk to your customers as to what the timing is of 2 phase for the industry? Do you think it's going to happen with the next rack generation? Or do we have to wait? David Gitlin: It's hard to answer that, Andrew. I think -- I would say it's not 10 years out and it's not 1 year out. So it's going to -- I think -- so there's the range for you. I do think we'll ultimately migrate in that direction. It's not going to happen overnight. So I think that we have a lot on our plate developing a whole host of single-phase CDUs. And look, there's some smaller M&A out there on the single phase. We'll continue to look or we'll continue to do DC-type investments because we're kind of doing well either way. We did look at -- we looked at some of these bigger plays, but we decided that what was best for us and our company is keep developing things organically with DC-type investments and maybe look at smaller acquisitions over time that round out our portfolio, but those are in the millions, not in the billions range. I think when we get to 2 phase remains to be seen, but is it in the next 5 years or so? Probably. Andrew Obin: Excellent. And just a follow-up question. What do you think -- what are your thoughts, people are getting more optimistic on Class 8 truck getting better. Historically, it's a nice market for you. How do you think about visibility on that recovery into the second half of '26 and also '27? David Gitlin: Yes. I mean we've seen some indicators on the Class 8 side that appear positive. So I think, look, there's -- if you look at truck trailer in the Americas, I felt like we were on the path for a good recovery, but some -- at the higher level, some of the fuel prices has really probably hurt them a little bit. I think on the good news side is that there's a lot of pent-up demand where people have been delaying big CapEx decisions over these last few years. So you're going to get to a point where a lot of our key customers in the Americas are going to have to and want to start spending more. And I think that was the plan coming into the year. Some of those decisions because of some of the fuel prices has probably been pushed to the right. So when I look at our overall CST business, the way I think about it is that Container has done very well, much better than we expected. Orders have continued to be great for 2Q. So we were expecting Container to be down a bit this year. I think Container ends up performing better. When you look at NATT for the full year, ACT is in the flattish range, maybe up low mid-single digits, but ACT has seen a few challenges. I think our European truck trailer business is about where we thought. So I think net-net, Ed and the team are doing a great job. I think we land the year exactly kind of where we thought with Container probably a bit better and NATT probably a bit worse. Operator: Your next question comes from the line of Chris Snyder with Morgan Stanley. Christopher Snyder: I wanted to ask about Americas Resi HVAC. Just with all the moving parts on the cycle changing quickly and then the macro changing maybe even more quickly, can you just kind of maybe provide some color on how the company is able to distinguish true demand in the market versus maybe potential channel build? I would imagine there's some supply chain concerns out there with the geopolitics and there's obviously pretty well anticipated Q2 price increases. I guess -- so maybe even just to put a finer point on it, if a customer places an order in mid-April, is that price locked in now ahead of this late April price increase? Or would it ultimately just be adjusted higher alongside any changes? David Gitlin: Yes. Chris, here's the way that I would try to answer that. I think given last year, we've done a much better job at really trying to understand true underlying demand and the amount of inventory that is in the field. We obviously know at an SKU level by distributor, by location, by SKU, what they have, and we try to work very closely with our distribution channel to make sure that we -- they don't have more than what we think they need and what they think they need. We don't have precise SKU visibility into the dealer network, but they're typically very small dealers. We have over 100,000 in the United States, and it doesn't make sense for them to hold a lot of inventory. So I think that we have a pretty good sense of trying to match supply and demand. We did announce a price increase that became effective April 27. That was known by the channel. April movement was better than we thought. And I think part of that was probably people trying to beat the price. Once the price is in place, April 27, it's in place. Now if something happens with tariffs, we'll take a lot of that pricing back away because it was related to tariffs, and we told our channel, if we get reprieved on the tariffs, the pricing will revert except for the pricing associated with things like the fuel surcharges. So was there -- was April movement a little bit better than we thought? Yes. Did we keep our guidance in place that we thought for the full -- for the quarter? Yes, because we do believe some of that might have been trying to beat the price. And then we'll have to see how the cooling season plays out. Christopher Snyder: I really appreciate that color. I understand it's almost an impossible situation to forecast. Maybe if I could follow up on Americas margins. Q1 met the mid-teens target, but just given that volumes came in high single digits better with positive mix on Resi and Light Commercial driving the beat, I would maybe expect a little bit more upside. So I guess the question is, did you start to already feel some of this cost pressure coming through in Q1, whether it could be maybe the fuel on the service side, some of the -- even the metal, given your LIFO exposure there? Patrick Goris: Yes, Chris, two elements there. One, as Dave mentioned, we're seeing a lot of activity on the data centers, and we're trying to do more than the $1.5 billion this year. We're making some investments in CSA to continue to enhance our capabilities in data centers and go after more opportunities. And two, there was a small FX headwind in the quarter as well. If you adjust for these two items, you would have had a margin that we would have expected given the higher sales. So not related to... Operator: Your next question comes from the line of Patrick Baumann with JPMorgan. David Gitlin: It's not an earnings call without Steve Tusa. We're not sure how to get through it, but go ahead, Patrick. Patrick Baumann: He'll be back at some point. On the pricing side, sorry to beat the dead horse here. But -- so the 2 points of increase, and you said 75% was Section 232 related, and it's flowing into second quarter to fourth quarter. And so when I run the math on the implication for the price that you're putting through on RLC, assuming it's kind of there, it's like a high single-digit percent increase on the revenue for that piece of business. Is that what you're expecting there from the tariff pass-through? And I'm asking because I thought the increases you put through were like at least what I saw was high single digits, but only for a portion of the resi product line that was sourced from Mexico. It seems like it's maybe broader than just that. Patrick Goris: I think your math is broadly accurate. And in addition to that, pricing is going up in every segment, given the higher oil prices and some of the commodity prices, but your math on Resi is accurate for CSA. David Gitlin: And what I'd add, Patrick, is we did not selectively raise price for only certain products in Resi. We raised it because then what you end up doing is disproportionately raising it for some and then not others. So we raised for our RLC business, both Resi and Light Commercial here in the U.S. We did have to raise prices kind of across the product portfolio. Patrick Baumann: And do you think -- are you seeing others react in a similar way? David Gitlin: We don't know. We -- people are going to do what they do. We've seen what probably you've seen people do publicly. But we know that all of us have cost input challenges and how others react on the pricing side is their call. We do have -- what we have is very good elasticity curve, so we watch that quite carefully. Patrick Baumann: Understood. And congrats on the orders in data center. I just wanted to go back quickly to the $1.5 billion guide there for sales this year. It doesn't sound like it's a capacity constraint issue as to why you're not increasing that. So is it just like lead times of when these orders are being booked? And then can you touch on profitability for data center sales? Just wondering, as sales continue to ramp for this business, the mix implications of that, you highlighted investments in the quarter. Just curious in terms of profitability relative to maybe the rest of your CHVAC sales in the Americas or however you want to describe it? David Gitlin: Yes. Look, I think that we kept it at $1.5 billion because we have a lot of execution to do in the second half of the year. If you look at our true bookings that we would be able to -- and what we think we booked and what we anticipate booking here in just 2Q, we would be able to exceed that number. We just got a big hill to climb here in the second half. So we felt it was prudent to keep it at $1.5 billion for now, and we'll have to see how these next couple of quarters play out. In terms of margins, the data center business is attractive. I mentioned that our overall CHVAC business margins are up 3x since when we spun and data centers are overall accretive to the CHVAC business. Operator: Your next question comes from the line of Joe O'Dea with Wells Fargo. Joseph O'Dea: Dave, I wanted to come back. I thought somewhat constructive comments in terms of 232 and I think touching on optimistic that something could change there. And so if you could just unpack that a little more and whether you think there could be exemptions, the time line for something to change? And then also kind of related, if it doesn't change, is there any realistic path to a 10% tariff rate or given the threshold that's just unrealistic? David Gitlin: Yes. I think the short answer, Joe, is I don't know. What I do know is that President Trump and his administration have created space for industry to comment on things that impact industry and American consumers and American jobs. And I know that we appreciate the administration's willingness to listen. What happens with 232, I would be lying if I said I knew. I don't know. I just know that there have been constructive discussions. Optimistically, I would love to see something change in that, but I really don't know whether, when or if something would change. We have to assume that they won't change. We do understand that there have been ongoing negotiations related to the USMCA. How those play out, we don't know and whether those would take over the recent 232 proclamation, we don't know. But we do know that the USMCA discussions have been going on. And our understanding from the sideline is those have been constructive as it relates to Mexico. Operator: This concludes our Q&A session. I will now turn the call back to David Gitlin for closing remarks. David Gitlin: Okay. Well, thank you to our team for continuing to perform very well in an uncertain environment. And thank you to our investors for your continued confidence in us. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation First Quarter 2026 Earnings Call. At this time, all lines have been placed on mute to prevent any background noise. At the end of today's presentation, we will have a question-and-answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. I will now turn the conference call over to Dianna L. Higgins, Head of Investor Relations. Please go ahead. Dianna L. Higgins: Thank you, Kelly. Good morning, and welcome, everyone. Thank you for your interest in MGIC Investment Corporation. Joining me on the call today to discuss our results for the first quarter are Timothy James Mattke, Chief Executive Officer, and Nathaniel Howe Colson, Chief Financial Officer and Chief Risk Officer. Our press release, which contains MGIC Investment Corporation’s first quarter financial results, was issued yesterday and is available on our website at mtg.mgic.com under Newsroom. It includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk in force and other information you may find valuable. As a reminder, from time to time, we may post information on our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everyone that during the course of this call, we may make comments about our expectations of the future. Actual results could differ from those contained in these forward-looking statements. Our 8-Ks and 10-Q filed yesterday include additional information about the factors that could cause actual results to differ materially from those discussed on the call today. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of our 8-K or 10-Q. With that I now have the pleasure to turn the call over to Timothy James Mattke. Timothy James Mattke: Thanks, Dianna, and good morning, everyone. I am pleased to report a strong start to 2026 as we continue to execute our business strategies while maintaining the momentum we have built over the past several years. Our performance demonstrates the strength of our business model, disciplined market approach, and long-standing commitment to meeting the evolving needs of our customers and the broader market, a commitment we have maintained since 1957. For the first quarter, we generated net income of $165 million, delivering an annualized return on equity of 13%. Our solid operating performance combined with the strength of our balance sheet drove book value per share to $23.63, an increase of 10% year over year. Turning to NIW, we wrote $14 billion of new insurance in the first quarter, an increase of 41% from last year and our largest first quarter of NIW since 2022. The increase was driven by higher refinance activity as well as what we expect was a modestly larger purchase market. Insurance in force at the end of the first quarter stood at approximately [inaudible], relatively flat quarter over quarter and up 3% from a year ago, with annual persistency ending the quarter at 84%, down from 85% last quarter. Both insurance in force and annual persistency are aligned with our expectations entering the year. Overall, we continue to expect our insurance in force to remain relatively flat in 2026. If mortgage rates were to decline more than currently predicted, we would expect the size of the MI market to benefit from increased refinance activity, although the growth in insurance in force would be offset by lower persistency, which is consistent with what happened in the first quarter to some degree. We continue to be pleased with the overall credit quality and performance of our portfolio. Our underwriting standards remain strong, and to date, we have not seen a material change in the credit performance of our portfolio. Early payment defaults remain low, which we believe is a positive indicator of near-term credit trends. Our capital structure remains robust, with $6 billion of balance sheet capital, and a well-established reinsurance program with a large panel of highly rated reinsurers continues to be a core component of our risk and capital management strategy. These reinsurance agreements reduce loss volatility in stress scenarios while providing capital diversification and flexibility at attractive costs. At the end of the first quarter, our reinsurance program reduced our PMIERs required assets by $3.1 billion, or approximately 52%. Our capital management approach remains unchanged. We prioritize prudent insurance in force growth over capital return. Market conditions have constrained insurance in force growth in recent years, and against that backdrop, our capital return activity reflects our robust position, continued strong credit performance and financial results, and share price levels that we believe are attractive to generate long-term value for our shareholders. Consistent with our commitment to disciplined capital allocation and long-term shareholder value, last week, the board authorized an additional $750 million share repurchase program. We actively monitor capital levels of both MGIC and the holding company, carefully balancing the amount of capital we return to shareholders with what we retain to preserve financial strength and resilience across a range of macroeconomic environments. In doing so, we consider both current conditions and expected future operating environments, continually evaluating the most effective ways to allocate capital to drive long-term shareholder value, an approach that has served our shareholders well. Consistent with this approach, earlier this week MGIC paid a $400 million dividend to the holding company, enhancing holding company liquidity and overall financial flexibility. With that, let me turn it over to Nathaniel Howe Colson to provide more details on our financial results and capital management activities for the first quarter. Nathaniel Howe Colson: Thanks, Tim, and good morning. As Tim discussed, we had solid financial results for the first quarter. We earned net income of $0.76 per diluted share compared to $0.75 per diluted share last year. Our re-estimation of ultimate losses on prior delinquencies resulted in $31 million of favorable loss reserve development in the quarter. This favorable development was primarily due to delinquency notices received in 2025. Cure rates on those delinquency notices have exceeded our expectations, and we have adjusted our ultimate loss expectations accordingly. As a quick reminder, delinquency notices we receive during a quarter span across various book-year vintages. For the delinquency notices we received in the quarter, we continue to apply the initial claim rate assumption of 7.5%. Looking at delinquency trends, our account-based delinquency rate increased 14 basis points year over year and 1 basis point in the quarter. Seasonal trends, which are historically a tailwind to mortgage credit performance in the first quarter, were less pronounced this year. Cures on new notices remain strong, and we expect the delinquency rate and the level of new notices to continue to normalize. Overall, both the number of new notices and the delinquency rate remain low by historical standards. The in-force premium yield was 38 basis points in the quarter, flat sequentially and consistent with what we expected. With another year of high persistency expected, and MI origination trends similar to last year, we continue to expect the in-force premium yield to remain relatively flat during the year. Investment income totaled $62 million in the first quarter, flat sequentially and year over year, as the book yield on our investment portfolio has been approximately 4% for the last year. During the quarter, reinvestment rates on our fixed-income portfolio continued to exceed our book yield, but our capital return activities have limited the growth in the investment portfolio and the resulting investment income. Underwriting and other expenses in the quarter were $48 million, down from $53 million in the first quarter last year. We remain focused on disciplined expense management. We continue to expect operating expenses for the full year to be in the range of $190 million to $200 million, as I shared in February. In the quarter, we continued to allocate excess capital to share repurchases, which totaled 7.2 million shares for $193 million. We also paid a quarterly common stock dividend of $35 million. Over the prior four quarters, share repurchases totaled $750 million and shareholder dividends totaled $138 million. Combined, they represented a 123% payout of the net income earned over the period. In the second quarter, through April 24, we repurchased an additional 1.7 million shares of common stock for a total of $47 million. In addition, the board approved a $0.15 per share common stock dividend payable on May 21. These actions are all consistent with our capital allocation approach. With that, let me turn it back over to Tim. Timothy James Mattke: Thanks, Nathan. A few additional comments before we open it up for questions. Housing affordability remains a challenge for many prospective homebuyers. Private mortgage insurance plays a critical role in supporting housing affordability by enabling low down payment borrowers to enter the market and achieve homeownership sooner. We remain actively engaged in industry discussions and regularly advocate for responsible policy solutions that improve affordability. Last week, FHFA announced advances in credit score modernization, and that the GSEs are moving forward with VantageScore 4.0 and FICO Score 10T with the intent of lowering costs for borrowers. We are fully supportive of these credit score modernization advances and are actively working with the GSEs, lenders, and their technology partners to operationalize these changes. In closing, our first quarter results reflect consistent execution of our business strategies and disciplined capital allocation. With our strong foundation and deep industry expertise, we remain well positioned to navigate dynamic environments and create long-term shareholder value. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Terry Ma of Barclays. Your line is now open. Terry Ma: Hey, thank you. Good morning. I want to start with credit. Any color you can provide on the trends you saw this quarter? The default rate was up 1 basis point quarter over quarter versus the normal seasonality of down. Just curious if you can provide any color there. Nathaniel Howe Colson: Yes, Terry, it is Nathan. Thank you for the question. It is something that we looked into quite a bit this quarter. While I think broadly we did not see as much seasonal benefit as we have in recent years in the first quarter, there were a couple of unique items that we identified relative to the timing within the month that certain large servicers provide their delinquency information. As a practical matter, we get delinquency reporting beginning on the sixteenth of the month for loans that have two missed payments. The earlier in the month that servicers report, the more new notices they are likely to report just because those borrowers have had only sixteen days in the month to make a payment. We had a couple of servicers that gave us reporting earlier in March than they had in prior periods, so that may have accelerated or increased a little bit the amount of new notices and decreased the cures that we have seen. We do not have full April information yet, but from what we have seen so far in April, those trends look favorable and more in line with what we would have expected. Time will ultimately tell, but it did seem like there were a couple of unique items in the quarter. At the end of the day, long-term cure rates still are very attractive and have not shown much sign of slowing down, which has led to us consistently releasing reserves and having favorable development. All in all, I think the credit picture is still quite favorable. Terry Ma: Got it, that is helpful. As a follow-up, would the servicer reporting issue also impact roll rates? As I look at those between the buckets, those are also a little bit worse on a year-over-year basis. And then maybe just taking a step back, any commentary on how you are thinking about the level of gas and energy prices and how it may impact your borrowers? Nathaniel Howe Colson: I will take those. Certainly the same reporting for new delinquencies that I talked about is also the reporting for cure activity on previously reported items, so that could definitely have an impact. We are coming off historically good levels, especially for long-term cure rates, so we have always expected some normalization, and that may be happening to some degree. Even post the COVID crisis, we have noticed that earlier-period cure rates—one month, three months, six months—are running at lower levels than we saw pre-COVID, but later-stage cure rates—twelve months, eighteen, twenty-four—are much better, which is ultimately leading to a lot of that favorable development that I mentioned. The servicer reporting timing does impact both new notices and cures. Relative to energy prices and general price levels and the impact on consumers and on borrowers that we insure, any macroeconomic headwind is something that we are conscious of and think a lot about. To date, I do not think we have seen a lot of direct impact. Certainly, the power of interest rates—we saw that with refinance activity—more than 20% of our NIW with rates still not meaningfully below 6%. I do think that rates drive activity and behavior in our space a lot more than maybe higher prices for certain goods. It is something that we will actively monitor. The rate of unemployment is a key factor for us, but wage growth has still been strong and nominal GDP continues to run very high, so those are offsetting factors. Again, it is always an uncertain macroeconomic environment, and we try to maintain from a credit policy perspective, underwriting perspective, and a balance sheet and capital position that give us flexibility to react to whatever macroeconomic environment comes next. Terry Ma: Got it. Thank you for the color. Operator: One moment for our next question. Thank you. Our next question comes from the line of Bose Thomas George of KBW. Your line is now open. Bose Thomas George: Hey, guys. Good morning. Just on capital return, last year your payout ratio was 124%. It sounds like it is similar in the first quarter. Last year, looking at your capital, the AOCI reversal helped keep the capital fairly flat. That was not the case in the first quarter. So the question is, does AOCI play a role in how you think about the payout ratio, or will it continue at this level even if it pushes up leverage a little bit? Timothy James Mattke: Hey, Bose. It is Tim. It is a good question. Generally, we do not really think about AOCI as something that impacts our thoughts about capital return. It is much more of a GAAP concept, and we are looking at statutory and PMIERs. Obviously, we are focused on what might be happening with the investment portfolio, but again, those are viewed as temporary and unrealized, and we normally hold those to maturity. So that is noise. It impacts book value per share, but from a capital return perspective it is not a major consideration in our discussions. Bose Thomas George: Okay. So given your comments on the insurance in force being fairly flat, this is kind of a reasonable payout ratio for at least this year? Timothy James Mattke: Yes. With all the caveats we put out about performance, the macroeconomic environment—those are things that we pay close attention to in determining whether we should continue at the pace that we have been. Assuming those things stay relatively consistent with how they have been in the past, we have been very comfortable with the rate at which we have been returning capital. Bose Thomas George: Great. And then just on the positive development this quarter, it looks like a bigger portion than usual came from loss severity. Anything to call out there, or is that just noise? Nathaniel Howe Colson: I do not think there is anything specific to call out there. We did see a little bit of a decline in the exposure on new notices, but some of that has to do with which loans are curing and the exposure on the inventory. We have kept our reserving approach relative to exposure pretty consistent, so I think that is more about the underlying loans—what is curing, what is remaining—than any active change that we made. Bose Thomas George: Okay. Great. Thanks. Nathaniel Howe Colson: Thanks. Operator: Thank you. One moment for our next question. Thank you. Our next question comes from the line of Mihir Bhatia of Bank of America. Your line is now open. Mihir Bhatia: I wanted to start by going back to some of the questions around credit that Terry was talking about. I think you mentioned that you expect normalization of delinquency rates to continue. The portfolio has changed a little bit over time and with regulations, too. Can you help us with where you expect the delinquency rate to stabilize and what the path to get there looks like from here? Nathaniel Howe Colson: Thanks, Mihir. I think there are a couple of dependencies. For the last couple of years—this is not exact, but we have been between a 10 and 15 basis point year-over-year increase in the delinquency rate. That feels very consistent with normalizing credit conditions. We also have a unique book historically right now where we have a significant amount of our in force that is three, four, five, six years aged, and those are typically higher delinquency periods. Often they are not a significant portion of the in-force book because so much of those books have run off. That is not the case today. If that continues, we would expect gradual upward movement in the delinquency rate if the 2020–2023 books persist as they have. If we get into a rate environment where we are resetting a lot of the book toward more recent vintages—if rates were to go down and we were to write a lot more new business—that would be a tailwind for the delinquency rate. So part of the answer depends on what happens to rates and how much new business we write. The environment where the existing loans persist—even if the delinquency rate continues to tick up modestly—is a really good environment for us because we get the renewal premium on those loans, and that has been the way the last couple of years have gone for us with very good results. We can do well in either environment. In one environment, there is probably more pressure on premium rates because we would be resetting a lot of loans; refinances are typically lower LTV, lower DTI, higher FICO, so we would be resetting a lot of the premium to lower levels, but the delinquency rate would benefit. In an environment that continues to persist, there is probably more upward pressure on the delinquency rate, but we continue to get the renewal premium off those vintages, which is also attractive for us. Mihir Bhatia: Got it. Along those lines, you mentioned refinances have ticked up—it is up to about 21% of NIW—but your premium rate outlook is steady and persistency has stayed elevated. Your refinance share of NIW has gone from roughly 6% to 20%, but persistency is basically 84%–85% still. What is driving that dynamic, and where would persistency trend from here? Nathaniel Howe Colson: There was a slight decline in the persistency rate during the quarter, and again this is an annual measure. Refinance activity was a little elevated in the fourth quarter, but we have seen that taper off since then. If refinance activity remained at a 20% level of NIW, I do think that would work its way into the premium yield that we are seeing, and persistency would continue to tick down. If we look at what we would term the persistency run rate—just looking at the quarterly activity—it is closer to 80% than 84%. Our expectations now, with rates where they are today—more in the 6.25% to 6.5% range—we are seeing a falloff in refinance activity, and that is more in line with our expectations of a slightly larger purchase market and that a lot of the refinance activity for the year may be behind us. If that is not correct—if rates go down and there is a lot of refinance activity—then you would see lower persistency, higher NIW, and potentially, depending on how much volume it is and which loans are refinancing, slight headwinds to the in-force premium yield. But our expectations are for rates in and around where they are now and for moderation in refinance activity in the second quarter and the second half of the year. Mihir Bhatia: Got it. One last question and then I will jump back in the queue. In terms of new notice severity, it has increased a little bit sequentially. Are you seeing any vintage-specific pressures? Maybe also talk about early performance of the 2024 through 2026 vintages. Anything you are seeing there that makes you pause? Nathaniel Howe Colson: The number one driver of our new notice severity assumption is the exposure—the risk associated with the new delinquencies. As we have gotten relatively fewer delinquencies from the 2008-and-prior vintages with lower loan amounts, and more from the 2023–2025 period with much higher loan amounts, the average loan size and thus the average exposure is higher. The changing vintage mix—moving closer to today’s values—is far and away the driver of that increase versus anything regional or any change in our assumptions. Mihir Bhatia: Got it. Thank you for taking my questions. Operator: There are no further questions. I will now turn the call back over to management for closing remarks. Nathaniel Howe Colson: Thanks, Kelly. Timothy James Mattke: I want to thank everyone for your interest in MGIC Investment Corporation. We will be participating in the BTIG Housing and Real Estate Conference and the KBW Virtual Real Estate Finance and Technology Conference in May. I look forward to talking to all of you in the near future. Have a great rest of your week. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Trinity Industries First Quarter ended March 31, 2026 Results Conference Call. [Operator Instructions] Please note, today's event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. I would now like to turn the conference over to Leanne Mann, Vice President of Investor Relations. Please go ahead. Leigh Mann: Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's first quarter 2026 Financial Results conference call. Our prepared remarks will include comments from Gene Savage, Trinity's Chief Executive Officer and President; and Eric Marketo, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the quarterly investor slides, which are accessible on our Investor Relations website at www.trin.net. . These slides are under the Events & Presentations portion of the website, along with the first quarter earnings conference call of EnLink. A replay of today's call will be available after 10:30 a.m. Eastern Time till midnight on May 7, 2026. The replay information is available under the Events and Presentations page on our Investor Relations website. It is now my pleasure to turn the call over to Jean. E. Savage: Thank you, Lianne, and good morning, everyone. We grew earnings per share year-over-year 10% in a quarter where revenue was down 16%. That's the operating leverage we've been building toward, and it shows up in a 24.6% adjusted return on equity over the last 12 months. Cash flow from continuing operations was $100 million. The business is performing the way we designed it to perform. Before I get into results, I want to recognize the team for closing a transaction after the quarter closed related to our railcar investment partnership with Nature Park. As a result of the transaction, approximately 6,100 railcars moved from our partially owned fleet to investor-owned fleet and we took an 11.2% limited partnership interest in the Napier Park entity that owns the majority of Napier Park railcar holdings. . We expect to record a noncash pretax gain of approximately $130 million in the second quarter related to this transaction. This transaction highlights the embedded value of our fleet and is another step in simplifying our balance sheet. Based on strong first quarter performance and our outlook for the balance of the year, we are raising and tightening our full year EPS guidance from a previous range of $1.85 to $2.10 to a new range of $2.20 to $2.40. At the midpoint, this represents a 16% increase in our EPS expectations. Portfolio sales are an integral part of how our leasing platform creates value. and we now expect a higher level of gain on sale activity this year than we originally planned. We expect full year gains to be in the range of $160 million to $180 million. which includes $22 million in the first quarter and approximately $130 million from the railcar investment partnership that we will book in the second quarter. Now let me walk you through what we're seeing in the market. The rail economy is improving. Industrial production grew at an annual rate of 2.4% in the first quarter. The manufacturing PMI, a key monthly economic indicator was above 50 for 3 straight months. That's the first back-to-back positive reading in over 40 months. and has been expanding for 17 straight months. Inquiries have been trending up since the start of the year. Furthermore, railcars and storage move below 20% as the industry fleet continues to contract and carloads ride. The picture is an all plan, however, inflation is still elevated and employment has flattened. That continues to weigh on consumer-driven markets, particularly autos and Intermodal and tariff uncertainty remains. But the direction is the right one, and we're positioned for it. I'll take you through both segments, starting with leasing and services. Leasing performance, these rates were higher, utilization was higher, and the segment delivered a 37.9% operating margin in the quarter. Revenue was down year-over-year, and the reason is structural, we closed a railcar partnership exchange in the fourth quarter, which reduced our consolidated fleet. Our own fleet ended the quarter at 101,960 railcars, down about 7% year-over-year. But the number of the matters strategically is our combined owned and investor-owned fleet at 146,670 railcars, which is up 1.6% year-over-year. We are growing the platform and lease rates continue to rise. Renewal rates were 6.6% above expiring rates in the quarter. We continue to invest. Net fleet investment was $68 million in the quarter. Over the last 6 years, we've added more than 18,000 new builds and over 14,000 cars from the secondary market. We were active in the secondary market again this quarter, completing $83 million of lease portfolio sales. Fleet utilization improved to 97.3%. Renewal success was 60% and higher assignment activity allowed us to place cars with new customers at higher rates. The future lease rate differential for FLRD was a positive 1.2%. The LRD has been positive for 19 consecutive quarters, allowing for continuing growth in lease rates and leasing revenues. The average lease rate continued to increase quarter-over-quarter and year-over-year. Rail products is where the costs were shown up. We delivered 1,970 railcars at a 7.4% operating margin. On these volumes, that margin is a proof point. It reflects favorable Q1 mix but more importantly, it reflects several years of rightsizing automation and breakeven reduction in this business. The cost structure has changed with the remaining mix of car types to be built, we expect full year Rail Products Group margins to average 5% to 6%. We received orders for 1,660 new railcars. Both orders and deliveries remain within our usual market share range. Inquiries are accelerating, and we're ready to ramp up when increase convert to orders. Backlog stands at $1.6 billion, just under half of the industry backlog. We're not going to chase volume at the wrong price. When the market turns, we'll be there. Here's where we stand. We did what we said we do this quarter. Margins held up. The fleet is in good shape at 97.3% utilization. Lease rates moved in our direction, and Rail Products delivered a 7.4% operating margin on lower volumes, which is evidence that the cost work we've done over the past several years is paying off. The order book is the watch item. Inquiries are picking up and we're ready when customers are ready. I'm proud of how this team is executing, and I'm confident in where we're headed. Eric will take you through the financials and our guidance for the rest of the year. Eric Marchetto: Thank you, Gene, and good morning, everyone. I will begin by discussing our first quarter financial highlights. Our operating margins expanded in both segments. Cash generation was strong at $100 million from continuing operations. Our business is generating good returns and is proving its ability to outperform the market particle. We have $1.1 billion of liquidity, and we continue to return capital to shareholders. Let me walk you through the income statement, cash flow and balance sheet, and I'll cover guidance for the rest of the year. . First quarter revenues of $492 million reflected lower external deliveries in the Rail Products Group. However, as Jane mentioned, GAAP, EPS from continuing operations improved as compared to last year to $0.32, which reflects higher gains on lease portfolio sales and higher lease rates, generating higher operating margins. We generated proceeds of $83 million in the quarter from lease portfolio sales and recorded a gain of $22 million. Moving to the cash flow statement. Cash flow from continuing operations was $100 million, benefited from a reduction in working capital. Our total net fleet investment was $68 million in the quarter, which included new railcar additions secondary market adds and fleet modifications and betterments. This includes $83 million of railcar sales in the secondary market. Shareholder returns were $32 million in the quarter, largely driven by our quarterly dividend payment as well as share repurchases. For the 3-year period, 2024 to 2026, we set a target for our cash flow matter which adds cash flow from continued operations and net gains on portfolio sales of $1.2 billion to $1.4 billion, with 3 quarters remaining in the planning period, we expect to exceed this range. There is a significant amount of cash generation, and we are constantly working to make optimal choices on how we grow our fleet and improve the returns of our business. Moving to our balance sheet. We have solid liquidity of $1.1 billion. The loan to value for our wholly owned fleet is 69.1%. It is worth noting that the market value of our fleet is much higher than the book value of our fleet, and our LTV is based on the net book value. The debt structure on our balance sheet gives us significant flexibility and liquidity as we execute on our capital allocation framework demonstrated by our latest financing. After the quarter closed, we issued $481 million of ABS notes and used the proceeds to redeem $377 million in outstanding debt, generated approximately $100 million of excess cash providing further evidence of our cash generation abilities. And now I'd like to give some updated guidance for the rest of the year. We expect industry deliveries of 25,000 railcars in 2026 and expect trend to maintain its historical share of deliveries. While there is still some available space to be sold for the end of 2026, current inquiry levels support maintaining this guidance. We are slightly lowering our expected full year net lease fleet investment to a range of $350 million to $450 million, reflecting expected higher proceeds from railcar sales. As a reminder, this is a cash metric. So this would not include the sale of railcars in the Maker Park RIV program. We are investing $55 million to $65 million in operating and administrative capital expenditures. And as Gene mentioned, we are raising our full year EPS guidance to a range of $2.20 to $2.40, a 16% increase at the midpoint. This comes from higher-than-expected gains in the railcar partnership transaction as well as higher forecasted gains from the secondary market. We expect full year gains to be in the range of $160 million to $180 million. Our first quarter demonstrates the operating leverage we've been building. The business is built to perform throughout the cycle. Our disciplined cash flow management and optimized balance sheet give us flexibility in capital allocation and working capital management. Our lease fleet utilization is high, generating consistent, predictable revenue and cash flow. In short, our platform is performing in today's results and 2026 guidance reflect our conviction in Trinity's ability to continue to generate above-market returns for our shareholders. Operator, we are now ready for our first question. Operator: [Operator Instructions] The first question comes from Harris on Bauer, Susquehanna. Harrison Bauer: Maybe just to start off with the gains. I mean backing into what you did in the first quarter and what's expected from the transaction in the second quarter there's only a range of $10 million to $30 million in terms of gains for the rest of the year in the second half and maybe excluding the deal, in the second quarter. So could you just maybe walk through where you think there might be some declines in secondary market activity? Like what's maybe 1 of the reasons why that you would expect lower gains in the second half of the year potentially? Eric Marchetto: Harris, this is Eric. I'll take that. Yes. As you know, the games can be a little lumpy. And certainly in the second quarter, with the Tribute transaction that they will be a little lumpier. In terms of -- you're right, in terms of the guidance, it does imply a lower level of gains in the back half of the year. And I'd just say it is still a very elevated number. We are really focused on our net fleet adds and our growth of our fleet. And we're in the range or the upper range of our 3-year target. We did bring that down this quarter by $100 million, which reflects a little more selling activity out of the portfolio. And most of the raise with the -- the raise is certainly attributable to the gain -- our outlook on gains going forward. And overall, the semi market is still strong. Harrison Bauer: Understood. Can you give us maybe a sense of where that transaction with Napier Park ended up relative to your initial expectations in terms of either the structure or the amount of the noncash gain that you expect? Eric Marchetto: First, on the structure. The structure is a little different than the last one. We took an 11% interest in all of the Napier assets. It was -- they're both structures is noncash but certainly, we like having that alignment of that interest in the broader portfolio. It will be a little different accounting of the equity method accounting going forward. and so you won't have a minority interest. So from that standpoint, it will simplify things. In terms of our expectations on our fourth quarter earnings call, we had not -- we signaled this. It was included in our guidance, but we certainly didn't have anything completed at that point. And part of the raise is attributable to a higher gain with the Napier Park transaction. So it came in a little better than we expected, and that was just through our negotiations. Harrison Bauer: Okay. Great. Maybe just shifting to the FLRD. Obviously, that number trended down a little bit. There's some mix -- it is forward-looking, but -- and there are some mix dynamics. Could you maybe paint a picture how you would expect or could expect earnings in the leasing segment to potentially grow even if your renewal rates tend to flatten out. You've called out some cost pressures in that business? And maybe if you can offer how you would expect the FRD to maybe trend with gains or level of secondary market over time, if the stagnation in that number might also correlate with some just general lower secondary market activity. E. Savage: Sure, I'll take that one. So when you look at the FLRD, we stated it had been positive for the 19 consecutive quarters and so that's a good trend. Utilization went up to 97.3%. And cars and storage went down, inflation is still high. So overall, the parameters are around, our lease rates are still positive. We had a 6.6% uptick in the renewal rate versus expiring rate in the quarter. Our average lease rate went up quarter-over-quarter and year-over-year. So all of those are still trending in the right direction. In the first quarter, we did have a little bit of the mix that affected us. If I was a betting person, I bet we're going to beat that percentage going forward. So it really comes down to the mix of cars and then what's expiring in the next 4 quarters. Sometimes, the mix helps us. Sometimes it brings us down a little bit. But we still see headroom for increasing the overall lease rate, especially since new car costs are continuing to be elevated, and that gives us some of that headroom. Harrison Bauer: Okay. Great. And then maybe just to close for me, just shifting over, and you mentioned elevated new car costs and shifting over to the manufacturing segment. And it's nice to see the results strong there in an elevated or in a lower rather delivery environment. But could you maybe give us some updated thoughts around the recent Section 232 tariffs on full value of imported tank cars. What are the implications for your business, if there's any cost associated that are factored into your guidance at all? And maybe just with that, if you can update us on your tank car production mix, how much of it might be produced in your Longview plant versus Mexico? And just any general thoughts around your tank car production and what this potential tariff might mean for your business? E. Savage: Sure. So we've been dealing with the uncertainty of tariffs for a while now, and the team has gotten really good at looking at that. We'll continue to look and see what may affect us, how it may affect us and then adjust what we're doing based off of that information that we find. So uncertainty remains, I don't see that going away. So just no team is on it, and they've done a great job so far working on that. . We typically don't disclose what percentage of cars are being produced where. So we're not going to do that. But we're still continuing with the 25,000 industry deliveries for the year and our portion of that in our normal range, which is somewhere between 30% and 40%. So not a lot of major changes on that. Operator: The next question comes from the line of Andrew Zions, Goldman Sachs. Andrzej Tomczyk: Just kind of curious on leasing to start out. First, maybe just more broadly in the context of a potentially sticky inflation environment particularly given higher energy prices globally more recently, how do you communicate with customers who lease railcars from you currently, the asset prices are higher and are you thinking ahead to the next wave of resigning leases and expecting another positive cycle of growing lease rates and positive to potentially reaccelerating that FLRD? E. Savage: Okay. Andrew, I'll take that one. Well, the last question I did say if I was a betting person, I would bet it'd be above the 1.2%. It really comes down to the mix in that quarter and what is going to show. When we're looking at overall the environment, again, the metrics are in favor of being able to continue to raise the lease rates. Now we are lapping some rates that had already been raised during this time period. During that 19 consecutive quarters of positive FLRD, so we're going to keep that in mind. But overall, all the things we're looking at, agriculture and energy markets are really strong, if I look at some of the weaker markets in chemical, it's weaker not from carloads, but it's weaker from their margins. And so there's a little bit of weakness there and then consumer products, which we don't have a lot of cars in our fleet that are the consumer-facing type products. So overall, when we look at our mix, we still see an opportunity to raise those rates. Eric Marchetto: Andrea, I'd just add, the energy prices you're alluding to, I'm assuming, is related to oil and what's going on in Iran and while that is starting to come through in some of our supply chain costs, it probably hasn't worked all the way through. So that continues. I think you're leading to that could be a next wave of inflationary pressures. And it certainly could, the interest rates are starting to signal that as well with what treasuries are doing. So the fleet remains very tight. It's in balance. And so that will start to potentially price through in the future. Andrzej Tomczyk: Understood. And I think last call, you talked about the market value of your fleet and that that's, I think, 40% to 50% above book value. any updates to those numbers? And other question there is, have you looked at that historically to determine sort of on average, how much the market values exceed book values, just trying to get a sense for market value versus book value this cycle, how that dynamic might be different? Eric Marchetto: Yes, Andre, this is Eric. So we talked last quarter, we talked about our estimate was 35% to 45% higher than our carrying values. We have not updated that view. That is still our view. In terms of -- if you go back over the last 4 or 5 years, you've had more inflation in this industry than if you go back the prior 5 years, and so it probably has accelerated. I haven't gone back and back tested it. But certainly, it has trended higher the inflation rates. But just to mention, long term, we see 3% to 4% inflation in railcar asset prices. And long term, we've seen lower inflation in lease rates at 1% to 2%. So that does imply that there is still a lot of room for lease rates to catch-up, if you will, to what we've seen on the asset side. And certainly, financing cost and treasury rates certainly support our view that, that will happen over time. Andrzej Tomczyk: Understood. Just on that last point on leasing, how are you thinking about the spread sort of between lease rates and your cost of capital today? And maybe looking forward, how that's influencing your appetite to grow the lease fleet. Eric Marchetto: I don't think our -- we are always evaluating our hurdle rates against our weighted average cost of capital. It certainly -- it changes often with the volatility you've seen especially in the treasury rates. But in terms of the spread over our weighted average cost of capital, we're being fairly consistent around that. It may vary by different car types. But we are certainly seeing that. And we're seeing a fairly disciplined lease pricing in the market. So that's been good. Andrzej Tomczyk: Okay. Got it. And maybe shifting gears to a little bit to the manufacturing side. It did seem like a really nice margin performance there despite volumes down 36%. And you improved EBIT margin 120 bps year-over-year. Could you just talk a little bit more about the cost takeout initiatives there as to what's driving that? And then also, maybe why you would still expect the 5% to 6% full year average margins given the sort of 1Q outperformance there? E. Savage: Sure, I'll take that one. So First on the cost initiatives. Team's done a great job for several years, working on continuous improvement, reducing setup time, automation that we're putting into the facility, all of that comes together to help us with both efficiency and overall productivity for those facilities. And that work continues. We're always looking to see what else we could do, help both from the safety and productivity standpoint. . When you look at Q1, we had some favorable mix. We had more specialty cars that we produced in that quarter. And second through the fourth quarter, we're expecting more standards, so less specialty cars that are going to be produced. And looking at where we're at 5% to 6% performance at these volume shows a structural change in our facilities and our ability to produce. So that is something I'm very happy with and something that we've been talking about for several years to you all about things we were going to do. It's lowered that breakeven cost for us. So I think the operations Railtronix Group is performing very well. And when we get some volume back, I think you're going to see that leverage come through. Andrzej Tomczyk: Understood. Thanks for clarifying that there. And just on the headcount, I was curious in manufacturing. I know that doesn't get talked about often on the call, but could you maybe talk about where head count is at today versus may say, the peak and then following on to that, I was curious to know what the lag might be to hiring and bringing new labor online relative to when you sort of see orders and backlog start to improve? E. Savage: Sure. So a couple of things. Typically, when orders or backlog come up and the production rate has to improve. We'll go to over time to start with, and that's about a 20% to 30% uptick that you can get from that. The other good thing we've got in our favor is during the downturn, A lot of the employees, many of them said that they want to come back. So when we start rehiring, we'll go to those employees first. Now it doesn't mean they come in and they're 100% productive right away. We'll have to go through some retraining, there will be the time to get their efficiency back up as they get used to where they're working on the line. But we think we'll have an easier time getting those employees and getting them back into the factory. . So we see the ability to move a little quicker than we did coming out of COVID and getting production rates up. When you look at where we were several years ago, I'm just going to do total employment for the company. We were about 10,000 employees, and right now, it's closer to 6,000 employees. So a lot of that would have been in the production space in that change in that swing. Some of that aging coming out of COVID was new employees coming in who had never worked in the industry. So you had to hire more to get over that efficiency and productivity increase that we needed. And I think it will be less than that as we ramp back up for the next increase in volume. Andrzej Tomczyk: Understood. And I appreciate the color there. Maybe just for me to close off 2 final questions. One was just what's the earliest sort of indicator that you guys are watching internally would tell you demand is going to inflect either positively or negatively soon, hopefully, positively. I know ISM has done better recently, maybe historically, that's a good indicator. Anything just specific that you guys are tracking want to call out? So that's the first. And then secondly, just looking ahead, the $160 million to $180 million of gains this year, is that sustainable sort of on an annual basis if we look beyond 2026? E. Savage: Sure. So you mentioned a couple of the key metrics we're watching, but utilization is 1, the tightness in the market overall also for the industry, cars and storage. Then when you go to the inquiry levels, and we were positive since the 1st of the year, inquiry levels have picked up. Now they do have to convert to orders. But the first quarter, we had -- saw something that conversion. We're having positive conversations again this quarter. So looking at that, we see positive signs that the volume could move. When you look at PMI, when you're looking at the manufacturing indexes, we closely follow that. So all of those are good indicators for you to watch to say, we think things look positive. We still have to see the quarter rate get up to get us back to what we thought next year might be closer to 30,000 or 35,000 industry builds. When you go to -- the second question, gain. Okay. On the gains, we're not going to talk a lot about '27 but when you look at the fact that selling in the secondary market and buying in the secondary market are integral to the way we run our business. I would expect that you're going to see us in some form doing both of those every year. When we get closer to '27, we'll give you more guidance on what we think will happen in 2027. Operator: That was the last question. . E. Savage: Well, thank you for joining us today. Our first quarter results highlight the operating leverage we've been building and the progress we're making across the business. We remain focused on what that is here. disciplined execution, delivering for our customers and creating value for our shareholders. Thank you for your continued interest in Trinity. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Greetings, and welcome to the TriMas Corporation First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sherry Lauderback, Vice President of Investor Relations. Thank you. You may begin. Sherry Lauderback: Thank you, and welcome to TriMas Corporation's First Quarter 2026 Earnings Call. Joining me today are Thomas Snyder, President and CEO, and Paul Swart, our Chief Financial Officer. We will begin with prepared remarks discussing our first quarter results, followed by our outlook for 2026, after which we will open the call for your questions. To help you follow along with today's discussion, both the press release and our presentation are available on our website at trimas.com under the Investors section. A replay of this call will also be available later today by dialing (877) 660-6853 and using meeting ID 13759871. Before we begin, I would like to remind everyone that today's comments may include forward-looking statements, which are inherently subject to various risks and uncertainties. Please refer to our most recent Forms 10-K and 10-Q for a discussion of the factors that could cause our results to differ from those anticipated in any forward-looking statements. We undertake no obligation to publicly update or revise such statements except as required by law. We also encourage you to visit our website for more information. In addition, please refer to the appendix of our press release or presentation for reconciliations of GAAP to non-GAAP financial measures. Throughout today's call, our discussion of financial results will be on an adjusted basis, excluding the impact of special items, and unless otherwise noted, the financial results discussed will reflect continuing operations. At this point, I will turn the call over to Thomas Snyder. Thomas? Thomas Snyder: Thank you, Sherry. Good morning, everyone, and thank you for joining us today. Before diving into the results, I want to briefly provide some perspective on the quarter. The first quarter of 2026 reflected steady execution and progress as we advanced several important priorities for the company. During the quarter, our team delivered on several key commitments, most notably the successful divestiture of TriMas Aerospace, which closed on March 16. The transaction was completed on schedule, generated more than $1.2 billion of net after-tax proceeds, and meaningfully strengthened our balance sheet. We are pleased with the execution and the increased flexibility this provides as we move forward. We acted promptly and deliberately with the proceeds, repaying borrowings associated with fourth quarter share repurchase activity, completing additional share repurchases, and investing the remaining balance in interest-bearing accounts as we assess the best long-term use of that capital. During the first quarter, we repurchased nearly 1.5 million shares, bringing total repurchases since announcing the aerospace divestiture to approximately 4.5 million shares. As of quarter end, we had approximately 36.3 million shares outstanding. These actions reflect our disciplined approach to capital allocation, including returning capital to shareholders while maintaining the flexibility to invest for long-term value creation. Our priorities remain unchanged: investing in organic growth, strengthening our core capabilities, and pursuing targeted, high-quality acquisitions that enhance, elevate, or expand our platforms within packaging and life sciences. We believe these are attractive, growing, and resilient end markets where we see compelling long-term opportunities and where our capabilities position us well to compete and win. While much of the focus this year has been on the aerospace divestiture and our longer-term strategic positioning, we also continued to make meaningful progress on operational improvements across the business. We intensified our focus on standardization, operational excellence, and continuous improvement, and as discussed on our February call, we took actions that position us to deliver approximately $10 million of cost savings in 2026 and $15 million annually. Based on that momentum, in March, we announced plans to consolidate our Atkins, Arkansas packaging facility into other locations by midyear 2026. This was a difficult but necessary decision that aligns with our long-term strategy to optimize our manufacturing footprint, improve efficiency, and remain competitive. We expect this action to generate approximately $0.5 million of additional savings in 2026 and roughly $1 million on an annualized basis. Alongside this progress on execution and strategy, we are operating in a dynamic external environment. Our teams are closely monitoring geopolitical developments, including conditions in the Middle East, and proactively managing potential impacts across our operations and supply chains. While we have not experienced any significant direct impacts to date, we are working collaboratively with our vendors and customers to manage cost pressures and ensure continuity of supply. Despite these external considerations, our focus remains firmly on what we can control. As we move through the remainder of 2026, we believe we are well positioned to accelerate performance, invest in organic growth and targeted acquisitions, and continue building a stronger, more customer-focused company. Before moving on, I want to acknowledge the high level of engagement and commitment demonstrated by our teams across the company. Successfully closing a major divestiture, managing the transition, returning capital to shareholders, and advancing operational improvements while continuing to serve customers at a high level requires focus, coordination, and discipline. This performance reflects the strength of our leadership team and the collaboration and accountability embedded across TriMas Corporation. Turning now to our first quarter results on Slide 4, the quarter generally reflects the expected performance across the organization and meaningful year-over-year improvement in both growth and profitability. As a reminder, the results of operations for TriMas Aerospace, which were previously reported within the Aerospace segment, along with one-time transaction-related costs, have been classified as discontinued operations for all periods presented. For the quarter, net sales increased more than 10% year over year to $168 million. Growth was driven primarily by 7.3% organic gains, complemented by a 4% currency tailwind, and partially offset by a modest impact from the aero engine divestiture. Importantly, results reflect steady demand across many of our end markets, with Q1 net sales growth exceeding our expected range. From a profitability standpoint, we delivered solid margin expansion. Operating profit increased, with margins improving by 120 basis points year over year, and exceeding our original Q1 assumptions. This outperformance reflects operating leverage on higher volumes, combined with the early benefits of our cost streamlining initiatives, most notably meaningful reductions in corporate cash costs. Income and earnings per share increased meaningfully year over year. Income from continuing operations increased 51% to $9 million compared to $5.9 million in the prior-year period. Adjusted earnings per share rose 60% to $0.24 compared to $0.15 in the prior year. This improvement was supported by stronger operating performance, approximately $0.04 of interest income from invested proceeds, and disciplined cost management. These benefits more than offset higher interest expense and a higher effective tax rate year over year. Overall, we are encouraged by how the year has begun. With a stronger balance sheet and a more focused portfolio, and continued progress across our operations, we believe TriMas Corporation is well positioned to accelerate performance in 2026 and beyond. The momentum we are seeing reinforces our confidence as we move through the remainder of the year and continue advancing our strategic priorities following the aerospace divestiture. And with that, I will now turn the call over to Paul to walk through the financial results in more detail. Paul? Paul Swart: Thank you, Thomas, and good morning, everyone. Let me start by walking through our current balance sheet and capitalization on Slide 5. We successfully closed the aerospace divestiture in March, receiving approximately $1.4 billion of gross cash proceeds, meaningfully transforming our balance sheet and providing financial flexibility. We have redeployed over $150 million of the proceeds to fund share buybacks executed between November 2025 and the end of Q1 and expect to fund the estimated $200 million in income taxes owed related to the transaction gain beginning in the second quarter. We ended the first quarter with a net cash position of $913 million. The majority of our cash balance is invested in interest-bearing accounts, currently earning about 3.5%, a solid income source as we take a disciplined and deliberate approach to further capital redeployment. This income stream began to benefit our results in late March, and Thomas will discuss the expected earnings benefit of that interest income as part of the outlook discussion. From a debt perspective, our $400 million of 4.25% senior notes due in 2029 continue to provide stable, low-cost financing. First quarter free cash flow was a use of $16 million, which is not unusual given the seasonal dynamics of our business as we build toward higher sales volumes in the second and third quarters. We expect improved free cash flow generation as we move throughout the year. In summary, we have significant capacity to execute our priorities and will continue to deploy capital responsibly on a measured basis to create long-term value. Turning now to business performance, let us move to Slide 6 and review the Packaging segment. First quarter net sales increased 9.1% year over year to $139.2 million, with the growth split between organic improvement and the impact of favorable foreign currency translation. Demand was solid across much of the portfolio, led by strength in applications for the beauty and personal care and life sciences end markets, partially offset by some softness in industrial closure applications. In particular, life sciences sales benefited from nearly $5 million of tooling revenue that was not inherent in our Q1 forecast. Operating profit was $17.7 million, largely in line with the prior period. From a margin perspective, first quarter margins improved sequentially versus 2025, as expected, driven by higher sales volumes and the early benefits of our operational improvement and cost-out actions. On a year-over-year basis, margins were lower, reflecting a less favorable product sales mix, particularly as a result of the higher tooling sales, which moderated the impact of the higher volumes and cost actions during the quarter. Turning to our forward outlook, we continue to expect full-year 2026 sales growth of 3% to 6%, with full-year operating margins expanding into the 14% to 15% range. We anticipate sequential margin expansion as we move through second quarter and then third quarter 2026, driven by cost streamlining initiatives, operational and commercial excellence programs, benefits from prior acquisition integration, and footprint optimization. Finally, as Thomas noted, we are operating in a dynamic external environment. We are actively monitoring global conditions and working proactively with our customers, suppliers, and operating teams to mitigate potential impacts from geopolitical developments. Turning to Slide 7, I will review our Specialty Products segment. Performance in the first quarter reflected continued recovery and strengthening fundamentals. Net sales increased 17% to $29.1 million compared to $24.9 million a year ago. Year-over-year sales growth of 24% at Norris Cylinder more than offset the $1.4 million reduction in sales associated with the 2025 divestiture. This performance was supported by stronger intake, market share gains, and improving demand trends. Operating profit improved from $0.1 million in 2025 to $2.9 million, with operating profit margin increasing to 9.8%, expanding by 940 basis points year over year, driven by higher sales volumes at Norris Cylinder and improved fixed cost absorption. Looking ahead, we continue to expect full-year 2026 sales growth of 3% to 6% for Specialty Products, with operating profit margins in a range of 8% to 10%. The ongoing recovery at Norris Cylinder is supported by stronger intake, benefits from the Made in the USA designation, and the impact of our prior cost restructuring actions, all of which are contributing to improved operating performance and margin expansion. In sum, Norris Cylinder delivered a strong start to the year, demonstrating its earnings potential and contributing positively to the company's improving financial profile. Overall, we are pleased with our start to the year. It is worth noting that Q1 was the lowest sales quarter in 2025 for both Packaging and Specialty Products segments, and the expectation has been and remains that the year-over-year growth rates will moderate as we move through 2026 to within the full-year sales growth guidance. And with that, I will now turn the call back to Thomas to provide details on our outlook and our future. Thomas? Thomas Snyder: Great. Thanks, Paul. I would like to spend a few minutes discussing what lies ahead for TriMas Corporation. Starting with our 2026 outlook on Slide 8, first, we are reaffirming the full-year 2026 sales and margin outlook that we previously provided on February 26. For the year, we continue to expect top-line growth of 3% to 6% based on a 2025 revenue base of $645.7 million. We also continue to anticipate more than 300 basis points of operating profit margin improvement relative to the 5.3% margin we delivered in 2025. This represents a meaningful step change in performance driven by improved operating results across both segments and the impact of the cost reduction initiatives we have underway, which we expect to build progressively through the year. In addition, we are providing full-year 2026 adjusted diluted earnings per share guidance in the range of $1.50 to $1.70, representing a 191% increase at the midpoint compared to $0.55 in 2025. This reflects a significant year-over-year increase in earnings power driven by improved operating performance, the impact of our cost reduction actions, and interest income from the investment of divestiture proceeds. This outlook assumes approximately $9 million of interest income for the remaining quarters and no significant changes in interest rates or redeployment of cash proceeds for the balance of the year. Key assumptions underlying this guidance also include interest expense of $20 million to $22 million, a reduction in corporate cash expense of approximately $10 million year over year as cost-out initiatives take hold, and an effective tax rate in the range of 27% to 29%. We also expect improvement in sales, earnings, and adjusted earnings per share in each quarter of 2026 compared to the prior year, as well as sequential increases in earnings in Q2 and then Q3 2026, reflecting continued operational momentum and the progressive realization of cost-out and efficiency benefits. Now turning to Slide 9, which outlines the levers we see for long-term value creation. The story here is fairly straightforward. We have a clear strategy and a defined playbook, and we are executing against it. On the operational side, we are embedding Lean Six Sigma disciplines across our manufacturing footprint, standardizing systems and processes, and continuing to optimize our manufacturing network. More than $10 million of savings expected in 2026, reaching more than $15 million annually, are not aspirational targets—these actions have already been taken and are progressing as planned. Innovation is another critical pillar for our long-term growth strategy. We are accelerating customer-driven product development, expanding our portfolio of sustainable product solutions, and strengthening our engineering capabilities to move faster and more effectively. Our focus is on driving growth in higher-value, higher-margin applications, particularly within life sciences and select areas of our packaging business, where we have strong customer relationships and differentiated capabilities. From a capital allocation perspective, TriMas Corporation is in a position of strength. Following the aerospace divestiture, we ended the quarter with more than $900 million of net cash, providing substantial flexibility to invest in organic growth and pursue targeted, high-quality acquisitions. We have repurchased approximately 4.5 million shares since the aerospace sale announcement, reflecting our balanced approach to capital deployment. Enhancing and elevating our product offerings remains central to our strategy as we look ahead. Packaging and life sciences represent high-quality platforms with attractive growth profiles and strong differentiation, positioning us to drive higher-value growth and enhanced margins over time. We will continue to actively manage and refine the portfolio to advance performance, elevate our strategic profile, and create sustained long-term value. In summary, we delivered a strong start for the year with more than 10% sales growth, 60% adjusted earnings per share growth, and 120 basis point operating margin expansion, while advancing multiple levers that support sustained momentum. With a stronger operating foundation and meaningful capital to deploy, we believe TriMas Corporation is well positioned to accelerate performance in 2026 and beyond, deepen customer partnerships, and invest in the opportunities that create the greatest long-term value. Thank you. And with that, I will turn the call back to you, Sherry. Sherry Lauderback: Thanks, Thomas. At this point, we would like to open the call to questions from our analysts. Thank you. We will now be conducting a question-and-answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Hamed Khorsand with BWS Financial. Please proceed with your question. Operator: Hamed, it looks like we lost you. If you could join back the queue, that would be great. We will move over to Katie Fleischer with KeyBanc Capital Markets. Please proceed with your question. Katie Fleischer: Hey. Good morning, everyone. Can you talk about some price/cost expectations within Packaging and remind us what the typical lag versus commodity prices is before it flows through to the P&L? Thomas Snyder: Yes, sure. It is typical in this industry—there is usually a bit of a lag on the resin cost pass-through. Our team has been all over this. We have, obviously, a majority of our business under contract with language that recovers our costs. We do a variety of different term timing periods to recover that. But the way that we have looked at this, we do not anticipate a lot of impact. There could be some headwind in the quarter with some delay—let us say, moving from Q2 to Q3—but overall, not all that significant. And from a full-year perspective, I feel pretty good about the price-over-cost recovery. I do not know, Paul, if you have anything to add to that. Paul Swart: Yes, Katie, I would say the more prevalent contract term is quarterly, as opposed to monthly or other escalators. So while we are not providing specific quarterly guidance, I do think that there is the potential—because of some of the things that started to happen in March—that we may not get full recovery on some of it until the third quarter or later in the year. So we are kind of planning internally—we talked about margin accretion from first quarter to second quarter, and then from second quarter to third quarter. Part of that is premised on our cost-out actions, where we are going to get more savings in second quarter and then third quarter compared to first. Part of that is also the thinking at the moment relative to recovery timing of commodity costs. It is likely that we may be a little bit short here as we move into second quarter and then begin to overcome that in third quarter. Katie Fleischer: Got it. Okay. That is helpful. And then, turning to Packaging margins, how should we think about the cadence of improvement within that segment through the year, just given the cost savings from the facility consolidation, but then layered in with some of those mix impacts that we saw this quarter? Paul Swart: I would say it is very consistent with what my prior comments were. I think we expected Q1 to be the lowest from a margin perspective, and we expect margins to increase sequentially as we move through the year. Obviously, there is a little bit of uncertainty in terms of the sales volumes—sometimes Q2 is the highest sales quarter, sometimes Q3 is—but I would expect that the actions we are taking are sufficient such that you are going to see escalation as you move through the next two quarters. Then Q4 naturally falls back a little bit, but we would be in line with our full-year guidance. Katie Fleischer: And then just to squeeze one more in here on the mix impacts. I think I heard you say that was from tooling revenue within life sciences. Can you give a little more detail on that, and if we should see that in coming quarters? Paul Swart: Sure. We had a tooling sale for a program that we are working on where we are going to ultimately put product into production later in the year or early next year, but we created and sold the tooling at a very low margin to the ultimate customer. That really did not provide a lot at the bottom line and was not inherent in what our Q1 guidance was—it was expected a little bit later in the year. So that pressured our margins in Q1 just because of that significant one-time sale. There is not another significant tooling sale that we currently have forecasted that is inherent in our guidance, so we do not expect that margin pressure to occur for the remainder of the year. Obviously, we will update you if something changes, but that is where we stand right now. Thomas Snyder: Yes, it is actually a good thing. I always look at these things as a leading indicator of significant improvements in sales down the road, so more to come on that as the clock moves forward. Sherry Lauderback: We have reached the end of our question-and-answer session. I would now like to turn the floor back over to management for closing comments. Once again, thank you for joining us today and for your continued interest in TriMas Corporation. We appreciate your ongoing support, and we look forward to updating you on our progress next quarter. Thomas Snyder: Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the Teladoc Health Q1 '26 Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Michael Minchak. You may begin. Michael Minchak: Thank you, and good afternoon. Today, after the market closed, we issued a press release announcing our first quarter 2026 financial results. This press release and the accompanying slide presentation are available in the Investor Relations section of the teladochealth.com website. On this call to discuss the results will be Chuck Divita, Chief Executive Officer. During the call, we will also discuss our outlook, and our prepared remarks will be followed by a question-and-answer session. Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating our performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release that is posted on our website. Also, please note that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied on this call. For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. I would now like to turn the call over to Chuck. Charles Divita: Thanks, Mike. I'm pleased with our performance for the quarter with consolidated revenue and adjusted EBITDA both exceeding the midpoint of our guidance ranges and reflecting solid performance in Integrated Care and progress we're making in scaling insurance of BetterHelp. Let me start with some comments on the market environment as it shapes everything we'll discuss today and the actions we're taking to move the business forward. The U.S. market served by our Integrated Care segment had meaningfully evolved in recent years, creating both challenges and new opportunities to build upon our scale platform. We've established a market-leading position by delivering at a national scale and by expanding services over time to address episodic and longitudinal care needs, improve the health of people living with chronic conditions and to support mental health. We see our ability to provide more comprehensive care at scale, positioning us well for the opportunities ahead. One of the more significant market shifts has been with client preferences moving from subscription-based access towards visit-based arrangements and are more in line with the fee-for-service construct of the U.S. health care system. While this shift has created some near-term changes to our model, we've embraced it as an opportunity to expand our role and the impact we can have through each visit and interaction with Teladoc Health. For example, earlier this year, we significantly enhanced our flagship 24/7 care offering, broadening the conditions we can address, bringing specialist support to our treating clinicians, adding real-time prescription benefit checks and expanding our ability to connect patients to additional in-network care as needed. Multiple health plans have added the enhanced offering already, and we expect more to follow suit. And together with other virtual care services, we expect to see a moderation in the revenue headwinds we've experienced because of the migration of subscriptions to visits and to exit the year with this moving to a net tailwind. The market for chronic care programs has also evolved in recent years, including the proliferation of point solutions that add more fragmentation. Chronic disease affects more than half of American adults and remains a major challenge for patients, health plans and employers and the U.S. health care system. Clients are increasingly looking for a more comprehensive approach supporting people with chronic conditions, a shift that plays well to our strengths. Over the past several quarters, we've taken deliberate actions to strengthen our position, deepen our clinical model and drive innovation in our products and in our capabilities. And we see advancements in artificial intelligence as an important catalyst and opportunity for us to lean into these market changes. While we've been using AI and adjacent technologies for some time, we are excited about the potential to leverage it more extensively in our business and advance how we deliver outcomes and results for our clients and the people we serve. This is why we've invested over the past year in our data infrastructure to power AI through our new Pulse intelligence engine as well as enhancements to our Prism Care delivery platform used by our providers. By doing so, we are turning our extensive data and AI-driven insights into action as we engage with patients and support their needs. Combined with our deep clinical expertise, our range of services and trusted relationships with clients, we can deploy AI responsibly and effectively in a virtual native health care setting. And to bring all of this together for the market, we are actively developing new products for release later this year that leverage the full breadth of our clinical services and our AI-enabled capabilities in a comprehensive solution. We believe this new approach will further build on the strengths of our well-established platform, create clear market differentiation and support sustainable growth. I look forward to providing a further update on this product innovation initiative on our second quarter call. Mental health also represents an important market, and we see strong demand for our services given the extensive unmet need out there. Mental health conditions impact over 60 million adults in the U.S. with half of those not receiving treatment and over 1/3 of the U.S. population living in areas with a shortage of mental health professionals. Because of this, the virtual care modality has become an essential access point and our services an important avenue for people seeking help and support. Within Integrated Care alone, we generated nearly $140 million in annual revenue for mental health services in 2025 and saw further traction and growth in the first quarter of 2026. And our ability to deliver comprehensive services across virtual care, chronic conditions and mental health to support overall health is valued by our clients and strategically important to our Integrated Care business. The mental health market is also important to BetterHelp, which has built a leading global position in direct-to-consumer virtual therapy. Its high brand awareness, scaled platform and large and diverse therapist network come together to deliver an exceptional patient experience and achieve positive clinical outcomes. And having served over 6 million people since inception, BetterHelp also represents an important marketplace for mental health professionals to be matched with patients, over 90% of the time in less than 48 hours. However, with mounting pressure on BetterHelp's U.S. direct-to-consumer cash pay business, we took decisive action to enter the insurance market and move towards a more durable and balanced model. In support, we made the highly strategic acquisition of UpLift last year, securing important capabilities, talent and a baseline of insurance contracts. The integration has gone very well, and the insurance rollout is progressing ahead of our expectations. We are live in 30 states in Washington, D.C. and have credentialed and enrolled over 6,000 providers. We've also grown insurance contracted lives to over 150 million, a 30 million increase since year-end 2025. Early engagement data is also encouraging with insurance covered users averaging approximately 20% more sessions than cash-pay users in their first 90 days, suggesting benefits coverage is helping remove cost barriers. Funnel conversion is also stronger with covered users that enter insurance information during onboarding compared to those moving through a cash pay-only flow. This is particularly important given BetterHelp's large inbound demand funnel and opportunity to convert a greater share of interested users into active ones and resulting in improved customer acquisition efficiency over time. And we're beginning to see some meaningful separation in performance between markets where insurance has been active for an extended period compared to cash-only markets. For example, in states where insurance was live by the third quarter of 2025, we're seeing a nearly 800 basis point improvement in revenue performance compared to cash pay-only markets, an indication that insurance access is improving activation and helping stabilize underlying trends as markets scale. As a result of this momentum, BetterHelp's total insurance covered sessions are now running at over 14,000 per week, representing an annualized revenue run rate of over $75 million, and we now expect to exit 2026 with a run rate of $125 million or more. This further illustrates the real progress we are making in the insurance rollout and in creating a stronger position in the U.S. for BetterHelp. Markets outside the U.S. also represent an important growth opportunity for BetterHelp, contributing to solid growth in user trends and benefiting from more favorable customer acquisition costs on average. Our localized country launches in 2025 are delivering solid end market growth, and we look to target 1 to 2 new markets for launch in the second half of 2026. Finally, operational excellence remains a key area of focus across both business segments, including operating efficiency and effectiveness. We've elevated execution and operating discipline with a clear focus on our cost structure. AI is playing a role here as well as we continue to deploy new capabilities across our business. For example, within BetterHelp, new AI-assisted clinical documentation is reducing administrative burden so therapists can focus more on delivering care. Since launch, we've generated over 300,000 notes with strong therapist satisfaction and more than 2,000 therapists have used it across 30,000 sessions in our insurance workflows alone. This technology is saving about 15 minutes per session and adding up to more than 4 million minutes so far. We will continue to look for ways to leverage AI and continue to focus on our cost structure more broadly. Our strategic priorities are aimed squarely at building a stronger business, supported by our financial strength and approach to capital allocation. This includes making both organic and inorganic investments that are well aligned with our needs and market opportunities and ensuring a strong balance sheet and financial profile, which is also important to our clients. As I mentioned on the last earnings call, we intend to address our 2027 convertible notes in 2 phases to meaningfully lower our gross debt position. First, by paying down a substantial portion with available cash and securing new traditional term debt, potentially before year-end and then paying off the remainder with cash at maturity in 2027. We believe this appropriately aligns with the cash flow profile and need of the business, and we will continue to evaluate our capital with a focus on financial strength and long-term shareholder value. Now let me cover our results for the first quarter. Consolidated revenue was $614 million and adjusted EBITDA was $58 million, representing a 9.5% margin. Net loss per share was $0.36 and includes the following pretax per share amounts: amortization of intangible assets of $0.50, stock-based compensation of $0.08 and restructuring costs of $0.07 per share. Consistent with historical seasonality, free cash flow for the quarter was a net outflow of $26 million, ending with $751 million in cash and cash equivalents on the balance sheet. Net debt to trailing adjusted EBITDA was under 0.9x and 3.6x on a gross debt basis. Turning to segment results. First quarter Integrated Care revenue was $395 million, an increase of 1.5% over the prior year and came in towards the upper end of our guidance range. Acquisitions contributed approximately 170 basis points to year-over-year growth with a high single-digit increase in visit revenue, largely offset by lower subscription revenues in the quarter. International revenues again grew double digits over the prior year period, including a 30% increase from our hybrid care models that provide virtual services and physical settings. U.S. Integrated Care membership finished the quarter at 101.2 million members, above the high end of our guidance range. We retained our full year outlook, which contemplates moderation over the course of the year as health plans deal with potential changes to their underlying enrollment levels. Chronic Care program enrollment was 1.2 million at quarter end, up approximately 1% sequentially and 4% higher year-over-year, driven largely by an increased adoption of multi-condition bundles by clients seeking a more integrated and comprehensive approach. First quarter Integrated Care adjusted EBITDA was $56 million, up 12% over the prior year period and representing a 14.2% margin, slightly above the high end of our guidance range and up approximately 130 basis points from the first quarter of 2025. Strong adjusted EBITDA performance was driven by the revenue upside I mentioned earlier as well as disciplined cost management, which more than offset mix-related gross margin pressure from the shift to visit-based arrangements. BetterHelp's first quarter revenue was $218 million, 9% lower than the prior year period, reflecting continued pressure on the direct-to-consumer cash pay business. This was offset to some extent by $13 million in insurance-based revenue, which was up $6 million sequentially and at the high end of our expectations. Average paying users declined 9% from the prior year's quarter to 361,000, reflecting a mid-teens decline in the U.S., partially offset by high single-digit growth in non-U.S. markets. BetterHelp's adjusted EBITDA for the quarter was $2 million, a 0.9% margin and down from 3.2% in the prior year. Lower cash pay revenue and the timing of investments to support the stronger insurance rollout drove a lower margin result. These items were somewhat offset by 12% lower advertising and marketing expense versus first quarter 2025, an intentional move as we balance funnel activation and brand awareness to support both cash pay and insurance. Now turning to guidance. We expect 2026 consolidated revenue for the year of $2.48 billion to $2.58 billion, adjusted EBITDA of $267 million to $306 million and free cash flow of $130 million to $170 million, with the midpoint of each of these ranges unchanged from our prior outlook. We now expect full year stock-based compensation expense to be below $55 million, which would represent a decline of over 30% from 2025 and down over 70% since 2023. We project net loss per share of $1.05 to $0.75 per share. Note that our cash flow and net loss per share guidance ranges do not include any potential impact from changes in our current debt structure as our remaining convertible notes don't mature until June 2027, and we are still evaluating options to address the notes. For the second quarter, we expect consolidated revenue in the range of $597 million to $626 million and adjusted EBITDA in the range of $55 million to $67 million. For Integrated Care, we expect revenue to grow 0.8% to 3.5% with the range narrowing slightly and the midpoint unchanged. This range includes roughly 65 basis points of inorganic growth from prior acquisitions and approximately 60 basis points of benefit from FX. We expect International revenue growth in the high single digits on an organic constant currency basis and high single-digit growth in visit revenues to be largely offset by lower subscription revenue. As I mentioned earlier, we expect this dynamic to further moderate in the second half of 2026 and to exit the year being a tailwind to growth. Our full year Integrated Care adjusted EBITDA margin guidance of 15.1% to 16.1% is unchanged, which at the midpoint reflects an increase of approximately 45 basis points over 2025. Margin improvement is expected to be driven by ongoing cost savings and productivity initiatives, largely offsetting mix pressure from the subscription to visit shift. We continue to be highly focused on ensuring our underlying cost base is aligned with our needs and the opportunities ahead. We are guiding to second quarter Integrated Care revenue down 1.75% to up 1.75% year-over-year, which includes roughly 70 basis points of contribution from prior acquisitions. The sequential comparison versus the first quarter 2026 is impacted by timing factors, including client revenue that we expected to recognize in the second quarter that was recognized in the first quarter, the deferral of certain new contract implementations now expected to go live in the second half of 2026 and a reduced FX outlook. Adjusted EBITDA margin is expected to be in the range of 14.7% to 16.0% in the second quarter, representing a year-over-year increase of approximately 65 basis points at the midpoint. Looking out to the second half of the year for the Integrated Care segment, we expect growth to benefit from contract implementations and strong visit revenue growth due in part to our enhanced 24/7 care offering as well as targeted enhancements to our visit funnel conversion. In addition to those factors, adjusted EBITDA is expected to benefit from continued execution on cost savings and productivity initiatives. Moving to BetterHelp. We are narrowing our 2026 revenue guidance range to down 6.5% to down 1.0% versus 2025, with the midpoint unchanged. This now contemplates full year insurance revenue in the range of $90 million to $105 million, a $15 million increase from our prior expectation and an anticipated exit run rate of at least $125 million in the fourth quarter. Cash pay revenue reflects a continued challenging consumer backdrop, together with the impact of continued scaling of insurance and disciplined advertising and marketing spending. Our guidance for adjusted EBITDA margin of 3.0% to 4.6% is unchanged versus our prior range. This reflects mix impacts and investments to support the scaling of insurance, partially offset by the lower level of expected ad spending. For the second quarter, we are guiding to BetterHelp revenue down 11.75% to down 5.25%. At the midpoint, this reflects modest sequential growth, an early milestone reflecting progress towards stabilizing the business. This contemplates insurance revenue in the range of $18 million to $22 million in the quarter, up over 50% sequentially at the midpoint. We expect an adjusted EBITDA margin of minus 0.5% to plus 1.5%, down on a year-over-year basis due to lower cash pay revenue, mix impacts on gross margin and continued investments to scale insurance, partially offset by lower ad spend. Looking at the balance of the year for BetterHelp, we expect continued sequential revenue growth in the third and fourth quarter, driven by higher insurance revenues and growth in non-U.S. markets and similar seasonality with respect to adjusted EBITDA with the fourth quarter being the highest due to lower ad spend as a result of holiday ad pricing dynamics. In closing, we are pleased with our first quarter performance and remain on track with our outlook. We are confident in the actions we are taking and encouraged by the progress across our key priorities. Our team remains highly focused on disciplined execution, and we will continue to prioritize actions to drive long-term shareholder value. With that, let's open it up for questions. Operator? Operator: [Operator Instructions] Your first question comes from David Roman with Goldman Sachs. David Roman: Maybe I'll just pick up on something where you just -- I think you made in your last remarks there around stabilizing the business here and reflected in your second quarter guidance for Integrated Care. Maybe just talk a little bit more about the return to growth here that you're contemplating? And if you're at a point now where you think that's on a sustainable trajectory? And then maybe just if you could give us a little bit of help here on the BetterHelp side, what you're looking for in calling kind of a turn in growth trajectory in that business? Charles Divita: Yes. Thanks, David. Thanks for the question. I think on the Integrated Care side, and I'll ask Mike to talk a little bit about some of the puts and takes in the first quarter as well as the second quarter guidance. But in terms of how we look at the rest of the year, there's a few things that I think are important to point out. First of all, we've talked about this for a while. I talked about it in my prepared remarks, but this mix shift from subscriptions to visit has been pretty dramatic. Just a few years ago, 70% of the revenues of the company -- or excuse me, the membership that we had of the company was in subscription-based models and 30% in visit-based models. Just a few years later and as we exit 2026, that's going to flip. We'll have about 70% of the memberships in visit-based arrangements versus subscription-based arrangements. So as we see that dynamic play out and including with some of the new product innovations I mentioned earlier, we're going to see that move to a net tailwind. And you'll start to see that a bit in the third quarter and in the fourth quarter. Now in the second quarter, it's still a net tailwind, and you're seeing that in the numbers. Let me ask Mike to comment a little bit on the first quarter and second quarter guidance, and then I'll come back on BetterHelp. Michael Minchak: Yes. Thanks, Chuck. So if we look at the first quarter, I would say we had a nice beat versus the midpoint of the guidance range. And I would say about 1/3 of that was due to timing and nonrecurring factors. And then the other part was due to good execution across the business. The timing factors, we did have a pull forward from an earlier booking that we -- that benefited the first quarter and is not recurring in the second quarter. So that was pulled forward. The second is we've had a few contract implementations that we were anticipating in the second quarter that are now expected to occur in the second half. And I'd say the third factor is slightly lower FX impact relative to what we had previously assumed in the second quarter. So I would say if you adjust for those factors, the impact of those was, I would say, a few million dollars. The sequential progression from the first to second quarter would look more consistent. And then I would say just we had indicated last quarter that in terms of the first half versus the second half revenue split for Integrated Care in '26, we had expected to be slightly more weighted to the second half relative to 2025, although generally consistent with the average split over the last few years -- over the past few years. We still expect that to be the case. So those are some of the dynamics that are impacting the first and second quarter and then the full year. Charles Divita: Yes. And then one additional thing on Integrated Care. As I mentioned earlier, it's really about driving greater value for our clients, and we've been very focused on product innovation, and you've seen some of that rollout. I'm excited about the work that we've got going on right now for some new comprehensive solutions to roll out later in the year, really to lean into the core strengths we have as a company be able to show up more comprehensively for our clients. And the combination of this change in mix that's occurring as well as these new product innovations is really how we're going to drive growth in Integrated Care, of course, as well as our growing International position. In BetterHelp, the insurance entry point is going very, very well. We're excited about how that is scaling. We think that as we progress through the year, we're going to continue to see that grow as well as start to moderate. And I mentioned in my prepared remarks, some of the moderation we're seeing in some states that have been live really since the third quarter of last year and the lift we're seeing in revenue there as a result. So we're seeing some market stabilization. We're seeing early signs that the availability of insurance is creating -- is taking down that cost barrier. So we're seeing more sessions. So insurance really is a major catalyst for the turnaround and growth of BetterHelp in the U.S. And then, of course, as I mentioned earlier, in my prepared remarks that international growth. So both segments have their story in terms of mix changes and growth outlook, and we feel confident that we've reflected that in our outlook and in our guidance. Operator: Your next question comes from the line of Sarah James with Cantor Fitzgerald. Sarah James: I was hoping you could unpack a little bit more the Integrated Care revenue guide. What are you assuming for the ACA subsidy-related disenrollment as we go through the year? Was it as big of an impact on 1Q as you had expected? And then as you think about the assumptions made in tightening the guide here, are you assuming any move in visit utilization or retention going forward? Charles Divita: Yes. Thank you for the question. We -- I think the ACA market, as you know, it's still working its way through. And I think the health plans, generally speaking, are expecting to see some continued moderation in their enrollment as payments are due and things like that. And we've reflected that in our guidance. I was surprised to see a little bit higher enrollment in the first quarter, but we kept our guidance moderating down through the year for that reason. As I mentioned in our last earnings call, that we didn't see that having a material impact in terms of our revenues or our visits, just the nature of the mix and how we see that. And so in terms of how we see the rest of the year, as I mentioned before, this mix shift change where we now have -- we're going to end the year with about 70% of membership in visit arrangements and the fact that we continue to grow visit revenues you're really going to start to see that take hold more in the third quarter and even certainly more in the fourth quarter and as we go into 2027. Operator: Your next question comes from the line of Daniel Grosslight with Citi. Daniel Grosslight: I want to go back to the BetterHelp insurance rollout. It seems to be going a bit better than expectations, maybe at the high end of expectations. With a few quarters under your belt now, I'm curious what the biggest drivers of upside have been and maybe some -- what have some surprises on the downside been for you as conversion and cannibalization progressed as you had anticipated really? And then I guess on top of that, given the success of the insurance business and the continued weakness in the DTC business, I'm curious if that changes the calculus at all on retaining the DTC business? Charles Divita: Yes. I think we've -- I think we've executed pretty well. We had a thesis when we acquired UpLift and when we decided to move BetterHelp and insurance. You may recall when I joined, that was one of the main priorities I laid out there. I felt like we needed that to turn that business around. And I think the team has done a really exceptional job of executing that and rolling out states methodically, but with urgency. I think we understand the importance of turning that business around. So I think we've been -- I wouldn't say overly surprised, but pleasantly surprised that as consumers are able to come through and see that they have insurance coverage available to them, that it's driving more funnel conversion once they're with the program, higher number of sessions that we're seeing with cash pay, and we're seeing the markets that we're live in for an extended period of time, start to make -- move the needle in terms of overall revenues, which speaks to the cannibalization point. So I think that's been a nice surprise, although I think we were intending to execute that well. I think one of the challenges we have in insurance is we've got to make sure that we've got the right therapist capacity to meet the demand. I mean BetterHelp come at this from a pretty large market position. So we want to make sure we've got the therapist coverage. As I mentioned in my prepared remarks, we've now credentialed and enrolled over 6,000 providers, and BetterHelp has a large therapist network of over 30,000 in its consumer cash pay business. So we're just urgently activating that and making sure we've got the right provider network to do it. So that's probably been one of the more significant constraints to your point. When you say retaining our direct-to-consumer business, I do believe, again, our starting point is a little different from others in this space because we have such a substantial market position in consumers, and because there's so much unmet need out there, I don't see necessarily that us turning off that consumer channel. We think it's important. However, I do believe we're going to see this continued growth in insurance, not just in 2026, but as we go into 2027 and ultimately in the U.S., seeing insurance surpass consumer. So we'll revisit that at appropriate time. But for now, we think being able to offer that on a consumer basis, cash pay basis as well as scaling insurance is the right thing for the business right now. Operator: Your next question comes from the line of Jailendra Singh with Truist Securities. Jailendra Singh: I actually want to ask about the Chronic Care business. Chuck, would you describe that the worst is behind given the momentum you seem to be seeing there, kind of some stabilization? And I know it is early in terms of selling season, but can you share anything in terms of early reads on the selling season? Any color on RFP trends, demand environment, the type of offerings you're seeing most interest? Charles Divita: Yes. I'll touch on the selling season first. I would say, generally speaking, the environment is similar to what I've spoken about previously. Just as a reminder, last year, we saw good overall results in the employer channels really across our solutions and ongoing challenges in the health plan space with all the macro challenges going on there. But we did have some nice wins and some expansions, but some pressure as well. I would say it's early in the year to be definitive around the selling season outlook. But I'm encouraged by some of the things we're seeing. We're about in the same place we were last year, but we're seeing some higher win ratios and things like that. And we're also having good strategic conversations with our clients. Obviously, they're facing a number of challenges with the rising medical costs and other kinds of issues and looking to, frankly, consolidate and reduce the number of point solutions and interested in the scope of services that we can bring to the table. And with respect to Chronic Care, for sure, and the bundled products, which are now about 70% of what we're doing there. So I think the market is similar, although starting to see some encouraging signs. The health plans are -- they're sophisticated organizations. And as I've said previously, they will work through those challenges, and it might take a cycle or 2 to do that. But that -- ultimately, that's going to be a tailwind to companies like Teladoc because they need those type of services to drive impact. Also, I think we're having really good conversations around some of these new product offerings. I mentioned enhanced 24/7 care. We thought that would be an attractive offering because of what it does and the kind of impact it can make as well as the role that it can play with these millions of visits that we have in a broader way in terms of driving engagement and connecting with other services. We're seeing that with 24/7 care and with Catapult. So it's early in the year, but there are some encouraging signs, including the level of conversations we're having. The last thing I would say is as we think about product innovation and really driving an increased level of value, that's ultimately what is going to make a difference here. And I think over time, the scope of our services and the fact that we can come at this as a provider organization resonates, and I think it will continue to resonate with the customers. Operator: Your next question comes from the line of Jessica Tassan with Piper Sandler. Jessica Tassan: I want to just follow up on Jailendra's. When you all say that we are in the same place as we were last year, is that referring to Chronic Care, so just implying flat revenue year-over-year in that subsegment? And then just if that's the case, how are you guys thinking about product innovation in that category specifically for 2027? And as your posture just on kind of GLP-1 comprehensive prescribing and administration maintenance a product oriented towards that. Has your kind of philosophy changed at all just in light of the extension of the bridge model and just proliferation of the category? Charles Divita: Yes. Thanks for the question. First of all, my comments to Jailendra were really about the selling season and where we are at this point in time. Obviously, it's early and having conversations and building the pipeline. So that's really what I was referring to there. In Chronic Care, we've got some exciting innovations that we're working on and really taking what I would call a more population-oriented view where we can really bring to bear the breadth of the clinical services that we have across our offerings, bring them together leverage the data and AI that we've built, and I could touch a little bit more on that later, but be able to bring that to the market in a way that is going to allow them to consolidate some of the services as well as drive stronger outcome for them. In terms of GLP-1s, that market, as you know, has evolved. And of course, it's on the minds of employers and health plans for sure. And I think many continue to try to figure that out. We've seen a lot of changes in terms of capacity and pricing and different modalities and things like that coming to market. We've come at this throughout that whole time really from a clinical point of view and making sure that we're focused on patient care and outcomes and not on prescribing per se. So we think that's the right place to be for our clients and the wraparound services we have as well as our ability to prescribe, I think, resonates. So Again, this weight and obesity management space is something that we've been in for some time. We continue to look for ways to reach patients. We've got these arrangements we've done with Gifthealth and Lilly and those kinds of things. So I think our product portfolio is pretty well positioned. But ultimately, the product innovation I mentioned, I think, is going to go broader than just weight management. Operator: Your next question comes from Sean Dodge with BMO Capital Markets. Christopher Charlton: It's Chris Charlton on for Sean here. On the Integrated Care side, there's been a lot of work being done here to increasingly monetize the members added over the past few years. And I know you've talked about some of the dynamics with to visit-based revenues. But where else are you seeing good traction so far on some of the initiatives that you've been rolling out here broadly? And then what are some of the next steps as you kind of get deeper into the year to kind of continue to drive the revenue growth here in the back of the year? Charles Divita: Yes. Thank you. Well, I mean, look, the virtual care part of our business is very important. And in addition to the mix changes I mentioned, the new 24/7 enhanced care offering really broadens the level of the services that we can provide, helps address things in the visit that may be previously required a specialist referral, those kinds of things and using it as a way to connect to other services. For example, making sure that, that care provider is aware that someone is eligible for one of our chronic care programs and if it's appropriate for them, making them aware of it. We've connected that in with Catapult, acquisition we made last year, where we can, in those kinds of moments, make sure that if there's a need that we can connect them to the other services we have. So I think a lot of those kinds of things really we're trying to take this scaled platform that we have, the integrated approach and look for all those activation points where maybe perhaps we weren't connecting all the dots or weren't able to benefit from that or the patients weren't aware. I think the innovation that we're driving beyond 24/7 care, I think, is going to make a real difference here. These chronic care programs that are out there, it's become a highly competitive and crowded space, a lot of point solutions out there. And that there's a lot of point solution fatigue. So the fact that we can show up and do a multiple -- a multitude of things for the patient and then in turn, demonstrate to the client the value of all those things together ultimately is how we're going to drive growth in Chronic Care. Operator: Your next question comes from the line of Charles Rhyee with TD Cowen. Charles Rhyee: I just wanted to follow up a little bit. Chuck, you were saying that in the states that you have launched the insurance product, you're seeing stabilization of the business. I think one of the things that you guys have talked about in the past was sort of when people are going through the funnel, how many people don't convert because of the cost. And it sounds like maybe that's -- you're starting to see that. I'm just curious, though, to the extent that it's kind of hard to see from this high-level view, are you seeing any type of cannibalization of people that might have gone into -- are you able to tell whether someone who have gone into the -- the cash pay has -- now has insurance has gone that way. Just trying to understand that dynamic a little bit? Or has this all really, would you say, been additive in the states that you've launched so far? Charles Divita: Yes. I appreciate the question. Again, with the caveat that it's still relatively early, but we do have a little bit more maturity in some of the states, as I mentioned before. And what we're seeing is net of -- there is some cannibalization risk, but net of that, we're seeing about 800 basis points of revenue lift improvement relative to states where we don't have cash pay. So what that tells me is not only is insurance helping increase the ability for people to use BetterHelp, but it's -- that's net of any cannibalization. So we do expect to see some of that. I've mentioned that before. But ultimately, since, as you pointed out, a large portion of the people coming through BetterHelp's traditional funnel, over 80% drop off and don't become active users. There's various reasons for that, but the largest reason is we're asking people to pay out of pocket. And now that they can access their insurance, we are seeing higher conversion, funnel conversion, and we are seeing in those states where we have insurance live a net improvement, a net lift in revenue. So I think all of that is pointing to that the strategy is working and on track. Ultimately, we've got to see how that plays out. We will see some cannibalization, but I do also believe we're going to see some net growth as well. Operator: Your next question comes from the line of Brian Tanquilut with Jefferies. Brian Tanquilut: Maybe just to follow up on the BetterHelp discussion. So can you talk to us what the biggest challenge would be in building therapist capacity here as we grow the insurance-focused part of the offering? Or maybe another part of that is, are there any swing factors that could speed up this adoption, whether both on the insurance side, both on the supply side and also on the demand side? Charles Divita: Yes, great question. Look, I think we're doing a lot to make sure we've got therapist access, and I referenced 6,000, that's a significant number if you look at other players out there. And we are -- in addition to the 30,000 therapists that BetterHelp has, which is a high-quality network, not all of them want to do insurance. We also obviously haven't stopped recruiting other therapists to the platform for insurance. So it is a bit of a gating factor from that perspective, but we're on track, and we continue to progress. So I think that really our ability to accelerate through the year, if I look at what we've accomplished so far, gives me confidence that we're going to see that progression through the year. And as I mentioned before, raised the range we think we have for the year as well as our exit. So there are some -- we're scaling something very material. Think about exiting the year at $125 million of revenue when it was 0 at the middle of last year. And between our Integrated Care segment with $140 million of revenue and that $125 million, makes us a major player in mental health. So I think we're going to -- we may face a few challenges here or there, but I've seen the team execute really well, and I'm confident that we'll be able to move it forward. Operator: Your next question comes from the line of Allen Lutz with Bank of America. Allen Lutz: Chuck, on the BetterHelp business, can you talk about for the, I guess, the back half or the back quarter of 2025 and the first quarter of 2026, what's the average co-pay that insurance covered patients are paying on the platform? And then how does that compare to cash pay? And then you made a comment responding to Charles' question where you said 800 bps of revenue lift improvement relative to states where you have cash pay. Can you unpack that a little bit? What exactly does that mean? Charles Divita: Okay. Great. Well, it's a combination of things, and it depends on someone's insurance coverage, et cetera. We will see -- I think we're going to see stronger lifetime value in the insurance space and maybe a bit lower ARPU initially here as it builds in terms of the level of sessions that grow. So I think that's how I'd answer that. The reference to the 800 basis points is we looked at states that were live before third quarter -- by the end of third quarter 2025 as a measure of states that had some level of maturity to them. And then we looked at states that don't have insurance live. And what we see in terms of the trajectory of the business in cash pay only versus cash pay that has insurance, we're seeing about 800 basis points improvement or lift. So as we roll out states and as those states mature, that's an indicator that we're going to see that level of moderation. And ultimately, as we continue to expand capacity, convert those states into net growers. Operator: Your next question comes from the line of Elizabeth Anderson with Evercore ISI. Ayush Vyas: This is Ayush on for Elizabeth. You guys are now at 30 states, and I think you mentioned you have around 6,000 credentialed therapists for insurance. So I guess what do you see as a realistic pace or cadence to get to all 50 states? Is it by the end of 2026, mid-2027? Or is it further out? And I guess, what do you see as the gating factor? Is that payer contracts, therapist credentialing or your own operation capacity? Charles Divita: Yes. I appreciate the question. We expect to be substantially all states, maybe not every state, but substantially all states by the end of the year, and we're progressing quite well against that. In fact, the 30 states is ahead of where we thought we'd be at this point in time. So that's progressing well. There are some gating factors. I mean, there are some states that some of the payer contracts made a little bit more challenging. We're looking at different strategies to make sure we overcome any of those barriers. But to date, we've been able to advance the strategy pretty well. So I think we're going to be substantially nationwide by the end of the year. And in terms of the therapist access, I think, one, BetterHelp continues to invest in its platform and make sure we've got a great experience for those therapists. Obviously, for insurance, we're asking them to do a little bit more administratively. And that's why in my prepared remarks, I referenced some of the things we're doing there that have really made it a much more efficient experience. So I think the combination of the actions we're taking as well as you've got to remember, BetterHelp being as large as it is, these therapists at the end of the day, they need to fill up their calendars, right? This is their patient acquisition funnel. So our ability to, at scale, bring patient flow into their calendar so that their business model as a therapist can be vibrant is a factor as well and why we have so many therapists on the BetterHelp platform to begin with. So again, there's more to execute and more to come through the year, but the results to date demonstrate that we're having good progress there. Operator: Your next question comes from the line of George Hill with Deutsche Bank. George Hill: I guess, Chuck, could you revisit your expectations for margin expansion as the BetterHelp business scales beyond 2026. And I'm also wondering -- I'm wondering if there's a positive mix effect because I know you guys have discussed in the past as the business grows, like the net rate is a little bit lower. But are you guys able to mix up from a therapist perspective? And just trying to think about how that business evolves as insurance coverage expands? Charles Divita: Yes, I appreciate the question. There's a few things in that. Obviously, right now, we're in build mode and expansion mode. So that's pressuring the near-term margins as we invest to scale. And because we're ahead of where we thought we'd be, we want to continue to do that. Ultimately, as that matures, we do believe we're going to see a margin profile that certainly expands from where we are right now. And I think that between the consumer channel and the insurance part of the business, will give us an opportunity for margin expansion as we get operating leverage. We're able to make the ad spending more efficient in terms of customer acquisition and so forth. So I think there's a lot of opportunity for margin expansion. And ultimately, we want to scale insurance as quickly but also as smartly as possible. And then ultimately, we'll make decisions around kind of where we go from there. I think the ad spend efficiency is something that we're seeing some early signs of, and I'm looking forward to seeing a business that's got more durability. And I think insurance becoming a much larger part of that is going to be how we get there as well as expand margins. Operator: Your next question comes from the line of Michael Cherny with Leerink Partners. Daniel Christopher Clark: This is Dan Clark on for Mike. Just wanted to talk a little bit more about the 800 basis point growth differential between insurance and cash pay for BetterHelp. When you think about the back half of the year, are you assuming a similar level of kind of growth divergence? Should that widen as you sort of pick up more best practices on the insurance side? Or like how should we think about that? Charles Divita: Yes. I appreciate that. Well, we do expect to see -- at the midpoint for the second quarter, we do expect to see sequential -- modest sequential revenue growth relative to the first quarter. I think that's a good early milestone, initial milestone and expect to see some revenue -- marginal revenue growth in the third quarter and the fourth quarter. And a lot of that is really driven by insurance and scaling out to more states and the ability to expand the number of sessions that we have per user. I referenced that a little bit in the prepared remarks. So the combination of getting it live, getting the therapist capacity there and being able to treat people and care for people where the cost barrier has come down, all of those things are going to come together in terms of how we see revenue growth. I mentioned the 800 basis points because it's a good indicator of once the market is mature, now obviously, with the caveat that we're still early here, we should start to see and we are seeing some stabilization in the market as well as returning to a net growth. Again, remember, when over 80% of people that come through the funnel drop off because we are asking them to enter their credit card and cash pay, we think we've got fertile ground to grow that book. And candidly, there's a lot of unmet mental health need out there. I referenced that as well. And we're seeing growth in the Integrated Care of mental health, and we should expect to see good underlying growth beyond the expansion in BetterHelp insurance. Operator: Your next question comes from the line of Scott Schoenhaus with KeyBanc. Scott Schoenhaus: I wanted to go back to Chronic Care. So it sounds like you have more announcements on the product cycle coming up for us, which is exciting. And it also sounds like you're able to get new customers coming in that want to consolidate from multiple point solutions to one vendor with multiple chronic conditions like you guys. And then it also sounds like you're engaging more with your current customers using the 24/7 platform and leveraging AI. I want to talk more about the margin of this business going forward, given those considerations. Are you able to drive pricing up perhaps maybe by engaging more with the population set, showing ROI with health plans and employers? And then also you're able to leverage costs with this AI-enhanced model? Charles Divita: Well, great question, and you've said a lot in that question that would be my response. I mean, certainly, the Chronic Care programs of today, we've continued to enhance those. And the way those work, there's a significant amount of recruitables that we're able to go after and obviously market to them and enroll them and serve them. And there's a cost to that. And so the more that we -- our products can not only be efficient, but continue to speak to the needs of the patient more comprehensively as well as to the needs of the client, over time, we should be able to be more efficient at what we're doing there. So there is an economic model, and we think there's opportunity for strong margins there as well. I think the point about ROI for our clients, ultimately, over time, our ability to demonstrate that and back it up for our clients is really what is needed. So I think the leverage you mentioned actually in your question is the ones that I would respond to. I think we're going to see new growth opportunities from these products we're working on. And we're going to continue to see advancements in AI benefit both administratively as well as how we engage people. And ultimately, we think that's going to drive growth and margin. Operator: Your next question comes from the line of Peter Warendorf with Barclays. Peter Warendorf: I noticed that the Integrated Care membership guidance for the full year ticked up slightly. I'm just curious, given the current employment environment, what's driving that? And then maybe there's anything worth noting on the competitive landscape? And then just one quick one other than that is if you had any update on the CFO search and the timing there. Charles Divita: Okay. Great. We did see in the first quarter outperformance relative to our earlier guidance on membership, although we've maintained our full year guide for membership, which we expect to moderate downward for the reasons that I know you're well aware, the Affordable Care Act, the expiration of enhanced subsidies, the changes in Medicaid and some of the pressures on Medicare. So we are expecting that to moderate downward on that. The competitive environment, we operate in very competitive markets. I think the innovations that we're doing really have distinguished our enhance 24/7 care in a way that is very difficult for others to match. We've enhanced our Chronic Care programs in a number of ways this year. And then obviously, I mentioned the additional product innovation. So all that's progressing. On the CFO search, the search is ongoing. We're evaluating several candidates really across a variety of backgrounds, importantly, looking for the right fit, the combination of experiences they have, but also the fit with the organization and being a good strategic partner to the management team and myself really to use their financial acumen and the background to help drive the performance and execution of the business. I will say we have an excellent finance team, and they've done a great job, and they're managing our financial areas very well, and we'll continue to keep you updated as the search progresses. Operator: Your next question comes from the line of Jeff Garro with Stephens. Jeffrey Garro: I want to double-click on a couple of comments and questions around BetterHelp margins. First, I wanted to ask what you're seeing in terms of gross margins in the insurance paid portion versus your internal expectations? And then given your comments on starting to see some ad spend efficiency, I was hoping you could elaborate on how you expect to manage a pullback in DTC-focused ad spend as the insurance portion ramps. Charles Divita: Yes, I appreciate that. The gross margin, as we've mentioned before, the gross margin insurance will be lower than the direct-to-consumer. Now the direct-to-consumer channel has to have high margins because it's got such a high advertising costs and relatively low operating costs, and that's kind of the economic model. Whereas in insurance, there's more documentation, there's the payer rates. And so there is a bit of a lower gross margin. So far, it's right in line with what we would have expected. In terms of ad spend efficiency, and again, it's early, but what we're seeing and what we expect to see that over time, we're not having to reacquire those members. They are aware that BetterHelp takes insurance, and they're able to stay on the platform longer. And we're even right now thinking about some ways to now that we've got some scale in some markets, maybe thinking about our advertising differently in terms of how we go about awareness and activation for people that have insurance, where to date, the advertising has been more consistent with what we've done in the past. So there's a number of things we're doing on the advertising front that I think over time with insurance scaling more and more gives us a more effective way to leverage the ad spend and obviously drive margin enhancements from that. Operator: Your next question comes from the line of Ryan MacDonald with Needham. Ryan MacDonald: Maybe on the Integrated Care segment, can you unpack a little bit more of the implementation delays that you talked about pushing into the second half, whether that was client driven or if there's something internal there? And then on -- you mentioned in the prior answer that obviously, you've seen a flip from more subscription-based to more visit-based sort of revenue models. Given that these implementations are going to hit in sort of the second half of the year, can you talk about sort of the level of visibility you have in terms of the ramp and utilization on those visit-based contracts and whether that poses a risk on the Integrated Care side at all? Charles Divita: They're moving forward. There's no -- we don't have concerns at this point that they're not going to go live. It was more of a timing thing in terms of requirements that they had to get through. So we feel good about that. This move from subscription models to visits, as I mentioned before, a very significant move over the last few years. It really can't be understated. And I've talked about what the -- not only what the impact that's made, but how we see that progressing. And now we believe that we're going to end 2026 it being a net tailwind and 70% of the membership being in a visit arrangement, and we continue to grow visit revenue. So I think that's going to work its way through. With these client delays, we've got good line of sight to the ability to implement those in the second half. Operator: Thank you. That is all the time allotted for today's question-and-answer session. This will conclude today's conference call. You may now disconnect.
Operator: Greetings and welcome to the Antero Resources Corporation First Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Dan Katzenberg, Vice President of Investor Relations. Please go ahead. Dan Katzenberg: Thank you for joining us for Antero Resources Corporation’s first quarter 2026 investor conference call. We will spend a few minutes going through the financial and operating highlights, and then we will open it up for Q&A. I would also like to direct you to the homepage of our website at anteroresources.com where we have provided a separate earnings call presentation that will be reviewed during today's call. Today's call may contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures. With me on the call today are Michael N. Kennedy, President and CEO; Brendan E. Krueger, CFO; David A. Cannelongo, Senior Vice President of Liquids Marketing and Transportation; and Justin B. Fowler, Senior Vice President of Natural Gas Marketing. I will now turn the call over to Michael N. Kennedy. Michael N. Kennedy: Thank you, Dan. Good morning, everyone. I would like to start my comments by praising our operations team for their success during winter storm Fern. Their ability to achieve 100% uptime on our operations throughout the storm is an impressive achievement. As highlighted on Slide 3, our team’s efforts and strong pricing helped us deliver one of the best quarterly results in company history. Also as highlighted on the slide, we closed on the HG acquisition and the Ohio Utica shale divestiture. The HG acquisition added substantial production, cash flow, and nearly 400 thousand net acres and 400 drilling locations to our core West Virginia Marcellus position. Importantly, the acquisition will drive corporate cash costs down $0.30 per Mcfe, which lowers our breakeven cost and drives margin enhancement. Turning to the integration of HG, we are significantly ahead of schedule. We recently turned in line our first HG pad. This six-well pad located in the liquids-rich area has 110 thousand total lateral feet, or average lateral lengths over 18 thousand feet per well. Notably, this pad has one of the highest net royalty interests at 89%, further enhancing its rate of return. We expect the pad to produce $150 million per day and remain flat at these levels for quite some time. On the acquired assets, we have already achieved operating synergies of $15 million to $20 million and are now forecasting over $80 million for the full year, outpacing our initial target of $50 million. Once we closed on the acquisition and took control of operations, we found incremental cost-saving opportunities, which include drilling and completion design changes, water handling optimization, and benefits from our economies of scale that are driving faster-than-forecasted synergies. Our first quarter production was a record 3.9 Bcfe per day, 13% above the year-ago period. This production growth is expected to continue through 2026 with full-year production of 4.1 Bcfe per day, a nearly 20% increase from 2025. Turning to the right-hand side of the slide, our quarterly financial results were highlighted by our ability to capture substantial premiums to benchmark prices. These high premiums, combined with our operational performance, generated free cash flow of $657 million, the second-highest level in our company history. We used this free cash flow to accelerate debt reduction following the HG acquisition. At the time of the acquisition announcement, we had targeted free cash flow available to fund the acquisition from December through the end of the first quarter to be approximately $500 million. We exceeded this target by $250 million. Looking ahead, improved NGL fundamentals are expected to result in us hitting our leverage target of 1.0x by mid-2026, six months ahead of prior expectations. Next, let us turn to Slide 4, which highlights our latest hedge position. For 2026, over 60% of our natural gas volumes are hedged, and we have one-third hedged in 2027. Our strategy continues to be targeting a natural gas hedge position of 25% to 50% of annual production, which reduces the volatility in our cash flow and provides an opportunity to be countercyclical in share buybacks or asset acquisition opportunities. On the liquids side, we remain unhedged. I will close my comments by touching on Antero Resources Corporation’s advantaged position in the base global backdrop, which is highlighted on Slide 5. Recent geopolitical events have highlighted the advantage of Antero Resources Corporation’s corporate strategy. We have the highest LNG exposure among Appalachian producers, selling 2.3 Bcf per day of production to sales points along the LNG fairway. At the same time, we are the largest producer-exporter of NGLs in the U.S., selling the majority of our LPG, which includes propane and butane, into international markets. We expect recent global supply outages and disruptions to lead to increasing risk premiums for U.S. NGL barrels both in the near term and in the years ahead. These global events are leading to increased demand as international NGL and LNG buyers are looking to de-risk their energy portfolios by diversifying their exposure and increasing purchases of U.S. supply. This shift towards U.S. supply supports higher export utilization and more attractive price premiums at our sales points along the coast. This highlights Antero Resources Corporation’s unique export strategy and positions us well to benefit from today’s rising global demand for U.S. energy. Now, to touch on the current liquids and NGL fundamentals, I am going to turn it over to our Senior Vice President of Liquids Marketing and Transportation, David A. Cannelongo, for his comments. David A. Cannelongo: Thanks, Mike. New market volatility has been introduced to global energy flows, particularly affecting NGL and oil products, with the ongoing conflict in the Middle East following Operation Epiq Fury that began on February 28. We are continually monitoring the Middle East infrastructure attacks, ship transits through the Strait of Hormuz, and assessing the resulting commodity price implications for our business. At this point in time, there are far too many uncertainties for us to be able to provide updated guidance with a high level of confidence. In our opinion, today’s financial market does not yet reflect the most significant supply shock witnessed to date. However, as the second-largest NGL producer and, as Mike indicated, the largest producer-exporter while also remaining unhedged on NGLs, we are poised to benefit from rising global demand for U.S. energy and higher Mont Belvieu pricing. Focusing in on the impact to the global NGL market, the graph on the left of Slide 6 shows that the Middle East accounted for about 36% of the global waterborne LPG market in 2025. Virtually all of that volume needs to transit the Strait of Hormuz to reach global buyers. The U.S. is the only other major waterborne LPG supplier. On the demand side, the graph on the right shows the major buyers such as China and India were heavily reliant on the Middle East for supply. These buyers have no other options to replace these barrels except lifting more volume from the U.S. Recent U.S. LPG dock expansions could not have come at a better time, alleviating bottlenecks seen in recent years and making barrels available to global buyers. The U.S. has added up to 610 thousand barrels a day of LPG export capacity over the past year, bringing the total terminal capacity to approximately 3 million barrels a day as illustrated on Slide 7. Going forward, additional expansions through 2028 will add approximately another 1 million barrels a day of LPG export capacity. The full impact of the recent debottleneck on propane exports has just begun to be realized. Persistent fog in the U.S. Gulf Coast, some mechanical issues, and a relatively higher proportion of butane exports in recent months following the closure of the Strait of Hormuz have kept U.S. propane inventories elevated to start. However, the surplus volume is well positioned to backfill constrained Middle East product as an armada of LPG ships have sailed to the U.S. for their only opportunity to get replacement cargoes. Notably, we have seen a sharp increase in export volumes in recent weeks, reaching 2.3 million barrels a day of propane alone this week, and we expect record-level exports to sustain in the months ahead. Slide 7 also shows the upside potential for propane exports with the new dock capacity online. The purple dotted line on the chart shows the level of propane exports if terminals were running at or near operational maximums of 90% nameplate capacity. This would represent the U.S. averaging over 400 thousand barrels a day of incremental propane exports in calendar year 2026 over the third-party case published before the conflict, indicating that there is ample room for more propane across U.S. stocks. Now let us take a closer look at the impact that higher propane exports will have on inventories, which is illustrated on Slide 8. The tan dotted line represents the pre–Epiq Fury inventory outlook from the same third-party provider. At that time, expectations were for propane storage to remain elevated throughout 2026. The blue dotted line presumes that new dock capacity will add an additional 100 thousand barrels a day of exports the remainder of this year to replace a small portion of the LPG supply that has already been lost from the Middle East conflict. Under this scenario, storage would fall below the five-year average by late summer. The purple dotted line illustrates what happens to U.S. propane storage if dock utilization rates run at 90% for the remainder of 2026. Under this case, we would fall below the five-year range by the early summer and ultimately need a pricing response to keep barrels in the U.S. to avoid a supply shortfall ahead of this upcoming winter. As a reminder, Antero Resources Corporation produces 46 million net barrels of C3+ NGLs; an increase in $1 per barrel of C3+ results in $46 million in incremental cash flows. Antero Resources Corporation’s forecasted realized pricing for C3+ has increased approximately $12 per barrel during this time, reflecting over $550 million of incremental free cash flow in 2026. Uncertainty remains in the global energy markets from here until there are concrete agreements and realized outcomes in the Middle East. However, U.S. energy supply, and particularly NGLs, remains a consistent supply source to the world in these times of need. With that, I will now turn it over to our Senior Vice President of Natural Gas Marketing, Justin B. Fowler, to discuss the natural gas market. Justin B. Fowler: Thanks, Dave. I will start on Slide 9 titled Near-Term LNG Capacity Additions. LNG export demand is expected to increase by 7 Bcf per day by 2027. Golden Pass shipped its first cargo last week and is expected to ramp up 1.6 Bcf per day of capacity in 2026, ultimately exporting 2.4 Bcf per day in 2027. This increase in LNG export demand, when combined with higher power demand and increasing exports to Mexico, results in an undersupplied U.S. market over the next two years. This wave of new LNG export capacity is arriving at a much-needed time. Turning to Slide 10, the EU exited this past winter at the second-lowest storage level on record, falling below 30% at the end of the first quarter. Adding to this storage issue is that EU imports from the Middle East have declined 91% in March and April. Supply outages and disruptions in that region are likely to result in reduced LNG exports throughout 2026. In order to fill storage to the EU’s 80% target ahead of next winter, the EU will need to begin purchasing significant cargoes from the U.S. In Asia, we see a similar position. We expect low storage levels and global supply outages to result in U.S. LNG utilization rates running above historical levels, drawing down U.S. storage this year and supporting prices as we move into this winter. Now let us turn to regional demand, which is highlighted on Slide 11. The power projects highlighted on this slide are the ones that have been publicly announced in our region to date and amount to over 8 Bcf per day of demand. Based on the conversations we have had, which also include nondisclosed projects, we estimate that regional power demand projects exceed 10 Bcf per day in total. In just West Virginia in recent weeks, we have had projects announced from a combined data center facility with customers that include Microsoft and NVIDIA, and also separately a project that is tied to Google. Late last year, the state of West Virginia announced its 50 by 50 plan, which is an initiative to increase the state’s power generation capacity from 15 gigawatts today to 50 gigawatts by 2050. Additionally, surrounding states are considering removing tax exemptions for data center facilities that could drive increased opportunities for West Virginia to attract new projects to the state. This incremental 8 Bcf per day of regional demand growth compares to total production in the basin of approximately 36 Bcf per day. Given the large demand pull from LNG in the coming years, we believe there is only so much gas that producers will be able to commit to long-term deals with these projects. Ultimately, this tightness should provide support in two ways: first, more attractive pricing to producers related to long-term supply deals, and second, improved overall local market pricing as a result. As West Virginia’s largest natural gas producer, with a significant infrastructure footprint through Antero Midstream, we believe we are well positioned to participate in supplying the natural gas that these projects will require. With that, I will turn it over to Brendan E. Krueger, CFO of Antero Resources Corporation. Brendan E. Krueger: Thanks, Justin. I will start on Slide 12, which highlights our cash cost reductions going forward. We reduced our 2026 cash cost guidance by $0.10 per Mcfe at the midpoint. This reduced range reflects second quarter through fourth quarter 2026 cash production expense reductions of $0.26 per Mcfe, or over 10% below the full-year average in 2025. When we include G&A and net marketing expense, cost reductions totaled $0.30 per Mcfe. Beyond 2026, we see opportunities for further cost reductions and margin enhancement through several initiatives that we plan to discuss in the quarters ahead. Many of the initiatives relate to our commercial agreements on natural gas and liquids takeaway, as well as taking a more balanced approach to the development of our liquids-rich and dry gas acreage. We see opportunities to lower our overall transport expense and improve our corporate margins through direct agreements with end users, replacing expiring transport with better netback transactions, and simply letting certain contracts that are no longer needed expire. Some of these opportunities will occur in the near future while others will take place over multiple years as contracts come up for renewal. Speaking further to the regional demand opportunities that Justin discussed, in just the last few months alone, we have participated in requests to provide proposals for gas supply that total over 5 Bcf per day. While it is still undetermined whether we will participate in these projects, we do believe the demand is only growing for natural gas, and particularly natural gas that can be supplied by an investment-grade producer with multiple decades of undeveloped inventory. Moving to Slide 13, I would like to finish my comments by touching on the progress we have made with funding the HG acquisition. As shown on the chart, we are ahead of initial expectations of paying down the debt associated with this recent transaction. With the help of the exceptional operations performance that Mike touched on, we were able to generate over $750 million of free cash flow from December through the end of this first quarter, which was used to pay down over 25% of the acquisition cost. Combining this with the proceeds from the Utica divestiture, we have already funded over half of the transaction. Based on our next-twelve-months free cash flow at current strip, we expect to have fully funded the transaction by early next year. This updated payoff timing is nearly a year ahead of what we expected when we announced the acquisition in December. To reiterate what we have said on past calls, after paying off the remainder of the debt associated with the HG acquisition, we will have increased production by more than 700 thousand Mcfe per day equivalent, added 400 undeveloped locations to our core West Virginia Marcellus inventory, and meaningfully reduced our cost structure, which translates into higher sustained free cash flow. Importantly, we accomplished these changes without having to issue a share of AR equity. At the same time, the overall macro environment for natural gas and NGLs has only strengthened with the current geopolitical environment and continued structural demand growth for both power and U.S. LNG. With that, I will now turn the call over to the operator for questions. Operator: Thank you. We will now be conducting a question-and-answer session. Our first question is coming from Arun Jayaram from JPMorgan Chase & Co. Your line is now live. Arun Jayaram: Good morning. Dave, maybe starting with you, I was wondering if you could give us a little bit more color on how your marketing arrangements work regarding your export volumes. I know you printed a $0.94 premium to Mont Belvieu in the first quarter for C3+, but give us a sense of how much international exposure you have to pricing versus Mont Belvieu? David A. Cannelongo: Yeah, Arun. Good morning. In the first quarter, we had international index pricing in our portfolio and Mont Belvieu as well. We have a portfolio of term and spot transactions. We have been participating in some of the run-up that you saw following Epiq Fury on the ARBs, where you could see April and May. You are not going to sell something in March typically when you are already in March; April is what is trading for a spot cargo. You will see some cargoes that we sold in April and May that were on some of the higher pricing as a result of this. But if you look out even to June, the ARBs have already tightened quite considerably. They are now in the $0.10 to $0.15 per gallon premium to Mont Belvieu range. As we look forward through the year with the inventory situation and what we expect to happen as the U.S. attempts to meet a portion of what the rest of the world has lost through this conflict in the Middle East, those ARBs will tighten further. It is tough to say for the balance of the year how tight those ARBs will get, but ultimately what we want to see is stronger Mont Belvieu index pricing. That is really what we are the most constructive on. We think that is really the story of 2026, and we are in a great position to benefit from that, given that we have not hedged any of our NGL volumes. Michael N. Kennedy: To highlight, we are very conservative when it comes to our guidance. There is a lot of uncertainty like there is today. We are not going to try to capture that in a moment in time. We will just see how it plays out over the year. Arun Jayaram: You mentioned 2.3 million barrels a day of exports last week, so that is a punchy number. One of your peers did raise their NGL realization guidance. I know they do the entire barrel, not just C3+, up to a $1.25 to $2.50 premium. You maintained your overall guidance. Why maintain rather than raise given you booked a premium in the first quarter? David A. Cannelongo: Yes, Arun. I would say we did actually raise guidance on the ethane piece, and that is really the story here. It is kind of apples and oranges between us and other producers that include ethane in their NGL pricing. We have always historically broken ethane out for transparency purposes. You can have dramatic swings in the amount of ethane that you recover from quarter to quarter or month to month. It could be local crackers are down as we have seen in prior quarters, or it could be like we had in the first quarter where you have very strong regional gas pricing and you reduce your ethane recoveries as low as you possibly can. When you lump it all together, what is your benchmark index against? Is it a static fixed percent of ethane as the benchmark? I think that is what you see other producers do. You can end up with a lot of your C3+ barrels getting benchmarked against an ethane price, and that is typically when you see a large beat from a C2+ kind of benchmark producer compared to somebody like us. If you put our ethane into it, we would have had about a $6 premium to Belvieu on a similar benchmark index to other producers. For those reasons, we have historically broken it out for transparency. Operator: Thank you. Next question today is coming from Kevin McCarthy from Pickering Energy Partners. Your line is now live. Kevin McCarthy: Thanks for taking my question. I wanted to ask about the cash production expenses. It looks like you lowered them $0.10. How much of that reduction is driven by synergies from the HG acquisition versus lower gas prices? Brendan E. Krueger: Yes. The majority of that is HG. Lower gas prices were a couple of pennies, but $0.07 to $0.08 of it was HG. We acquired the assets and underwrote very conservative assumptions around our ability to operate the assets and the integration and how quickly we would be able to realize the lower cost, and we are well ahead of those assumptions that we announced earlier. That is why we are comfortable lowering the guidance. Kevin McCarthy: As a follow-up, on the CapEx budget, in the fourth-quarter earnings release, you talked about the option to spend an extra $200 million of growth capital. In this release, it looks like your official guidance is still at $1 billion. How are you thinking about spending that extra growth CapEx given current prices in gas and NGLs? Michael N. Kennedy: Yes, Kevin, that is unchanged, still $1 billion with the potential to go to $1.2 billion. The attractiveness of our program is that it is truly incremental capital with no underlying commitments needed. So it is discretionary. It is completing three pads in the second half of the year. That is still to be determined. We get the ability to watch local and natural gas prices, see if the demand is there for it, and see if it is attractive to complete those. That is a second-half event, and we will make the call then with more information around natural gas prices. Operator: Thank you. Next question is coming from John Freeman from Raymond James. Your line is now live. John Freeman: Brendan, I want to follow up on what you highlighted that you are looking at 5 Bcf per day of gas supply proposals. Can you speak to the mix between LNG or data center opportunities or otherwise? Brendan E. Krueger: That was all regional, local demand—not only data centers, but power projects as well. It did not have any LNG in that 5 Bcf per day. Where we see a lot of benefit, and why we are getting a lot of these requests for proposals, is driven by the integrated nature of having both upstream and midstream: Antero Resources Corporation being an investment-grade producer that can supply the gas with significant undeveloped inventory, and Antero Midstream that can build the pipelines to the areas that need it. That is driving a lot of the requests. John Freeman: Good to see the accelerated free cash flow and ability to pay down the term loan even quicker. If we look ahead to 2027, once the term loan is gone and you just have the 2030 and 2036 paper that is attractively priced and non-callable until 2028, should we assume that nearly all the free cash flow is going toward buybacks? Michael N. Kennedy: That would be a fair assumption. One of the attractive aspects of our hedge position and our growth and scale is the ability to be countercyclical on buybacks if you see any weakness. Assuming current commodity prices for 2026 and 2027 and the early redemption of that term loan in early 2027, about a year ahead of our initial expectations, a good assumption for 2027 would be share buybacks for the incremental free cash flow. Operator: Thank you. Next question is coming from Gabe Daoud from Truist. Your line is now live. Gabe Daoud: Thanks. Curious about expectations for future M&A as some West Virginia acreage and packages could be available. Given HG and how quickly you hit some of the synergies, is there continued appetite for more? Michael N. Kennedy: We are the dominant energy producer in West Virginia. We produce about half of the natural gas in the state, have close to almost 1 million acres there, and decades’ worth of inventory. We are the West Virginia energy producer. Anything within West Virginia you can assume we would evaluate, and if it is attractive to us, it is something we would be interested in. Gabe Daoud: Thanks. Could you also highlight how Antero Midstream could be a differentiator on the water side with some of these data centers and hyperscalers? Michael N. Kennedy: We like to say Antero Midstream is the industrial builder of Northern West Virginia, whether it is gathering for hydrocarbons or water. We have the most extensive water system in the state and really across the country. We are an expert in building water infrastructure, and these projects require substantial water. That is a benefit to us and a strategic advantage for Antero Resources Corporation and Antero Midstream. Operator: Thank you. The next question is coming from Jacob Roberts from TPH. Your line is now live. Jacob Roberts: Good morning. Could you remind us where you see the liquids cut progressing through this year? I am curious if you could talk more about the processing cost reduction. Is that solely a function of the higher dry gas volumes, or is there more to the HG story? Michael N. Kennedy: It does not really move the needle. We are in the low-30s on the liquids cut, and it does not really change from where we are at today. We have one rig right now drilling liquids, one in the blended liquids/dry gas, and one rig in the dry gas on the HG acreage. So a very balanced development profile, and it does not really move the needle from where we are today. Jacob Roberts: As a follow-up on the recontracting potential, is part of the thinking that you see the potential for a long-term supply agreement with a utility or data center that could help offset some of the FT commitments by way of a supply contract? Michael N. Kennedy: That is a big story going forward. Our initial story is lowering cost through HG and optimizing our acreage and portfolio, including developing dry gas. On a go-forward basis, a big story around Antero Resources Corporation is the optimization of our transport arrangements. We had to take out the initial takeaway to create this development program in Appalachia in West Virginia, and those agreements are 10 to 15 years old. Going forward, they really need to be in the hands of the end user. We will be able to enter into attractive sales and optimize our margins as we recontract. Some of the liquids-related contracts very near-term are ones we are not using and just carrying, and you are talking hundreds of millions of dollars of incremental EBITDA to us on an annual basis when these expire. Jacob Roberts: Is there a counterparty type that seems more amenable to that type of arrangement? Michael N. Kennedy: They are all amenable. There is very high demand for our product across North America and the world. There is so much demand that counterparties are amenable to being the buyer of our product. Operator: Thank you. Next question is coming from Josh Silverstein from UBS. Your line is now live. Josh Silverstein: On the new power capacity coming to the region, on volume and pricing, is this something that you are waiting to see develop and then you can grow supply into it? Do you want to get more exposure to local pricing as well? Michael N. Kennedy: Exactly. We are attracted to the local demand because it is low cost, with variable transport costs. Realizations could be pretty good. It is all incremental demand too, so we will be able to grow into it. That is part of our low-cost growth strategy. Josh Silverstein: On the HG acquisition, you highlighted OpEx cost synergies. The biggest piece was development optimization. How is that going, and is that something we will see more benefit from later this year or more in 2027 relative to now? Michael N. Kennedy: That is definitely the majority of the synergy. A perfect example is completion stages per day. HG was in the 2–4 stages per day range. We average over 14 stages per day. On this pad we just brought on, the prior operator was doing 2–3 stages per day going south; this week we have been doing 11. You can imagine the efficiencies and cycle time optimization that come with that. We did not underwrite that in our acquisition valuation, so that all accrues to our shareholders. Drilling as well—we are under nine days per well; they were triple to quadruple that. Bringing that into the portfolio really brings forward value and drives synergies going forward. Operator: Thank you. Next question is coming from Neil Mehta from Goldman Sachs. Your line is now live. Neil Mehta: Slide 7 and 8 on new propane dock capacity and inventory are great. The MAX export case by the summer looks quite extreme. How real is the potential for the MAX export case to play out, and what are the biggest gating factors? David A. Cannelongo: Neil, this is Dave. The MAX export case is what the world would love to see to try and backfill just a portion of the LPG supply that is lost globally. You are seeing reports about shortages and high canister prices in parts of Central and Southeast Asia already. They would love for the U.S. to try and do the MAX export case. What we were trying to illustrate is we really do not have the inventory to do that. If the war were resolved in the next few weeks and things reopened by June, and the world has lost 120 million barrels or more of LPG, we could probably backfill about 30 million barrels from the U.S. That is ultimately why we are so constructive on Mont Belvieu propane pricing. Even at the MAX export case, we do not come close to backfilling the loss. Neil Mehta: On future dock expansions slated for 2026, is everything tracking well? David A. Cannelongo: Yes. One of the large midstream players has talked about commissioning ongoing, a little ahead of where people had pegged it a few months ago. Year-to-date 2026, things are ahead. Typically, those projects are brought online on time. LPG export capacity is not as complex to build compared to, for example, an LNG facility. Operator: Thank you. Next question is coming from BMO. Your line is now live. Analyst: Good morning. Sticking with recent announcements in West Virginia, about a year ago the state signed the microgrids bill to attract data centers. How much has this helped conversations with hyperscalers, and what are other positives that would favor West Virginia versus other states within Appalachia? Michael N. Kennedy: That has definitely been a help, and we appreciate the microgrid bill. It put West Virginia front and center for these discussions. West Virginia’s advantages are clear: geographically, it is within about 100 miles to the data center alley; it has the water; it has the lowest-cost natural gas and energy; it is near population centers to the east; and it has favorable climate. There was a report noting that all the attributes you look for converge in West Virginia. We are uniquely positioned as we produce over half the state’s natural gas. Analyst: A couple of quarters ago you included a regional gas demand project list. Monarch was a 2030 startup at 430 thousand Mcf per day. Now it looks bigger and earlier in the first phase. Without updating the slide, are there others that could be pulled forward in timing or increased in magnitude? Of the 8 Bcf per day on Slide 11, how much is under construction or has reached FID? Michael N. Kennedy: I do not have the exact figure for what is under construction or at FID, but based on conversations we are having, we see the total well ahead of 10 Bcf per day. Many publicly disclosed projects are initial phases. To the extent they continue to build and scale, those numbers will be larger. Some are speeding up. Our view is you really see this start to take hold in 2027–2029 as facilities come online in phases. Monarch is a good example: they have talked about their Phase 1, but that will continue to scale. The microgrid bill allows phasing within a four-mile halo, so some sites can continue to scale up within that halo and still fall under the bill in West Virginia. Operator: Our next question today is coming from Leo Mariani from ROTH. Your line is now live. Leo Mariani: You have been helpful providing the production ramp post-HG with guidance into the second half. Could you talk similarly on capital? Presumably first quarter is a low and CapEx picks up in following quarters, and the optional growth capital would be second half if you decide to spend it. Brendan E. Krueger: Correct. We have a full contribution for capital in the second quarter for HG, so second, third, and fourth quarters are kind of in the $300 million range, assuming we complete some of those pads we discussed for the growth case. If we do not do that, then it steps back down from $300 million more to the $250 million range in the third and fourth quarters. Leo Mariani: On the synergies, you talked about the $80 million target. Would you expect that all to be realized in 2026, or can some linger into next year? Is the bulk operating costs and G&A, or is there a capital portion as well? Brendan E. Krueger: The $80 million is for 2026. That accelerates on a go-forward basis as we continue to improve and integrate the asset into our operations. We have discussed synergies up to $1 billion over time, and we are ahead of that right now. It is $80 million this year and more like $100 million annually after that. Operator: Thank you. Our next question today is coming from Doug Leggate from Wolfe Research. Your line is now live. Doug Leggate: Thanks. On Slides 7 and 8, your base case still looks conservative. What would it take for you to change that, given exports are already running at record levels in April? David A. Cannelongo: It is really a question of how little inventory the U.S. is comfortable having as we enter winter. When you see our base case dipping below the five-year range, you typically see very strong domestic demand to keep barrels onshore for winter. You get a tug-of-war between domestic and international. That is why we did not illustrate a stronger base case. As I said earlier, the world would like us to do the MAX export case; we just do not have enough supply. Doug Leggate: Is your view on the premium to Mont Belvieu directly related to your view on exports? If exports go up, does your Mont Belvieu premium reset again in the second quarter? David A. Cannelongo: We think parties selling spot cargoes in the second half of this year will be getting modest premiums to Mont Belvieu, as we have seen when there is ample dock capacity but not enough inventory for both exports and domestic. But you will have higher Mont Belvieu pricing. Doug Leggate: On data center negotiations, are any of your negotiations exclusive, or are they all being put up to bid? What does the nature of negotiations look like? Brendan E. Krueger: For most of it, it is a request for proposal to a number of parties. We feel we are well advantaged being an investment-grade producer. To the extent we do not get specific deals but the demand still takes place, it should cause a rise in local prices, which we will benefit from. We are supportive of these projects getting off the ground. There is only so much gas to go around, and ultimately it should drive an increase in local pricing, which will benefit us. Operator: Thank you. Next question today is coming from Paul Diamond from Citi. Your line is now live. Paul Diamond: Thanks. Sticking on the AI and power contracts, we have seen variability in terms and structure. Is there an emerging structure that is most common, or is it highly variable based on end market needs? Brendan E. Krueger: It depends on where the supply is coming from. Some deals we are looking at would be supplied off of our firm transport. Pricing for that may be different than if Antero Midstream is building in-state pipeline to supply a gas deal. Depending on the deal, the pricing could change. Many counterparties see what we talked about: there is 5 Bcf per day of demand, and we obviously cannot supply all of that. They are getting more nervous about where supply will come from, which should drive better pricing on these deals and a rise in local pricing. It could take a local market index or be tied to Henry Hub—still up in the air. Paul Diamond: On the balance between gas and liquids on a medium-term basis, is that normal-cycle reactivity, or building DUCs for short-cycle response? How do you see that playing out? Michael N. Kennedy: It is a bit of both. What is really driving it is a more balanced approach. We just put on our first dry gas pad in over a decade, and it is exceeding expectations. We have over 1,000 locations in the premium core of the Marcellus dry gas, and we need to develop that. Having it coincide with local demand will really drive one rig there for the foreseeable future, with one rig in the liquids and one on HG that can flex between dry gas and liquids. It is a blended, balanced plan to lower our cost structure, drive low-cost growth, optimize margins, and grow EBITDA. We need to tap into that legacy acreage and develop it. Paul Diamond: Do you see value in building a large DUC inventory, or do you like your current structure? Michael N. Kennedy: We do not see a large DUC inventory. We are talking about three pads right now, maybe entering 2027 with three DUC pads. That will be the call we make in the second half based on local natural gas prices. Operator: We have reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments. Dan Katzenberg: I would like to thank everybody for joining us on the first quarter 2026 conference call. Please feel free to reach out with any further questions. Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect at this time and have a wonderful day. We thank you for your participation today.
Operator: Greetings, and welcome to the LSB Industries, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kristy D. Carver, Senior Vice President and Treasurer. Please go ahead. Kristy D. Carver: Good morning, everyone. Joining me today are Mark T. Behrman, our Chairman and Chief Executive Officer; Cheryl A. Maguire, our Chief Financial Officer; and Damien J. Renwick, our Chief Commercial Officer. Please note that today's call includes forward-looking statements. These statements are based on the company's current intent, expectations, and projections. They are not guarantees of future performance, and a variety of factors could cause actual results to differ materially. For more information about the risks and uncertainties that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's recent Annual Report on Form 10-K. On the call, we will reference non-GAAP results. Please see the press release in the Investors section of our website, lsbindustries.com, for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I would like to turn the call over to Mark. Mark T. Behrman: Thank you, Kristy, and good morning, everyone. I am pleased with our first quarter 2026 results. They were in line with our overall expectations and reflect the growing contribution from the impact of the operational discipline we have been building and executing over the past several years. Our progress has become increasingly evident over the past two quarters, driving improved operating and financial performance. The investments we have made to increase the safety, reliability, efficiency, and output at our facilities continue to bear fruit in the form of improving overall O&S performance, and significant year-over-year growth in net sales, adjusted EBITDA, and EPS. Our results reflect the progress we have made so far, and we expect to see additional improvement going forward. Our emphasis on production performance improvement, optimizing our product mix, and disciplined commercial execution reinforce our ability to maximize profitability. This will become even more important as current market dynamics begin to be reflected in pricing over the coming quarters. Regarding the progress of our CCS project at our El Dorado site, we feel good about meeting our projected timeline. I will provide an update later on in this call. Lastly, as we previously discussed, we have been involved in litigation with respect to engineering and procurement contracts related to the construction of the ammonia plant at our El Dorado, Arkansas facility. Earlier this month, we entered into a settlement agreement with Benham Constructors, one of the two defendants in the case. Pursuant to the terms of the settlement agreement, Benham agreed to pay us approximately $20.9 million. The settlement agreement does not release or otherwise discharge any claims, rights, or remedies we have against Leidos, including our claims for fraud and breach of contract. We plan to continue the vigorous prosecution of our filed claims against Leidos and continue to seek actual and punitive damages in excess of $300 million. The trial against Leidos is scheduled to begin in October. I will now turn the call over to Damien to provide more detail on the commercial environment. Damien J. Renwick: Thank you, Mark, and good morning, everyone. Let me start by discussing the ongoing conflict in the Middle East and the impact that it is having on our industry. This is one of the more significant and prolonged supply disruptions that we have experienced. The Strait of Hormuz alone represents 20% of global ammonia seaborne trade and 30% of global urea seaborne trade. While the situation remains fluid, these dynamics are creating meaningful supply constraints across both markets. We are seeing this manifest in two primary ways. The first is the disruption to shipping through the Strait and the ability to move product globally. Second, potentially more significant, is the impact to existing fertilizer production facilities in the Middle East, the full extent of which is not yet fully known. These dynamics are additive to the existing supply challenges across global markets, including reduced ammonia production in Trinidad, gas curtailments in India, outages in Australia, increasingly frequent drone strikes on Russian nitrogen plants, the potential export restriction of ammonia from China, as well as the ongoing export restriction of urea from China. While supply disruptions have been significant to date, global demand for ammonia and urea has remained consistent. Despite some demand destruction in phosphates globally, fertilizer and industrial demand have been reasonably strong, supported by Indian domestic consumption and fertilizer and industrial upgrades globally. Moving to natural gas, approximately 20% of the world's LNG transits through the Strait. This has been severely disrupted, and there is very little alternative supply of LNG that can offset this. We expect European natural gas prices to be increasingly elevated as they work to fill up their storage ahead of next winter. During this time, we expect to be advantaged on U.S. natural gas prices, which have been incredibly resilient and affordable. Today, it trades well below $3 per MMBtu. We also believe that the implications for the market will not be short-lived. Even when the Strait is fully opened, it will take some time before normality is restored. We expect elevated pricing throughout 2026 and even into early 2027. Our industrial business is in a sold-out position, even with our improved production volumes. During the first quarter, we optimized our production mix to maximize ammonium nitrate spot sales at above typical market prices. This allowed us to support customers whose AN supply has been disrupted. The U.S. AN market continues to be under pressure, with significantly lower domestic production available while demand is strong. We expect these constructive market dynamics to continue to impact market prices, with supply interruptions expected to continue through most of 2026. As we think about the mining market segment, we are encouraged to see a renaissance in mining. What we are seeing is not temporal, but structural. Copper demand is strongly outpacing supply, and record gold prices are incentivizing new supply. Much of this activity is taking place in the Western U.S. Quarrying and aggregate production has also been growing. Lower demand in residential construction is being offset by higher demand in private and public construction. Even coal remains resilient, supported by policy changes and insatiable demand for electricity. The chemical segment has also been positive. The antidumping duties on imported methylene diphenyl diisocyanate (MDI) have been positively finalized for five years. Generally, the chemical producers in the U.S. are feedstock-advantaged with U.S. natural gas liquids, while international peers are paying much higher naphtha inputs, which have been disrupted from the Strait of Hormuz. Moving to the domestic ammonia market, we had a good spring ammonia campaign and exited with minimal inventories. Inland prices continue to track with international prices, so we expect this to carry through to summer fill. New domestic supply in the U.S. Gulf continues to ramp up, albeit with some delays. However, this new supply is nowhere near the extent of the supply that is disrupted globally, and would only approximately offset the loss of production in Trinidad. Favorable weather windows during the first quarter allowed growers to apply ammonia, resulting in higher-than-expected shipments out of our Pryor facility and low inventory levels at the end of the quarter. Ammonia supply appeared to be constrained during March, with many customers seemingly dealing with allocations and the inability to secure enough supply to meet growers' application demand. Agricultural demand for ammonia is being supported by nitrogen pricing spreads, with ammonia trading at a significant discount to urea and UAN. Growers are especially incentivized this year to minimize input costs given the current challenging grain economics. While side-dress ammonia demand is a relatively modest percentage of total nitrogen demand, we would expect this pricing relationship to persist and growers to be incentivized to maximize ammonia purchases and application during the second quarter. Turning to UAN, grower economics, as previously mentioned, are challenging for the upcoming crop year. We believe the difficult margin environment for growers is resulting in limited risk-taking and positioning of product throughout the supply chain. We currently believe that the North American market is at risk of being short nitrogen due to uncertainty around forward urea imports. Urea pricing has strengthened since February due to the Iranian conflict and the Strait of Hormuz issues, and the U.S. has consistently priced at a discount relative to the rest of the world, putting import volumes for late April and May at risk. UAN demand has been steady throughout 2026, and we expect that to continue through the second quarter and into July. We believe that current supply chain inventory levels are low, and that demand may attempt to switch away from urea if pricing spreads or availability of urea become an issue during Q2. We are currently estimating a very low carry of UAN inventories on June 30, at around 2025 levels. Urea shortages, unplanned downtime across the U.S. production system, or reduced imports could reduce carryout even further than currently expected. Lastly, the USDA recently projected 95 million planted corn acres for the 2026 crop season, and we anticipate robust nitrogen demand through the full fertilizer application season. I will now turn the call over to Cheryl to discuss our first quarter financial results and our outlook. Cheryl A. Maguire: Thanks, Damien, and good morning. On page six, you will see a summary of our first quarter 2026 financial results. As Mark mentioned earlier, we focus consistently on improving the reliability and efficiency of our assets, and we believe these results, as with last quarter's results, reflect those efforts and the progress we continue to make, which is contributing to our ability to capitalize on tight market conditions. As shown on page seven, Q1 adjusted EBITDA grew 44% year over year from $29 million in Q1 last year to $52 million this year. This increase reflects higher pricing, coupled with stronger volumes and product mix, which were partly offset by higher natural gas and other operating costs. On page eight, you can see that our balance sheet remains solid, with approximately $180 million in cash at the end of the first quarter and net leverage at 1.4 times. Operating cash flow for the quarter was $52 million. After subtracting $15 million of sustaining capital, which is the capital required to maintain our operations, our free cash flow was approximately $37 million. This reflects strong free cash flow generation in the quarter, and we are encouraged by these results. Looking ahead, we remain focused on sustaining a high level of free cash flow generation, and our strong balance sheet gives us meaningful flexibility to invest in growth opportunities and drive long-term value creation. Looking ahead to the second quarter, we expect demand for our products to remain strong as we operate in a sold-out position. We also expect pricing to remain elevated. Tampa ammonia and NOLA UAN have averaged approximately $775 per metric ton and $480 per ton, respectively, while natural gas costs have averaged below $3 per MMBtu thus far in the second quarter. Our planned turnaround at our El Dorado facility is underway and is a key step to continued operational improvement. The outage is expected to impact ammonia production by approximately 35 thousand tons. Additionally, we expect to incur approximately $15 million to $20 million of turnaround-related expenses during the period. As discussed on our last call, we built ammonia inventory heading into the turnaround and therefore expect to operate our downstream production during the majority of the ammonia outage. Putting it all together, despite the turnaround, we expect Q2 adjusted EBITDA to be meaningfully higher as compared to 2026 Q1 and the second quarter of last year, driven by strong market fundamentals and continued improvement in downstream production. And now I will turn it back over to Mark. Thank you. Mark T. Behrman: Turning to page nine, our El Dorado low-carbon project is progressing, and we continue to work closely with senior officials from the EPA's Region 6 with a goal of sequestering CO2 by the end of this year or early next year. In addition to the previously drilled injection well, this quarter we completed the drilling of the underground horizontal pipeline that will transport CO2 from the capture equipment area to the injection well that will sequester the CO2. The next step is to complete the capture area civil work and prepare the area for delivery of the capture equipment this summer. The assembly and connection of the different pieces of capture equipment is expected to be completed in late fall this year. On the commercial front, our team continues to pursue low-carbon product supply opportunities where we can generate premiums for those products, as well as evaluate the potential to sell environmental attributes generated. We are excited as we are getting closer to completing our project and realizing our vision of decarbonizing ammonia. As I mentioned earlier, we have been highly focused over the last several years on increasing the reliability of our facilities, which has translated into higher production rates, improved product mix, and lower costs. During this time, we have often been asked about when we would begin to see the results of these investments. I think I can safely say that after two consecutive quarters of $50 million-plus in EBITDA, led by significantly improved production performance, we are beginning to see the fruits of all the hard work our teams have accomplished over the last three years. And we are not done. As we continue to invest in our business, including the El Dorado turnaround Cheryl mentioned, along with the scheduled turnaround at our Pryor, Oklahoma facility in the third quarter, we expect continued improvement in our overall production performance. In previous calls, we have laid out a path to a $50 million of annual EBITDA through specific initiatives including production targets, process efficiencies, and our El Dorado carbon capture project. A good portion of this is expected to be realized by the end of this year with the balance coming by the end of next year. We ended the quarter with a strong cash position, having generated significant free cash flow for the quarter. We also believe we will generate meaningful free cash flow for the remainder of this year. This, plus the approximately $21 million settlement payment I mentioned earlier, will provide us with financial flexibility and numerous options as we consider the best way to create value for our shareholders. We are currently reviewing several opportunities to invest capital into projects that would enable us to expand both our fertilizer and industrial production capacity. These include debottlenecking activities, as well as evaluating potential acquisition or partnership opportunities that offer the ability to increase our production while gaining meaningful scale. There is no question that the evolving geopolitical landscape, including the conflict in the Middle East and associated disruption of production facilities there, as well as the ongoing impact of important trade channels, is having a significant impact on the global availability of nitrogen fertilizers. We expect this will continue throughout the remainder of 2026 and into 2027. Our improved operating performance is enabling us to maximize fertilizer production and support U.S. farmers with additional supply in this difficult time. We are encouraged by our continued execution across the business and believe it positions us to continue supporting our customers and deliver sustainable growth and long-term value creation. Before we open it up for questions, I would like to mention that Cheryl will be participating in the Barclays Leveraged Finance Conference in Austin on May 18 and the Wolfe Research Materials Future Conference in June in New York City. Additionally, Damien and I will be participating in the Granite Research Virtual Conference Series on June 30 and July 1. We look forward to speaking with some of you at these events. That concludes our prepared remarks. We will now open the call for questions. Operator: Ladies and gentlemen, if you would like to ask a question, please press star 1 and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Lucas Charles Beaumont with UBS. Please proceed. Lucas Charles Beaumont: Good morning. Thank you. I want to get your view on where the nitrogen market is going. It seems like there has been a bit of a disconnect between what is happening in the physical market and the degree of the disruption that we are seeing. Prices have moved up a lot in certain areas, urea or UAN, but the cost curve not as much so far. We have not seen any resumption yet in trade flows, and I think even if things were to be credibly reopened tomorrow, we would probably still have four-plus weeks before production would restart over there, and then two to three months before we could start seeing deliveries again into import markets. From where we stand today, how do you see market dynamics evolving over the next couple of months and what does that mean for pricing and, ultimately, demand and demand destruction? Thanks. Mark T. Behrman: Morning, Lucas. I think you are right. There is the perception that if there was a permanent ceasefire, things would go back to normal relatively quickly, and I think that is a misnomer. First off, there is so much supply that has been taken out of the marketplace that it will take a relatively long time to make that up. Part of the reason is there has been damage to facilities in the Middle East, and I think most of us do not really understand what type of damage the production facilities have incurred, and so we do not know how long it will be before some of those plants that were damaged come back online. I also think people may be miscalculating the backup of vessels that are waiting to get out of the Strait, how long that will take, the coordination, and which vessels get priority. Big picture, we think that it is going to take certainly through the end of this year and into next year until we see things back to normal again. As far as our view on pricing and supply-demand, I will pass it over to Damien for a more current view on the ground. Damien J. Renwick: Good morning, Lucas. It has been interesting to observe how the market has responded. The U.S., particularly with urea, is priced at a fairly significant discount to market prices. India bid very heavily on the basis of their government support for tonnes, so they are in a reasonably good position now following their latest tender. You have also got Brazil trading upwards of where NOLA urea is at the moment. I think there is some concern on product availability here in the U.S. that may materialize over the next four to eight weeks as we work through the full season, and that is where it will all bear out. Also, Tampa ammonia has not settled yet; it should go upwards from where it is today. As Mark said, we have months before you see anything calm down after the Strait has reopened, and then the world gets a sense of what plants have been damaged or what the restart profile looks like, notwithstanding all of the other issues you have throughout the world with damage to Russian plants, Trinidad production being out probably for the long term, and the typical interruptions you are seeing, like with Burrup in Australia being out for many weeks. We are pretty positive, optimistic on pricing. Lucas Charles Beaumont: Thanks. That is helpful. On the industrial side, I know a large portion of your book is contracted. How is industrial demand responding more broadly and pricing there? What are you doing to capitalize most on the current market? And second, on the industrial versus fertilizer mix, where do you think the demand destruction in the industry comes from to equilibrate demand with the lower supply available this year? Damien J. Renwick: Our portfolio is weighted nicely to mining, and as I said earlier, mining activity globally, particularly in the U.S., is very strong, with a strong pipeline for new projects. That is underpinning very strong demand for ammonium nitrates for explosives, and we are leaning into that as best we can, optimizing our production mix to take advantage of the current situation, particularly in the U.S. with some supply being out of the market. We are maximizing our spot sales into that market. In terms of other industrial demand, it has been steady. We talked about nitric demand through polyurethane and MDI, and that is still strong in the U.S. The fundamentals around that industry continue to hold true, and U.S. producers are well shielded from some of the issues in the Middle East that other global producers are experiencing. We are seeing them maximize production, which is maintaining very strong levels of demand for our products. In terms of demand destruction, you will see buyers opt out when their economics get too strained, and you have already seen that in phosphates with those producers experiencing a double whammy with both ammonia and sulfur. Sulfur prices are at extremely high levels, and sulfuric acid prices have followed. You will also see, through the nitrogen molecule, some regions of the world decide not to apply nitrogen, particularly parts of Africa or Asia, and even countries that cannot get product; they will not have a choice. You will see that start to happen, and the market will act rationally and efficiently as it tends to do. Mark T. Behrman: One thought to add: security of supply is now front and center. Going back to the beginning of the Russia-Ukraine conflict and now this conflict, people are really focused on security of supply. In our industrial business, customers need product because it is either a feedstock for another product, as Damien talked about with nitric acid, or you need AN to mine copper or gold. This focus on security of supply is creating interesting opportunities for us because we have customers that desire long-term product and want to know they have it. We may have opportunities to expand at our sites—some brownfield expansion or debottlenecking—supported by customer contracts and demand. Damien J. Renwick: To build on that, with our three facilities we have the ability to support our industrial customer base through each of the three facilities with the core industrial products. That is a huge strength of our business, and our customers value that security of supply. We expect that to continue to be reflected in what we do going forward, with customers attracted to that value proposition. Lucas Charles Beaumont: Lastly, on free cash flow, it looks like you could easily do an extra $100 million this year, maybe $200 million more in free cash flow than last year, plus the $20 million from the legal settlement. You mentioned looking at new projects to deploy that. Any more detail? Should we refer back to the last Investor Day projects, or is there anything else under consideration? Mark T. Behrman: We have talked on previous calls about the ability to expand the ammonia plant production at El Dorado. We do have a USDA grant to provide some capital for that. While we have not FID’d that project, we will do our last stage of engineering before FID, and I think there is a high probability that we would move forward with that project. With the current administration focused on increasing domestic fertilizer production, we are thinking about how we can expand other parts of El Dorado and maybe even some new products at El Dorado with the support of the administration, plus the capital we have available. That would be the plan at El Dorado—figure out how to expand given the current environment and the capital we have and will generate. At our other two facilities, there are things at our Pryor facility we are looking at—whether debottlenecking, increasing nitric acid production, or other things. We have the ability with our current assets to invest that capital to get attractive returns, and we are focused on doing the work to make sure our assumptions are correct before moving forward. The administration is looking to onshore or increase domestic fertilizer production, and we want to support that. Operator: The next question comes from the line of Andrew D. Wong with RBC Capital Markets. Please proceed. Andrew D. Wong: Good morning. I wanted to follow up on the comment around the administration's support for fertilizers. There was funding from the USDA earlier. Is there anything else that has come up more recently? Is there anything larger the administration may look at that LSB Industries, Inc. could participate in? Mark T. Behrman: Morning, Andrew. I do not know that there is another USDA funding program like the original one that came out during the Biden administration. What I can tell you is I was in D.C. a couple of weeks ago as part of an industry trade group talking with the administration, and there is a fair amount of capital that the administration has and would like to commit to increasing domestic fertilizer production. I think they want to support that. They have done a number of press releases, and they are talking about the abundance and low cost of natural gas in the United States, and nitrogen fertilizers being a derivative of natural gas. They would prefer not to depend on other countries for fertilizer. They look at it as food security, which is extremely important—even to the point of, if we ever got there, being an exporter versus an importer. I do think there is capital available, and for the right projects, they would support new projects with capital. Andrew D. Wong: For this year, I understand there is a heavier turnaround schedule. How flexible is that? Are you able to hold off on some of the work and maybe have the plants come on faster given the current price environment, or is that too disruptive to the plans you already have in place? Mark T. Behrman: We are currently in our turnaround at El Dorado. We discussed whether to delay it prior to going in, but we pushed off that turnaround from last year already. When you do major project work like a turnaround, lining up the contractors and getting the right people is critical, and if you start pushing things around, you run the risk of not having the desired contractor or people. We elected not to push off that turnaround. I think we will come out of it in great shape. I am excited about that because I think not only will we increase reliability, but we have done a lot of work on the site that sets us up for the expansion I talked about—whether electrical work or other infrastructure that will allow us to leverage that to do some expansion. For Pryor, we have a turnaround in July. There is specifically one item we need to address, and we will try to get through that turnaround as quickly as we can, but we would run the risk of having extended downtime if we do not go through it. We are focused on that. I do not think we are going to see pricing fall off a cliff later in the fall, so we expect an opportunity to take advantage of the pricing market, which we think will last longer. Operator: The next question comes from the line of Robert Miles McGuire with Granite Research. Please proceed. Robert Miles McGuire: Good morning and congratulations on the quarter. MDI tariffs and countervailing duties—how are they affecting nitric acid demand and LSB Industries, Inc.'s debottlenecking plans? How do you think the tariffs and duties will shape the market from here? Damien J. Renwick: Hi, Rob. It is a very positive story for U.S. domestic producers of MDI. Our customer base is running flat out. They are contemplating their own expansions, and we are in early discussions with them about what that might look like from a supply perspective. There is a very positive tailwind in the U.S. because of that, and we are also seeing it more broadly with some other producers bringing on additional capacity. Robert Miles McGuire: Thank you, Damien. With regards to the projects, what should we be looking for exiting the turnarounds this year that relate to progress with your value creation projects? Mark T. Behrman: As I mentioned in the prepared comments, we expect to see a good portion of that $50 million in value creation as we come out of this year on a run-rate basis, with the balance occurring by the end of next year. So about half by the end of this year and the balance by the end of next year, on a run-rate basis. Robert Miles McGuire: On AN, should we be looking for a similar mix of AN and UAN in the second quarter that we saw in the first quarter? Is there room for further AN production? Damien J. Renwick: You will see the same mix. We are probably at our limit of what we can lean into, so that will continue through at least the end of the year. Robert Miles McGuire: Lastly, sulfuric acid—do you still produce and sell on a commercial basis? Can you benefit from the recent price increase, or is that not really a product at this point? Damien J. Renwick: We are still in that market, although it is immaterial to the overall profile. Yes, sulfur prices are going up, but so too are sulfur costs, so margins are pretty stable. Operator: Thank you. This concludes the question-and-answer session. I will hand the call back over to Mark T. Behrman for closing remarks. Mark T. Behrman: I appreciate everyone's interest in LSB Industries, Inc. I hope you can see that we are making progress. We are excited about the progress we have going forward, and I hope to talk to some of you at the upcoming conferences. Thanks, and have a great day. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the first quarter 2026 Employers Holdings, Inc. earnings conference call. There will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Senior Vice President, Treasury Investments. Please go ahead. Matthew: Thank you, operator. Today's call is being recorded and webcast from the Investors section of our website, where a replay will be available following the call. Statements made during this conference call that are not based on historical facts are considered forward-looking statements. These statements are made in reliance on the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations expressed in our forward-looking statements are reasonable, risks and uncertainties could cause the actual results to be materially different from our expectations, including the risks set forth in our filings with the Securities and Exchange Commission. All remarks made during the call are current only at the time of the call and will not be updated to reflect subsequent developments. The company also uses its website as a means of disclosing material nonpublic information and for complying with disclosure obligations under the SEC's Regulation FD. Such disclosures will be included in the Investors section of our website. Accordingly, investors should monitor that portion of our website in addition to following our press releases, SEC filings, public conference calls, and webcasts. In our earnings press release and in our remarks or responses to questions, you may use non-GAAP financial measures. Reconciliations of these non-GAAP measures to our GAAP results are included in our financial supplement as an attachment to our earnings press release, our investor presentation, and any other materials available in the Investors section on our website. I will now turn the call over to Katherine Holt Antonello, our Chief Executive Officer. Katherine Holt Antonello: Thank you, Matthew. Good morning, everyone, and welcome to our first quarter 2026 earnings call. Joining me today is Michael Aldo Pedraja, our Chief Financial Officer. I will begin by providing highlights of our first quarter 2026 financial results and then hand it over to Michael for more details on our financials. Before our Q&A, I will come back to you with some additional thoughts. If I had to characterize this quarter in a single word, it would be discipline. We made a deliberate choice to prioritize underwriting quality over volume, and the numbers reflect that conviction. Our underwriting expense ratio improved, our actuarial estimates came in on target, and we returned $83 million to shareholders while growing book value per share, including the deferred gain, by 8.9%. That same discipline positions us well to capitalize on favorable market development, including the continued shift in the California rate environment. The California Bureau voted earlier this month to submit a second consecutive double-digit pure premium rate increase to the Commissioner, consistent with the underwriting conditions we have observed throughout the state. As we discussed last quarter, we expect pricing and underwriting actions will pressure growth throughout 2026. Our earned premium was essentially flat year over year, down 1%. The steps we took in certain jurisdictions and segments in 2025 are working as intended. New growth opportunities are now taking shape, including entering new underwriting segments, appointing new agents, and our recently launched excess workers’ compensation product. Profitable growth remains our North Star. Our first quarter actuarial review confirmed the adequacy of our prior-year reserves, with no strengthening required. We recognized a current accident year loss and LAE ratio of 72%, which is consistent with our 2025 accident year ratio. After delivering a record level of $215 million in capital to our shareholders in 2025, we continued our commitment by returning an additional $83 million in the first quarter through share repurchases and regular quarterly dividends. We also completed the $125 million new debt issuance associated with the recapitalization plan through cost-effective sources of $105 million from the Federal Home Loan Bank and $20 million from our credit facility, resulting in a weighted average pretax interest rate of 4.1%. These capital management steps reflect our continued confidence in our financial position, and commitment to delivering value to our shareholders. Along with our operational performance, these actions increased our book value per share, including the deferred gain, to $51.26. We believe our focus on disciplined underwriting, prudent risk management, and strategic investments continues to position us strongly in the workers’ compensation insurance market. With that, Michael will now provide a deeper dive into our first quarter financial results, and then I will return to provide my closing remarks. Michael Aldo Pedraja: Thank you, Kathy. Gross premiums written were $181 million compared to $212 million for the prior year, a decrease of 15% due primarily to a reduction in new business writings. Our losses and loss adjustment expenses were $129 million versus $121 million a year ago. The current quarter did not include any prior-period developments on our voluntary business, and the current accident year loss and LOE ratio of 72% is consistent with our 2025 accident year ratio. Commission expense was $24 million for the quarter, versus $23 million for the prior year, an increase of 3%, primarily driven by a nonrecurring 2025 favorable adjustment. Underwriting expenses were $41 million for the quarter, versus $43 million for the prior year, a decrease of 5%. The improvement in underwriting expenses for the quarter was due primarily to our continued expense management efforts, including reduced personnel costs and other variable costs such as policyholder dividends. Excluding returns from private equity partnership investments, our first quarter net investment income exceeded last year’s by $1.5 million. This outperformance was aided by the increased book yields and investment redeployment achieved through last year’s investment rebalancing. Our fixed maturities maintained a modified duration of 4.4 with a strong average credit quality of A+. Aided by our investment rebalancing, our weighted average book yield was 4.9% at quarter end, compared to 4.5% for the prior year. Our adjusted net income, which excludes net realized and unrealized investment gains and losses, and the benefit of our LPT deferred gain amortization, was $10.3 million for the quarter compared to $21.3 million last year. During the quarter, we repurchased over 1.8 million shares of our common stock at an average price of $42.42 per share, or $76.9 million. The average repurchase price represented a 17% discount to our book value per share, including the deferred gain. During the period from 04/01/2026 through 04/28/2026, the company repurchased a further 353 thousand 547 shares of its common stock at an average price of $42.21 per share. As we have highlighted, we aim to be good stewards of our shareholders’ capital. At current price levels, we are convinced that Employers Holdings, Inc. stock is meaningfully undervalued, and executing share repurchases at these price levels produces a compelling return on investment and generates significant value for our continuing shareholders. With that, I will turn the call back to Kathy. Katherine Holt Antonello: Thank you, Michael. Yesterday, our Board of Directors declared a second quarter 2026 dividend of $0.34 per share, representing a 6.25% increase from the prior quarter. In addition, the Board approved a new $125 million share repurchase authorization through 12/31/2027. Operational discipline continued to drive results. Our underwriting expense ratio improved to 22.6%, compared to 23.4% a year ago. As I highlighted last quarter, we are convinced that our utilization of artificial intelligence tools will be a force multiplier, allowing our colleagues to be more efficient and effective. Last month, we brought together approximately 400 employees from across the country to introduce our strategy for implementing AI throughout the organization. The enthusiasm both at the event and in the weeks since have been overwhelmingly positive, and we believe we are creating an innovative culture that will drive differentiated results. We have now moved from AI experimentation to deployment of products using AI. Our vision is that AI will play an increasing role in how we operate going forward. The capabilities that supported our rapid entry into excess workers’ compensation are now being used to improve underwriting insights, automate premium audit and claims operations, and engage our customers. We are convinced that our monoline focus, relatively small size, and flat organizational structure will be an advantage for us as we accelerate AI into every aspect of our company. We recently became the first insurance carrier to bring quoting directly into ChatGPT, made possible by our patented technology, which we designed to reach business owners where and how they engage. Rather than waiting for the industry to define this channel, we defined it ourselves. That is the kind of culture and capability that distinguishes Employers Holdings, Inc., and it is what we will continue to build on. We believe Employers Holdings, Inc. is well positioned and well capitalized to achieve our goals. With total capitalization of approximately $1 billion, a strong A.M. Best A rating, and technology-enabled distribution that can reach customers where they engage, we are in a position to deliver lasting value for our shareholders, customers, and colleagues. We will now open the call for questions. Operator: As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Our first question comes from Mark Douglas Hughes with Truist. Your line is open. Mark Douglas Hughes: Hey, Kathy. Hey, Michael. Good morning. Could you talk about the competitive environment in California? You described the proposed another double-digit rate increase. How much are you realizing in the California market? Is the broader market—the competition—did they follow suit with the first rate increase? How do you see things developing there? Katherine Holt Antonello: Yes. Let me talk, if you do not mind, about pricing in general and then we can get into California. When I think about pricing across workers’ compensation, especially in guaranteed cost, I would say I used to characterize the pricing environment as competitive. I would now say it is closer to getting somewhat irrational in some jurisdictions and premium bands. Specifically, I would call out guaranteed cost middle market. We are seeing that there are some diligent carriers—and I think we are included in that group—exiting certain states and classes. Some of the states that I would mention, not specific to us but just across the market that we have seen exits, are New York, California, and Massachusetts. We are also seeing tightening risk selection in states like Florida, where there is not a lot of pricing flexibility to begin with. For us, we pulled back significantly in Massachusetts, and we have also pulled back in certain class codes. We have also cut ties with a few MGAs that we feel were underperforming. I do not believe that all companies are being as forward-looking as we are in terms of rate adequacy. In certain jurisdictions, including California, it is possible that the market in certain jurisdictions has really crossed over into what I would call cash flow underwriting. You asked about the rate that we are achieving. When we look at our book of business and when we adjust for changes in the mix of business, meaning class code mix, and we compare 2026 to 2025, payrolls were up about 0.5%, and our average rate on renewals countrywide increased about 6%. So that is quarter over quarter, 2026 to 2025. I would say a significant portion of that is coming from California, where we are getting double-digit rate increases on our renewals. When we look at where our opportunities for growth are, I would include segments where we have a differentiated distribution strategy. I am speaking to payroll partners and digital agents/marketplaces; we are still seeing a lot of growth opportunity there. We have also identified some jurisdictions where we have opportunities to increase our market share and where the pricing margins remain very attractive. So we are focusing heavily on those areas, and I would include what I said in the prepared remarks: we are appointing more agents in the areas where we feel like there is better pricing margin, and perhaps in certain states where we entered that state maybe four or five years ago pre-COVID, but we feel like it is now a good time to increase our market share there. I would like to add that at the top of our funnel, when we look at submissions coming in, California does appear to be a hardening market to some extent because submissions were the highest that we have seen across the company—and specifically in California—in 2026 that we have ever seen. So submissions at the top of the funnel, including both count and premium, are very high at this time. We are just being very specific about where we are willing to quote, and where we feel like the pricing is unreasonable, we are just not playing there. In terms of growth, I would also say our appetite expansion effort has been huge. It has been an area of growth for us over the last four years since we started doing that, and we are going to continue to do that going forward and enter into new products like excess and others that we have on the horizon. Mark Douglas Hughes: Appreciate all that detail. When you describe closer to irrational, can you apply that broadly? You talked about specific jurisdictions where you are seeing pressure, but if you were to categorize the whole market, would that closer to irrational still apply? Katherine Holt Antonello: I would not broad-brush it. Specifically, I would say the first place that we saw this happening—and this was even last year—in the middle market space, the first-dollar middle market space became very competitive and continues to be competitive, to the point where we are just not willing to quote in certain instances where we feel like the margin is not there. Mark Douglas Hughes: How about the outlook for reserve development? You have talked about you know, only maybe a Q2/Q4 where you do the reserve development, you have the potential for favorable or adverse, I guess. On a go-forward basis, would you say at least for the time being it is probably balance sheet—you would be protecting the balance sheet rather than recognizing any favorable that might emerge—or will that be more dependent on just what you see? Katherine Holt Antonello: I think it would be the latter. It is going to be more dependent on what we see and how compelling the numbers are. You are correct in stating we do an actual versus expected analysis at the end of Q1 and Q3. At the end of Q2 and Q4, we do a full analysis where we reselect development factors, and it is a much deeper dive. We have always said that in Q1 or Q3, if we saw something very compelling, we would likely make a move; we would not wait. This quarter, there are always puts and takes depending on how you divide the data, but everything came in right around where we expected, so we did not feel compelled to make a change. We will wait and see how things develop in Q2 and make a decision then as to whether or not we would act on favorable development. Mark Douglas Hughes: Michael, the audit premium impact in the quarter—how much did it help or hinder the growth? Michael Aldo Pedraja: It is relatively small—about a $5 million adjustment in the first quarter. We are seeing premiums generally, and as we talked about last time, payrolls moderating. Payroll increases are not developing as they were after COVID. We see a really moderating level of payrolls currently, and we see that into the future. Mark Douglas Hughes: Kathy, what are your spidey senses telling you about what NCCI is going to say in a week or two about reserve adequacy, medical inflation—kind of the hot button? Katherine Holt Antonello: I am not deep into the numbers like I used to be. I do not have as much insight being an outsider from NCCI now. But my gut would say that accident year 2025 will continue to show a slight increase, and that has been the case over the last few years. I would expect the level of redundancy for the industry as a whole to decrease. In terms of inflation, we are not seeing anything significant that is impacting our book of business. We continue to track—we have an internal prescription drug index—and it is up slightly, but it is not what I would call anything alarming. You would expect it to be up slightly. From what I am expecting them to present, I would not see anything significant come through on inflation or medical severity. Mark Douglas Hughes: Thank you very much. Operator: Thank you, Mark. As a reminder, to ask a question, please press 11. Our next question comes from Karol Chmiel with Citizens. Your line is open. Karol Chmiel: Hi, good morning. Just a question regarding the top line. With the quarterly decline, and with the context of the planned multiquarter nonrenewal of certain business classes, would you categorize it as ahead of expectations in terms of timing? Michael Aldo Pedraja: Yes. Hey, Karol. How are you? I think this is exactly as we expected and planned. Last quarter we indicated that we expected to continue that level of teens-type reduction. We expect to have that same level of performance throughout the rest of the year. Katherine Holt Antonello: I would agree, and having said that, we are opening new markets and new segments like I mentioned earlier in my response to Mark. We are expecting something similar throughout 2026, but we will be introducing new areas throughout the year too. Michael Aldo Pedraja: That is a really good point. I think towards the end of the year you will start to see all the adjustments we have made flow through, and then we expect to see that transition start to be visible through the results. Karol Chmiel: Excellent. Thank you for the detail. Katherine Holt Antonello: Thanks, Karol. Operator: Thank you. Again, that is 11 to ask a question. I am showing no further questions at this time. I would now like to turn it back to Katherine Holt Antonello for closing remarks. Katherine Holt Antonello: Thank you, Daniel, and thank you, everyone, for joining us this morning. We look forward to meeting with you again in July. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Good morning. I will now turn the call over to Scott Parsons. Please go ahead. Scott Parsons: Thank you, Operator, and thanks to everybody for attending Alamos Gold Inc.'s first quarter 2026 conference call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer, Greg Fisher, Chief Financial Officer, and Luc Guimond, Chief Operating Officer. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release, and MD&A, as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Bostwick, our Senior VP Technical Services and a Qualified Person. Also, please bear in mind that all the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now John will provide you with an overview of the quarter. John McCluskey: Thank you, Scott. I am going to start with Slide 3. First quarter production was 124,000 ounces, in line with quarterly guidance, with a strong performance from the Island Gold District offsetting lower-than-planned production at Young-Davidson. The Island Gold District had a solid overall quarter, with the shaft at planned depth, the larger mill expansion advancing, underground mining rates increasing to a new record of over 1,400 tonnes per day, and a significant improvement in Magino’s milling rates over the past six weeks. The continued ramp-up of underground mining rates at Island Gold as well as improvements in mining rates and grades at Young-Davidson are expected to increase our second quarter production by approximately 20%. With the Island Gold District expected to drive further production growth in the second half of the year, we remain well on track to meeting our full-year production guidance. With our year-end disclosure in February, we guided to costs for the first quarter being above the first half guidance range. All-in sustaining costs were $1,862 per ounce and are expected to decrease by approximately 5% during the second quarter. A more significant improvement is expected into the second half of the year, reflecting an increase in low-cost production from the Island Gold District. Financially, we had another strong quarter with record revenues and margins. Relative to a year ago, our all-in sustaining cost margins nearly tripled to approximately $3,000 per ounce. This contributed to record cash flow from operations and another solid quarter of free cash flow of $102 million while reinvesting in high-return growth. Now turning to Slide 4, we had a catalyst-rich first quarter that included releasing highlights of a successful 2025 exploration program across our portfolio. This supported a 32% increase in year-end mineral reserves to 16 million ounces and included a near doubling of reserves at the Island Gold District to over 8 million ounces. This growth was incorporated into the Island Gold District expansion study, which was also released in the first quarter. The study outlined a large, long-life, low-cost operation that is expected to be one of Canada’s most profitable mines. At a $4,500 per ounce gold price, the Island Gold District is expected to generate over $1 billion in annual free cash flow and has a $12 billion after-tax NPV, making it one of the most valuable gold mines in Canada. Based on the ongoing exploration success we are seeing across the district, we believe there is further upside to come. Toward the end of the first quarter, the shaft sink at Island Gold reached planned depth of 1,381 meters. We expect to complete the commissioning of the shaft early in 2027, which will be a key catalyst driving a further increase in production and decreasing costs. With strong ongoing free cash flow generation at current gold prices and significant growth expected ahead, we announced a 60% increase in our dividend in February and will continue evaluating opportunities for additional shareholder returns. Turning to Slide 5, we had previously outlined a clear path to 800,000 ounces of annual production by 2028 with costs expected to decrease 18% relative to 2025. We expect our annual production to continue increasing to 1 million ounces by 2030 with a further decrease in costs. This growth is expected to be internally funded by ongoing free cash flow generation and the strong balance sheet with $1.2 billion in available liquidity. Our team is making strides towards our long-term plans across our asset portfolio. The completion of the Phase III+ shaft expansion at Island Gold is less than a year away. Our larger Magino mill expansion is well underway, construction activities are ramping up at Lynn Lake and PDA. These are high-return projects, all lower cost, and largely derisked, underpinning one of the best growth profiles in the sector. I will now turn the call over to our CFO, Greg Fisher, to review our financial performance. Greg? Greg Fisher: Thank you, John. Moving to Slide 6. We sold 122,000 ounces of gold in the first quarter at an average realized price of $4,829 per ounce for record quarterly revenues of $597 million. Total cash costs were $1,230 per ounce, and all-in sustaining costs were $1,862 per ounce. As previously disclosed, first quarter costs were expected to be above the first half guidance range. We are continuing to monitor the impact of ongoing inflationary pressures across our cost structure, including higher labor, contractor, diesel, and electricity costs, and expect to manage any cost pressures with ongoing productivity improvements through the year, which are expected to drive costs lower and significant margin expansion at current gold prices. Operating cash flow before changes in non-cash working capital increased to a record $338 million in the first quarter, or $0.80 per share. This included a reduction of $43 million, or $0.10 per share, for cash utilized to buy out an additional 15,000 ounces of the legacy Argonaut Gold hedges prior to maturity. Our reported net earnings were $191 million in the first quarter, or $0.46 per share. This included after-tax losses on commodity hedge derivatives of $20 million, adjustments for unrealized foreign exchange losses of $19 million, and other adjustments of $1 million. Excluding these items, our adjusted net earnings were $232 million, or $0.55 per share. Capital spending in the quarter totaled $184 million and included $45 million of sustaining capital, $127 million of growth capital, and $11 million of capitalized exploration. We continue to fund our higher-return growth internally while generating strong free cash flow. This included $102 million of free cash flow generated in the first quarter, net of $82 million in cash taxes paid. In the first quarter, we repurchased and eliminated an additional 15,000 ounces of gold forward contracts ahead of their maturity in 2026. These hedges were inherited as part of the Argonaut Gold acquisition in 2024. Existing cash of $43 million was used to eliminate these hedges, providing further upside to higher gold prices. To date, we have eliminated 245,000 out of the 330,000 ounces that were hedged by Argonaut prior to maturity. We will continue to monitor opportunities to repurchase and eliminate the remaining contracts, which total 85,000 ounces across 2026 and 2027. Our ongoing free cash flow drove a further increase in our cash position to $660 million at the end of the first quarter. We expect growing production and declining costs to drive stronger free cash flow through the remainder of the year into the next several years, while continuing to self-fund our organic growth plans. I will now turn the call over to our COO, Luc Guimond, to provide an overview of our operations. Luc? Luc Guimond: Thank you, Greg. Over to Slide 7. First quarter production from the Island Gold District totaled 61,200 ounces, in line with plan and an improvement from the previous quarter. Underground mining rates averaged a record 1,423 tonnes per day, a 23% increase from the fourth quarter and in line with our ramp-up schedule. Grades mined of 9.4 grams per tonne were also consistent with guidance. We expect a gradual ramp-up of mining rates to 2,000 tonnes per day in 2026, and higher grades into the second half of the year to drive growing production through the rest of 2026. Open pit operations continue to perform well with mining rates averaging 50,000 tonnes per day, including nearly 12,000 tonnes per day of ore mined during the quarter. Grades mined and milled were in line with guidance. Total milling rates from the Island Gold District were close to 8,800 tonnes per day in the first quarter, with the Magino mill averaging 7,500 tonnes per day and the Island Gold mill averaging 1,260 tonnes per day. Magino’s milling rates are expected to increase in the second quarter through the second half of the year, driven by recent improvements to the crushing circuit. Total cash costs and mine-site all-in sustaining costs were above annual guidance but are expected to decrease significantly in the second half of the year. This is expected to be driven by higher mill throughput at Magino as well as an increase in underground mining rates and grades at Island Gold. The Island Gold District generated mine-site free cash flow of $58 million in the first quarter, net of the significant capital investment related to the Phase III+ shaft project, the larger Magino mill expansion, and exploration. At current gold prices, the Island Gold District is expected to continue generating strong free cash flow while funding its expansion plans and a large exploration program. Moving to Slide 8, in the latter part of February, a temporary crusher was added to the Magino mill, providing supplementary crushed ore feed into the processing plant. The addition of the crusher has contributed to a substantial improvement in milling rates, which averaged 9,200 tonnes per day over the past six weeks. Milling rates are expected to remain at similar levels in the second quarter, with the SAG and ball mill liner changes and conveyor replacements scheduled for the quarter. Consistent with guidance, milling rates are expected to increase to steady-state levels of 10,000 tonnes per day by the third quarter, combined with 11,000 tonnes per day of ore in the second half of the year and into 2027. Over the long term, a number of initiatives currently underway are expected to support higher milling rates and greater operational consistency. Connecting the Magino mill to grid power will provide a more reliable source of power at substantially lower costs into 2027. Additionally, the construction of a gyratory crusher, new truck dump configuration, and ore bins will greatly improve the performance of the existing circuit by reducing rehandling of ore, ensuring a more consistent flow of ore into the mill. All of these improvements will be in place by early 2028 as part of the larger mill expansion to 20,000 tonnes per day. Moving to Slide 9, growth capital for the Phase III+ shaft expansion has been largely all spent or committed. Shaft sinking to a planned depth of 1,381 meters was completed in the first quarter, and paste plant construction is on track for completion in the second quarter. Commissioning of the shaft and other surface infrastructure is expected to be completed by early 2027. This is an important catalyst to increase underground mining rates to 2,400 tonnes per day in 2027, and ultimately 3,000 tonnes per day in 2029. Over to Slide 10, in February we announced the results of the larger Island Gold District expansion study. The study included an expansion of the Magino mill to 20,000 tonnes per day, accelerated underground development to support mining rates of 3,000 tonnes per day, and other infrastructure investments. The larger expansion is well underway with 11% of the growth capital spent or committed, primarily related to the expansion of the Magino mill to 20,000 tonnes per day. As shown on the slide, construction of the mill building is well advanced, including structural steel and exterior cladding, and all eight leach tanks erected. With all the earthworks, concrete foundations, and steel erected, the key elements of the larger expansion have been significantly derisked. The expansion remains on track for completion in early 2028 and will be a game-changer for the operation, with production expected to increase to average 534,000 ounces per year at $1,025 per ounce all-in sustaining costs starting in 2028. The Island Gold District is expected to evolve into one of Canada’s largest, lowest-cost, and most profitable gold mines. Over to Slide 11, Young-Davidson produced 30,000 ounces in the first quarter, lower than planned primarily due to lower mining and milling rates. Milling rates of 6,800 tonnes per day were below guidance, reflecting longer-than-anticipated downtime to complete scheduled maintenance as well as an unscheduled repair to a transformer in the mill. Underground mining rates were also 5% lower than planned due to a longer-than-expected timeline to complete rehabilitation work on one of the three ore passes, as well as delays in commissioning a newly constructed pass. This resulted in more rehandling of ore, reducing productivity during the quarter. With two passes now fully operational, the total number of active ore passes has increased to four. This is expected to provide greater operational flexibility and support increased mining and milling rates of approximately 8,000 tonnes per day in the second quarter and through the remainder of the year. Mine grades were also below the low end of annual guidance, reflecting higher-than-planned mining dilution. Grades are expected to return to guided levels in the second quarter. Combined with higher milling rates, we expect a substantial improvement in both production and costs through the rest of the year. Young-Davidson continues to deliver strong mine-site free cash flow, with $72 million generated in the first quarter. At current gold prices, higher production and lower costs are expected to drive further free cash flow growth through the rest of the year. Over to Slide 12. Production from the Mulatos District totaled 32,700 ounces, including nearly 27,000 ounces from Yaqui Grande. Costs were at the low end of annual guidance, reflecting the higher-grade stack. Grade stocks are expected to decrease in the second and third quarters towards the lower end of guidance, and costs increase through the remainder of the year to be consistent with annual guidance. The Mulatos District generated strong mine-site free cash flow of $61 million while funding the construction of the PDA project, a robust exploration program, and paying $51 million in cash taxes during the quarter. Over to Slide 13. Construction activities on the PDA project are well underway. Earthworks on key surface infrastructure are now substantially complete. Mill foundation work is progressing, and last week, we collared the portals and will continue underground development through the rest of the year. The PDA project remains on budget and on schedule for first production in mid-2027. PDA is the future of the Mulatos operation. Based on the PDA deposit alone, this is a low-cost, high-return project which will extend the Mulatos mine life by at least nine years. We believe this is just the starting point as the operation transitions to processing higher-grade sulfide mineralization, and we expect there is significant upside to come. The addition of the mill for PDA is opening up a number of new opportunities for additional higher-grade mineralization within the district, such as Cerro Pelon and Halcone, where we are continuing to see strong ongoing exploration results. With that, I will turn the call back to John. John McCluskey: Thank you, Luc. I will now turn the call over to the Operator, who will open the line for your questions. Operator: We will now open the call for questions. One moment please for your first question. Your first question comes from the line of Ovais Habib of Scotiabank. Your line is open. Ovais Habib: Hi, John and Alamos team. Just a couple of questions from me. My first question is on Island Gold. Really great to see mining rates averaging 1,400 tonnes per day, and those are expected to grow over the next couple of quarters. In regards to the area where you had the seismic issue, how much more work is required to completely rehabilitate that area, and do you need this area to achieve the 2,000 tonnes per day that you are targeting by the end of the year? Luc Guimond: Ovais, it is Luc here. With regards to the Island Gold mining front where we had to reestablish the escapeway, we completed that at the beginning of the year. The escapeway has been reestablished, which allows us to continue mining in that area. As far as the overall ramp-up for 2026 and what we are expecting, there is not a lot of production actually coming out of that area. We will see some production starting in the second half of the year, and we are continuing with some minor rehabilitation in this area since we completed the escapeway, which allows us to continue activities in that region. It is not critical to the overall ramp-up for 2026 and as we move forward. Ovais Habib: Good stuff. Thanks for that color, Luc. Then just moving to Young-Davidson. Good to hear mining rates are expected to now increase to average around 8,000 tonnes per day from Q2 onwards as both ore passes are now fully operational. In regards to underground grade, which got hit in Q1 due to some mining dilution, how should we look at grades into Q2 and then in the second half? Luc Guimond: As I mentioned, the issue that we had in Q1 was certainly some dilution from a couple of stopes. As we move into the rest of the year, we expect to be within our guidance of 1.90 to 2.05 grams per tonne from underground. We are on track as we move forward into Q2 and as we follow the rest of the mine plan for the year. Ovais Habib: So grade should be kind of around that 2 grams per tonne going into Q2 within the guidance that you provided, which was between 1.90 and 2.05? Luc Guimond: Within our guidance that we provided, which was between 1.90 and 2.05. Ovais Habib: Perfect. Okay. And then just moving on to exploration, and maybe this question is for Scott. Can you give us a brief overview of where you are currently focused, and especially if you continue to have any sort of success at Cline Pick? Scott Parsons: Yes, absolutely. Our 2026 exploration programs are well underway across the board at all sites. Starting with Lynn Lake, we are just concluding a program focused on testing underground potential below the MacLellan and Gordon deposits, and that was executed on time, just in time for spring breakup. At Island Gold, the focus is on continued expansion of the Island Gold deposit. We are drilling from surface, extending mineralization to the east and to the west and also at depth below the bottom of the reserves and resources; that program is well underway. The other aspect, as you mentioned, was Cline Pick. We are drilling there and excited about what we are seeing as we follow up on some of the results that we issued earlier in the quarter, really looking at some of the controls on mineralization in that system and testing it down plunge and in and around existing mine workings, with the intention of having a resource estimate by 2026. At Young-Davidson, the underground program is focused on continuing to define the hanging wall zones that we put out results on earlier in the quarter, both the Mid-Mine Conglomerate Zone and the South Syncline Zone, and that program is well underway, as well as testing from surface some of the regional targets. We completed a program in the northeast, which is a potential opportunity for additional open pit material if we can define a resource there, and that was successful, as well as some of the other regional targets in the district. At Mulatos, that program is well underway. We are really focused off the start of the year at Halcone and Cerro Pelon. We are excited about what we are seeing at Cerro Pelon and putting 200,000 ounces we defined there by 2025; I think that will be just a starting point for that target as we continue stepping out that sulfide mineralization both in and around the pods we have defined, but also within the broader Cerro Pelon region. At Halcone as well, the new discovery in 2025, we are still defining the extent of that system. That is an exciting opportunity for additional sulfide mineralization in the Mulatos District. The last point I will make: we are currently ramping up for our Kivalliq program in Nunavik in Northern Quebec, and that will be underway later in the second quarter. Ovais Habib: Good stuff. That is a lot going on. Looking forward to some results from these programs. That is it for me, guys. Again, looking forward to Q2 for improvement in production and costs, and then looking forward to the site trip in summer as well. Thanks. Operator: Your next question comes from the line of Fahad Tariq of Jefferies. Your line is open. Fahad Tariq: Hi, thanks for taking my question. There was a comment in the press release talking about managing cost pressures with productivity improvements. Can you talk about what specific productivity improvements there are across the portfolio? Greg Fisher: Yes, Fahad, it is Greg here. That is referencing what we have already identified as part of our plan in 2026 and even moving into 2027. The critical thing is ramping up our mining rates at Island Gold from 1,400 tonnes per day, which we achieved in Q1, up to 2,000 tonnes per day by the end of the year. As we increase our production from the underground at Island, that is critical for us because it is our lowest-cost structure across our portfolio. The other piece would be ramping up the Magino mill from 7,500 tonnes per day in Q1 to closer to 10,000 tonnes through at least the second half of the year. That is going to bring down our cost structure in the second half of the year. The last would be the mining rates at Young-Davidson getting back up to 8,000 tonnes per day. All of those items are going to manage those cost pressures in 2026. Then as we move into 2027, moving from ramp mining to skipping up the shaft at Island will have a significant impact on our cost structure moving forward. The last is hooking up grid power at the Magino mill, and that is something we plan to have in place by early 2027 as well. All of those go a long way to managing any inflationary pressures that we are seeing. Fahad Tariq: Okay, great. And then maybe just to follow up on that, can you talk about where you are seeing the pressures across the board on cost inflation? Greg Fisher: You highlighted the two primary ones: diesel and labor. Diesel is a cost pressure the entire industry is seeing. We are fortunate in that diesel is not a big part of our cost structure—about 5%. If you break it down, about two-thirds of that is in Canada and one-third in Mexico. In Mexico, it is a regulated system, so you do not see the same effects of higher diesel prices as we do in Canada. In Canada, about 20% of our diesel has been hedged at much lower rates than we are seeing right now. All to say, diesel is very manageable because it is a small component of our cost structure at less than 5%. On labor, the bigger pressure is more on contractor labor. We have put in place our increases for the year—very manageable and built into our budget. We are seeing a little pressure from contractors as they make sure they can fill their roles and at some increased cost there, but again, manageable based on our cost guidance for the rest of the year. Operator: Your next question comes from the line of Analyst from Stifel. Your line is open. Analyst: Thanks very much. My question is firstly on Young-Davidson and within the context of the strong recovery that we are going to see through 2026. There is some discussion around stope overbreak leading to a review of the blasting design. Is this something new that we are dealing with? Was this identified as a risk when we encountered some of the headwinds in the back half of 2025? Is the blasting review part of where we are having these stope overbreak issues, or is this part of a broader all-stope-encompassing plan? Luc Guimond: Hi, it is Luc here. Drilling and blasting review is always an ongoing process with regards to the closeout and reconciliation of each of our stopes. This is nothing new. We continue to review that on an ongoing basis. Historically, the performance has been good at Young-Davidson. We have been mining there now for the better part of 13 years. Actual results from a grade perspective usually reconcile quite well to the model, and we have a good history of that. In this specific quarter, we did have a couple of stopes that underperformed from a dilution aspect, where we typically model around 10% to 12% dilution and we had higher dilution on a couple of stopes that we mined in the quarter. The process of closing out the reconciliation is also looking at the drilling and blasting design and seeing if there are some improvements based on that reconciliation—any modifications we may need to make. It could be specific to certain regions, maybe some structures within those regions that are adding to the dilution, and we may need to change our drill and blasting pattern as a result. We take all that into consideration and do a full analysis, and part of it is certainly the drill-and-blast design as well. Analyst: Got it. As a minor follow-up, as it stands right now, do you envision the supplementary temporary crushing at Magino to be in place until the 20,000 tonne per day expansion is commissioned? Or does the existing secondary crusher, once optimized, get you to meet the plan—do you envision weaning off the temporary? Luc Guimond: We currently still have it in place. We commissioned it mid-February and initially it was to help us get through winter conditions. It provided consistency and supplemental feed into the grinding circuit. We still have it in place currently, but we will rely less on it through the summer months than we needed to in the winter months. When we have scheduled maintenance on the crushing circuit, it allows us to continue to provide mill feed into the grinding circuit, which is its advantage. Periodically, it will continue to get used through the summer months as well. Once we complete the larger mill expansion to 20,000 tonnes per day, we are going to change part of the crushing circuit—primarily adding a gyratory crusher—which will eliminate some of the winter challenges we had with the front end of the current circuit. Come 2028, we would not require the temporary crusher, though periodically it may be used. Operator: Next question comes from the line of Don DeMarco of National Bank. Your line is open. Don DeMarco: Thanks, Operator, and good morning, John and team. Great to see the growth trajectory affirmed. First question, going back to the discussion on diesel. We see that costs are expected to decrease by 5% in Q2. Does this assume that diesel prices remain flat? Greg Fisher: Correct. It is based on the spot prices that were in place at March 31, so the higher rates that we are seeing now are what we assumed when we talked about that 5% reduction in cost. Don DeMarco: Okay. And as Luc was mentioning, the Island mining rates continued higher in Q1 and are on their way to 2,000 by the end of the year. Are you stockpiling the delta between the nameplate at Island Gold, or are you putting it through the Magino mill? Greg Fisher: No stockpiling there, Don. The additional tonnes from Island underground, outside of what can be milled at the Island mill itself, end up over at the Magino mill, and we process them there. We will continue that as we move through the rest of the year with the ramp-up. Any additional tonnes that cannot be fed into the Island mill will go into the Magino mill. Don DeMarco: Okay. And then finally, do you plan to continue to settle the legacy Argonaut hedges each quarter, and are you looking at it more tactically, or the same amount that we saw in Q1 each quarter going forward? Greg Fisher: I think we will be opportunistic based on where we see the gold price going. We have been tactical all along in taking out over 245,000 out of the 330,000 ounces that we originally inherited, and we will look to continue doing that as we approach the remaining 85,000 ounces. Don DeMarco: Okay, great. Thanks, Greg. That is all for me. Good luck with Q2. Operator: Your next question comes from the line of Analyst from Paradigm Capital. Your line is open. Analyst: Hi, good morning. Thanks, Operator, and thanks Alamos team for taking our questions. Just on the Phase III+ expansion, it is good to see the shaft sink complete and essentially 100% of the growth capital spent or committed, with commissioning expected early next year. What are the remaining critical path items? Is it the paste plant that is currently on track for completion in Q2? What are the next key milestones that we should watch to keep this on track for early 2027? Luc Guimond: Things are tracking well with regards to the Phase III+ expansion. The two critical items right now: first, we have completed all of the rock work in the shaft, and now we are furnishing the shaft—putting all of the structural steel in the shaft and separating the compartments for skipping, personnel travel, and services. That will occur over the rest of this year, with a timeline to be completed early in the first quarter of 2027. The second component is ore and waste handling infrastructure required to feed the shaft. We are well advanced there as well. We are doing rock work for one of the large bins for the underground loading pocket and will be establishing our grizzly station as well as the loading pocket at 1,350 meters. That work is also expected to be completed in early 2027 in the first quarter. By mid-Q1 we should have the ore and waste handling components commissioned as well as the shaft commissioned to start utilizing it for ore and waste movement and personnel movement. Analyst: Great, that is really helpful. And then on the overall larger expansion, I think about 11% of the growth capital has been spent or committed. How much of the remaining approximately $542 million is still exposed to inflation and procurement risk and any scope changes at this point? Greg Fisher: A significant portion of the remaining spend is development, which is subject primarily to labor inflation. The other piece would be the core components of the mill. We have contracts in place for some of that, and we are still working through others. Technically there is some inflationary exposure there, although we are not hearing that we should expect much. I would characterize it as normal-course inflationary pressures of around 4% to 5%. Operator: Your last question comes from the line of Analyst from Bank of America. Your line is open. Analyst: Hi, good morning. Thanks for taking my questions. My first question is on capital allocation. We saw strong free cash flow generation in the first quarter, but there were no share buybacks. Given free cash flow is expected to improve throughout the remainder of the year, how should we think about the potential for getting more active in buybacks? John McCluskey: We have always taken a very opportunistic approach to share buybacks. We had a focus in the first quarter on increasing the dividend and we spent $45 million buying back part of the legacy Argonaut hedges. But given the opportunity we see now with our shares underperforming in the market, a good guess would be that we are being opportunistic on that front. We expect to be more active with the share buyback in Q2 and for the remainder of the year. Analyst: Thank you for the color. Maybe one on Magino. You expect meaningful cost savings from connecting the Magino mill to grid power. Can you quantify the dollar-per-ounce impact when it is fully online? Greg Fisher: It is about $5 per tonne. Analyst: Okay. Thank you. Thanks for taking my questions. Operator: There are no further questions at this time. This concludes this morning’s call. If you have any further questions that have not been answered, please feel free to contact Scott Parsons at (416) 368-9932 at extension 5439. That is (416) 368-9932 extension 5439. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Good morning, and thank you for joining the Tetra Tech, Inc. Earnings Call. As a reminder, Tetra Tech, Inc. is also simulcasting this presentation with slides in the Investors section of its website at tetratech.com. This call is being recorded at the request of Tetra Tech, Inc. And this broadcast is the copyrighted property of Tetra Tech, Inc. Any rebroadcast of this information in whole or part without the prior written permission of Tetra Tech, Inc. is prohibited. With us today from management are Roger Argus, chief executive officer and president, and Steve Burdick, chief financial officer. They will provide a brief overview of the results and will then open the call for questions. I would like to direct your attention to the safe harbor statement in today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties including the risks described in Tetra Tech, Inc.'s periodic reports filed with the SEC. Except as required by law, Tetra Tech, Inc. undertakes no obligation to update its forward-looking statements. In addition, since management will be presenting some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted in the investor section of Tetra Tech, Inc.'s website. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the company, we will open the conference for questions and answers after the presentation. With that, I would now like to turn the call over to Roger Argus. Please go ahead, Mr. Argus. Thank you, Christine. Roger Argus: Morning, and welcome to our fiscal year 2026 second quarter earnings conference call. I am pleased to join you today for my first quarterly call as CEO of Tetra Tech, Inc. I want to begin by recognizing Dan Batrack’s leadership for more than two decades. Dan and I have worked together for many years, and I am grateful for his continued partnership and support as our executive chairman. Tetra Tech, Inc.’s success is made possible by our 25 thousand employees around the world. I have had the privilege of working with many of our technical teams across our operations. Their expertise, client commitment, and ability to solve complex problems are what make Tetra Tech, Inc. different. Demand for clean water, environmental quality, and resilient infrastructure continues to grow worldwide. Our strategy is not changing. We will continue to focus on high-end solutions that address the complex challenges where our clients need us most. For the call today, I will begin with an overview of our second quarter’s performance, and the client markets that are driving our growth. Steve Burdick, our chief financial officer, will provide detail on our financial performance and capital allocation. We delivered a strong second quarter with positive performance across our key financial metrics. Net revenue increased by 8% during the quarter on a year-over-year basis, supported by demand for our high-end consulting services in water, environment, and sustainable infrastructure. EBITDA of $146 million resulted in a margin expansion of 90 basis points when compared to last year and is an all-time record for a second quarter. Earnings per share were $0.36, including $0.02 associated with the completion of the divestiture of our Norwegian operations. Our adjusted earnings per share of $0.34 exceeded the high end of our guidance and was also the highest for any second quarter. And importantly, our backlog increased by 8% sequentially and is now $4.28 billion, which illustrates the resiliency of our technically differentiated “Leading with Science” approach. Overall, the quarter demonstrated the strength of our business model. We are growing in the right markets, improving margins, and entering the second half of the fiscal year with strong momentum. I would now like to discuss our performance by segment. The Government Services Group, or GSG, grew 5% in the second quarter on a year-over-year basis and generated a margin of 16.3%, up 220 basis points from last year. Demand remained solid for our water, environment, defense, and resilient infrastructure services. The Commercial International Group, or CIG, also performed well with revenue up 10% from the prior year and a margin of 12.2%. CIG’s diversified mix of clients across water, environmental, power, and energy markets worldwide provided growth across the key geographies that we work in. I would now like to provide an overview of our net revenue by customer. Our U.S. federal work was up 11% last year and represented 20% of our business. This growth was driven by our work with the U.S. Army Corps of Engineers for resilient infrastructure, including flood protection and inland navigation, defense facility systems modernization, and major planning and permitting programs for defense. Our U.S. state and local business grew 9% this quarter on a year-over-year basis and represented 14% of our business. Growth was driven by municipal water projects, primarily in the high priority regions of Florida, Texas, California, and Virginia. Our U.S. commercial business represented 19% of our business and was down 2% compared to last year. We did see a significant increase in revenues for energy and transmission-related services; however, this growth was offset by a reduction in renewable energy services, especially associated with the wind-down of the large offshore wind programs we worked on last year. Our international work was up 12% on a year-over-year basis, driven by revenue growth in water services in the U.K., Ireland, and the Netherlands, an increase in infrastructure services in Canada, and growth in digital automation revenues in Australia. I would now like to discuss our backlog. We had a strong quarter for new orders, and our backlog increased 8% sequentially. This is an important indicator of our increased demand for our services. As we have stated before, we take a conservative approach to backlog. We include only work that is contracted, funded, and authorized. This gives us high-quality visibility into future performance and increases our confidence in our project pipeline. Our backlog growth was supported by several important wins across our priority markets. In the United States, we added more than $650 million in contract capacity from U.S. defense clients for water and resilient infrastructure services. These projects support critical infrastructure needs that align directly with our strengths in water, environmental services, engineering design, and digital systems. In Northern Ireland, we added a new £18 million single-award contract for water and wastewater treatment services. In the Netherlands, we added a framework contract that significantly expands our capacity in key regions, with planned investments to address essential flood protection infrastructure modernization needs. At the Port of Los Angeles, we were awarded a master service agreement that supports one of the most important trade and logistics gateways in the United States. And finally, we further expanded high-end solutions for United Utilities in the U.K. with our Waternet software that provides a comprehensive platform for managing priority water leakage and water delivery modernization needs. I will now turn the call over to Steve Burdick, our chief financial officer, to discuss our financial results and capital allocation in more detail. Steve? Thank you, Roger. Steve Burdick: I would like to now provide an update on our reported year-to-date fiscal 2026 results, working capital, cash flows, and capital allocation. As Roger discussed, our market-leading focus on the front-end consulting and design for water and environmental projects is carrying higher margins across all of our end markets. As such, even as the reported revenue was down from last year due primarily to the decrease in revenue from USA customers, and revenues from one-time disasters this year compared to last year, our operating income increased significantly and adjusted EBITDA on net revenue year-to-date increased 110 basis points to 14% for 2026. These results further support our long-term strategic goals in improving EBITDA margins by 50 basis points annually. As a result of our ability to enhance our profit margins and further manage our working capital, we were able to increase EPS over last year and come in well above our previous guidance range for the second quarter. Now regarding our working capital, cash flows generated from operations for the first half of the year were a historical record at $238 million, which represents a significant improvement over fiscal 2025. And consistent with the last 20-plus years, our operating cash flows have continued to exceed net income. Our focus on working capital and cash flows has resulted in our DSO reflecting an industry-leading standard of 58 days, which is a 9-day improvement compared to Q2 of last year. This lower DSO metric provides a significant insight into our core business as it reflects outstanding work that our project managers lead relative to higher quality projects and highly satisfied clients in a broad portfolio across all of our end markets and geographies. Our net debt amounted to about $657 million and the net debt to EBITDA was at a leverage of 1.0x, which is a little over 25% lower than our leverage ratio one year ago when it stood at 1.36x. As we continue to execute on high-quality operating results with increasing margins, our operating cash flows in excess of net income and lower working capital KPIs will continue to provide higher returns for our shareholders, and those higher shareholder financial returns are reflected in an improving return on capital employed, which now stands at over 20%. With that perspective, I would like to now present our capital allocation strategy and overview. We have a very strong balance sheet, probably the strongest balance sheet in our history, and our operating cash flow was $688 million for the trailing twelve-month period. Roger will discuss our strategic growth areas later in this presentation, but I do want to point out that our balance sheet and cash flows provide us with significant liquidity available to invest in organic and acquisitive growth priorities in order to take advantage of these key business opportunities, which includes technology and automation that continue to provide us a dominant position in those markets. During the second quarter, and third quarter to date, we have closed the acquisitions of technical leaders focused on defense such as Halvik in the U.S. and Providence in Australia. Regarding our dividend program, I am pleased to announce that our board of directors approved the quarterly cash dividend with an 11% increase year-over-year to be paid in the third quarter. This is the 44th consecutive quarterly dividend with annual double-digit increases in the amounts to be paid. Based on the lower leverage, we have continued our stock buyback program this year, and in 2026, we bought back a total of $100 million. We have $498 million available from the stock buyback plan approved by our Board as part of our capital allocation strategy. I am pleased to share these really strong results for the start of fiscal 2026, which has enabled us to increase shareholder returns as we pay increasing dividends, increase our stock buybacks, and engage in accretive acquisitions, all the while deleveraging our balance sheet. I want to thank you for your support, and I will now hand the call back over to Roger to discuss Tetra Tech, Inc.’s growth opportunities for 2026 and beyond. Roger Argus: Thank you, Steve. I would now like to provide an update for our outlook for the second half of the fiscal year. We are beginning the third quarter with strong backlog and clear growth opportunities across our markets. As a result, we are increasing our forecasted growth rates for the second half of the year for both our U.S. federal and U.S. commercial client sectors to 8% to 12%. Together, these sectors represent 40% of our revenues. We expect U.S. Federal to increase as our clients fund programs to address both domestic civil works and defense facility modernization globally. U.S. Commercial’s increased growth rates align with the expected demand for water management for mining operations, expansion of domestic rare earths mine development, and further acceleration of the upfront work of planning and permitting for power generation and transmission. International work we expect to grow at a 5% to 10% rate with continued strength in the United Kingdom, Ireland, and the Netherlands water, and expected marine defense infrastructure spending in the U.K. and Australia. State and local work is expected to be about 15% of our business, with a growth rate in the high single digits between 5% and 10%. Our long-term outlook remains strong, with state and local spending increasing regionally in alignment with demand. I will now discuss our U.S. commercial, U.S. defense, and U.S. state and local municipal water business each in a bit more detail. Our U.S. commercial business is being driven by growth in power, data centers, and transmission. Electricity demand in the United States is expected to grow significantly over the next decade. Utilities and energy developers are responding by expanding and diversifying energy sources. We are ranked number one by Engineering News-Record in U.S. environmental work and have supported over 6 thousand energy-related permitting studies. New transmission corridors and upgrades are also needed to connect power generation with fast-growing demand centers. These projects often cross multiple jurisdictions, which create complex planning and environmental requirements. We have permitting experience in all 50 states and bring experience from over 10 thousand miles of transmission projects. At the same time, data centers further increase demand for water and power. Across the U.S., we are seeing examples of community resistance to data centers, and over 15 states are considering restrictions to data centers. Tetra Tech, Inc.’s front-end feasibility expertise is increasingly valuable for data center developers. Clients need clear answers on water availability, power sourcing, environmental constraints, permitting risk, and scheduling implications. For data centers, we currently have more than 20 active feasibility assessments for developers and providers at the earliest stage of their projects, supported by a multidisciplinary community of planning, water, environmental, and power subject matter experts. For our U.S. Federal business, the large budget increases and heightened priority of defense are expanding our opportunities to provide resilient infrastructure and planning services. In the U.S., we have federal contract capacity of $30 billion with coverage across defense agencies and locations domestically, and for facilities the U.S. has placed around the world. For the Army Corps civil works program, we design critical water infrastructure, including flood protection, dams and reservoirs, navigation systems. For the U.S. Navy, we similarly provide planning, permitting, and design services for the modernization of their specialized marine facilities. And for the U.S. Air Force, we provide the specialized expertise to transition to new firefighting foam technology and apply our PFOS scrub technology to remove remaining legacy PFAS contaminants. Our state and local business, where we hold contracts with over 500 municipalities, remains a strong and stable growth driver for our business. Across the U.S., we are working with our clients on the early stages of more than $30 billion in capital spending. We are helping our U.S. municipal water clients mitigate droughts by adding new water supplies that require the design of advanced treatment solutions. In low-lying coastal regions affected by saltwater intrusion, including high population areas of Florida, we design specialized solutions to inject treated water into groundwater. In the near term, municipal clients are anticipating less reliance on supplemental federal grants by adding new funding resources. They are increasing rates, issuing bonds, and restructuring funding to move their essential water projects forward. States such as California, Texas, and Florida, and others are stepping up and issuing new funding to support their local water utilities. With strong demand for sustainable water supplies, we expect to see continued growth and significant opportunities to address the regional water challenges in the major California, Texas, and Florida markets, as well as in the expanding population centers in coastal regions such as Virginia, and in the drought-affected areas in Colorado. I would now like to present our guidance for the third quarter and the entire 2026 fiscal year. Our guidance is as follows: For the third quarter, net revenue guidance is from $1.05 billion to $1.10 billion. Adjusted earnings per share guidance is from $0.38 to $0.41. And for fiscal year 2026, our increased net revenue guidance is from $4.25 billion to $4.40 billion, and our increased adjusted earnings per share guidance is from $1.50 to $1.58. The FY26 net revenue growth is up 9% year over year at the midpoint, with an associated margin expansion of 70 basis points year over year at the midpoint. You can read the FY26 assumptions, but I will highlight a few: intangible amortization of $33 million, depreciation of $24 million, interest expense of $33 million, and a steady effective tax rate of 27.5%. This guidance does not include contributions from future acquisitions. In summary, we had a strong second quarter and first half of FY26. Our operations continue to generate record cash. Demand for Tetra Tech, Inc.’s differentiated “Leading with Science” services in water, environment, and consulting is continuing to drive our growth as exemplified by the sequential increase in our backlog and significant wins with defense agencies. Our high-end technical services are well aligned with long-term demand in the United States and internationally, and with our increased confidence, we have raised our guidance for the full fiscal year ’26. We will now open the call for questions. Operator: The question and answer session will begin now. Please be aware that there will be a 30-second pause in our webcast to allow for buffering. At this time, audio participants are invited to submit their questions. Please remember to mute your audio function on your computer before you speak. If you are using a speakerphone, please pick up the handset before pressing any numbers. If you would like to ask a question, please press star then 1 on your touch tone phone. One moment, while we poll for questions. Our first question comes from the line of Tim with William Blair. Please proceed with your question. Timothy Michael Mulrooney: Yes. Good morning. Thank you for taking my questions. I had a few questions on backlog to start off. I see it was up 8% sequentially. Curious if you expect to build on that momentum as you move through the year and, crucially, what the margin profile of the backlog looks like? I also wanted to ask about your international business. You talked a lot about the water opportunities in the U.K. and Ireland and the increased spending in some areas in Australia. But I wanted to ask about Canada because we recently saw the Canadian government announce more than $40 billion for development of the Northern and the Arctic regions for new forward operating locations, radar systems, and other hubs. Given you do a lot of front-end work for infrastructure development, how are you thinking about this opportunity over the next few years? Roger Argus: Good morning, Tim, and thank you for the questions. On our last quarterly earnings call, we noted that we expected that once the U.S. federal budget was resolved, we might see an influx or release of new orders. The budget was largely resolved in early Q2, and as expected, we saw new orders increase from the U.S. federal government. These included task orders from defense, including U.S. Army Corps, Naval Facilities Engineering Command, U.S. Air Force Civil Engineering Corps, and other federal clients as well. As I mentioned in my prepared remarks, we have seen an increase in our defense contract capacity by $650 million just in Q2. We are starting to see task orders under those contracts. Additionally, we received work under our contracts with U.K. water utilities, including United Utilities, as well as new awards in Northern Ireland. Collectively, these resulted in an 8% sequential growth, which gives us great visibility into Q3 and Q4 as we convert the backlog into revenue. I believe that Q2 represents an inflection point for Tetra Tech, Inc. in terms of our backlog, and we expect to see continued growth based on new orders through the rest of the fiscal year. The backlog is consistent with the growth rates reflected in our forecast for the second half and also supports continued margin expansion in line with what we have been experiencing in the last couple of years. Regarding Canada, we are quite excited about the opportunity that the new funding presents. It is early days, but we are positioning for opportunities for export terminals and marine facilities on the East and West Coast, as well as build-out of Northwest Passage ports and harbors related to not just military use but also potentially commercial use. Our expertise in coastal resiliency, marine facility design, planning, and permitting is well suited on both coasts. We also have very specialized capabilities and experience working in the Arctic and designing roads and facilities in extreme weather. In terms of timing, it is early, and while there is tremendous growth potential, I do not see this impacting FY26. More broadly, the resolution of the federal budget—while not completely resolved—has been helpful for our clients’ funding visibility and has fueled the uptick in backlog that we have seen. We do not anticipate any government shutdown the rest of this fiscal year, so we see that momentum continuing into Q3 and Q4, alongside strong non-federal drivers in power, water, and data centers. Analyst: Particularly as we think about some of your markets outside of the U.S., having seen some clarity on the U.S. side, how are you finding the demand backdrop or just the macro view in some of your international markets—whether it is the U.K., Australia, etc.? Has the demand outlook there followed macro headlines, or has it been more driven by local needs in markets such as water? Roger Argus: It is a bit of both. The global geopolitical situation affects all of the geographies that we work in; however, there are local demands for water, power, and other needs that drive our services as well. In the U.K., for example, AMP8 has received double the funding from AMP7, and we continue to see growth in our water services funded through that program across the utilities we work with. As noted, new projects and awards in Northern Ireland continue to fuel growth. In Canada, there is a lot of activity and potential opportunity with new infrastructure funding. Interestingly, U.S. “America first” policies are fueling work and investment in geographies we work in, notably Canada—development of export terminals and the northern front are, in part, responses to U.S. policies. In Australia, with gold hovering near $2.5 thousand per ounce, we see increased mining activities. Post-COVID, there was a bubble of infrastructure investment to get everyone back to work, and we saw a bit of a decline as that work burned off, but we are starting to see green shoots in new infrastructure spending. Mining is fueling projects, defense shore facilities are driving growth, and we are even seeing opportunities tied to new infrastructure spending for the 2032 Olympics in Brisbane. On capital allocation priorities relative to M&A versus buybacks and dividends, we look at the totality of our balance sheet and leverage, along with multiple sources of capital. We have never used equity for acquisitions, but it is not off the table. Between our balance sheet and our equity, we have the opportunity to invest in the growth areas that will have the most value for the company and our shareholders over the next couple of years. Operator: Our next question comes from the line of Sangeetha Jain with KeyBanc. Please proceed with your question. Sangeetha Jain: Thank you for taking my question. On the cash flow strength, now that the business has recalibrated post USAID, how much further room do you think you have on DSO reduction to keep up this cash flow strength? And on data centers, can you tell us exactly what work you are doing for them and how your scope is evolving as data centers get bigger? Steve Burdick: As we continue to make improvements in our systems and enhance how we go to market with our clients, you have seen over the last four to five years a continual improvement in our DSO year over year. Now our DSO is hovering in the mid-50s. I think we have the ability to take that down closer to 50 days, and our goal is to continue to see that improvement. One thing to understand is that our fixed-price contracts not only provide higher margins but also lower DSO in our working capital. As we continue to shift our mix toward more fixed-price work, we believe we will be able to further reduce DSO over the next couple of years. Roger Argus: On data centers, our primary work is feasibility and siting. There were many announcements of large investments, developers started to move forward, and then began facing community resistance and concerns around impacts on water availability and rates, power, environmental conditions, and more. We are seeing developers come to us to address these concerns and perform feasibility studies covering power considerations and availability, water availability, local regulations, community input, permitting, and scheduling. These are core competencies within Tetra Tech, Inc. that we offer across end markets. We also do work inside the envelope—data systems, commissioning, and other high-end engineering—but the predominance right now is upfront feasibility and supporting siting, permitting, and locating the data centers. Operator: Our next question comes from the line of Ryan Connors with Northcoast Research. Please proceed with your question. Ryan Connors: Good morning. You laid out the outlook by market. You did lower the outlook for state and local to 5% to 10% from 10% to 15%, and you had comments around municipalities shifting federal to local funding. Can you expand on that and how it impacts your strategy? Also, with a lot of budget posturing and the midterms coming up, how should we think about calendar 2027? And then any take on the Iran conflict and potential Mideast postwar opportunities now that USAID is off the books? Roger Argus: The municipal water market has been a staple and steady growth area for many years. My comments indicate caution from clients related to proposed federal budgets for next year that include potential reductions in supplemental grant funding. Most of our projects do not rely on IIJA money, but some clients depend on co-funding. In an abundance of caution, clients are looking at alternative methods—rate increases, bonds, restructuring—to keep projects moving forward. We still see the market growing, but this, along with the compounding on a higher base, informed our range. Regarding federal budget dynamics and midterms, visibility into FY27 is limited. What we saw last year was an aggressive initial budget that was moderated through the process. It is difficult to speculate now. Our end markets have proven resilient; for example, EPA Superfund work historically is immune to cuts due to long-term legal obligations. On the Iran conflict and the Mideast in a postwar scenario, opportunities for us would be driven by the U.S. Army Corps of Engineers—rebuilding damaged facilities, foreign military sales, and other infrastructure. We still have contracts with the U.S. Army Corps Middle East District and are prepositioning for post-conflict opportunities. Operator: Our next question comes from the line of Maxim Sytchev with National Bank. Please proceed with your question. Maxim Sytchev: Good morning. I wanted to go back to your comment around fixed-price exposure, which is up almost 900 basis points year on year, alongside significant margin improvement. Can you talk about that algorithm as both percentages go higher? And philosophically on capital allocation and M&A, given new technological developments, where do you land on where to deploy capital? Steve Burdick: A historical perspective: in 2023, fixed-price work represented about 37% of total net revenue. Year-to-date, it is about 48%. With that increase, and the types of fixed-price work we do, margins have increased over the same time period. In GSG, last year fixed price represented about 29% of net revenue; this year it is about 42%, and you saw a significant increase in margins. Our goal is to continue progressing our contract mix toward fixed price. Fixed-price work carries higher margins and lower working capital requirements, which we believe will be a financial and value benefit going forward. Roger Argus: On M&A, we have always been very disciplined—strategic fit, financial accretion, and timing. Given uncertainty from various sources, M&A for us is about fit and timing—finding the right time when a deal is advantageous to our shareholders. Our priorities include advanced analytics in water, digital automation, and areas that increase client touchpoints and technology leadership across our geographies. Operator: Our next question comes from the line of Andrew Wittmann with Baird. Please proceed with your question. Andrew John Wittmann: Good morning, and thanks for taking my questions. First, backlog versus revenue expectations. After USAID went away, your backlog ex-USAID is up about 2%, but your underlying growth rate in the back half is higher. Has the average duration of the backlog shortened? Also, can you comment on FX impact to net revenue this quarter, whether there was any disaster work, and the $61 million of net revenue from Ukraine—what is embedded for the back half? Steve Burdick: With the backlog decrease from USAID—which did have longer-term backlog—and with different federal agencies ramping back up after gaining clarity in early February, a lot of backlog remains shorter term compared to prior years. We do see a bit more book-and-burn this year versus prior years; that is the key driver of the dynamic you are seeing. FX impact was minimal and not material relative to guidance. There was effectively no one-time disaster revenue in the quarter, unlike last year with large hurricanes in Florida and fires in Southern California. Regarding USA work primarily related to increased activity in Ukraine, the appendix shows about $61 million this quarter. For the rest of the year, we have about $20 million per quarter for both Q3 and Q4 included in our guidance. Operator: Our next question comes from the line of Tate Sullivan with Maxim Group. Please proceed with your question. Tate Sullivan: Hi. Thank you very much. I am looking at the CIG operating income margin versus GSG margin. Understanding there are some acquisition impacts in the margin for the fiscal second quarter, do you still expect the CIG margin to approach closer to the GSG margin level, or is that changing? And on the Port of LA work you called out in backlog and via a March press release, was it a meaningful contributor to the backlog increase, and will you be doing much more at the Port of LA in the next three years compared to prior periods? Roger Argus: Q2 is typically the weakest quarter for CIG due to seasonality—many CIG geographies are in the Northern Hemisphere, where winter reduces field work and utilization, and Australia has many holidays. This year was a bit more pronounced than expected. We do expect CIG margins to improve through the balance of the year and return to normal levels. Steve Burdick: When we look at the projects and revenue in backlog, we can see increased margins, primarily in CIG more so than GSG, so we do see those two getting closer together. Roger Argus: The Port of Los Angeles has been a long-term client. We are excited about the renewal of the MSA and expect to continue to do work and grow that portfolio. It is impactful for us, and while it may not be material at the total-corporation level, it is a premier U.S. port and illustrates our differentiated capabilities that lead to selection on prestige opportunities. Operator: Our next question comes from the line of Michael Dudas with Vertical Research Partners. Please proceed with your question. Michael Dudas, your line is live. This will conclude the Q&A session. I will now turn the conference back over to Roger Argus to conclude. Roger Argus: Thank you, Christine. In closing, I would like to thank everyone for your insightful questions and interest in Tetra Tech, Inc. Tetra Tech, Inc. is addressing our clients’ most complex challenges in water, environment, and sustainable infrastructure using our “Leading with Science” approach. As CEO, my focus is to build on the foundation that has made Tetra Tech, Inc. successful. I look forward to speaking with you again next quarter, and have a great day. Goodbye. Operator: Ladies and gentlemen, this concludes our conference for today. Thank you all for participating, have a nice day. All parties may disconnect now.
Operator: Thank you for standing by, and welcome to the Balchem Corporation First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1. If you would like to withdraw your question, again, press star 1. Thank you. I would now like to turn the call over to Martin Bengtsson, Chief Financial Officer. You may begin. Martin Bengtsson: Thank you. Good morning, everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending March 31, 2026. My name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our Chairman, President, and CEO. Following the advice of our counsel, auditors, and the SEC, at this time, I would like to read our forward-looking statement. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem Corporation’s most recent Form 10-Ks, 10-Q, and 8-K reports. The company assumes no obligation to update these forward-looking statements. Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details. I will now turn the call over to Ted Harris, our Chairman, President, and CEO. Ted Harris: Thanks, Martin. Good morning, and welcome to our conference call. We were extremely pleased with the financial results for the quarter and the overall performance of our company as we kicked off the new year with positive momentum from the strong performance throughout 2025. Our healthy growth continues to be fueled by ongoing market penetration of our unique portfolio of specialty nutrients and delivery systems, and the favorable “better for you” trends within the food and nutrition markets that are well aligned with our food ingredient formulation systems and capabilities. We delivered record first quarter consolidated sales, adjusted EBITDA, adjusted net earnings, and adjusted EPS, as well as strong cash flows. We also delivered year-over-year sales and earnings growth in all three of our reporting segments. The first quarter of 2026 was the twenty-seventh consecutive quarter of quarterly year-over-year growth in adjusted EBITDA for Balchem Corporation. We are very proud of this accomplishment, particularly in light of the market environment within which we have operated over the last twenty-seven quarters. Before we get into more detail on the quarter, I would like to make a few comments about the overall market environment, including the evolving geopolitical and macroeconomic situation, as well as some of the progress we have made on several important strategic initiatives. We continue to see healthy demand across the vast majority of our end markets. Our Human Nutrition and Health segment continues to perform very well, driven by healthy demand for both our unique portfolio of minerals, nutrients, and vitamins and our food ingredients and solutions, which are benefiting from trends toward nutrient-dense high-protein, high-fiber, and low-sugar or “better for you” foods where our nutrient portfolio and our formulations expertise bring considerable value to our customers. In the Animal Nutrition and Health segment, we delivered another quarter of year-over-year growth on improved demand in both our monogastric and ruminant businesses as a result of further market penetration of our rumen-protected precision release encapsulated nutrient portfolio and the ongoing improvement of market conditions in the European monogastric market. And we remain encouraged by the overall performance of our Animal Nutrition and Health product portfolio. Within our Specialty Products segment, both our performance gases and our plant nutrition businesses are performing well, driven primarily by higher demand within performance gases as a result of healthier market conditions and successful margin management and geographic expansion growth within plant nutrition. As we have shown over the years, we have been able to deliver strong historical performance while facing significant market volatility. We believe we remain well positioned to effectively manage through this current geopolitical and macroeconomic environment as well. We are once again entering a period of significant inflation, largely petrochemical-based and primarily impacting our Animal Nutrition and Health segment, as well as potential supply chain disruptions due to the ongoing conflict in the Middle East. We will once again leverage our robust global supply chain, our procurement expertise, and our strong market positions to raise prices where necessary to help manage through this dynamic market environment. While we are likely to experience some modest margin compression resulting from the timing lag that occurs between input cost inflation and pricing adjustments, particularly within our Animal Nutrition and Health segment, we do expect to deliver continued quarterly year-over-year growth on a consolidated basis over the coming quarters. We will continue to monitor the developments closely and adjust accordingly as we have done effectively in the past. Additionally, I would like to share some significant progress we have made on several important strategic initiatives that will further support our future growth. A newly published peer-reviewed research study using functional magnetic resonance imaging, a noninvasive safe neuroimaging procedure that measures brain activity by detecting changes in blood flow and oxygenation, was published in the peer-reviewed journal Nutrients. This important study examined the effects of Balchem’s Vidacholine nutrient on working memory-related brain activation and functional connectivity in postmenopausal women. The results showed that Vidacholine intake significantly enhanced functional connectivity within the working memory network, improving brain efficiency within three hours of consumption. This study helps highlight the benefits of Vidacholine across different life stages, with previous research showing that Vidacholine supports fetal brain development during pregnancy and lactation with lasting effects beyond birth. It also suggests that Vidacholine may help enhance cognitive health in older adults. We are excited about these results, and we will continue to invest in both research and marketing around Vidacholine to raise awareness and drive market penetration of this important essential nutrient. Additionally, on April 22, Earth Day, we released our 2025 sustainability report highlighting our sustainability initiatives and accomplishments. Guided by our core values and our vision of making the world a healthier place, our sustainability report demonstrates our commitment to bringing innovative solutions for global health and nutrition needs and to operate with excellence as strong stewards of our employees, customers, shareholders, and communities. We are very proud of the progress made on our 2030 sustainability goals to reduce both greenhouse gas emissions and water usage by 25% compared to our 2020 baseline. In 2025, we successfully reduced scope one and two greenhouse gas emissions by approximately 31%, surpassing our 2030 goal, and we reduced water withdrawal by approximately 16%, showing substantial progress toward our water usage reduction objective. Now regarding the first quarter financial results. This morning, we reported record quarterly consolidated revenue of $271 million, which was 8.1% higher than the prior-year quarter. We delivered record quarterly GAAP earnings from operations of $56 million, an increase of 9% versus the prior year. Consolidated net income closed the quarter at $40 million, an increase of 8.7%. This quarterly net income translated to diluted net earnings per share of $1.25 on a GAAP basis, up 10.6%. On an adjusted basis, we delivered record quarterly adjusted EBITDA of $74 million, an increase of 12.1%. Our quarterly adjusted net earnings were $43 million, an increase of 7.4%, which translated to $1.33 per diluted share, up 9%. Overall, it was an excellent quarter for Balchem Corporation, marked by strong financial results and meaningful progress made on our strategic priorities. With that, I am now going to turn the call back over to Martin to go through the first quarter financial results in more detail and the results for each of our business segments. Martin Bengtsson: Thank you, Ted. The first quarter was a strong start to 2026. Our record first quarter net sales of $271 million were 8.1% higher than the prior year, driven by strength across all three segments: Human Nutrition and Health, Animal Nutrition and Health, and Specialty Products. The impact from foreign currency exchange, driven primarily by the stronger euro, had a favorable impact to our sales growth of approximately 2% in the first quarter. Our gross margin dollars were $101 million, up 14.6%, and our gross margin percent expanded to 37.3% of sales, up 210 basis points. The gross margin performance was driven primarily by the sales growth and manufacturing efficiencies, partially offset by raw material inflation. Consolidated operating expenses for the first quarter were $45 million as compared to $37 million in the prior year. The increase was primarily due to higher compensation-related costs and an increase in professional services. GAAP earnings from operations for the first quarter were a record $56 million, an increase of 9%. On an adjusted basis, as detailed in our earnings release this morning, record non-GAAP earnings from operations of $61 million were up 9.5%. Adjusted EBITDA was a record $74 million, an increase of 12.1%, with an adjusted EBITDA margin rate of 27.4%. Net interest expense for the first quarter was $2 million, a decrease of $1 million, primarily driven by lower outstanding borrowings and lower interest rates. Our net debt was $96 million with an overall leverage ratio on a net debt basis of 0.3. The effective tax rates for 2026 and 2025 were 23.3% and 22.7%, respectively. The increase in the effective tax rate on the prior year was primarily due to an increase in certain state taxes. Consolidated net income closed the quarter at $40 million, up 8.7%. This quarterly net income translated into diluted net earnings per share of $1.25, a 10.6% increase. On an adjusted basis, our first quarter adjusted net earnings were $43 million, an increase of 7.4%, which translated to $1.33 per diluted share. Cash flows from operations were $40 million with free cash flow of $34 million, and we closed out the quarter with $73 million of cash on the balance sheet. As we look at the first quarter from a segment perspective, our Human Nutrition and Health segment saw sales of $172 million, up 8.3%, driven by growth in both our nutrients business and our food ingredients and solutions businesses. Earnings from operations were $40 million, up 5.4%, driven by the higher sales and a favorable mix, partially offset by certain higher manufacturing input costs and higher operating expenses. First quarter adjusted earnings from operations for this segment were $43 million, up 6%. We were encouraged by the continued momentum in Human Nutrition and Health, where our differentiated ingredients and solutions align with a consumer shift toward “better for you” nutrition. We believe this positions us well to further leverage our formulation expertise and portfolio of differentiated branded ingredients to drive sustained growth. Our Animal Nutrition and Health segment delivered sales of $62 million, up 8.6%. The increase was driven by higher sales in both the monogastric and ruminant businesses. Animal Nutrition and Health delivered earnings from operations of $6 million, up 8.7%, driven by the higher sales, partially offset by certain higher manufacturing input costs and higher operating expenses. First quarter adjusted earnings from operations for this segment were $6 million, up 8.2%. We delivered another quarter of improved performance in our Animal Nutrition and Health segment. We continue to drive adoption of our EnCaPPS encapsulated rumen-protected nutrients in the dairy market. Our U.S. monogastric business remains steady, and our European monogastric business continued to improve following the EU antidumping duties. Looking ahead, we are paying careful attention to the conflict in the Middle East and the potential impacts it may have on the animal nutrition markets. We are seeing increases in raw material input costs along with increased freight costs, which will need to be offset or passed on to our customers. We feel good about the momentum we have built within our Animal Nutrition and Health segment, and while we are likely to experience some modest margin compression resulting from the timing lag that occurs between input cost inflation and pricing adjustments, we remain confident in our ability to continue to drive growth in this segment over time. Our Specialty Products segment delivered quarterly sales of $35 million, up 4.4%, driven by healthy growth in Performance Gases. Specialty Products delivered a record quarterly earnings from operations of $12 million, up 24.5%, driven primarily by higher sales and a favorable mix. First quarter adjusted earnings from operations for this segment were a record $13 million, up 21.2%. We were very pleased with the performance of Specialty Products, delivering yet another quarter of solid growth, and we believe Specialty Products is well positioned to continue to deliver consistent profitable growth as we look forward. Overall, the first quarter was another strong quarter for Balchem Corporation, and we are really pleased with the results. While the global geopolitical and macroeconomic environment remains dynamic and includes areas of uncertainty, we believe we are well positioned to continue executing our strategy and to deliver continued growth through the rest of 2026. I am now going to turn the call back over to Ted for some closing remarks. Ted Harris: Thanks, Martin. We were very pleased with the financial results reported earlier today. We executed well within a dynamic and evolving macroeconomic and geopolitical backdrop, delivering another strong quarter of solid growth while at the same time advancing our strategic initiatives. Looking ahead, we remain excited about 2026 and confident in our ability to deliver continued top and bottom line growth while further advancing our long-term growth platforms. I will now hand the call back over to Martin, who will open up the call for questions. Martin Bengtsson: Thank you, Ted. This now concludes the formal portion of the conference. We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Robert James Labick from CJS Securities. Your line is open. Robert James Labick: Good morning. Congratulations on another record quarter. Martin Bengtsson: Thank you, Bob. Thanks, Bob. Robert James Labick: Thanks. One of the keys to your growth and success has been the branded ingredients. And, Ted, you spoke a little about Vidacholine already. I know you are early-ish on a branding strategy so far, but what percent of sales are branded out of what is applicable now, and what could that look like in five or ten years? Ted Harris: Yeah. Again, Bob, thanks for your comments. Our branded ingredients—and let us just talk about Human Nutrition and Health—make up about, I would say, 40% to 50% of our Human Nutrition and Health business today. That does not mean to say on the other 50% to 60% we do not have brands, but they are more B2B brands. The power brands, we refer to them, like Vidacholine that you talked about, K2 Vital and K2 Vital Delta, Opti MSM, Albion Minerals, for example, are brands that obviously we are selling to supplement and nutritional beverage manufacturers but are recognized by the consumer. Those are the ones that we are really investing in. So let us say 40% to 50% of H&H today, and that part of the business is obviously growing faster than the other parts of the portfolio. So over time, it will clearly become a bigger and bigger part of our portfolio. Robert James Labick: Okay. Great. And we have talked on previous calls about the Jets partnership and the new customers that have come, notably in Vidacholine and, I think, energy drinks in particular. Are there other areas of expansion still to come from this? Are there opportunities for just more general sports drinks versus energy drinks? Or how do you take the company down that path if possible? Ted Harris: Yeah. So, you know, obviously, historically, supplements have been our primary targeted market, but as you mentioned, we have had pretty significant success more recently relative to sports beverages, energy drinks, and the like. As you can imagine, it is a great application for our products, partly because you do not have the capacity or volume limitation that you can have in a supplement or a multivitamin, and we have found it to be an excellent application for our products. Trends are leading to significant growth in those areas. So I do think that that will continue to grow and, you know, kind of that word “energy drink” versus “nutritional beverage,” I do think many of these products started to be more in the energy drink category, and now those drinks are expanding much more broadly to more of a nutritional beverage focus, meal replacement focus, a much healthier product—or “better for you” product—to use those words, than the historical energy drinks. We really believe that the nutritional beverage market is a significant opportunity for us and will grow rapidly over time. So I think that is really where the predominance of our opportunity lies in the near to midterm. Relative to investing marketing dollars in the brands, it does expand far beyond partnering with an NFL team. We are already partnering with a women’s professional soccer team in Europe, the Bayern Munich women’s team. We are investing in other influencer areas, digital media areas, and so forth. We do continue to expand that effort in other areas. I think we talked about on calls many quarters ago that the investment in the Jets was a pilot to some extent. We certainly look back on that as being a pilot and one that we want to now expand through other consumer marketing awareness campaigns, some of which I just mentioned. Robert James Labick: Okay. Super. And one last one for me. I will jump back in queue. Looking at the P&L, the gross margins—the 37.3%—surprised on the upside. It was really strong, in fact. So maybe just give us a little more detail on what drove that. And I know with raw material cost pressures coming, how should we think about gross margins going forward? Martin Bengtsson: Yeah, Bob, strong performance on the gross margin, as you point out, and as you are familiar, we have talked about in the past that we do have a favorable tailwind in our portfolio from the fact that our higher-margin businesses are the ones growing the fastest—so minerals and nutrients in H&H being an example of that. Similarly, on the Animal Nutrition side, ruminant being higher margin and generally growing faster than monogastric. Just from a portfolio perspective, we have that tailwind that supports expansion of the margins. On top of that, we have been fairly effective more recently at managing the balance between price and inflation and driving some benefits that way as well, along with having effective manufacturing operations here supporting the P&L. So everything has just been working fairly well from a gross margin perspective, and you are seeing that come through. The reference we made to seeing inflation is true and real. We do see inflation coming, and we see that accelerating a bit with what is happening in the Middle East. As you know from the past, when we went through this with COVID, we have been quite effective historically at managing that both through our supply chain and our procurement, but also in terms of pricing that through to our customers where needed. But it tends to have a little bit of a dilutive impact—if your costs go up a dollar and you price through a dollar, mathematically, your margin rate goes down. I think we will see a little bit of that to a modest extent as we go forward in this inflationary environment. So while we continue to grow our margin dollars, we may see a little bit of a margin rate compression as a result of the environment. Robert James Labick: Okay. Got it. Thank you, and congrats again. I will get back in queue. Operator: Your next question comes from the line of Ram Selvaraju from H.C. Wainwright. Your line is open. Ram Selvaraju: Thanks so much for taking our questions. First, I was wondering if you could comment on the ongoing evolution of your thinking regarding the positioning of Vidacholine, and in particular, how you are thinking about optimizing the value of this franchise, especially given the most recent data that you cited published in the peer-reviewed journal Nutrients, and how this might evolve going forward when you think about, historically, the work that has already been done demonstrating that choline is an essential prenatal nutrient. Now you have data showing that it has applicability to enhance potentially cognitive health in older adults. Just give us a sense of how you are thinking about the evolution of that brand and how best to position it, particularly from the perspective of promotional and marketing strategies that you may not necessarily have employed in the past. Secondly, I think it would be helpful if you could give us a sense, particularly in light of the most recent geopolitical developments, how this might affect the industrial side of Balchem Corporation’s business, especially when we think about potentially increased U.S. stateside-based oil and petroleum production that may include enhanced fracking activity. And then lastly, Martin, I was wondering if you could just comment on the effective tax rate. It was a little bit ahead of what we had originally projected, so I was wondering if we should use that as the serviceable tax rate assumption going forward, or if you anticipate the effective tax rate to modulate a little bit over the course of the remainder of this year. Thank you. Ted Harris: Thanks, Ram, for your questions. Maybe I will take the first two and Martin can answer the last one. I will start with your second one around industrial. As everybody knows, we no longer report out industrial separately. But that business has continued for a number of years at a very low level, I would say, but that business is clearly up. It is still not a measurable contributor to our overall results, but regardless of that, the results are up, sales are up, demand is up, which is what you would expect given the current situation with increased activity in that part of the economy. So we are seeing new business from that. Again, it is not to a material nature, and we strongly believe it will never return to what it once was, but it is nice to see higher demand in that area based on the increased activity. Relative to the ongoing Vidacholine positioning, we are really excited about the results of this most recent study, specifically for servicing postmenopausal women in that community and that targeted market, but it does suggest that older adults can benefit from Vidacholine intake more broadly. That is a huge market compared to the prenatal market that you mentioned. Historically, choline was a product that was sold into infant formula and really did not even appear that much in prenatal vitamins. I think we can look back and say we were very, very successful in doing the science and having the studies to support the prenatal market, and today it really is broadly part of a prenatal vitamin regimen. It is incredibly rare for me to ask a pregnant woman what her vitamin regimen is and it not to include choline. I think we have been very successful there. The reality is that is a relatively small market. So this could be an absolute breakthrough from a Vidacholine perspective and really open up that, as I used the word earlier, huge adult cognition market. I think it is an early study. It is a study that has definitive results for postmenopausal women. We need more studies for sure to show effectiveness across a wider segment of the population in that age group, but this is a good first start, and we always expected this to be the start. So we are investing in some more studies. And then, as we have also learned, we need to support that science and those studies with marketing. Obviously, marketing to aging adults that either are experiencing cognitive issues or are concerned about cognitive issues is a very different marketing campaign to positioning Vidacholine as a nutrient that athletes should take, as we were doing for the New York Jets. So we will have to reposition our marketing efforts—or newly position our marketing efforts—to support the emerging science in this area and to build awareness in the aging population and ultimately to drive market penetration of Vidacholine in that category. That is exactly what we are going to do. With that, I will hand it over to Martin to talk about tax. Martin Bengtsson: Yes, Ram. As we spoke about in the past, we tend to use a 23% effective tax rate as the planning rate, and I think when we spoke last time, I thought we would probably err on the side of doing better than that. In Q1, we had 23.3%, so a bit above that just based on timing of various items and some changes in state tax laws that impacted that negatively, and also various discrete items that hit the quarters differently. As we look forward here, I think the rate will be higher in Q2 as well versus that 23%, and then I think it will be lower in the back half of the year as we work our way towards that 23%. I think it is still a good planning rate to use—the 23%—as you model things for the full year. Ram Selvaraju: Thank you so much, and congrats again on a very solid quarter. Operator: Your next question comes from the line of Daniel Harriman from Sidoti. Your line is open. Daniel Harriman: Ted, Martin, good morning. Thank you so much for taking my questions, and again, congratulations on continued execution and great performance. I have two questions this morning. I will start with one for Ted. Last quarter, I touched on—or asked you about—international growth, and I was just wondering if you might be able to provide us an update or if there is anything going on that we should pay attention to there across the three businesses. And then, Martin, on the European monogastric side of things, I was just curious if you could give a little bit more color about where we are in the recovery there and if there is more room for you in terms of both volume and pricing. Really appreciate it. Thank you. Ted Harris: Yeah. On the geographic expansion and international growth, that continues to be a primary strategic focus area for our company, and one that we feel really good about the progress we are making. Part of that progress involves hiring people in the various international regions around the world. We are doing that, and we are hiring really good people. I would say when you look at our OpEx this quarter, Martin talked a little bit about it being higher than normal, and part of that, at least, is driven by some one-time items, but part of it is also driven by an investment in sales and marketing around the globe as we do invest in geographic expansion. So we are making good progress in hiring people, building out the infrastructure that we need to drive geographic expansion, and the results are showing. We are seeing higher growth rates in most international locations versus the U.S. We are still driving really good growth in the U.S., but the international growth rates have been better for us because of the low base that we are starting from. We are focused on it. It is a primary strategic objective for us, and we are making really good progress relative to that strategic initiative. Martin Bengtsson: Yeah. On Animal Nutrition in Europe and the recovery of the monogastric business there, we are clearly seeing an uptick following the antidumping. In Q1, we did see a double-digit volume improvement, so it is definitely there, combined with improved pricing. There is clearly an upwards trend in that business that I think has the potential to continue to strengthen further. The impacts that we are keeping an eye on right now are really stemming from the Middle East conflict and whether or not that will have an impact to the European end markets, given the higher input costs that they will be facing going forward. But in terms of the EU antidumping, we are clearly seeing benefits from that at the moment. Daniel Harriman: That is really helpful. Thank you again, guys. Operator: Your next question comes from the line of Artem Chubara from Rothschild Redburn. Your line is open. Artem Chubara: Thank you. Hello, Ted and Martin. Congrats on a good quarter. I would like to ask two questions. The first one, H&H—any color on how nutrients or food ingredients business performed in the quarter would be helpful just to understand the magnitude of growth and whether you expect these to persist. And the second question is on Specialty Products. Obviously, you have reported quite exceptional improvement in profitability, so it would be helpful to understand where it came from—perhaps whether it was price or volume—and how that developed by region, whether it was Europe or the U.S. Thank you. Ted Harris: Sure. Maybe I will take a stab at this and Martin can chime in as needed. We were really pleased with the overall performance of H&H, really as we have been for many quarters. The story, I would say, in Q1 was very similar to the story that has played out over previous quarters, so not much changing. The minerals and nutrients portfolio is growing very strongly—I would say double-digit growth—fueled particularly by growth in our minerals business, which is performing outstandingly broadly speaking, but all of the nutrients are growing nicely. That business is performing well and is really fueled by, yes, to some extent the “better for you” trends, but also the adoption of supplementation and the inclusion of nutrients in beverages, as we talked about earlier. So a little bit more of the same, which I view as positive. The food ingredient and solutions business grew, I would say, lower- to mid-single digits. Again, it continues to grow at what I would say are nice rates for that business. That growth truly is being fueled by the “better for you” trends—whether it is meat sticks that we have talked about before where some of our ingredients are included, or high-protein bars, high-fiber beverages, organic high-fiber cereals—those kinds of products are really all performing very well for us and really driving the vast majority of growth within H&H. Again, I would say that story has been true for quite a number of quarters. Overall, we are very pleased with the performance of H&H, and we continue to believe that that story will continue for some time to come. We think it is quite sustainable. Relative to Specialty Products, it is a little bit of a different story. The favorable growth really is driven primarily from the Performance Gases part of Specialty Products. Again, very pleased with the overall performance of Specialty Products, but this quarter it was primarily driven by Performance Gases, where we are seeing healthy demand both in the U.S. and in Europe. It seems odd a number of years later to still be talking about the pandemic, but those were markets that were pretty severely impacted by the pandemic and it had a long played-out impact, I would say, on those markets. We would say those markets today are back to where they were—very healthy—and our business is doing very well, both in the U.S. and Europe, just on healthy demand. The growth, as we talked about, in Plant Nutrition has been primarily driven by geographic expansion over time. We did not deliver growth in Q1, but we are bullish about the performance of Plant Nutrition over the course of the year. We had significant margin improvement in that business in Q1, delivered healthy geographic expansion growth, and generally speaking, it is a healthy planting environment right now. Again, we feel good about our ability to deliver growth in that business this year. So really pleased with the performance of Specialty Products as well, and we believe that this performance that we have been delivering in that segment over the last number of quarters and in Q1 is sustainable. Hopefully that answers your questions. Artem Chubara: It does indeed. Thank you very much. Operator: That concludes our question and answer session. I will now turn the call back over to Ted Harris for closing remarks. Ted Harris: Yes, thank you very much. Once again, thank you all for joining our call today. We are very pleased with how we have started 2026, and we really appreciate your support and your time today. We look forward to reporting out our Q2 2026 results in late July. In the meantime, we will be participating in the Wells Fargo Industrials and Materials Conference in Chicago on June 10, and the CJS Summer Investor Conference in White Plains, New York on July 9. We certainly hope to see some of you there. Thanks again. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Iron Mountain 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 Mark Rupe, Senior Vice President of Investor Relations. Please go ahead. Mark Rupe: Thanks, Rocco. Good morning, everyone, and welcome to our first quarter 2026 earnings conference call. Joining us today are Bill Meaney, our President and Chief Executive Officer; and Barry Hytinen, our Executive Vice President and Chief Financial Officer. After our prepared remarks, we'll open the lines for Q&A. Today's call will include forward-looking statements, which are subject to risks and uncertainties. For a discussion of the major risk factors that could cause our actual results to differ from these statements, please refer to today's earnings materials, including the safe harbor language on Slide 2 of the earnings presentation and our annual and quarterly reports on Form 10-K and 10-Q. Each of these items as well as reconciliations of non-GAAP financial measures referenced during this call can be found on our Investor Relations website. With that, I'll turn the call over to Bill. William Meaney: Thank you, Mark, and thank you all for joining us today to discuss our first quarter results. As you saw in this morning's release, we are off to an incredibly strong start to 2026. Our first quarter results were exceptional, above our expectations with 22% year-over-year growth for revenue, adjusted EBITDA and AFFO. Our team's execution of our growth plans and consistent delivery of value to our customers continues to drive the record performance across our business. First quarter organic growth of 17% is the highest rate we've achieved in more than 25 years. The outstanding results were driven by our growth business of data, data center, ALM and digital, which grew more than 50% in the quarter and now exceed more than 30% of our total revenue. Moreover, our highly recurring physical records storage business delivered its best quarterly growth in years and is well on track to deliver its 38th consecutive year of organic storage rental growth. I'm also impressed with our commercial team's progress in accelerating cross-selling efforts in ALM and digital. We had a very strong quarter of bookings across the business, which sets us up well for the balance of the year. Following this strong performance and continuing the momentum into the second quarter, we are pleased to increase our full year financial outlook. Let me now share some of the highlights from the quarter and the confidence this provides as we look to sustain industry-leading revenue and earnings growth in 2026 and beyond. Data center revenue increased 47% in the first quarter. Industry demand remains very strong with hyperscalers continue to build out inference and cloud capacity. This has led to significant customer engagement across our portfolio given our 400 megawatts of available to lease capacity energized over the next 24 months. We leased approximately 22 megawatts in the first quarter and another 10 megawatts in April, positioning us at 32 megawatts leased year-to-date. We drove substantial growth in our asset lifecycle management business in the first quarter with a 92% increase in revenue. This was fueled by a strong showing in both our enterprise and decommissioning businesses the latter of which was mainly pricing. Beyond the favorable component price environment, the underlying strength of our business is being driven by our compelling and differentiated customer value proposition, which continues to yield new customer wins and deeper expansion within our existing base. Our digital solutions business achieved record first quarter revenue, growing greater than 20% year-over-year. We continue to win traditional projects and new contracts across industry verticals for DXP, our AI-powered digital solutions platform. Additionally, we won another Google Partner of the Year this month for media and entertainment, adding to the 2018 Google Partner of the Year Award for AI and machine learning. And we also executed very well operationally. We drove expanded profitability across the business with adjusted EBITDA increasing 22%. We are still in the early phases of our long-term growth journey, and our opportunity has never been more clear and tangible. We operate in large and growing markets with a $170 billion total addressable market, and we continue to invest and execute growth strategies to fully capitalize on our opportunity. Now let me share some recent wins that illustrate the strength of our synergistic business model and commercial momentum. I want to start with providing an update on our government business. From the outset, we firmly believe that Iron Mountain was positioned to be a major beneficiary of efficiency and productivity efforts for governments across the world. Building on last year's important award from the Department of Treasury, I am pleased to share that first quarter bookings in the public sector were our second best in our company's history. We are significantly expanding our government business across the world and especially here in the U.S. Let me highlight two of these wins. For 1 agency, we will provide advanced digitization solutions to process millions of records, and we will also securely manage over 29,000 cubic feet of physical documents. And for another agency, we are providing services for pathology operations, including storage and tracking claims folders. We are just getting started and the outlook for additional government wins is promising. Our positive trajectory is supported by the federal certification for our digital services suite through the achievement of FedRAMP high authorization for InSight. This will fundamentally shift our competitive stance for digital services within the U.S. public sector, allowing us to pursue high-value, mission-critical workloads across the federal landscape. To be sure, our commercial momentum in recent wins extend far beyond the government sector. Let me share some other wins across our business. In records management, our insurance team signed a new deal with a Canadian insurance company to deploy our Smart Reveal solution where we will process more than 1 million files currently stored with us. We also signed a new multiyear agreement with a global law firm to deploy our Smart Sort solution across 6 U.S. locations. We will process more than 2 million files and onboard an additional 60,000 cubic feet of physical storage, ensuring the customer effectively manages its complex compliance and fiduciary requirements. In digital solutions, we won an important new multiyear agreement with a leading Brazilian clinical diagnostics firm. Iron Mountain's DXP platform, leveraging AI capabilities will process over 20 million medical records. DXP will be fully integrated with the customer systems to reduce manual efforts, eliminate errors and ensure compliance for time-sensitive clinical results. And we won a new contract with a U.S. health care center to improve patient data visibility. The win cuts across multiple lines of our services, including Smart Sort, for more than 600,000 medical records in digital solutions for nearly 12 million images. In our data center business, we cross sold to an existing ALM decommissioning customer and lease to them our entire 16-megawatt Miami site as part of a 10-year contract to support expansion of its cloud platform. We also leased approximately 6 megawatts to enterprise customers in Q1. And in April, we are pleased to have leased 10 megawatts in Amsterdam to a major global cloud player, who is new to our portfolio and with whom we are having encouraging discussions regarding interest across our data center footprint. Turning to asset lifecycle management business. We are uniquely positioned as the industry leader with strong competitive advantages, including our full-service capabilities, unmatched global scale, reputation for security and ability to deliver exceptional value to our customers. This is translating into growth in the number and size of deals we are winning across our enterprise and our data center decommissioning business. Let me highlight some of our wins. A new multiyear agreement with a global advertising company that consolidated its highly fragmented vendor base and selected Iron Mountain as its sole enterprise-wide ALM services partner. As part of the deal, we will manage and secure decommissioning and remarketing of IT assets across more than 30 countries. We cross-sold to 1 of our existing data center customers working to recycle and reuse 75,000 IT hardware items across the U.S., Europe and APAC. And we signed a multiyear agreement with a global technology leader to securely decommission, sanitize and remarket 60,000 drives. In conclusion, our team is delivering exceptional results. We are still in the early phases of our tremendous long-term growth opportunity. Our set of services delivering differentiated value to our customers gives us high confidence in continued double-digit consolidated top and bottom line growth across cycles. I would like to express my gratitude to my global colleagues for their unwavering commitment to our customers. I especially want to thank our colleagues in the Middle East, who demonstrate the best of the Mountaineer culture as they navigate a challenging time in keeping themselves and families safe whilst continuing to serve our customers in the region. The exceptional stewardship provided by our Mountaineers to more than 240,000 customers remains a cornerstone of our ongoing success. With that, I'll turn the call over to Barry. Barry Hytinen: Thanks, Bill, and thank you all for joining us to discuss our results. As you've heard this morning, we are off to a strong start to the year. Our team delivered record first quarter performance across all of our key financial metrics, underscoring the significant momentum we have in the business. In terms of the first quarter, revenue of $1.94 billion was up $344 million year-on-year. This was well ahead of the projection we provided on our last call, driven by continued strength across our business. As compared to last year, revenue increased 22% on a reported basis, 19% on a constant currency basis and 17% on an organic basis. While the change in FX rates contributed approximately $40 million in revenue year-on-year, I would like to note that this was slightly below what we had assumed in our outlook as the dollar strengthened following our last call. Looking at the $80 million revenue upside in the quarter, this was driven by outperformance in our ALM, records management and data center businesses. Total storage revenue was $1.1 billion, up $146 million or 15% year-on-year. Total service revenue was $841 million, up $197 million or 31% from last year. Adjusted EBITDA of $708 million increased $128 million or 22% year-over-year. This exceeded the projection we provided on our last call by $23 million driven by the revenue upside and operational efficiency across the business. Adjusted EBITDA margin was 36.6%, an increase of 20 basis points from last year. Our margin performance was particularly impressive, especially when considering the substantial growth in our services revenue, which naturally drives a mix headwind. AFFO was $426 million, up $78 million, this represented an increase of 22% as compared to last year. And AFFO on a per share basis was $1.43 and up 22% to last year and was $0.04 ahead of the projection we provided on our last call. Now turning to segment performance. In our Global RIM business, first quarter revenue of $1.4 billion was a quarterly record and grew $148 million as compared to last year. Reported growth of 12% year-on-year was supported by 8% organic growth. This success was driven by strong performances in both our storage and services businesses. Sequential growth in Global RIM revenue was in excess of $30 million as compared to the fourth quarter. Performance was driven by revenue management, consistent positive volume trends and sustained strength in our service business, where the team successfully completed some project work that carried over from late last year. Storage revenue growth was up 9% on a reported basis and up 6% on an organic basis. Global RIM service revenue grew over 16%, and the team delivered a strong organic growth in excess of 12%. This was driven by the continued strength of our core services and our fast-growing digital business. And as you heard from Bill, we are significantly expanding our government business across the world and especially here in the U.S. As it relates to the multiyear Department of Treasury contract, we recognized approximately $9 million of revenue in the first quarter. We continue to expect $45 million revenue in 2026 and in excess of $100 million annually in 2027 and beyond. From a profitability perspective, Global RIM adjusted EBITDA increased $61 million to $618 million. This was an increase of 11% year-on-year with an adjusted EBITDA margin of 44%. Turning to our Global Data Center business. We achieved revenue of $255 million in the first quarter, an increase of $82 million or 47% year-on-year. Growth was driven by lease commencements, positive pricing trends and customers ramping power faster than we expected. In the first quarter, we signed 22 megawatts of new leases, commenced 24 megawatts and renewed 193 leases totaling 7 megawatts. I am also pleased to note that we have increased our future development capacity in Northern Virginia by 20% to 195 megawatts. Pricing remains strong with renewal pricing spreads of 12% and 14% on a cash and GAAP basis, respectively. First quarter data center adjusted EBITDA was $133 million, up $42 million year-on-year, resulting in adjusted EBITDA margin of 52.1%, 30 basis points below last year. As our clients continue to experience very strong growth in cloud and AI deployments, we are seeing their usage ramp faster. As we've discussed before, Power is a pass-through item, and correcting for that, our data center margin was up 120 basis points year-over-year. Turning to asset lifecycle management. Total ALM revenue was $232 million, an increase of $111 million or 92% year-over-year. On an organic basis, our team grew revenue $93 million or 77%, this was driven by greater than 100% organic growth in our data center decommissioning business and more than 45% organic growth in the enterprise channel. As it relates to our recent acquisitions, Premier Surplus and ACT Logistics continue to perform well, contributing $17 million of revenue in the quarter. And from a profitability perspective, our team's execution led to significant ALM margin improvement year-over-year. I know there is a lot of interest in the price environment for memory, so I want to provide some context. As we've discussed on prior calls, memory prices continued to trend higher in the quarter. In late March and early April, we saw prices moderate, and over the last few weeks, they have stabilized. At current levels, pricing is in line with our original guidance and meaningfully above last year. With that said, we are increasing our full year outlook for ALM revenue to $950 million. This is $100 million higher than our prior expectation with $40 million of ALM revenue upside delivered in the first quarter. The additional $60 million will be driven over the balance of the year by volume and data center decommissioning and growth in enterprise. I will note that the majority of that is reflected in our guidance for the second quarter. Now turning to cash flow on a consolidated basis. First quarter operating cash flow was $339 million, up $141 million from last year. This marks the best first quarter operating cash flow the company has ever achieved. As we have discussed before, we expect retained cash flow to continue to expand meaningfully over the next several years. And with our strong start to the year, we are raising our projection for retained cash flow to be at least $300 million ahead of last year. Turning to capital allocation. Our focus remains on growing our dividend and investing in high-return opportunities that drive double-digit growth while maintaining our strong balance sheet. Our Board of Directors declared our quarterly dividend of $0.864 per share to be paid in early July. On a trailing 4-quarter basis, our payout ratio is now 61%, in line with our target ratio of low 60s percent. In terms of capital investments, in the first quarter, we invested $492 million of growth CapEx and $35 million of recurring CapEx. We continue to plan for full year CapEx to be slightly down from last year. Turning to the balance sheet. With strong EBITDA performance, we ended the quarter with net lease adjusted leverage down slightly from last quarter to 4.8x. This is the best performance we've had on this metric since prior to the company's REIT conversion in 2014. Now turning to our outlook for full year 2026. With the trajectory we are on, we have increased our financial guidance for the year. We now expect total revenue to be within the range of $7.825 billion to $7.925 billion, which represents year-on-year growth of 14% at the midpoint. Relative to our prior guidance, we are raising revenue by $175 million at the midpoint with $80 million of the beat in the first quarter and $95 million driven by the improved outlook across our business for the balance of the year. I'd like to provide a little more context for the revenue increase. As I noted a moment ago, $100 million of that is driven by our ALM business. The remaining $75 million is driven by upside in records management, digital solutions and data center, of which $40 million occurred in the first quarter. And to be clear, we are using the same FX rates as we had in our prior guidance. So none of this increase is FX driven. We now expect adjusted EBITDA to be within the range of $2.925 billion to $2.965 billion, which represents year-on-year growth of 14% at the midpoint. Relative to our prior guidance, this is an increase of $45 million at the midpoint. We expect AFFO to be within the range of $1.735 billion to $1.755 billion or $5.79 to $5.86 on a per share basis. At the midpoint, this represents 13% growth and is an increase of $25 million for AFFO and $0.09 per AFFO per share relative to our prior guidance. And now turning to the second quarter, we expect revenue of approximately $1.965 billion, an increase of 15% to last year, adjusted EBITDA of approximately $715 million, an increase of 14% last year. We expect AFFO of approximately $418 million or $1.40 and per share. This represents an increase of 13% to last year. With that, I would like to thank all of our Mountaineers for delivering another quarter of outstanding performance. Our growth opportunity remains substantial and our ability to capitalize on it is becoming more and more evident with each passing quarter. And with that, operator, would you please open the line for Q&A. Operator: [Operator Instructions] And today's first question comes from Andrew Steinerman at JPMorgan. Andrew Steinerman: If you could just go over if there's any change of where you're spending your CapEx for the year? And do you feel like your data center growth in any way is constrained in terms of your current CapEx plan? William Meaney: Andrew, let me start with the growth on the data center side, and then I'll let Barry talk about what the implications are for CapEx. But I would say that we don't have any constraint on capital in terms of the growth of the data center side. First, we're really pleased that as we're now coming into that window with 400 megawatts being energized, the data center capacity, in the next 2 years is that we're really starting to see an uptick in leasing activity, but also the advanced discussions that we're having with a number of customers across our portfolio. So you would have seen the 32 megawatts year-to-date now at the end of April. But if I add that to the advanced discussions that we're having with a number of customers across that 400 megawatts portfolio, is we expect to be meaningfully above the 100-megawatt guidance that we gave for the year. But I'll let Barry talk about it from a capital -- but again, it was kind of part of our plan. So we don't see any major pitch there. Barry Hytinen: Andrew, Bill kind of has covered it. I'll just reiterate that, the CapEx expectation we're using continues to be slightly down from last year, and that's just -- as you know, we're really not a speculative builder. The vast majority of what we're constructing is already pre-leased to fantastic high credit quality tenants with long-duration leases. And our -- I'll reiterate something else I said last time, which is that the guidance we have for total capital is -- would predicate on leasing more than we guided to for the full year in terms of new leases. And with the amount of runway we have with respect to megawatts energizing over the next couple of years, we feel really, really well positioned as it relates to data center leasing going forward. Operator: And our next question today comes from Eric Luebchow with Wells Fargo. Eric Luebchow: I'm curious, Bill, on your comments around the new federal opportunities in your pipeline, you seem to really highlight this quarter. Maybe you could give some quantification about how these new awards could impact either near-term or longer-term outlook, whether it's in digital solutions or in your records business? And secondarily, maybe just provide an update on the treasury contract. I think, I know you're in ramp mode this year. I just wanted to confirm you're still expecting, I believe, $45 million this year and ramping into next year. William Meaney: Okay. Eric, I appreciate the question. Yes. So as I said, we're really pleased. It's the second highest bookings that we've had in the quarter with the -- on the government segment since I've been in the company, and we've been seeing this as a big opportunity. As you can expect, the nature of that business, not just this quarter, but in general, and I think I highlighted that in the couple of wins that we have, it's usually a blend, but more and more because it's efficiency driven, it's led with digital. So it really is about transforming government operations. And there is some exhaust sometimes, and I highlighted that in one of the wins is that we picked up some storage, which is also great. But the fundamental thrust or movement, if you will, is to actually drive more efficiency in government services and better service to their citizens. So it's really much more of a digitally led. And that's why we're really happy to have the FedRAMP high classification, because it opens up the possibilities of where we can transform the government across the board. I think in terms of the -- Barry said it in his remarks, but in terms of the IRS is $9 million in this quarter, which was in line with a little bit higher than what our expectation is. And we still see that $100 million next year, $45 million for this year. And the ramp is partly driven by also onboarding people because we have to kind of go through that with the IRS. And it's a very measured and I would say, well-structured program in terms of ramping the movement of some of this processing from the IRS into Iron Mountain and of course, driving efficiency along the way. Operator: And our next question today comes from Tobey Sommer at Truist. Tobey Sommer: I was wondering if you could give some perspective on ALM and your footprint. Have you reached sufficient scale and breadth such that we're at a tipping point for you to be able to capture more significant wallet share? William Meaney: So Tobey, I'll start with kind of the footprint. And then maybe, Barry, you can talk about a little bit the wallet share that we're seeing across some of our customers because as I noted in my remarks, we are seeing both broader and deeper on that aspect. I think we -- look, we're always trying to make sure that we can cover the globe with our 61 countries because we have customers in those 61 countries. And we are continuing to build that out very nicely. I mean there's still a few countries that we can't serve. But the win that I talked about, the advertising company, where they were highly fragmented across the globe. And we won that partly because we could serve them in 30 countries for all their enterprise devices, and with one person with a counterpart that they actually trusted to do it in both a proper and efficient way. So we are seeing that the footprint that we have is driving considerable business now, but we're not in 61 countries. So there's still a little bit more. But Barry, you might want to talk about the depth that we're seeing in terms of some of the customers once we bring them into the portfolio. Barry Hytinen: Yes, Tobey, as we've discussed before, the enterprise business, we think, is a business that can build on itself for literally years. And we are seeing that continue to happen. Part of the guide up is that we've won some additional business, and we're seeing continued ramping in the existing client base. And I think we added something about, let's call it, 2 dozen Fortune 1000 clients to our list in the ALM category as we continue to cross-sell and penetrate new accounts and new accounts on the ALM side that are cross-sold from the records business. And we got a long trajectory on that. I will tell you, we're still very, very underpenetrated with all of our clients. So we tend to get a region or a specific flow in country from a client and then start building from there. And that, I think, is a really, really powerful way for the business to continue to develop over time because it's growth to growth to growth and strength to strength. So we are feeling quite good about the enterprise business and see it as a really long-term opportunity. Operator: And our next question today comes from Brendan Lynch with Barclays. Brendan Lynch: In terms of your price increases that you typically roll out at the beginning of the year, can you just give us some color on how that process went this year, especially given in February and March, it was a time of kind of higher inflation expectations and if that rolled through into the increases that you pushed out? Barry Hytinen: Brendan, first, I guess I would say is that, we focus our revenue management based on value, not what's going on in like CPI or PPI or anything of that sort. And as we continue to deliver increasing levels of value to customer, we think they -- that's how we manage the revenue management program. So we've clearly been offering them services that they can't get from any competitor, whether it be our Smart Reveal, Smart Sort, the sorts of the Clean Start, the various programs we have and together with cross-selling ALM. We can bring a solution to the clients that I think their vote is kind of what it is that they are continuing to choose us. And so -- and we got to continue to win business every day and continue to satisfy our customers and delight them to justify revenue management, but we're doing that. And we see a long runway for additional revenue management actions over time of the mid-single plus kind of level that we've been talking about for some time. In the first quarter, we did implement revenue management actions kind of in the late January time frame. So the vast majority of them were in place for the first quarter. I will note, and you'll recall that last year, our revenue management actions were a little bit more shifted such that the full benefit was in the second quarter. So when you think about the comps year-to-year, there's a little bit of a harder comp in the second quarter for us on revenue management specifically. But we also have likely some revenue management cohort actions, not a huge amount, but some that will be coming in the second half, which will give us another incremental modest lift. So we generally focus on the full year in terms of revenue management targets, and you should be fully expecting it to be of the same order that we were achieving last year. I will also note that we -- in light of some of the service offerings we've had and just the cadence of historic revenue management actions and the value we're delivering, we've leaned into a little bit more revenue management actions on some of the service lines, which is obviously helping the growth and likely will be an incremental leg for us on the service side for some time. Operator: And our next question today comes from George Tong at Goldman Sachs. Keen Fai Tong: In your data center business, you're targeting at least 100 megawatts of leasing in 2026. What portion of that is in active late-stage negotiations today? And what's a reasonable quarterly cadence? William Meaney: George, thanks for the question. I think the -- as I said, we do expect, based on the advanced discussions we're having with folks on top of the 32 megawatts we've done year-to-date to be meaningfully ahead of our original guide for 100 megawatts. As you can imagine that these are hyperscale customers, which are lumpy. So trying to predict where it's going to land in a specific quarter. If you say to me for the rest of the year, I feel really good to be meaningful above the 100. But to give you kind of a quarterly guide or cadence, these typically are larger contracts. But based on the discussions we're having, and it's not in one site. As you can imagine, it's really across the globe from India all the way to Virginia, we're engaged in fairly advanced conversations. And you can imagine also that given these are large contracts, if you -- these things go on for months, so advanced conversations as we're getting pretty close. Barry Hytinen: George, the only thing I would add is that we continue to see pricing in all those markets be very strong and returns are looking quite good on those contracts that Bill is speaking to. And if you look at the price that we just generated on new leases as compared to, I think, the last couple of quarters, it's up nicely, I think like double digits. So we're pleased with the mix as well as the pricing. Operator: And our next question today comes from Jonathan Atkin at RBC Capital Markets. Jonathan Atkin: I was wondering if there is any kind of an update on India and Web Werks and how that's kind of going. And then I wanted to also ask about just the growth path. You hit on that in the earlier Q&A, but in terms of further inorganic opportunities as well as opportunities for ALM in, say, the large enterprise or even hyperscale category going forward? William Meaney: Jon, thanks for the question. I'll start with the Indian piece, and then maybe Barry can talk a little bit about the ALM, including how that's rolling out and also M&A on that. But the -- on the India side, the Web Werks, it's fully integrated. As you know, that we actually now own 100% of it. We are really pleased with the team that we now have in place that we hired from a competitor in the Indian market. So -- and then if you look at the portfolio that we have, I think you follow that market pretty closely. You can imagine that that's a market that we are in advanced discussions on a number of our assets in India. So we feel really well, really good about how we're positioned in the Indian market. And we're really pleased with how that acquisition has turned out now that it's fully under the umbrella of Iron Mountain now for just over a year now. It's about 13 months that we've owned 100% of that. And with the new team that we've brought in place, who came with a lot of connections into the market and understanding of how to operate in India, I think we're feeling pretty good about it. Barry Hytinen: Jon, I'll add that from an inorganic standpoint, we are continuing to certainly look. And as we've said before, the ALM market is a very large TAM, and it is highly fragmented, and we're continuing to evaluate opportunities that could further our capabilities and increase our geographic reach. We are looking for tuck-ins here and there, and I expect that we will have some, but we never forecast deals as I think is the prudent way to handle things. We got a long list in the pipeline. We are working with quite a few very good operators as it relates to potential deals over time. And sometimes those take a little while, but we've managed to find some fantastic deals and partner up with some great teams that are helping us propel this kind of growth. And I highlighted a couple of those on today's prepared remarks. I'll also note that we continue to see pricing for deals in the mid- to upper single multiples of EBITDA. That's pre-synergy and all of the deals we've done over the last couple of years have synergized down rapidly to like sub 5x. We feel very good about the platform and the opportunity to continue to build. And I would say you asked about how hyperscale might continue to flow. Look, obviously, the hyperscale business grew even faster than the enterprise business, which, I mean, the enterprise business, just to reiterate, grew 45% on an organic basis. So very strong growth coming out of both sides of the business. We do expect the hyperscale business to be a little bit higher as a percentage of the total ALM business this year just in light of the trajectory we're seeing. And I think we've been prudent about how we're forecasting the pricing in light of what's been going on, specifically in memory. I'll just note, we also do -- tend to do some project-oriented work, as I've said before, in the ALM hyperscale side, and that can be somewhat lumpy. We did some of that work a couple of the quarters last year, including in the first quarter, there was a good-sized project-oriented business, piece of business. This year, we really haven't had a large project item, and I'm not forecasting any, but there are clients that are looking for things with a quick turn, and we have the ability to do that. So the business is flowing really well, and we feel very good about the long-term opportunity at ALM, Jon. Operator: And our next question comes from Shlomo Rosenbaum with Stifel. Adam Parrington: This is Adam on for Shlomo. Meta recently announced they'll be extending the use of life of non-AI servers in some cases to 7 years due to server supply availability. How would a move like that in the industry impact the ALM business in your view? William Meaney: Thanks for the question. I'll start, and I'll also ask Barry to add further color on it. But the -- I think -- first of all, we've seen this trend with not just Meta, but a number of customers pushing out their renewal cycles over the last couple of quarters as the shortage of memory, which we've all witnessed and we've seen that reflected in our results has come through. So it's not so much about any other reason other than just the supply chain in terms of getting equipment. I would say, though, that, that has also seen a benefit for us is because we've seen more and more OEMs now asking for us to sell used memory that we're harvesting from other customers, which they're reintroducing into their new product supply chain as long as it has the right specification, the right performance because as we all know, electronics typically fails at the beginning of its life, not in the middle of its life. So we're really pleased by that trend that we're seeing more and more of our -- the products that we're harvesting or helping recycle is getting reintroduced in the new supply chain through the OEMs. The other thing I would say is we also have seen an uptick in some of the servicing, Barry alluded to kind of some of the projects we do. Well, some of the projects we do, you can call it a project as we have customers who say, for help us to harvest some of the components out of their old servers and return those to them so that they can actually build out their new servers and new cloud infrastructure. So it's a trend that we've seen over the last couple of quarters. I think we'll continue to see that trend stay pretty steady as the shortage of memory is expected to last a couple of years. But it's turning out to be giving us some opportunities for our other service lines and also where we sell our recycled products. I don't know, Barry, if you have anything you want to add? Barry Hytinen: I guess the only thing I would add is that if you look at the amount of infrastructure that the key clients in that part of our business have been deploying over the last 5 to 10 years and the ramp that you've seen in growth of data center, the infrastructure and higher-value gear. There's a tremendous amount of growth year-to-year over the next several. And I think modest changes with respect to use of life. We've seen that flex up and down over the last several years as we've been operating this business for quite some time now. And I don't think that, that kind of change is likely to slow down the growth. There's a lot of infrastructure over the next few years that needs to continue to be refreshed. And the clients that we operate with, they got a lot of year coming as well in terms of new. So we're feeling very good about the hyperscale side of the business. Operator: Thank you. That concludes our question-and-answer session and the Iron Mountain First Quarter 2026 Earnings Conference Call. We thank you for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Greetings, and welcome to the Regency Centers Corporation First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Christy McElroy. Please go ahead. Christy McElroy: Good morning, and welcome to Regency Centers' First Quarter 2026 Earnings Conference Call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, East Region President and Chief Operating Officer; and Nick Wibbenmeyer, West Region President and Chief Investment Officer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on the current beliefs and expectations of management and are subject to various risks and uncertainties. It is possible that actual results may differ materially from those suggested by these forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. As a reminder, given the number of participants we have on the call today, we respectfully ask that you limit your questions to one. Please rejoin the queue if you have additional follow-up questions. Lisa? Lisa Palmer: Thank you, Christy. Good morning, everyone, and thank you for joining us. We are off to an outstanding start to the year, building on the positive momentum from last year. In the first quarter, we delivered strong same-property NOI and earnings growth driven by robust operating fundamentals and accretive capital allocation. Our results demonstrate the durability of our portfolio the strength of our platform and the execution of our team. Our tenants are performing well in our centers, supported by the resiliency and spending power of consumers in our strong suburban trade areas, as well as our focus on essential retail anchored by top-performing grocers. It is this combination of high-quality trade areas and our concentration of necessity-based value-oriented and convenience retail, that positions our portfolio to perform consistently, even in uncertain macroeconomic environments. We also continue to see significant momentum across our investments platform. Our track record of success in ground-up development is 1 of Regency's greatest differentiators and is a key driver of our external growth strategy. In an environment with very little new retail supply, our ability to source, execute and deliver high-quality developments across the country really sets Regency apart. Our project deliveries will translate into meaningful NOI contribution in 2026 and beyond, boosting total NOI growth and driving earnings and NAV accretion. As we look ahead, I'm really energized by our strong start to the year and by the opportunities in front of us. I want to reiterate just how distinct Regency's growth story is. Our portfolio of high-quality, grocery-anchored neighborhood and community centers located in some of the strongest trade areas in the country, has consistently delivered durable cash flows across economic cycles. Our leading national development platform is creating meaningful value for shareholders at a time when few others can compete with our expertise, relationships and proven results. Our strong balance sheet gives us flexibility and the capacity to be opportunistic with low cost and substantial access to capital. And most importantly, we have the best team in the business. With this foundation, Regency is exceptionally well positioned to continue delivering strong and sustainable growth for our shareholders. Alan? Alan Roth: Thank you, Lisa, and good morning, everyone. We delivered another excellent quarter to start the year, following what was a record-breaking year for us in 2025. The fundamentals across our portfolio remain strong, and I couldn't be more proud of our team's execution. Tenant demand continues to be robust across nearly all categories and regions, spanning both anchor and shop space. Grocers, restaurants, health and wellness concepts and off-price retailers are among the most active, but the breadth of engagement across our portfolio is really impressive. The availability of high-quality space is increasingly scarce, both at our centers and in our trade areas, and that dynamic is working in our favor. Our same-property percent leased, which is approaching 97%, was up 10 basis points over the fourth quarter. A sequential uptick in Q1 is seasonally unusual, and it really speaks to the strength of the demand we're experiencing and to the durability of our occupancy. Leased occupancy is now close to our prior peak, though I am confident further upside is achievable, particularly in anchor leasing, where we continue to have meaningful engagement with leading national retailers. What is especially encouraging is the nature of our activity today. We continue having success proactively leasing occupied space, upgrading merchandising, bringing in new and vibrant concepts and replacing outdated or underperforming uses. Our same property commenced rate also increased 20 basis points in the quarter as we made meaningful progress commencing tenants within our SNO pipeline. The pipeline continues to be a significant tailwind to future NOI growth, representing approximately $42 million of incremental base rent. We achieved robust cash re-leasing spreads in the first quarter and cash spreads were near a record high. These results reflect our ability to achieve compelling mark-to-market rent increases in addition to embedding meaningful contractual rent [ steps ] into our leases. That success is the basis for our ability to drive strong, sustainable rent growth within our portfolio over the long term. Same-property NOI growth of 4.4% in the first quarter was reflective of these strong operating trends, along with the substantial progress we've made raising occupancy and completing redevelopment projects. In closing, the trend we are seeing in leasing activity, tenant sales, collections and foot traffic remained very favorable. We are positioned for success and continued growth ahead and I'm excited about what our team will accomplish. With that, I'll hand it over to Nick. Nicholas Wibbenmeyer: Thank you, Alan, and good morning, everyone. We continue to have significant momentum within our investments platform, evident in an active first quarter of accretive investment activity. Our team is successfully executing on and delivering projects within our in-process pipeline, and we continue to source attractive new ground-up projects. During the first quarter, we completed $42 million of projects, including Oakley Shops at Laurel fields, a safeway-anchored neighborhood center we developed ground up in the Bay Area. Our team did an exceptional job bringing this project to fruition in less than 18 months, 1 of the quickest ground-up deliveries that I can recall. We also started another $73 million of new projects this quarter, including Crystal Brook Corner, redevelopment on Long Island. We acquired this underutilized piece of real estate and are transforming it into a Whole Foods anchored neighborhood center. This project demonstrates our ability to look at acquisition opportunities through a differentiated lens, leveraging Regency's platform, our relationships and our development expertise to drive near-term value creation. Our in-process pipeline now exceeds $600 million, with exceptional leasing momentum and blended returns above 9%. The team has been executing these projects on time and on budget, which I want to emphasize as a direct result of the substantial risk mitigation we undertake before we break ground. Within our ground-up development platform, we continue to see remarkable results. An example includes Ellis Village in Northern California, which we started in the second half of 2025. The project is already 100% leased with an anticipated anchor opening later this year. Our Sunbed and Stonebridge ground-up projects in the Northeast each celebrated Whole Foods openings during the first quarter, both with strong community reception. As Lisa discussed, ground-up development remains a substantial differentiator for Regency, and our brand as a developer has never been stronger. We are the only national developer of high-quality grocery-anchored shopping centers at scale and an environment of otherwise limited new supply. Our teams are actively sourcing new projects, and we continue to have visibility to a potential of more than $1 billion of project starts over the next 3 years. Leading grocers across the country remain engaged in a year to expand with us and shop tenants are excited to be part of our projects. Landowners trust us to deliver given our proven track record and the strength of our grocery relationships, particularly among master plan developers, where our retail projects are providing a significant amenity and value to their communities. This positive momentum continues to enhance our success, strategically positioning us to capitalize on additional opportunities. We are creating real value for shareholders at meaningful spreads to market cap rates, and we are excited about the opportunities for continued growth in our investment platform. Mike? Michael Mas: Thank you, Nick. Good morning, everyone. Regency delivered another strong quarter to start the year, a testament to our team's continued execution on our strategy and the favorable conditions of our markets. Same property NOI growth was 4.4% in the first quarter including 3.5% of base rent growth. Recall last quarter, we discussed that Q1 would be above and that Q2 would fall below our full year guidance range. With this quarter driven by the uneven nature of other income, and next quarter driven by a tough comp relative to last year's favorable expense reconciliation performance. Most importantly, base rent continues to grow at very healthy levels, benefiting from increasing rents, commencing our SNO pipeline and delivering on our accretive redevelopment projects. Looking through the variables in first and second quarters, we are maintaining guidance for full year same-property NOI growth of 3.25% to 3.75% as well as for growth in core operating earnings and NAREIT FFO per share each at 4.5% at the midpoint. We continue to expect total NOI growth north of 6%, reflecting meaningful contributions from ground-up development deliveries and the substantial acquisitions we completed last year. We did make a few minor assumption changes within our outlook. We modestly increased development and redevelopment spend as a result of increased starts expectations as well as our acquisitions guidance to now include known transactions. These changes reflect continued strong investment activity and support positive momentum in external growth and value creation. The strength of our balance sheet is an important element of this ability to accretively allocate capital. We have worked strategically over time to position the company with low leverage, strong liquidity and pendable access to attractively priced capital. In February, we issued $450 million of 7-year unsecured notes at a 4.5% coupon, achieving the lowest credit spread in Regency's history. This execution represents 1 of the most favorable cost of debt capital in the REIT sector and is a direct reflection of our A credit ratings from both Moody's and S&P. Leverage remains near the low end of our target range of 5 to 5.5x, and we have nearly full availability on our credit facility and our strong free cash flow generation allows us to fund our development pipeline with no current need to raise equity or sell properties. In closing, we are gratified by another strong quarter and look forward to continued success as our teams execute our differentiated strategy through the balance of the year. With that, we welcome your questions. Operator: [Operator Instructions] And our first question will come from Cooper Clark with Wells Fargo. Okay. With that, moving on to Michael Goldsmith with UBS. Michael Goldsmith: Mike, can you walk us through the sort of the [indiscernible]guided to [ $51 million ]of prorate [indiscernible] first quarter? So can you just kind of recognizes... Unknown Executive: Michael, before you finish, for some reason, you're breaking up. If we can you could start from the beginning, that would be great. Michael Goldsmith: Lisa, sorry about that. Is this any better? . Lisa Palmer: It's much better. Michael Goldsmith: Great. Yes. So I want to walk through the noncash revenue component, you guided to $51 million for the year. So prorated that would have been -- if you split it by 4 probably would have been at $12.75 million for the first quarter. You came in at like [ 97%-ish ] so can you kind of walk through what drives the difference there from the kind of the prorated number, the lumpiness that is natural with the noncash revenues and how you expect the rest of the year to play out. Michael Mas: Thank you, Michael. I appreciate the question. As you just said, noncash can be on the uneven by future and straight lining of our guidance range would have led to a little bit of a higher expectation for Q1 and a couple of things going on. One, we did make an adjustment to a single tenant, 1 lease where we move that lease to a cash basis. So that, in effect, results in a reserve on straight-line rent that's booked in the quarter. And that's probably the largest component that you're seeing drive that variance today. We haven't taken our eyesight off full year guidance. obviously, at $51 million. And I'd also say last year, just as a reminder, you can get fits and starts with tenant out and the acceleration of below-market rents. That can also be a driver of changes to the cadence of noncash. So just to make sure you keep a look out for that going forward. Little quickly, say, another commercial for why we use core operating earnings to really tell the story of how we grow cash and cash flow at Regency, we eliminate noncash, we eliminate nonrecurring. I think that core operating earnings number is really valuable as we think about the earnings potential of the company. Operator: Our next question comes from Samir Khanal with Bank of America. Samir Khanal: Maybe to start kind of high level, grocers are stable? I mean, I guess, maybe provide color on kind of small shop tenant health, given the macro and higher prices. Talk about occupancy costs? And have you seen any differences on categories amongst the shop tenants, the discretionary retail or restaurants, given higher prices in the macro. Lisa Palmer: Thanks, me. I'll start, and then I'll have Alan cover it up with specific to our portfolio. But as you've heard us say many, many times, and we are really well positioned to perform throughout economic cycles, because of the format of our shopping centers, necessity, value, convenience is even tougher times. So we're well aware of the pressures on consumers with the rise in gas prices. Then there's even a trade-down effect oftentimes, and Alan can color that up with our foot traffic. So we start to see even more traffic at our centers as a result of that. And then on top of that, layer in the trade areas in which we operate. And our consumers are more resilient and more able to withstand these price increases and pressures. So our tenants are healthy. We're seeing that in every metric within the portfolio. And I'll let Alan color that up a little bit more. Alan Roth: so talk about the tenants being healthy that Lisa just said. I think the first place I'm going to look at their sales, and they do remain healthy within our portfolio. The next spot I'm going to look is at our collections, and we're continue to be near record lows there. And then as Lisa mentioned, foot traffic, it's very resilient. We look at the Q1 results, we are up 2.3%. But to your point of the recent sort of macro environment and higher fuel prices, what does April look like. And when we look at the portfolio in April, foot traffic is actually up 3%, more than it was in Q1 during this time period of increased fuel prices. So Look, we continue to feel good, and I would bring that back to Lisa's comment of the consumers and the trade areas in which we are operating. But we're going to continue to keep a watchful eye on things, but things remain certainly positive from all metrics that we have access to. Operator: Moving on to Craig Mailman with Citi. Craig Mailman: One. You guys had bumped the increased start expectations a bit here. Can you talk about which projects are now slated to start this year? And just the overall kind of leasing activity? And maybe anything else on the horizon that wasn't included in these new starts, but maybe could potentially start later this year, kind of just talk about the overall environment of your different projects. Michael Mas: Craig, I appreciate the question. Let me start and I'll give it to Nick real quick because I want to just clear up something. We guide on development spend. We are -- but we are highlighting that. We have some added visibility to add it starts that will drive that spend this year. But I want that to be clear that the spend guidance, not starts guidance. And then Nick will take it from there. Nicholas Wibbenmeyer: Yes, Craig. I appreciate the question. As we said in our opening remarks, we feel really good about our ground-up development program. And so -- as you've seen over the last 3 years, we've started just over $800 million. And as we look forward, we expect our investment platform to invest over $1 billion over the next 3 years. And so you can just see continued upward momentum as our team does a tremendous job uncovering these opportunities around the country. And so we continue to be bullish about that opportunity set. Therefore, we are raising our eyesight regarding what that spend will be based on an expectation of higher starts and previously anticipated. Operator: We'll go next to Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just piggybacking off with Craig's question. Just on the greenfield new starts, you mentioned master client communities being a good source of opportunities for you. But just curious if with the uncertainty on a single-family build for rent with the [ Road Housing Act ] if that's free in the temporary pausing by some of the developers for homes? And has that any changes to the prospects of like that line of business going forward for Regency's future development pipeline? Nicholas Wibbenmeyer: Yes. Greatly appreciate the question. And that's a really insightful question. The reality is our program to date has not been heavily involved in the build-to-rent type communities. And so the master plan does we are working with and continue to work with around the country are single-family for sale communities and/or they have other aspects of townhomes or apartment buildings. And so we haven't seen any impact to the master plan communities we're working on in terms of their appetite and desire to continue to push forward to build retail within their communities at this point. Operator: And Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I guess sticking with that a little bit in terms of the ground-up development. Can you talk about the cadence of starts, how that looks during the balance of the year and also discuss how yields are trending on new projects, new ground-up projects that you're underwriting relative to the yields and whether or not future master plan starts would sort of look similar or potentially have a different yield profile? Nicholas Wibbenmeyer: I appreciate the question, Todd. In terms of your first question on timing, if you want to talk about lumpy developments where it gets the lumpiest in terms of timing. And that's because -- our focus is not hitting some time line. Our focus is absolutely making sure we derisk these opportunities before we close. And so we want to make sure we're fully through entitlements. We want to make sure we have pre-leasing done with our anchors. We want to make sure we have drawings done and bids in hand. We want to make sure we have visibility to executing on these projects. And -- as you can appreciate, that's an extremely complicated process. And we always laugh here always 1 phone call away from a delay from any different outside input on that process. And so we're excited about that program. It is building, but it will always be lumpy. But that being said, we continue to have good visibility to an increased amount of starts this year, and that's why we did increase our projected spend because although lumpy and a little back-end weighted likely this year, we still feel really confident in the overall trajectory of that. Michael Mas: And let me just come back in there because I want to double down on Craig's question, too. That guidance is spend, I would consider that to be ratable throughout the year from a spend standpoint. And then to Nick's point, we do think starts are growing and they'll probably be more back-end loaded, which is setting us upgrade for deliveries in '27 and beyond. Lisa Palmer: And we're not -- I was going to -- yes, the second half of the question on yields. I'll let you take it. Nicholas Wibbenmeyer: Yes. And then on the yield side, we're not changing our eyesight. And so as you've seen, our development yields are firmly in that 7% plus range, and that's where our eyesight continues to be. And so we feel really good about achieving those returns. Operator: We'll go next to Michael Griffin with Evercore ISI. Michael Griffin: Alan, I appreciated your comment on the leasing pipeline and looks like it's another strong year ahead with high, both same property leased as well as commenced occupancy. Your comment on the rent bumps that you're embedding. I realize that's probably more on the small shop side. But has anything been able to change in terms of the leverage that you have when it comes to those anchor leases. I realize that a lot of these grocers will be effectively flat leases with multiple option periods. So whether it's being able to take back control of the site earlier through shorter options, whether it's embedding greater escalators please. Can you talk about maybe the leverage on the negotiating side as it relates to particularly the anchor boxes and where you're able to push rents there? Alan Roth: Yes, Chris, thank you for the question. And you're right. The shops in fact, just to give you the stat on that, I know you didn't ask for it. 90% of our new shop leasing did, in fact, have 3% or greater embedded rent steps at about 1/4 of them had 4% or greater. So you're absolutely right, we're leaning in there. In terms of leverage, what I would tell you is we're not seeing a dramatic shift in terms of the embedded steps on the anchor front. But there is still pricing power there and whether that's having better control over work letters, lower TIs whether it's getting more rent upfront, there are levers there for sure. Not seeing much in the way of options being less. Look, I think for us, we're willing to align as long as it's the right quality anchor retailer that can be sustainable for our project. And -- the pipeline is strong. We signed a public deal for a redevelopment in the first quarter. We signed a PGA Superstore. We are bringing our first [ Tessa Life ] to a Virginia project that they're on rapid expansion throughout. And then a lot of the obvious names that you hear about Ross, TJX, Burlington, Ulta, et cetera. So it's robust. I feel really good about where those anchor transactions are. And as I said in my opening remarks, that's where the real opportunity, I think, lies for us to get back to those peak levels, which we're not at in terms of driving continued occupancy. Lisa Palmer: And I do believe it's that last statement. It's supply/demand. And when we are able to reach that peak occupancy and there's no space available for anchors. We already have pricing power and more leverage in times when there's even more vacancy out there. Right now, there's not a lot. As that continues to move in our favor, we incrementally will have more pricing power and incrementally have more leverage to push a little harder. But as long as they have other options and alternatives, and it also needs to be a win-win. We have to look at their businesses, their margins. I also believe as these tenants and our retailers get more efficient, and they are learning operational efficiencies through technology through artificial intelligence, that's going to enable them to pay more rent. And I'm really optimistic about that. Operator: We'll go next to Handel St. Juste with Mizuho Securities. Ravi Vaidya: This is Ravi Vaidya on the line for Handel. I hope you guys are doing well. Can you identify the tenant that was moved to a cash basis? Was that a bankruptcy? And how should we think about the current debt range, especially since you've utilized only less than 10 bps so far the current reserve. Michael Mas: Sure. I'm not going to name the tenant by name. It's 1 lease in over well over 9,000 leases where we made a judgment call on their ability to meet the terms of their future lease obligations. Remember, they're still current they're paying rent in the near term. Core operating earnings is unimpacted. This is an accounting treatment of future rent increases. From a ULI perspective, listen, we had a really good quarter. We largely met our expectations. We're operating at below historical averages. We plan to operate at around to slightly below historical averages, and we're meeting that expectation today. So still eyes are still pretty high, and we still feel really confident about the health of our tenancy. I feel good about the prospects for ULI going forward, which is a different comment from bankruptcies. Bankruptcies are move-outs. We are -- still find ourselves in the middle of some ongoing bankruptcy filings. Bread crumbs are out there that would indicate potentially we have some good opportunities to come out of those okay, but we're not done with those. And bankruptcies are an uncertain process. And we just need a little bit more time to have some more clarity there, but a normal part of our business. Operator: Moving on to Floris Gerbrand Van Dijkum with Ladenburg Thalmann. Floris Gerbrand Van Dijkum: Good morning. Lisa, great to hear your voice. You guys are -- you've obviously built over the last decade, a track record as being sort of best-in-class shopping center developer out there. It really differentiates your platform, as I think you alluded to. How should we think about -- you -- as I recall, you also don't have a big land bank. So how do you protect yourself from rising land values, which is a big input in your developments? And maybe talk about your option strategy versus -- and how long in advance do you have to work on getting hold of land or getting land under option before you start to activate developments typically? Lisa Palmer: Lars, thank you. Let me I'd like to set it up before I pass it over to Nick to speak more specifically and to say thank you for acknowledging what I know is the best development platform in the business nationally. And a lot of what Nick is going, how Nick will answer the question has a lot to do with why we are the best. It's the team, it's the relationships, and it's the experience and track record, all matter and all make a difference in our success. It is a virtuous cycle. So with that, I will pass it over to Nick. And again, thank you, really appreciate the comments. Nicholas Wibbenmeyer: Absolutely for us. And so -- and I also appreciate you noticing we're doing this very efficiently, meaning we are not driving a large land bank that we're sitting on in order to drive this development program. We are definitively working with the land sellers, optioning their property and working through the process. As I articulated earlier, derisking that process before we close and a really, really, really hard part of our job is sitting down with landowners and having conversations about the value of their land and educating them. And that is what we do every day. And so -- and it is the most difficult part of, I would say, the development business is sitting down with landowners, you may have 1 value in mind and educating them on the realities of the market. But that's what our teams do every day. And given our track record, given our access to information, given our retailer relationships, we win more than our fair share of those conversations and jump both with landowners for exactly that reason. And I expect it to continue, but it's never easy. It's always a challenge. Operator: Moving on to Ronald Kamdem with Morgan Stanley. Ronald Kamdem: I was just wondering, you guys bought back the slide in the presentation about sort of the run rate for occupancy upside, which I thought was interesting because it shows that your lease occupancy is already at peak, has already exceeded sort of the previous peak, but the commence hasn't. So my question is, do you think commenced occupancy can get to a new sort of peak this year? And maybe some commentary about what kind of tailwind that does for same-store NOI going forward. Michael Mas: Well, I appreciate you noticing our great disclosure, Ron. And yes, I think we feel really optimistic about the prospects for this portfolio in this current environment that we see. We have set new records on percent leased. We have room to run on percent commenced. Our plan and expectation for the year is that we will continue to shrink that gap between leased and commenced. We will continue to drive outsized base rent growth as a result, and there will be some amplifying factor through recoveries as well. And we think that -- we think that will run through the balance of this year. Where we go from there is to be determined. I mean, I think we're also an active asset manager. We really aspire to invest into our own portfolio through redevelopment. Sometimes that means managing some vacancy and taking on some vacancies. So we're not -- Alan would say this, we don't -- we're not leasing for occupancy, we're leasing to maximize NOI over the long run. And so that's the approach we're going to take from here. Alan Roth: And Ron, the only thing I would double down on is we executed 1.5 million square feet in Q1, and our teams are full speed ahead. They hit the ground running. I'm really proud of what they accomplished. It's more GLA than we executed in Q1 of '25, despite being at these peak levels. So they're going to continue to grind and find opportunities not just for vacant space, but to continue to lean into better operators and upgraded merchandising where we're leasing occupied space. Appreciate the question, Ron. Operator: We'll go next to Hong Zhang with JPMorgan. Hong Zhang: I guess could you just touch on how you're viewing potentially tax, sorry, potentially tapping the equity market today, given that your stock price is higher than when you tap the last year? Lisa Palmer: I'm going to say we've also grown NOI since that time. We always take an opportunistic view of issuing equity, and currently, we have more than enough balance sheet capacity, free cash flow to meet our needs. And if we were to have an opportunity that was visible to us that we could fund accretively with equity, we would take advantage of that. And I think we have a pretty good track record of issuing equity judiciously and accretively. So certainly, it is a tool in our toolbox and 1 that we will access when the opportunity presents itself. Operator: [Operator Instructions] We'll hear next from [indiscernible] from Deutsche Bank. Unknown Analyst: Yes. I hope this is a fair question, but I think the -- sometimes you guys are doing very well over a long period of time that people always tend to expect more and more and more. And I think, again, you're kind of having a great quarter, solid outlook, but the stock is down today. So I guess when people are kind of looking overall at your name of a stock that should be owning in their portfolio relative to their peers, they may be seeing the premium valuation, which is warranted, but again, a really good operating backdrop for the entire industry. So in that world, I guess, the question I have is, how do you guys kind of think about still being able to kind of outperform versus peers in that environment? What are investors possibly underestimating about your story that you can provide evidence of that we should still give investors confidence that, again, you can put up superior earnings growth, which validates the premium valuation. Lisa Palmer: I learned from my predecessor who often quoted a very wise investor that in the short term, the market is a weighing to see and starting to see in the long term, it's a weighing machine. And when you take the combination of what we refer to as our strategic advantages because they are. So the quality of our portfolio, the development platform, the balance sheet and our team. That -- the combination of those is truly unique. And over the long term, I have 100% confidence that we will be at or near the very top of the sector in same-property NOI growth. And I think if you were to look back at 5, 10 years, you're going to see that that's the case. You're -- and that's using less capital than the rest of the sector to get that growth. And then if you look back and look at investments and the accretion from investment and use of whether it be equity, new debt growth, just new incremental capital, again, the returns on that are at or very near the top of the sector. So I do believe that because of those 4 things, quality of the portfolio, which was going to generate very strong same-property NOI growth, a development platform that is unequal that is going to continue to create meaningful value for our shareholders over the long term. The balance sheet to fund it and the people to execute it. So that's -- I believe that it's the right strategy and 1 that will deliver and have delivered over the long term. Operator: And we'll hear next from Cooper Clark with Wells Fargo. Cooper Clark: Awesome. That is great to hear. Okay. I was hoping you could talk about portfolio trends you've seen historically during periods of higher oil prices and the impact that has on traffic levels and consumer spending trends. Lisa Palmer: The last time we had gas prices this side was probably when it was in the middle of COVID. So it was a little bit different. So I don't think that that's necessarily a relevant historical point to look to. But generally, I would again speak to -- and I've been with the company for 30 years in the modern era of Regency, we have seen a decline in same-property NOI really twice, once was the global financial crisis and the other was during COVID. . Our property type, the format of our shopping centers, neighborhood community centers really are defensive and they produce consistent, durable, steady cash flows through all cycles. And again, I'm certain half is probably listening. He's going to love that I've actually referred to him twice. I do remember that when I was much, much early in my career, the '98 mini recession, the '01 tech bubble, he kept saying, we choose not to participate, because we really -- we grew right through it. And so again, when you think about the quality of the portfolio, the format of the shopping centers, the trade areas in which we operate, we're able to grow right through it, and that's the expectation. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Lisa Palmer for closing comments. Lisa Palmer: Thank you all. Appreciate your time, and thank you to the team as well. Have a great day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Thank you for standing by. My name is Cass, and I will be your operator for today. At this time, I would like to welcome everyone to the First Quarter 2026 Albany International Corp. Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Karen Blomquist, Director of Investor Relations. Please go ahead. Karen Blomquist: Thank you, operator, and good morning, everyone. Welcome to Albany International's First Quarter 2026 Earnings Call. As a reminder for those listening on the call, please refer to our press release issued this morning detailing our quarterly financial results. Contained in the text of the release is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning. Additionally, our remarks today may reference our earnings presentation, which is available on the Investor Relations section of our website, albint.com. Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied. For a full discussion of these risks and uncertainties, please refer to both our earnings release of April 30, 2026, as well as our SEC filings, including our 10-Q and our 10-K. Now I'll turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar? Gunnar Kleveland: Thank you, Karen. Good morning, and welcome, everyone. Thank you for joining our first quarter earnings call. We entered 2026 as a more focused and disciplined organization with a clear strategy centered on our core strengths. Our culture begins with caring for our people, and it was an honor to recently have our Engineered Composites segment recognized as one of America's safest companies. Safety is a priority at Albany and is embedded in how we design processes and operate each day. And a strong safety culture translates to a strong quality culture. This operational philosophy is also manifested in our outstanding on-time delivery performance. Our focus on safety, quality and operational excellence creates a solid foundation for our reliable operations, while our value proposition remains grounded in our shared expertise in industrial weaving and material science, which connects our two businesses and differentiates us in the markets we serve. I'd like to take a minute to address the conflict in the Middle East. We're continuously monitoring and working closely with our suppliers and customers. And to date, we have not seen any impact and have made only slight adjustment to delivery routes. Raw materials are generally protected by either long-term contracts or customer-directed contracts. We will continue to monitor and work to minimize any supply chain risk. At the same time, we're seeing increased demand on our weapons programs and are maximizing production on key programs. In Machine Clothing, the team did an outstanding job taking corrective actions to make up the downtime of a machine malfunction, and we expect that recovery to be completed in the back half of the year. More broadly, demand conditions across our end markets stabilized in the first quarter. In Engineered Composites, our focus remains on refining our operating model and prioritizing higher value-add applications, particularly within our advanced weaving technologies, including 3D weaving, braiding, winding and resin transfer molding that serve end markets such as commercial and defense propulsion systems, missile production and space exploration. We're seeing volume increase across key programs, reflecting both higher production rates and the benefit of the actions we have taken over the past 12 months. Importantly, we're winning new business with new and existing customers and demand remains strong across defense platforms and the LEAP production continues to increase. Our current pipeline of new business opportunities remains robust and continues to expand as we focus on new applications where our expertise and products offer greater strength and lighter-weight solutions. We believe the actions we have taken and the trends we see across both segments position us well to drive strong free cash generation and build on the baseline we established exiting 2025. This provides us with the flexibility to continue allocating capital in a balanced and disciplined manner, including reinvesting in the business to support long-term growth while also returning cash to shareholders. Turning to the quarter. We're off to a solid start to 2026 with revenue of $311 million, up 7.8% year-over-year, which translated to adjusted EBITDA of $48 million. In Machine Clothing, revenue for the quarter was $166 million and came in ahead of our expectations across all regions, including North America, Europe and China. Despite the recent stabilization in China and improved order rates, which are positive developments, visibility beyond the near term remains limited. As we previously disclosed, at the start of the first quarter, we experienced an equipment failure at one of our facilities, and I'm pleased to report that we were able to recover more of the lost production related to the unplanned downtime than we initially anticipated in the first quarter. Assuming the equipment continues to operate as expected, we believe we are well positioned to recover the remaining lost volume by the end of the year. We are actively managing the situation and are relocating a machine from a closed facility to have a long-term solution in place by year-end. Adjusted EBITDA margin for MC was 25.9%. On a constant currency, margins were stable, driven by a meaningful improvement across Europe as we continue to realize the benefits of integration activities. Turning to Engineered Composites. Revenue for the quarter was $145 million compared to $114 million in the prior year. The increase was driven by broad-based growth across our programs with incremental contribution from F-35 Missile Systems, LEAP, 787 and the CH-53K. Segment adjusted EBITDA was $17 million or 11.7% of sales compared to $15 million or 13.5% of sales in the prior year. The increase in EBITDA reflects higher overall volume, while the margins in line with expectations were driven by mix, primarily the impact of CH-53K AFT program revenue, which is now booked at 0 margin following the actions taken in the third quarter of 2025. In new business developments, we're excited to announce our new contract with Pratt & Whitney for composite engine components for their Geared Turbofan. The Turbofan relies extensively on advanced composite materials to achieve its fuel efficiency, noise reduction and weight targets, which strongly leverages AEC's strengths in high-performance composite structures. For both JASSM and LRASM missiles, we have been requested by our customer to increase production, bringing output to the highest level achievable within our current capabilities, including through the use of overtime. Turning to the strategic review of the Amelia Earhart facility in Salt Lake City, which houses the CH-53K program. We continue to make progress and have completed the stand-alone analysis with PwC. While it is still too early in the process for us to share any conclusions, we remain on schedule and look forward to providing an update as we move towards the resolution. As we look ahead, our priorities remain clear: disciplined execution, continued progress across both segments and driving improved profitability and cash generation. In Machine Clothing, we saw stabilization in key markets and remain focused on execution and margin recovery. In Engineered Composites, we're scaling the business, refining our operating model and prioritizing higher-value application to support long-term growth and margin expansion. We believe Albany is well positioned to deliver sustainable value for our customers and shareholders, supported by our differentiated capabilities and a more focused, disciplined approach. I would like to thank our employees for their continued dedication as well as our customers, partners and shareholders for their ongoing support. With that, I will turn the call over to Will to review the financial results in more detail. Willard Station: Thank you, Gunnar, and good morning. Before turning to the financials, I would like to remind you that a reconciliation of GAAP to non-GAAP measures discussed today can be found in this morning's press release. First quarter revenue was $311.3 million, representing growth of 7.8% year-over-year. This increase was driven primarily by high volumes in Engineered Composites as key programs continue to ramp, partially offset by lower volumes in Machine Clothing, particularly in China. Adjusted EBIT for the quarter was $48.2 million compared to $55.7 million in the prior year, reflecting a margin of 15.5%. The year-over-year decline in margin was primarily driven by a higher mix of revenue from Engineered Composites, which carry structurally lower margins as well as lower volumes in Machine Clothing and the impact of foreign exchange. In Machine Clothing, results reflect continued softness in Asia markets, particularly in China, resulting in a modest year-over-year decline in revenue to $166 million compared to $174.7 million in the prior year. Despite this headwind, underlying trends remained stable and operational execution was solid. Adjusted EBITDA for the segment was $43 million with a margin of 25.9%. The year-over-year decline was driven primarily by foreign exchange impacts and lower volume in Asia. On a constant currency basis, margins were stable overall, supported by efficiency initiatives and integration progress. In Engineered Composites, performance was solid above our internal expectations. The revenue increased to $145.4 million from $114.1 million in the prior year. The growth was driven by higher volumes across multiple programs, including commercial aerospace platforms such as LEAP as well as defense program. The outperformance reflects both the timing of program ramps and strong execution, which enabled us to meet higher-than-anticipated demand in the quarter. Adjusted EBITDA for the segment was $16.9 million compared to $15.4 million last year. While margins declined to 11.7%, this reflects the impact of prior year items and mix, including 0 margin revenues associated with actions taken on the CH-53K AFT program in 2025. Gross profit for the quarter was $99.8 million with a margin of 32.1% compared to 33.4% in the prior year. The change reflects revenue mix with a greater contribution from Engineered Composites. Operating income was $25.4 million, representing a margin of 8.1% compared to 9.8% last year. The decline was driven by higher nonrecurring and restructuring expenses. Net interest expense increased to $5.5 million, reflecting higher borrowing costs. Other income was at a net benefit of $3.2 million, driven primarily by foreign currency and derivative impacts. The effective tax rate for the quarter was 33.1% compared to 26.6% in the prior year, largely due to the absence of favorable discrete items. Free cash flow was at a net use of $3.6 million compared to a net use of $13.5 million in the prior year period. The year-over-year improvement reflects timely customer collections. Capital expenditures totaled $9.3 million, focused on facility optimization and investments tied to key customer programs. R&D expense was $13 million, reflecting our continued commitment to innovation. We ended the quarter with $122.6 million in cash and $477 million in total debt, resulting in net debt of approximately $354 million. Including revolver availability, we have approximately $446 million of available capital, providing flexibility to support ongoing investments and return capital to shareholders. Looking ahead, current trends support a stable outlook across both segments. In Machine Clothing, we expect modest sequential improvement in volume in the second quarter following typical first quarter seasonality. Assuming no additional equipment downtime, we expect to recover the remainder of lost volume as the year progresses. In Engineered Composites, we expect continued growth supported by ongoing program ramps across both commercial and defense platforms. For the second quarter, we expect consolidated revenue in the range of $335 million to $345 million. We anticipate adjusted EPS in the range of $0.70 to $0.80 and an effective tax rate of approximately 31.5%. For the full year, in Machine Clothing, we continue to see stable demand in Europe and the Americas. And while China shows signs of stabilization, we still have limited visibility for the remainder of the year. In Engineered Composites, we expect continued growth driven by key platforms with margin levels normalizing relative to the prior year. Now I'd like to open the call up for questions. Operator: [Operator Instructions] And your first question comes from the line of Peter Arment with Baird. Peter Arment: Gunnar, maybe you could just give us an update on Salt Lake and discussions around CH-53K, what you can say about planned divestiture or any kind of -- anything you could kind of highlight? I know it's obviously challenging given there's ongoing negotiations. Gunnar Kleveland: Yes. Arment, I think that the -- our performance out of our Salt Lake facility, as you can see with the performance in the first quarter has been very, very good. We stay very close to our customer and continue to deliver both for our customer on the CH-53 program as well as all the other programs as well as the war fighter. So that is the commitment that we have given through this process. The process of the strategic review is progressing to our schedule. We've -- we're in the process of finalizing the marketing material so that we can go more directly to the interested parties that have already contacted us and Guggenheim. So I would say we -- just like Will said, we are on schedule, and we are staying connected with our customer throughout this process. Peter Arment: Appreciate that color. And if I could just ask a follow-up, unrelated, on the MC business, could you just give us a little more color on the overcapacity issue in Asia? The MC business has been such a resilient business over the years. And obviously, you've got different regions that it's in. But could you just give us a little more color on what's driving the overcapacity? Is it just economic activity or something specific? Gunnar Kleveland: Yes. The investment in paper machines and new machines in China specifically has been very high in the last several years. And as you know, Peter, we -- to run a paper machine profitably, it needs to run at high speeds. That's where we come in, and we are -- we have the best belts for that, but they overproduced. And that overproduction, that's what we are uncertain about. How long does it take to get the paper back to a normal level so that production can pick up again. Then the other uncertainty is, is there too much production capability in China? And is this a cycle that they're going to go through because we see new builds there. The positive that we're seeing there is on tissue. We're seeing an increase in tissue and some of our process belts that are being used there continue to be in favor. So that's what we saw in the first quarter, the stabilization. We're taking a conservative outlook for the year in what's happening in China. Operator: I'm not showing any further questions in the queue. I will now turn it back over to Gunnar Kleveland for closing remarks. Gunnar Kleveland: All right. Thank you, Cass, and thank you, everyone, for joining us on the call today. We appreciate your continued interest in Albany. Thank you, and have a good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the Broadridge Fiscal Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Edings Thibault, Head of Investor Relations. Please go ahead. W. Thibault: Thank you, Chuck, and good morning, everybody, and welcome to Broadridge's Third Quarter Fiscal Year 2026 Earnings Conference Call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call this morning are Tim Gokey, our Chief Executive Officer; and our Chief Financial Officer, Ashima Ghei. Before I turn the call over to Tim, I want to make a few standard reminders. One, we will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slides and a more complete description on our annual report on Form 10-K. Two, we'll also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results. An explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to our CEO. Tim? Timothy Gokey: Thank you, Edings, and good morning. Broadridge delivered strong third quarter financial results. And we're on track to deliver a strong fiscal 2026. The market backdrop remains positive. Equity markets have been resilient in the face of geopolitical uncertainty. And capital markets remain active, driving strong position growth, higher trading volumes and elevated event-driven activity, all of which are benefiting Broadridge. At the same time, we've always been focused on driving steady and sustainable growth by aligning our business with the long-term trends that are shaping the financial services industry. And so I'm pleased to report they're also squarely on track to deliver on our 3-year financial targets for the fifth consecutive cycle. Looking ahead, we're already investing in the next wave of industry innovation. Broadridge is transforming shareholder engagement, leading in tokenization, driving digitization and scaling our AI capabilities. And we're using our strong free cash flow to return capital to shareholders even as we make tuck-in acquisitions that strengthen and extend our value proposition. The bottom line is that Broadridge is well positioned to drive steady and sustainable growth for a long time to come. As we close out fiscal 2026, we're delivering strong results today, including double-digit earnings growth, and we're putting in place the building blocks for long-term growth tomorrow and beyond. To see how all this plays out, let's go to the headlines on Slide 3. First, Broadridge delivered strong third quarter results, including 6% recurring revenue growth constant currency and 11% adjusted EPS growth. Second, our growth is being driven by the execution of our strategy to democratize and digitize governance, simplify and innovate capital markets and modernize wealth management. Third, as I just said, we are taking active steps to address future growth opportunities by leading in tokenization, driving the digitization of communications and scaling AI. Fourth, we are leveraging our strong free cash flow to make growth accretive acquisitions like Acolin and CQG while returning capital to shareholders with share buybacks at attractive levels, as Ashima will touch on. Fifth and last, based on our strong performance, we are raising our fiscal '26 guidance for recurring revenue and adjusted EPS growth to at or above 7% for recurring revenue growth constant currency and 10% to 12% for adjusted EPS. These results demonstrate the power of our strategy and proven ability to execute. So let's turn to Slide 4 to look at the key drivers of that execution, starting with our governance business. Governance recurring revenues rose 8% constant currency, driven by new sales and continued growth in investor participation. Investor participation trends remained very strong with total equity position growth at 15% and equity revenue position growth of 11%. We continue to benefit from strong growth in managed accounts and steady mid-single-digit growth in self-directed accounts. Mutual fund and ETF position growth was also healthy at 6%, driven by demand for passive funds. Beyond position growth, our innovations to power shareholder engagement are building momentum. Our pass-through voting solution is now enabling voting choice for shareholders of 900 funds with assets under management of more than $8 trillion. Our new standing voting instruction solution, which enables retail shareholders to set their default voting instructions, is also off to a strong start. Our pilot clients are benefiting from exceptional response rates nearly 10% of Exxon's retail shareholder base enrolled in just 1 year, and 30% of responders had not voted at the prior meeting, highlighting the power of this program to engage new voters. We're also now live and supporting proxy voting for institutional asset managers looking to enhance their voting processes and reduce their reliance on proxy advisers. Beyond voting, our data-driven fund solutions business reported strong growth, driven in part by Acolin acquisition. We're seeing a lot of early interest from our U.S. fund clients on how they can use the Acolin capabilities to accelerate their growth in Europe. In our Capital Markets business, healthy 6% underlying growth was offset by lower license revenues compared to the prior year. We are seeing good growth in our post-trade solutions, where our global platform capability is enabling clients to simplify their back-office technology stack across multiple geographies and asset classes. We also continue to see robust demand for our front-office solutions. Earlier this morning, we closed the acquisition of CQG, a leading provider of futures and options trading, execution management and market connectivity. This acquisition accelerates our expansion into futures and options, where we are well advanced in building a next-generation order management solution with a Tier 1 global bank. CQG will add highly complementary execution management, algorithmic trading and analytics capabilities. Our goal is to create an institutional-grade, end-to-end trading suite for global futures and options, and CQG is a nice accelerator of that strategy. Turning to wealth management, recurring revenue rose 8% constant currency, powered by strong growth in Canada. We acquired SIS last year to deepen our relationships with key clients and accelerate the rollout of our platform. Now that strategy is paying off with attractive organic growth. We strengthened our core technology platforms, build connectivity to our wealth components, and I'm proud to announce just gone live with the first phase of our wealth platform solution for a leading Canadian wealth manager. And as the market continues to evolve, we're leading that change. Two weeks ago, we announced the launch of our next-generation digital asset platform, building on a unified suite of solutions. The platform will enable Canadian wealth managers to accelerate their offering of digital assets, including crypto and tokenized equities, funds and alternatives. I'll close my review of our results with sales. Year-to-date closed sales were $147 million, 16% below last year, even as deal origination and pipeline were substantially up. While we like the demand and pipeline we're seeing, based on our progress toward closing, we are updating our sales guidance for the year to $240 million to $290 million. We are seeing robust demand that's taking longer to close than we expected due in part to a mix of bigger, larger, more complex deals this year. Some examples include wealth platform sales in GTO and on the ICS side, larger digital transformation sales and customer communications. Those $5 million-plus deals are powering a very strong pipeline and also take longer to close. While we're lowering our outlook for fiscal '26, we feel good about the future. The pipeline I just mentioned is higher than it ever has been, well north of $1 billion. And we're seeing our product focus driving new demand. We're enhancing our trading solutions and driving the suite of shareholder engagement solutions I highlighted earlier. We're also building a track record of successful wealth platform and digital communication transformations, while linking more of our solutions to our data platform layer, all of which are driving active client discussions. Now let's turn from the execution behind today's results to what we're doing to drive long-term growth on Slide 5. The financial services market is evolving rapidly, driven by the accelerating pace of technology and an innovation-friendly regulatory environment. Change has always been good for Broadridge as we help our clients adapt with a mutualized approach. We see the current set of changes as a significant opportunity, and we're leaning into them. First, we're leading in tokenization. Broadridge is building on our industry-leading role in tokenizing more than $350 billion per day on our Distributed Ledger Repo platform. In governance, we're now powering on-chain voting and disclosure. In wealth management, we're creating an end-to-end solution for crypto and tokenized equities, funds and alternatives. And in the capital markets, we're scaling our market-leading digital asset capabilities in multiple directions. In a few weeks, we will be the first to power on-chain proxy voting for natively issued tokenized securities for a U.S. public company. As part of that process, we're consolidating and recording voting for beneficial shares, registered shares and tokenized shares to create a unified view for issuers to see all of their votes in one place, take the friction out of managing multiple ownership [ basis ]. In addition, we announced an agreement earlier this week with a leading global marketplace for tokenized real assets, including U.S. equities to provide proxy voting and other governance activities for their clients. And we're just getting started where the shares are tokenized by an issuer or a third party, Broadridge is stepping up to power the governance capabilities for issuers and investors and make tokenized equities real. And investors will be able to express their voting preferences across their holdings, including tokenized holdings, through Broadridge's institutional-grade proxy vote platform. We're also working with our wealth management clients to accelerate the launch of crypto and other tokenized assets to their clients. Our Canadian asset -- Canadian digital asset suite will support the governance and trading of digital assets in a seamless and integrated environment that includes our own capabilities as well as a growing ecosystem of digital asset partners. And on the capital market side, we're extending the capabilities of our market-leading DLR platform to new trade types, geographies and asset classes. And our worldwide trade routing network is transmitting crypto order flow for a growing number of clients. Second, we're driving the digitization of communications. The time is coming to shift the default delivery method for investor communications, and we're helping to drive the change. The SEC has indicated is taking a fresh look at moving to a digital default option for investors who do not request paper delivery. We've been working with the industry and our clients to move this forward. And while the timing is uncertain, we anticipate a proposal in this area over the coming months. We believe this evolution will be positive for Broadridge and our clients. We've already digitized nearly 90% of proxy and mutual fund communications, savings funds and public companies hundreds and millions of dollars per year. Now as we look forward to increasing electronic delivery for other communications, including statements and prospectuses, we're helping our clients prepare as they think about how to take advantage of such a change while also maintaining and improving experience for clients. We expect the implementation process of any action would occur over a few years and primarily affect our low to no margin distribution revenue. We expect the impact on recurring revenue and earnings will be broadly neutral. On one hand, migration to digital default could have an impact on our recurring revenue of a few percent, mostly in our customer communications business. On the other hand, we believe this evolution will create demand for new services, such as their wealth and focused solution, which is already enabling omnichannel communications to millions of investors. Like tailored shareholder reports, we expect these new opportunities to more than offset lost recurring revenue. The end result will be a more valuable Broadridge, which is growing faster with higher margins. Finally, we're scaling AI by building on top of our common data ontology, shared API architecture and the operating workflows we already run at scale. Our AI capabilities are powering new products, accelerating our software development cycle and driving productivity gains. Let me give you three examples. Our new custom policy engine, which is fully AI native, is able to read and analyze source materials and apply clients voting policies across thousands of companies. Today, that capability is already enabling asset managers with more than $800 billion AUM to implement their own voting policies without a proxy adviser. Now we're building on that progress to modernize the entire front-to-back workflow supporting institutional voting by leveraging agentic AI to enhance our core institutional voting platform. One of our fastest-growing products is our AI-powered global demand model, which tracks $120 trillion in global assets and is assisting products and marketing decisions for nearly 2 dozen and growing leading asset managers. And on the productivity side, our managed services business has already seen a 25% increase in productivity with line of sight to 50%. Going forward, we're extending our Broadridge platform to a growing number of core applications. This platform with its common data and APIs positions Broadridge to create agentic layer our clients can use directly or can leverage to create their own solutions using our embedded services. In sum, AI is enabling Broadridge to deliver new services, become more embedded in our clients' agentic workflows and drive our own productivity. Stepping back, we believe that each of tokenization, digitization and AI are growth drivers for Broadridge as we help our clients in our industry take advantage of the next wave of transformation in financial services. And we're building that tomorrow while continuing to deliver today with another year of strong and steady growth in fiscal '26. Before I turn the call over to Ashima, I want to thank our Broadridge associates. They're delivering superior service to our clients today while building the products and capabilities that will power the exciting future of governance, capital markets and wealth for a long time to come. And on that note, let me turn it over to Ashima. Ashima? Ashima Ghei: Thanks, Tim. Good morning. I'm pleased to be here today. Broadridge reported strong third quarter results with 6% recurring revenue growth constant currency and 11% adjusted EPS growth, and we remain well positioned to deliver another year of strong growth in fiscal '26. Before I dive into my discussion of those results and our guidance, I want to make four callouts. First, we now have records for 93% of full year proxy positions, which, combined with our recurring revenue backlog, gives us high visibility into our recurring revenue and adjusted EPS forecast. Second, our strong year-to-date results are enabling us to increase our investments in long-term growth initiatives while positioning us to deliver double-digit adjusted EPS growth. Since the beginning of calendar year '26, we have stepped up our level of investment in tokenization, AI and shareholder engagement initiatives. Third, we are using our strong free cash flow to drive shareholder returns. With the close of our acquisition of CQG today, we have completed 4 tuck-in acquisitions in fiscal '26 for $294 million and returned $681 million to shareholders in the form of dividends and buybacks. And given our outlook for free cash flow conversion of greater than 100%, we expect the same balanced approach in the fourth quarter. Fourth and last, we are raising our guidance for recurring revenue growth to at or above 7% and adjusted EPS growth to 10% to 12%. Now let's go to the numbers on Slide 6. In the quarter, recurring revenues grew 6% on a constant currency basis driven by 5% organic growth. Adjusted operating income margin was 21.5% as we continue to invest in our growth initiatives. Adjusted EPS grew 11% to $2.72, and closed sales were $58 million for the quarter. Let's move to Slide 7 to discuss our segment recurring revenues, starting with ICS or our governance segment. ICS recurring revenues rose 8% to $800 million. Organic growth was 6%. Regulatory revenues grew 9%, driven by 11% growth in equity revenue positions and fund position growth of 6%. That strong position growth more than offset the 2-point timing headwind from Q2 I had called out last quarter. Now looking forward to the fourth quarter, we expect another quarter of high single-digit regulatory revenue growth. This will be driven by a combination of low double-digit equity revenue positions and continued mid- to high single-digit fund position growth. Data-driven fund solutions revenue increased 8%, driven by a combination of organic growth and the acquisition of iJoin and Acolin. Lower interest income represented a 3-point headwind to growth. Issuer revenues rose 8%, driven by growth in disclosure and shareholder engagement solutions, which more than offset a point of headwind from lower interest income. Customer communications revenue growth was 5%, driven by another quarter of double-digit growth in digital revenues. The acquisition of Signal contributed 2 points to customer communications growth. For the full year, we continue to expect ICS recurring revenue growth to be slightly ahead of our overall recurring revenue growth guidance. Turning to GTO, recurring revenue grew 3% to $488 million. Capital markets revenues were $295 million. Excluding a 7-point impact from lower license revenue, capital markets growth was 6%. Digital asset revenues from our role as Canton Network super validator were $3.5 million in the quarter. Wealth and investment management grew 8%, driven by a combination of strong growth in Canada and higher trading volumes in the U.S. For the year, we continue to expect GTO recurring revenue growth of 5% to 7%. In the fourth quarter, that includes a 3-point contribution in our capital markets business from the acquisition of CQG, offset by a 5-point license revenue headwind in our wealth management business. Turning to volume drivers on Slide 8, Broadridge continues to benefit from strong growth in investor participation across both equities and funds. Third quarter equity position growth was 15%, including revenue position growth of 11%. As Tim noted, we continue to benefit from growth in managed account strategies. We are now in the peak period for annual meetings and as of last week, have received records for 93% of proxies expected for the fiscal year. This visibility gives us a high degree of confidence in our outlook for continued low double-digit equity revenue position growth in Q4. Mutual fund and ETF position growth was 6% in the third quarter. We expect mid- to high single-digit growth in the fourth quarter. And in GTO, trade volumes rose 16% on a blended basis, driven by double-digit growth in both equity and fixed income. I'll wrap up my discussion of recurring revenues on Slide 9. Revenue from closed sales remains the biggest driver of our recurring revenue growth at 4 points. That growth was partially offset by 2 points of losses, resulting in a revenue retention rate of 98%. Internal growth contributed 3 points, primarily driven by equity and fund position growth and higher trading volumes. As a result, organic revenue growth was 5%. Acquisitions contributed 1 point. And finally, changes in FX contributed 1 point to reported recurring revenue growth. Given the recent strengthening of the dollar, we expect only a modest tailwind from FX in the fourth quarter and an overall benefit of approximately 50 basis points for the full year. Let's close our discussion of revenue on Slide 10. Total revenues increased 8% to approximately $2 billion, driven by a 4-point contribution to growth from recurring revenue. Event-driven revenues increased $20 million to $73 million, contributing 1 point to total revenue growth. While there were no singular tentpole events in the quarter, we did benefit from elevated levels of activity across both funds and equities. Low to no margin distribution revenues grew 7% contributing 2 points to growth. Turning to margins on Slide 11. Adjusted operating income margin was 21.5%. The 90 basis points decrease versus fiscal '25 was driven almost entirely by 80 basis points net impact from higher distribution revenues and lower interest rates. Looking ahead, we expect a similar margin dynamic to play out in the fourth quarter. Turning to EPS on Slide 12. Q4 adjusted EPS grew 11% to $2.72. The tax rate was 19% in the third quarter versus 22% in Q2 '25, driven by the timing of discrete tax items. Looking ahead, we expect our full year tax rate will be approximately 22%. Let's turn now to sales on Slide 13. Broadridge recorded Q3 closed sales of $58 million versus $71 million in Q3 '25. Year-to-date sales were $147 million. Given our lower sales results through the first 3 quarters of the year, we're updating our closed sales guidance to $240 million to $290 million. Turning to our cash flows on Slide 14, Broadridge generated free cash flow of $591 million in the first 3 quarters of fiscal '26, up from $393 million in fiscal '25. Our strong cash performance continues to benefit from higher earnings and working capital management, and we remain on track to deliver free cash flow conversion of over 100% in fiscal '26. Turning next to capital allocation on Slide 15. We are delivering against our balanced capital allocation policy. Year-to-date, we have deployed $77 million in capital spending and software with an additional $33 million to onboard clients onto our solutions. We have invested $294 million in M&A in strategic tuck-in acquisitions, including the $173 million acquisition of CQG, which closed earlier this morning. We have also returned $681 million in capital to shareholders via our dividend and our share repurchase -- via our dividend and share repurchases through the first 3 quarters of the year. Looking ahead, our strong balance sheet and free cash flow conversion leaves Broadridge well positioned to fund additional tuck-in M&A and repurchase additional shares. Let's conclude by reviewing our full-year guidance on Slide 16, followed by closing key messages. With 2 months left and high visibility into fiscal '26 position growth and with the acquisition of CQG, we are raising our fiscal '26 outlook for recurring revenue growth constant currency to at or above 7% from the higher end of 5% to 7%. We're also raising our guidance for adjusted EPS growth to 10% to 12% from 9% to 12%. And we also continue to expect fiscal '26 AOI margin of approximately 20% to 21%. As I noted earlier, we are updating our closed sales guidance to the $240 million to $290 million range. I anticipate this will have only a modest impact to recurring revenue growth over the next 12 to 18 months. The most significant drivers of growth continue to be our existing recurring revenue backlog, which began this year at $430 million, as well as the impact of continued position growth, higher trading volumes and M&A. I'll wrap by summarizing my key points. First, Broadridge reported strong third quarter results. Second, we remain very much on track to deliver strong fiscal year results with recurring revenue growth at or above 7% and another year of double-digit adjusted EPS growth. Third, we are delivering these strong results while investing for the future growth. And last, our strong cash flow and capital position are enabling us to fund share repurchases and our strong dividend as well as make M&A investments. With that, let's open up the line. Chuck? Operator: [Operator Instructions] And today's first question will come from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Just on the closed sales guide, wondering if you can talk a little bit more about how long some of these sales cycles are lengthening by and maybe as 3Q and the first month of 4Q developed when you started to notice this change. Timothy Gokey: Yes, Scott. Thank you very much and I do want to emphasize that we feel very good about the demand that we're seeing. And we're trying to correlate just what you said, which is the timing of when all that will close. And just a couple of stats that I didn't mention, but our deal origination this year is up 25% in dollar terms. And at over $1 billion, our pipeline is 20% higher right now than it was last year at the same time. And we're seeing strong renewals, on track to renew over $1 billion this year. So we do like the demand we're seeing. The pipeline that was happening, it's in the areas we're investing. It's in wealth, it's in digital, it's in shareholder engagement. Platform sales now make up 20% of that. But then as you said, we're taking on some larger engagements. They take longer to close, and they are harder to predict. So while we're tampering a near-term view, we do like the outlook going forward. It is -- I think it's very hard to say, Q4 versus Q1, that's going to be a bubble. And it's just -- it is hard to predict, but we like what we're seeing out there. Scott Wurtzel: Got it. That's helpful. And then just would love to hear more on the -- just the opportunity with the custom policy voting engine and just sort of the broader opportunity there? And how long could this potential tailwind from selling this into the market last for and impact closed sales over the medium to long term here? Timothy Gokey: Yes. We are -- we see the custom policy voting engine as one of our most exciting areas. I think there is a lot of concern out there about the role of proxy advisers. It has generated a lot of discussion over the years. And when we think about the value proposition, under the current approach, people get to -- get very detailed research, but they get it very late, just sometimes a week before the meeting. And so if there's any error, if it's a controversial vote, there's very little time to react. And I think the value proposition that we're offering, which is a clean set of data much earlier 4 to 6 weeks before the meeting, allows people to run their policies through, see the votes, understand if there are any votes that might be controversial and then do their own research on that. So we really like the way that it turns the process on its head. We are seeing strong demand from asset managers. As I mentioned, the asset manager we did this year is $800 billion under management, and we have a nice pipeline for next year. So we would expect to have -- to be significantly ahead next year of where we are this year. Typically, with these things, it takes a few years for it to build. So I'm not sure that I'd be saying it's going to be dramatically affect our top line next year. But I think over the next 3 years or so, you'll see some nice growth there. Operator: Our next question will come from Dan Perlin with RBC Capital Markets. Daniel Perlin: Tim, I was just hoping you could just kind of elaborate a bit more on kind of your views around tokenization. I know you talked about it in the prepared remarks. Obviously, there's a narrative that makes it sound like you guys are in more of a loser camp as opposed to a winner camp. Clearly, hearing what you're talking about today, it sounds like it's a tailwind for you. So I was just hoping maybe you would go a little bit deeper into why you think you guys are in a really good position to win here, and it's not going to be problematic going forward, in particular, again, around proxy where obviously, you just announced you're doing something with someone now. Timothy Gokey: Yes. Look, Dan, thank you very much. I'm glad you asked because there's been a lot of discussion around this topic, and I think it's important to understand. And there are multiple models out there. But a lot of people are talking about an issuer-sponsored model for tokenization. You hear NASDAQ and [ ICS ] both talking about this as they seek to serve their issuer clients. And we don't know if that will be the winning model, but we like it for a couple of reasons. First, we are already the leading provider of voting solutions for issuers. Even beyond the beneficial shares that we serve on behalf of brokers, 80% of large cap companies use us today to solve the complexity of bringing together the beneficial and registered shares, and they do that really at economics that are more attractive than what we see on the regulated side. In the future, with tokenized shares is going to be even more complex because people have their beneficial shares, their registered shares and now their tokenized shares. And we solve all that with a single pane of glass. So we are really pleased to announce that we're going to be providing the first unchanged proxy voting in May for Galaxy, who is a leading digital asset infrastructure provider. And second, even if shares are tokenized by issuers, they're still very likely to be held at broker-dealers, who are already our clients. And we believe those brokers will set this up in a way that protects the privacy of their clients. So in this issuer-based model, we have two ways to win, and we really like it. But that's not the only model. The SEC has talked about three different models, and we're putting in place governance capabilities for each. So there's issue responsored one that I just talked about. There's also an intermediary-led model, where third parties such as brokers and digital exchanges tokenized shares away from the issuer. Again, these intermediaries are they're already our clients, and this is going to work very much like today's model. We're working with multiple parties on this, and we'll be making announcements in the near future. And then the last model is a so-called synthetic model, often led by digital exchanges for global investors. And we are pleased to announce just earlier this week that we're enabling this capability for Ondo, who is the leading provider in this space. So really regardless of where the tokenization is taking place, what's clear is that people are coming to us to talk about how to solve their governance requirements. And as and when tokenized equities begin to get traction, it's going to be because it's drawing in new investors, client holders, global investors. And that's going to grow investor positions. So that increases the market opportunity for us, and we're leaning into that. So that's the governance side. I'd be remiss if I just didn't point out the other opportunities here because really, frankly, we think the biggest opportunity is in capital markets. That's where we've been doing quite a bit of investing. When you think about the capital savings from better collateral from faster settlement, it's going to create higher trading at higher ROEs. We're the leader there today, tokenizing more than $350 billion a day on a DLR platform. That's larger than the entire crypto market. We'll be introducing additional enhancements this year, including real-time repo. We just made an investment in HQLAX to extend our relationships in Europe. So a good head of steam there. And then in wealth management. And our wealth clients are increasingly seeing money market funds, [ privates ] and alternatives and tokenized form as something that could be very interesting for their clients. And I think the key here is how do you prevent people having to put on a lot of cost with the dual infrastructure? How do you enable those tokenized and crypto assets alongside the traditional assets without blowing up the cost? And as you know, we just launched an end-to-end solution in Canada. We'll be bringing that to the U.S. And I think that's going to really help wealth managers solve that. So whether it's wealth management, capital markets or importantly, governance; we think that there's just a lot of opportunity for us here. And as you know, change is good for Broadridge. What we do is we mutualize the cost of change. We help our clients adapt faster, and this is just another example of that. Daniel Perlin: That is a very comprehensive answer. Thank you, Tim. I really appreciate it. Just a quick one on margins, which I think will probably be a lot shorter. Just thinking through the dynamics, as you say, similar dynamics going into the next quarter. But as Tim just pointed out, there's a lot of good things happening there for the investment cycle. Is it accelerating in terms of investment dollars that are going to be required to capture all these opportunities? And how might that play into our views of kind of how the margin profile of the company might go, let's say, over the next several quarters? Ashima Ghei: Absolutely. So I'll start with this year, right, by reiterating that we remain very much on track to deliver on our full year AOI margin guidance, which is between 20% to 21%. From a margin basis, you've heard me say this before, right? We think about margins more as a means to an end. Our goal has been to take advantage of periods of elevated event activity and strong results to accelerate our investments in growth initiatives while we continue to deliver double-digit EPS growth. This year is a great example of that. Our strong results enabled us to accelerate some of these investments in the areas you heard Tim talk about, shareholder engagement, tokenization and AI, especially in the second half of the year, all while working within our 10% to 12% adjusted EPS growth. Now remember, with regards to the fourth quarter, you should expect us to do more of that in Q4 as well. And if you look at our updated EPS guidance, that would imply low to mid-single-digit adjusted EPS growth in Q4, which would lead us to a strong 10% to 12% for the full year. That reflects the impact of our expected investments in the quarter. Timothy Gokey: And I'll just add on that, you'll hear us this morning talking about a lot of opportunities and the investments behind those, but those investments are baked into all of the forecast that we're giving. And as we -- particularly as we think about the productivity from AI going forward and other things, it's really a matter of how do we get the right mix between investment and delivering to shareholders. But we don't see anything that's going to prevent us from continuing to drive double-digit earnings growth. Operator: The next question will come from Kyle Peterson with Needham. Kyle Peterson: I want to start off on some of the work you guys are doing on the repo front with DLR. Obviously, you disclosed the Canton Network stats and some of the revenue coming in from that. And it's growing nicely, but still small. But I just wanted to see like what some of the other products or capabilities you guys are looking at and kind of how we should think about the evolution of your work on repo and potentially in the other asset classes and potential other ways to monetize the Canton Network. Timothy Gokey: Kyle, thank you very much. So we're really excited about this product and what it means for the broader theme of tokenized securities and really optimizing collateral. And as we said, we did a little over $350 billion a day in March, which is 4x what our volume was last year. We're clearly the leading at-scale platform. And we have a series of signed clients that are in the process of being onboarded. As I think about our road map, we have a pretty well-defined road map here in terms of moving from intercompany to intercompany. Moving on to Canton mainnet will enable that, and we'll be on other networks as well, bringing in real-time capability. And we think the opportunity there with real-time capability is to enable new trade types that don't exist today. When you think about today, repos largely funds, sort of it's a treasury function that funds the company, funds the balance sheet. And we think about the possibility of that moving to a debt-level function that could fund individual trades is pretty exciting. So we think that sort of the functional dimension in terms of intercompany and real-time. Then there's the geographic dimension in terms of Europe and Asia. And we're seeing nice demand in both those geographies as well. And then there's the asset class dimension. And our investment in HQLAX as an example there to move to other types of collateral. So we think this is going to be really an area where we can help our capital markets clients for a long time to come. It's just gaining traction. But as we said, between this and Canton, it added 2 points of growth to our capital markets business this year. And so we think that's just the beginning. Kyle Peterson: Awesome. That's great to hear. And then maybe a follow-up on kind of use of cash flow. Historically, you guys have been extremely consistent between whether it's CapEx and shareholder return and M&A. But with cash, especially kind of free cash flow generation, trending towards the higher end of the ranges this year, I just want to see like are you guys willing to be opportunistic and maybe step up the buyback, given the market does seem to be misunderstanding kind of your role in tokenization and some of these other growth initiatives? Or do you guys think you'll just continue to be stick to the historical plan? Just want to gauge on how opportunistic you'd be willing to be on the buyback. Ashima Ghei: Yes. So I'll start off with agreeing with exactly what you said. We have strong cash flow, we're in a great capital position. That's a great place to be right now, right? I will also say we do remain committed to balanced capital allocation. And just as a reminder, what that means for us is maintaining our investment-grade credit rating, making internal investments to drive organic growth, paying a strong dividend growing in line with our earnings, pursuing attractive M&A and then share buybacks in that order. And fiscal '26 has been a great example of that approach and action for us. Since the beginning of the year, we've already invested close to $300 million to make 4 strategic tuck-in acquisitions. We've returned $681 million to shareholders, which included $350 million in buybacks that we have done already. And we continue to be in a strong capital position, right? We're sitting at a leverage ratio of 1.9x, which is below our target range of 2 to 2.5x right now. Given our forecast for free cash flow, we're on track to deliver more than $1.1 billion for the full year, which essentially leaves us with ample capacity to do both potential M&A and share buyback in Q4, which I agree with you, the share buyback levels are quite compelling right now. Timothy Gokey: I'll just add, Kyle. I think we have stepped up this year. It's likely to be a record for us in share buybacks. And at the same time, we've seen some very unique opportunities on the M&A side that really add to our franchise and have represented also unique value. So we're looking at each M&A opportunity pretty keenly relative to our own shares. And we do see our shares as being attractive at current levels. So stay tuned. And again, as Ashima said, you'll probably continue to see a mix, but we're keenly aware of the value of our shares right now. Operator: The next question will come from Puneet Jain with JPMorgan. Puneet Jain: So I wanted to ask about delays that you're seeing in closed sales. Is evolution of AI also contributing to those delays in any way as your clients take like build versus buy decisions? Does AI change any of those dynamics, specifically in GTO? Timothy Gokey: Yes. Puneet, thank you for that question. It's interesting. I had dinner a couple of nights ago with the Head of Technology of one of our largest clients, and he was talking about how -- what a different position he sees us in relative to other SaaS vendors that he works with. And he's really talking about the network and the way that we connect hundreds of brokers or dealers to thousands of public companies to tens of millions of investors, but also the technology different than the really deeply embedded way that we are relative to the other things that he see. And I was there obviously talking to him about an opportunity. So we're not seeing AI affecting things. It is -- and if anything, we're seeing interest in AI-enabled products that we do. So if I think about looking forward, we are seeing positive trends for next year. As I mentioned, our pipeline and origination are both substantially up. But beyond that, we're seeing the benefit from organic product development beginning to bear fruit. I think we will see some benefit from the tuck-in M&A that we just talked about. And we're starting to see benefits from the ongoing investments in our go-to-market capabilities, especially international. So we like the demand going forward. We're not seeing AI or sort of self-builds taking over. And I think people are really liking our platform story, too, which becomes a sort of a build and buy where being able to leverage the agentic layer that we're creating. So all in all, we sort of like the way it's working out. Ashima Ghei: And Puneet, I'll just add, I want to be clear, we see minimal impact of this on next year, right? The math would say 10 to 30 bps. But what I do see is positive momentum from the factors I called out, position growth, higher trading volumes, faster conversion from our existing backlog and what Tim mentioned, the growth accretive M&A. So we'll talk more about next year in August, but I'm feeling pretty positive right now. Puneet Jain: Got it. Got it. Yes, I understand like many of those deals are long cycle deals. And second, somewhat related to the first question, like as AI generates productivity in software development as well as in managed services expenses, are any of those dynamics driving any pricing pressure for you? Timothy Gokey: Yes. We haven't seen that yet. We are -- it is -- as we talked about, it is the improvements in SDLC are certainly helping us innovate faster and bring new products forward faster as you did with custom policy engine, the global demand model, the institutional voting platform, all of which are leveraging AI in the way they work, but also in how we develop them. I think the managed services one is interesting because there, it is -- we are -- as we talk to clients about that capability today, we're largely talking about AI partnerships. We'll do an AI partnership, we'll guarantee you a level of savings, and we'll share the savings above that. And it really changes the conversation because we're going into it together, their AI plus our AI and the APIs I talked about, and we can really create -- we've seen increases in demand as a result of that. And our managed services sales this past year have really -- that formula has been pretty powerful with clients. So it's leading to a lot of good conversations and I would say, really helping to drive demand. Operator: The next question will come from Michael Infante with Morgan Stanley. Michael Infante: Ashima, you alluded to the fact that you feel comfortable about fiscal year '27 recurring revenue even with the lower closed sales outlook, based on backlog composition and conversion of revenue along with some of the position growth factors you cited. But if we just think about the contribution of closed sales to recurring revenue historically being around that 6-point range, how should we be thinking about your conviction in the durability of recurring revenue growth on a go-forward basis if closed sales performance doesn't inflect? Ashima Ghei: Yes. So Michael, I'll answer in two parts, right? I'll talk about what gives me conviction of -- well, one, I'm not giving you any guidance for fiscal '27 right now, I want to be very clear about that. We'll come and have that call in August. My aim was to give you a little bit more color on the drivers that we see as allowing us to continue to see strength in recurring revenue growth. And those drivers specifically were we have early indication on volume trends, which continue to look good even for our first half position testing for next year. Our backlog continues to look good. And in addition, I expect the acquisitions that we've made this year to contribute to both reported growth and organic growth over the course of next year. Specifically on sales, if you look at -- even if you look at the difference in guidance that we had previously versus what we have right now, that implies only -- from a midpoint perspective, that implies only a $40 million to $45 million delta. Given our conversion cycles across our ICS and GTO products, you would expect only a fraction of that to convert over the next year, which was my -- which is why I called out the impact of that would be 10 to 30 basis points at most, right, which is why, given all the other positive drivers that we're seeing with volume trends, backlog, acquisitions and the internal growth in the business; I feel good about where we will be for next year. Michael Infante: That's helpful. And then just on the Galaxy announcement, what's the gating item to seeing more Galaxy-like announcements in terms of your on-chain efforts? How closely are other corporates, including non-crypto-oriented businesses, monitoring that? And are there other parts of their infrastructure stack or other businesses like them in terms of their infrastructure stack that you intend to leverage over time? Timothy Gokey: Yes. Thank you on that. I think, first of all, just the last part of it, will there be others that we leverage? Absolutely. We'll be partnering with everyone, we'll be integrating into all the various wallets. So I think this -- when you think about how this will work, there will be, I think, a pretty broad ecosystem of partners. And the great news, as I talked about earlier, is that pretty much everyone we talk to in this area, when we talk to them about how we can help make this real, they're very interested in talking to us, very interested in integrating and partnering. And so we've really been pushing on open doors in terms of that. So I think the gating factor in more announcements is just really how fast we can talk to people. And we're doing that, and we're expanding our capacity to talk to partners to make sure that we can basically meet all the demand for that. I think in terms of how fast this will go with other companies, it is a little bit less clear. We do know of some companies that are in the pipeline that we're in discussion with. So far, they do tend to be other companies that are in the sort of digital asset ecosystem. They're more focused on this than others. I think it will really be a matter of companies -- if they're not in the digital asset ecosystem themselves, they do this to raise capital at good rates. And so that is a chicken-and-egg question in terms of is there supply from corporates, is there demand from investors. And you could imagine as a sleeve if you're able to attract global investors through this, having a sleeve of this and things. I think it will be -- and I don't have any knowledge of this at all, but I think there are some very large IPOs that are coming later this year. I haven't heard any hint that any of those are going to have a tokenized sleeve, but if they did, that would certainly be an impetus to the market. Operator: And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Tim Gokey for any closing remarks. Please go ahead. Timothy Gokey: Yes. I just want to thank everyone for joining us this morning. We're really excited about the story that we have right now, the way we're delivering results today, but also how we are really helping our industry at a moment of key change. And as I said a couple of times on the call, we think change is good for Broadridge. We help our clients mutualize making it happen, help them adapt faster. And so we're really excited about the opportunities that we're seeing and that we talked about this morning. Thank you. Operator: And this will conclude our conference call for today. Thank you for attending today's presentation. You may now disconnect.