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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.
Operator: Good day, and welcome to the AXIS Capital First Quarter 2026 Earnings Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Clifford Gallant, Head of Investor Relations. Please go ahead, sir. Clifford Gallant: Thank you. Good morning, and welcome to our first quarter 2026 conference call. Our earnings press release and financial supplement were issued last night. If you would like copies, please visit the Investor Information section of our website at axiscapital.com. We set aside an hour for today's call, which is also available as an audio webcast on our website. Joining me on today's call are Vincent Tizzio, our President and CEO; and Matt Kirk, our CFO. I'd like to remind everyone that the statements made during this call including the question-and-answer session, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors set forth in the company's most recent report on the Form 10-K or our quarterly report on Form 10-Q and other reports the company files with the SEC. This includes the additional risks identified in the cautionary note regarding the forward-looking statements in our earnings press release issued last night. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, our non-GAAP financial measures may be discussed during this conference call. Reconciliations are included in our earnings press release and financial supplement. And with that, I'll turn the call over to Vince. Vincent Tizzio: Thank you, Cliff. Good morning, and thank you for joining our call. Let me begin by welcoming Matt Kirk in his first earnings call at AXIS as our Chief Financial Officer. Matt? We're delighted to have your partnership as we continue to steer access to deliver sustained shareholder value. AXIS is off to a very strong start in 2026 as we continue to build on our positive performance we are realizing significant benefits from enhancements we've made to our operating model and through our continued investments in products, distribution, technology and talent. We entered 2026 well positioned to benefit from all of the actions we've taken in recent years. Our portfolio remediation efforts are largely behind us. Our book of business is premium adequate resilient and positioned for targeted profitable growth. We've made strides in widening our global distribution platform to reach new channels, segments and geographies and -- we believe we can further harvest our expanded classes while penetrating attractive markets where access has historically been underrepresented. We've enhanced our customer value propositions and service model earning recognition with our highest Net Promoter Scores since we began recording our surveys. And we've made substantial investments in innovations and operations that are helping fuel the momentum in our performance. I'll now share some of the headline metrics for the quarter. First, an annualized return on average common equity of 17%, a combined ratio of 89.8% gross written premiums of $3.1 billion, up nearly 11% over the prior year, driven predominantly by growth in attractive short-tail lines with short tail lines now constituting 60% of our overall premiums. Finally, we produced a 10.7% GA ratio in the quarter, driven by efficiency gains and higher earned premium. Let's now move to our segment results, and we'll begin with insurance. It was a strong quarter for our insurance business, highlighted by premium generations of $1.98 billion, underwriting income of $157 million, representing a 17% increase year-over-year and a combined ratio of 86.3%, a 0.4% improvement over the prior year. Gross written premiums in insurance were up about 20% year-over-year, driven by continued execution in our core business, expanded classes and access capacity solutions capability which we will also refer to as SACS. This growth was reflected across 3 key areas. First, our underlying insurance portfolio demonstrated modest growth. This reflected rate, retention and disciplined underwriting actions across our established businesses and is fully consistent with our return objectives. Second, our expanded business classes contributed high single-digit growth in the quarter. These units are expected to continue to scale our largely short tail and address customer segments in attractive markets. These include wholesale lower middle market, A&H pet insurance and specialty offerings such as Surety, U.S. marine, specialty E&O, Allied Health to name just a few. The remainder of the growth came from access capacity solutions, which draws on our experience and ability with third-party capital to develop and structure differentiated portfolios at scale. Protecting access downside and creating new sources of revenue. In ACS, 2/3 of the premiums that we booked were in short tail. We go to market through a variety of distribution channels that are broadly split between open brokerage and select delegated businesses. These structures allow us to access premium adequate business while enhancing our relevance with distribution partners and generating attractive returns and fee income with limited balance sheet volatility. Looking across the broader insurance landscape, we continue to navigate a series of micro markets driven by a changing pricing environment, sustained geopolitical uncertainty and technological disruption. We would observe that while pricing pressure is evident in several lines, terms, conditions, and limits are generally holding, and we are seeing premium adequacy across the vast majority of our business. Our average net policy limits remain largely unchanged and in markets facing the greatest competitive pressure, including property and cyber as 2 notable examples. As respects geopolitical disruption, certain lines of business have changing demand needs from our buying population, including lines such as marine war, energy and political violence to name 3. In the Middle East, we continue to actively support our customers. While information is continuously developing, we are practicing vigilance and are very closely monitoring our exposures in the region. We are supporting our customers in managing emerging technological risks, including intensifying cyber threats brought on by AI, new data privacy concerns and the interconnected nature of operational and supply chain risks. These unfolding dynamics are creating new exposures and opportunities for us to provide specialty solutions. Taken together in this transformational risk environment, our customers are seeking tailored solutions to address their evolving needs. And as a specialist leader, AXIS is well positioned. Let me comment now on what we're observing across our lines of business. In property, pricing was down 13% in the quarter. This downward pressure on pricing follows an 8-year period where we've had compounded rates of nearly 80%. On an absolute basis, the business we're putting on our books today continues to meet our underwriting return expectations for the class. Additionally, we maintain a diversified portfolio with an average net limit in the low single-digit millions that is well balanced in peril and geographic mix and is back by Cat XL protection that attaches at $100 million per event. In liability, rates grew 9% in the quarter, and growth was 11%, and we leaned into opportunistic growth in our international liability businesses, which helps provide diversification from the social inflation phenomenon in the U.S. casualty market and we exhibited a disciplined stance in U.S. casualty. In fact, in U.S. Excess Casualty, total writings were down 2% with positive rate change of 12% ahead of trend in primary casualty volume was down 28%, with positive rate change of 9%, again, ahead of trend. In professional, we are encouraged with rates turning positive especially across transactional liability and pockets of commercial D&O and financial institutions within our North American businesses. In the quarter, $45 million our growth came from transactional liability, where rates were up 4%. And from E&O, where we are delivering on our risk-adjusted return expectations. Consistent with our past comments, we observed a flattening on the public company D&O market and remain cautious while selectively evaluating opportunities. Within cyber, consistent with prior quarters, we maintain a cautious underwriting stance as the industry navigates a dynamic market impacted by both the rating environment and the exposure gained by AI. The market remains competitive and rates were down 6% in the quarter. We deployed capacity selectively between our cyber insurance and reinsurance platforms, managing our exposures and steering our capital towards the best returns. In the quarter, at a group level, our growth was down 7%. In our insurance portfolio, we were virtually flat with $6 million in premium growth. Please be reminded that we've been signaling caution with cyber for the past few years. For context, at year-end 2023, AXIS produced $649 million in cyber insurance production at that time, representing 10.6% of our total insurance portfolio. At year-end 2025, that number was $473 million, representing 6.6% of our portfolio. Nonetheless, if the rate environment and our view of the market improves, we will draw on our skilled team, capital and grow more fulsomely. Stepping back, we're clearly observing varying conditions across our lines of business. We have demonstrated our ability to strongly cycle manage with an approach that is highly responsive to shifts in the environment. By example, our discipline is evidenced in recent years by our actions in primary casualty, public D&O and cyber and most recently, by the caution we are exercising in our U.S. casualty and London market property lines. In parallel, we are reallocating capital into attractive markets through our expanded classes which over several years, have grown from a nominal base into 17% of our total insurance portfolio in the first quarter and nearly 2/3 of the business is short tail. Let's now move on to our reinsurance segment. In the quarter, we continued to drive selective growth in our specialty product set with short tail lines growing from 50% to 61% as compared to the prior year period. We drove $1.1 billion in gross written premiums. This includes $180 million of new business with 70% coming from short-tail specialty lines. We produced a combined ratio of 92.7% and underwriting income of $30 million and fee income of $20 million. Leveraging our deep specialty expertise, we generated healthy growth in targeted lines like A&H and credit and surety where we leaned into strong relationships with existing cedents exhibiting the transactional excellence of our team. Consistent with our comments in past calls, we continue to actively manage the cycle in casualty lines. In the quarter, we reduced writings by over $130 million or 24% as the market remains competitive and risk-adjusted returns are not meeting our expectations. Switching gears. Within our -- how -- we Work program and specifically in relation to emerging technology and AI, I'll speak briefly to some of the advancements we are making. We have several objectives that ground our AI strategy, create efficiency, enhance productivity and ultimately deliver risk insight to help enable profitable growth. Our AI investments are contributing to expense ratio efficiency by redesigning and streamlining end-to-end workflows. This is shifting routine work for manual processing to technology-enabled task transfer and automation in underwriting and operations. While allowing us to hire purposefully into greater value roles rather than scale headcount broadly. Underpinning our efforts is the advancements we are driving within our operations function. This includes our early progress in leveraging AI and data and analytics to enhance how submissions are triaged, analyzed and prepared and we focused on identifying opportunities to utilize AI to drive increased automation in how operation supports our underwriting and claims teams while, of course, further reducing manual work. I'll share some of the specific examples of how we're leveraging AI. We're seeing tangible productivity and efficiency gains through 2 examples. First, where we have introduced auto ingestion, the time to clear, register and route submissions to our signed underwriters has improved by over 65% in our initial rollout. Second, we've spoken with you in the past about our end-to-end next-generation underwriting platform. Progress continues. The platform has proven to reduce quote cycle time by up to 30% in the initial areas where we have deployed the new systems. Within claims, we are progressing in tapping into the promise of AI. By example, we're building new functionality to enable our claims team to utilize a genetic AI to process by way of example, first notice of loss data to improve speed and ensure consistency and accuracy. As respect to our broader AI strategy, we see people at the core of our approach, not only in terms of responsible adoption, but in respect to innovation and imagination, and we are investing in upskilling our teams and recruiting AI-ready talent. Finally, I'll conclude my opening remarks by pointing to the same key takeaways that I shared with you during my year-end tons. We believe access is built for all seasons. We are positioned for continued profitable growth aligned to our strategic initiatives. We've instilled a disciplined underwriting culture that puts profits ahead of premiums. We've built a global multi-varied distribution platform that is grounded in customer centricity and we've grown a culture that prioritizes both performance and people. With that, I'll now pass the floor to Matt for his comments. Matthew Kirk: Thank you, Vince, and good morning, everyone. AXIS had a strong first quarter. So let me step you through our results. Our net income available to common shareholders was $247 million, or $3.29 per diluted common share, resulting in an annualized ROE of 17%. Our operating income was $257 million or $3.42 per diluted common share, resulted in an annualized operating ROE of 18%. Starting with our group underwriting highlights. Our gross written premiums of just over $3 billion were up 11% over the prior year quarter driven by accelerated growth initiatives in insurance, which I will detail shortly. On a net basis, premiums were up 9%. As Vince mentioned, but worth repeating, we reported a combined ratio of 89.8%. Cat losses were $48 million, producing a cat loss ratio of 3.2%. Cat losses were largely driven from extreme winter weather in the U.S. and approximately 1/3 came from losses related to the conflict in the Middle East. We recorded a reserve release of $18 million with $15 million in insurance and $3 million in reinsurance for the quarter. We are maintaining the access philosophy of being deliberate to acknowledge favorable trends while quickly assimilating the adverse. Our release continues to be from short-tail lines. As Vince mentioned, our consolidated G&A ratio for the quarter, including corporate, was 10.7% versus 11.9% a year ago as dollar spend on G&A was essentially flat year-over-year. We're pleased to have achieved the target level we presented to you 2 years ago. For the full year, we are still targeting 11%, and I would remind you that as we discussed on the fourth quarter call, we will continue to make attractive investments when opportunities arise and reward our high performers. I would note at this juncture, we incurred a below-the-line charge of $23 million for expense and restructuring actions taken during the quarter, largely in reinsurance as well as for the planned departure of 2 members of our senior leadership. Underwriting fees were $23 million, including both insurance-related and other income and offsets the G&A. Today, this attractive stream of fee income largely stems from our ILS investments, but we expect a growing contribution from ACS. Insurance had a strong all-around quarter with gross written premiums of almost $2 billion, up 20%, driven by several factors. Let me provide you some detail. As Vince discussed, our underlying insurance book grew at low single digits, while expanded products and initiatives accounted for growth in the high single-digit range. Additional growth of approximately 10 points came from our innovations of ACS. You are familiar with the Ryan deal, which is performing as expected. ACS also struck funds at Lloyd's or FA transactions accounting for approximately half of the 10 points. These are one-one on incepting annual renewable transactions where we provide capacity to other syndicates at Lloyd's in a capital-efficient manner, we are gaining exposure to products, geographies and distributions that would not have been easily accessible to Access, adding to our portfolio diversification. Finally, ACS included the strategic use of reinsurance vehicles. These transactions enable us to align interest with our key distribution partners to expand our gross insurance lines, earn fee income while managing our net appetite and exposures through sessions to third-party vehicles. In the first quarter, we employed this capability primarily in the premium adequate property classes. Our net written premium growth of 24% was higher than our growth due to the number of factors, which will normalize as we progress through the year. These include the business, which is kept net a change in our quota share for pet and some year-over-year quarterly timing distortions. Our underlying loss ratio in insurance was 53.3% and a point higher than the prior quarter and in line with our forecast in the fourth quarter. We have not changed the range of our expectation for the year. Turning to Reinsurance. Gross written premiums were down 2%, and -- we grew 20% in short tail lines led by credit and surety, which we do not expect in future quarters, although we will remain actively engaged in evaluating new opportunities. Long-tail lines were down 24% and as continue to have a cautious stance in these areas. The cycle management in long tail lines will persist as we progress through the year, and I will echo our fourth quarter comment that we expect reinsurance premiums could be down double digits in 2026. The reinsurance combined ratio was 92.7% for the quarter and in line with our expectations. Stepping back, what you are seeing this year is active portfolio repositioning at work. We are intentionally leaning further into insurance and being more selective in reinsurance. We are using third-party structures and vehicles to enhance our relevancy to clients and distribution partners to sustain top line momentum, protect our net exposure and generate fee income. This is disciplined cycle management in action. We are making these move deliberately and decisively, and we remain confident in our ability to manage through the cycle profitably. Turning to investments in capital. Investment income was $185 million, similar to the level of the fourth quarter as our book yield remained largely flat. From a total from a total portfolio return perspective, much of this was offset by unrealized losses in the period, a result of market fluctuations in rate and spreads and a headwind to book value per share growth in the quarter. We remain in a very strong financial position, allowing us to return capital to shareholders through dividends and share repurchases, while prioritizing organic growth opportunities. During the quarter, we returned $93 million to shareholders through dividends of $33 million and share repurchases of $60 million. At quarter's end, $53 million remained on our 2025 $400 million authorization. And during the quarter, management presented and the Board approved an additional $300 million authorization. Our operating cash flow in the quarter was a strong $590 million, up from $309 million a year ago, a reflection of our premium growth and expense discipline. I'm pleased to start my tenure at Access on such a strong foot. We will remain focused on managing our exposures to bring consistent and predictable earnings to shareholders. I look forward to working with you to create shareholder value for us all. Now we'd be happy to answer your questions. Operator: [Operator Instructions] And today's first question comes from Andrew Kligerman with TD Cowen. Andrew Kligerman: First question is around reserve development. It looks like you had a favorable development of $15 million in insurance, $3 million in reinsurance. Some of your competitors have reported some unfavorable developments in the 21 to 24 underwriting years. Could you give any color on the developments from '21 to '24 and how that's playing out? Matthew Kirk: Andrew, Matt, thanks for the question. I think overall, we're comfortable with our loss reserve position. I mentioned our philosophy that we are going to be slow to recognize good news and very deliberate when we have concerned. So let me just talk about the -- in the quarter, $8 million, almost all came from short-tail lines. I wouldn't get into the years right now, predominantly on the insurance side with a few million on reinsurance. Vincent Tizzio: Andrew, this is Vince. Just to come over the top. We have discussed with you and Pete and I over the last several years. The actions that led ultimately to the reserve charge that we took back in December of '23. The assumption sets that we put forward, the exhaustive list of considerations that we had shared with you have continuously served us well. In our quarterly reviews, the number of tools that we've attached both from additional claims insights, enhanced actuarial insights remain ongoing and give us comfort -- that is not to say that we've taken our eye with any passing relief, which is to say we've demonstrated a cautious underwriting stance in the casualty classes generally and across both platforms. We've spoken often about our caution in reinsurance, and you've seen that reflected in the rate of growth, which has actually not occurred. And you've seen that deliberately here on the insurance platform were in the quarter, both of our casualty platforms in the U.S. were downsized. So we have caution, but we're comfortable with our picks. And we're going to maintain an active stance in managing our reserve position. Andrew Kligerman: Great. And my follow-up, Vince, in your remarks, you mentioned that property pricing was down 13%, but the stuff that you did -- I'm sorry, not Yes, I think it was pricing down 13%, and it met your -- but what you wrote met your return expectations. And it sounds like some of your ACS business through Lloyd's was property as well. So I'm wondering, could you talk a little bit about your return expectations in the property business that you've written in insurance, including the ACF stuff? Vincent Tizzio: Andrew, I'll take the liberty to expand my answer more broadly as well if you permit me, which is we have indicated over the past several years, a mid-teens return on equity expectation in our portfolio. You know directly from our Investor Day, we grounded ourselves in measuring effectiveness and success against diluted book value per share growth. And so as you know, we're an underwriting led organization. We will not grow for growth's sake. We acknowledge and we certainly are witnessing the repricing of the property market, but you're speaking to AXIS. AXIS has had over nearly 80% of compounded rate improvement over the last several years against a portfolio that has about 40% ex cat in its overall makeup. A low single million dollar limit profile and the ability with the support of our reinsurers, importantly to note, a $100 million per event cover. So we're not living in a different reality. We are acknowledging that the order of returns is coming down. But at this point in time, it still meets our risk-adjusted returns. And I would just, as I said before, take the liberty to expand a bit, the growth that you're witnessing from AXIS is very much aligned to the fourth quarter remarks that Pete and I shared. And I'll remind you as you've been with us throughout this journey. Some years ago, 3 years ago, specifically, we signaled a transformation effort. This transformation effort was first focused on our balance sheet, bringing strength to our capital position, the reserve charge, the LPT, the additional actuarial insights, building capabilities in our claims and operations, bringing new talent and yes, expanding and creating new propositions, admittedly with very low start points. If you were to look at the North American build-out that Mike and his team have executed against our start points in classes like environmental, Allied Health, E&O generally. They are rather small businesses that are growing. And so their order of percentages feel substantial. But I'll remind you and all of our investors importantly, that our start point is coming from a very strong place in terms of mix. Our premium adequacy guidelines are explicit our underwriting tools and the provision of tiering and many others, the coordination between claims, actuarial is very strong. And so I take the liberty of expanding my answer to your direct question on property, but I'm happy to take additional questions. Operator: And the next question comes from Rob Koh with Goldman Sachs. Robert Cox: So AXIS is generating really strong growth in the core franchise. And I think the company has a relatively substantial position in Lloyd's relative to peers. So I'm just curious what made the funds at Lloyd's opportunity so attractive at this time? And if we should be thinking about this as an opportunistic trade to capture healthy margins for 2026? Or will this be a more sustainable part of the portfolio going forward? Matthew Kirk: Rob, it's Matt. Let me cover that. First, not everyone is familiar with these type of transactions. Here in this case, we provide capacity in a structured format more like pro rata reinsurance to syndicate at Lloyd's. These are one-one deals and they would not be repeated in the quarter. So you're seeing most of our premium, if not all, written upfront, roughly about $60 million, and that will earn across this year and next. I think what's important is these are sale transactions where AXIS is gaining exposure to products and geographies that we would not other easily be accessible to access. These products are niche specialty lines that require specialty underwriting expertise. Now we think these lines of business, these cytokines that we're supporting provide attractive profitability and they're really an efficient use of capital. What makes it a little unique on these transactions that our downside is capped to our committed lines, and that's pretty modest compared to our premium. So overall, something new to access. I would say we're really selective. We did a handful of these transactions in the quarter. Those won't be available to us until this time next year, should we choose. They are in the industry and relatively standard, but we view this as just another mechanism to be able to tap into specialty expertise. Vincent Tizzio: And Rob, this is Vince. Just coming over the top with a couple of comments. Firstly, AXIS enjoys an outperform designation in our Lloyd's syndicate. We have a number of leading propositions. We also, in our global market business report our global businesses through global markets. And so in terms of sizing, we are a confident and a strong site Lloyd's market participant. And as Matt detailed, this is just one of the strategic capabilities that we leaned into in the first quarter in support of our global strategy, but with a lot of help from our active capacity teammates. Robert Cox: That's very helpful. And I just want to follow up on the underlying loss ratio. So it picked up 100 basis points in the quarter, which was in line with comments for 2026 expectations. How should we think about some of this new business coming on from funds at Lloyd's, but also the -- and how might that affect the underlying loss ratio going forward? Matthew Kirk: Yes. I would say the point a good barometer. We did guide that in Q4, and that's what we're seeing. And it will be around that for the year, and we will guide if that's different. But that's what we're seeing. Ryan Specialty, which is -- we signed up for last year, that was well within our estimations when we came up at that point. And this fall deals, these are no different, right? We are not taking different loss picks or different expectations. They need to meet our pricing hurdles. So I would say these should not change or would not change our overall estimation of where we're headed with our loss ratio. Vincent Tizzio: And if -- Rob, if you look at the core components of the growth, of course, our core portfolio and our expanded classes, that's nearly 10-odd percent of the growth in the quarter. 6-odd percent of it short tail. We have a very good composite of what our loss ratio performance is -- we have the analytics to support that, the integrated underwriting model between claims and actuarial gives us confidence around that. But I think Matt is exactly right. I think what we guided to in the fourth quarter is where we'll end up at the end of 2026. In insurance ex cat. Operator: And our next question comes from Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question is just on the premium growth, I guess, away from ACS. So within insurance, I think you were guiding mid- to high single digits. I think it came in at high single digits, maybe even a little bit above. So how do you see, I guess, the core growth trending during the year relative to your prior guidance? Matthew Kirk: Elyse, it's Matt. I don't think we're going to change anything. We guided on our underlying portfolio to low single digits, and that's what we're seeing. And we said our expanded lines would take us to high single digits. So at least no change to that. I think what we've highlighted is the ACS capability, which we also said would take us into the double digits, and that's still the case. And obviously, we have the FAO transactions, which is new this quarter, so we wanted to give guidance on that. But on the underlying, no changes. Vincent Tizzio: Elyse, obviously, I agree with Matt. And we reserve, of course, the ability to come back in the course of the year. If we see massive changes against our assumption sets, not only in rate, but also the widening of terms and conditions. -- or expectations on limit grant we find unreasonable. You have seen and we have evidence to you and others an ability to reshape our portfolios comprehensively, thoughtfully and with a high degree of execution -- and I don't need to recount for you the number of portfolios that we've reshaped over the last 3 years. But I think that's exactly right. With what we see today, we like the words that we guided in the fourth quarter, prevailing at the end of the first quarter of this year. Elyse Greenspan: And then my second question is on capital. Buybacks did slow in the quarter. Obviously, growth did pick up, but how are you balancing, I guess, your view on growth versus potential share repurchases from here? Matthew Kirk: Yes, Elyse, great. And as you know, I'm passionate about capital allocation. You hit it with 1 of your comments there. We are still growing -- we're comfortably growing and our capital is going to first support that. From a share repurchase perspective, let me just reframe we came up off 2025 with a really great opportunity to do some block trades returning $888 million. That was somewhat unusual. I would say our returns will normalize this year, but let me just call out in the 2025 repurchase program, we have capacity left that we're using now. We also management brought to the Board and received authorization for another $300 million. And I would say the $60 million that you've seen in the Q1, I would not assign that to be a run rate we're going to be opportunistic, and you could see that tick up through the year. Finally, and this is just my personal view, where we're trading, I think, is a really great value opportunity to repurchase shares. And so it's something that we're going to obviously lean into once we first support our organic growth. Operator: The next question is from Roland Mayor with RBC. Rowland Mayor: Just to quickly follow up on Elyse's question on buybacks. Was there anything that restricted buybacks in January I was a bit surprised to see that month close to 0. I guess, Matt, you commented on not to run rate, but what February and March run rate would be a better way to think about it? Vincent Tizzio: Roland, I'm going to start and ask Matt to come up to the top look, if you think about our prepared remarks, we're navigating the company in fairly turbulent environments in all manners of what that word can note. We we're going to continue to execute with the stated buyback strategy that we've had, opportunistic. Matt and I have brought a more strategic focus to the order of opportunism. And I think if you were to look for a run rate I think there's a pretty clear sign that we wouldn't have gone to our Board for authorization. If we had conviction that we were fully valued or thought that we couldn't sustain the profitable growth journey that we've been on. But we're going to remain disciplined. We're going to remain opportunistic, but we're also going to be mindful of all the different levers that we've been pulling. And I think when Matt detailed what we did in 2025, it's a pretty good barometer of looking at how we can execute, how we can mobilize -- and yes, of course, I agree that it was outsized. Matt, I apologize. Go ahead. Matthew Kirk: No, no, nothing more to add, Roland. I think we hit it right there. So stay tuned, and we'll remain opportunistic. Rowland Mayor: I appreciate that. I just wanted to pivot to the credit and surety reinsurance growth. It was up 50% year-over-year, and that sounded like several years of really strong growth there. Where is it growing now? And can you talk maybe a bit about the exposure in that business? Vincent Tizzio: That's a great performing business for AXIS. It's historical, as you know. We have incredible teammates that have been leading that business. They are well tenured. Here, we simply grew shares with existing cedents. This was structured transactions that we are very adept at. The good news is they come from cedents that we know that we have historical loss experience and portfolio experience with. So we're very comfortable. I would not look at what they produced in the first quarter as the run rate for the full year. This is an outsized level of growth in the quarter. This group will continue to grow in 2026, but simply not at this order of magnitude. Operator: The next question is from Josh Shanker with Bank of America. Joshua Shanker: Hope you're having a good day. I want to comment the questions on capital return a little bit differently. In the budget for 2026, -- how much capital are you thinking you're going to need to deploy into the business in order to support the growth? Matthew Kirk: Yes. I mean, tough to give really good tight guidance there. But I'd say round numbers, let's just call that about 50% supporting our growth. Joshua Shanker: 50% of earnings generated this year will be needed to support the growth you're going to generate? Matthew Kirk: Yes. I mean we don't -- that's broadly in line. Yes. Joshua Shanker: And looking out into the like you do have most your plans, Obviously, we don't know what market conditions are going to be 1 year from now. But with your partners, you have commitments that are not just on a 1-year basis. Depending on market conditions, does that mean we should think over a 3-year period, normally, you're going to need to be putting about 50% of what you're generating into within a range, 30% to 70%, whatever, but into the business that -- or in 2027, can it be that you're not going to grow anymore and you might be able to return 100% of capital? Vincent Tizzio: Josh, it's -- I'd love to be more explicit for you. This is Vince. Unfortunately, we're not going to be able to. The number of factors that are accounted for our capital strategy, you can only imagine. And so when you think about '26 and you think about our capital position, we're using a lot of our extra capital to grow the business. You've seen where we're growing it, how we're growing it. We have capital that's being allocated to our -- how -- we work investments in orders of technology and other set capabilities -- what I think Matt said is a good benchmark for '26. I don't think we want to get into the 3-year plan and all of the component parts we can unfold more of that as the year shows itself. But we're going to remain agile. We're going to remain shareholder focused and most importantly, bottom line focused. Operator: And the next question comes from Charlie Lederer with BMO Capital Markets. Charles Lederer: So the operating leverage in insurance came through in the G&A ratio in a big way this quarter. Wondering if we just look at the absolute dollars there was flattish. Given some of the AI initiatives that you laid out, Vince, I'm assuming there's some increased tax spending. Just wondering what's offsetting that, if that's correct or if there's some other moving pieces in there? Matthew Kirk: Yes. Look, it's Matt. I think it's a good question. We are pleased with where the expense ratio came in 10.7%, and we're guiding again 11% for the year. You're absolutely right, expenses year-over-year is relatively flat, and that does call in and shows the benefit of all the investments we've made in technology, including AI and where we're able to write a lot more high-quality business on the same expense base. So we've talked about it, and Vince has been talking about this for a couple of years, investing in our people, investing in our technology. We've been pounding that saying this is going to come through in our operational efficiency, and we're seeing it. And we feel good about our landing coming in around 11%. Vince, do you want to add anything? Vincent Tizzio: Charlie, I think that Matt covered it. The only thing I would say is we acknowledge the 1.3 point difference in GA in the Insurance segment in 1Q. But we're continuing to invest. You should not really mistake the language we shared with Yaron last year in the fourth quarter, we are not going to forsake investments in people, capability buildings in our claims organizations, operations, certainly, the body of work that Ana is now leading as our COO. We're going to continue to invest. We're going to make certain that the business cases can be justified and that Matt will certainly run point on that. But I would look at us more as an 11% GA company at the end of this year. Charles Lederer: And then on the net to gross written premium ratios we saw some fairly larger moves in both insurance even when excluding sale and in reinsurance. Can you break those down and some of this permanent or is there some other onetime noise in there. Matthew Kirk: Yes. There's a lot of noise. And I think you're going to see, particularly on insurance, the trend reversed to normalize. But let me just call out. What you're seeing in Q1 is our net written premium growth was 24% and higher than the 20% on gross, and that is somewhat unusual. Two things in the quarter. The FAO transactions, as you said, come net to us, so we have no reinsurance on that. That's roughly 2 points and we did retain more of our A&H business that relates to our pet business, reducing that quota share. So that's 2 items in the quarter. We also have some noise year-over-year -- last year, in Q2, we reduced our quota shares on excess and LMM and that really is falling through and is not comparable to this first quarter this year. So that is some year-over-year noise. You're going to get to the end of the year, and this will reverse and you'll see that pattern reverse completely. On the reinsurance side, you're absolutely right. You're seeing large decreases in net written roughly 13 points, that compares to our gross down 2 points. That's quite intentional where we've guided that we're focused on reducing our sessions in GLPL -- and we're also -- I'm sorry, reducing our writings in GLPL and we've also increased our sessions to our third-party capital providers. So that trend will continue throughout the rest of the year. Charles Lederer: And if I could just squeeze 1 last 1 in. We saw some industry loss estimates for the Baltimore Bridge get from a few years ago. move up this year. Are you guys fully reserved there? And how should we think about that? Matthew Kirk: Yes, it is a tragedy. So let me just give you a quick answer and then maybe allow me a few minutes to talk about it a little further. So in the quarter, we didn't have to move our loss reserves. We were conservatively picked, and we did have a small amount of reinstatements that we're going to need to pay. I think the broader point here is when I was thinking about coming to Access and speaking events he told us our reserves are conservatively test -- and then in my first 4 or 5 months here, are working with our actuarial team, I've seen that in action. And this is a perfect case where we really did not have any movements in our loss reserves. The increase in the expected industry loss was not a surprise to us, and it shows again that when it comes to loss picks, we're going to be conservative and really mine the books and only take good news when we have we're sure on it. So just overall, no movements in Baltimore bridge other than reinstatement premiums that we're pleased to report. Operator: And our next question comes from Andre Giselle with Mizuho. Unknown Analyst: Are Andre representing on Kinar here. My first question is about top line growth in insurance. There is some investment concerns surrounding the accelerated top line growth in insurance in the face of some market softening and MGA competition. how would you address those concerns over the long-term profitability of new added business? Vincent Tizzio: Andre, Vince. Again, we place bottom line ahead of top line. I would encourage you to look at where we grew. If you look at our core business, that grew sub-5%. Our expanded classes, which we've detailed for you over the last couple of years, grew some 7-odd percent, almost 7.5%, 7%, excuse me, and the balance came from ACS, where Matt really detailed the alignment of economic interests that we assure ourselves. I want to conclude by saying we will not grow for the sake of growing. We will grow guided by our 2 principles of diluted book value per share growth for the company but in our risk to risk business, achieving risk-adjusted returns that meet our hurdle rates, which we've detailed. And in part, this is exactly why I said to Elyse, if we think the market turns in a particular way that starts to prevent that -- we will sum in the same coverage we have over the many years in reshaping our portfolio. But the combination of investments that we've taken over the last 3 years gives us confidence at the moment that we can continue to grow our expanded classes have moderate to nominal growth in our core portfolio and selective growth in our ACS portfolio. Operator: And the next question comes from Meyer Shields with KBW. Unknown Analyst: Can you hear me? Vincent Tizzio: No. No, we can, Meyer. Can you kindly restate what you were saying? Unknown Analyst: This is Scott on for Meyer. My question is on your prepared remarks on cyber insurance. You talked about remaining cautious and you've pulled back cyber exposure over the last couple of quarters and years. growth did pick up this quarter. So I'm wondering are you seeing more adequate pricing even though rates are down. And then kind of follow-up to that with recent developments in AI, such as opcos model. Does that change how you guys have approached Reading Cyber in terms of terms and conditions? And then do you think there's going to be a shift in the industry overall? Vincent Tizzio: I didn't catch your first name. So I apologize, but I would acknowledge that $6 million of growth in the insurance segment is relatively flat when you think about the scale of the business. So we have a very cautious eye. And in the aggregate, our company downsized our cyber writings and you accurately accounted for the sizing of the business over the last couple of years. with specific reference to the impact of Mythos and Anthropic. For us, it is another example of the humility that we take to this class, how vulnerability in the security protocols of companies are facing yet another challenge, another challenge. Mythos makes the challenge more difficult as it's been well chronicled than a number of the articles that have been written, the ability for the perpetration of identifying the vulnerabilities without massive human capital now done through the AI tool exacerbates and makes more difficult in our judgment, the middle market and the small commercial concern. You may recall from prior calls, AXIS and its underwriting focus has steered its attention to the large account segment, betting on the hygiene standards that we bring generally to the underwriting process of cyber in reliance on the financial wherewithal to have the said tools and capabilities that meet this emerging exposure that is only being deepened by anthropics tool provided the threat actors become in the possession of it and are able to weaponize it. Equally, we have a partnership with Alpha Secure. We're a proud supporter of our partnership there. We have a financial interest in that organization as well. They are helping us prosecute our middle market strategy. Importantly, they have the said capabilities at risk diagnosis that extend beyond the underwriting process at the renewals. So we have surveillance abilities throughout the policy period. Net-net, Axis has a cautious view -- you could see that materially in the downsizing of our reinsurance cyber portfolio. You can see that largely in our insurance portfolio, I would not characterize $6 million as meaningful growth. And I would also point to we're cautioned broadly around the risk/reward. So to answer the end part of your question, we think this class should be repriced. We think there's enough ingredients in the loss environment -- there's enough reason for caution to be extended, limits management to be extended, all the ingredients that we think at AXIS were executing. Hopefully, that addresses your question. Unknown Analyst: Yes. Great. And then my second question is on the Middle East conflict. Matt talked about how about 1/3 of cat losses came stemming from the Middle East conflict. Has the conflict provided any opportunities in terms of rate increases for the lines affected? Or is it those the conflict kind of caused you guys to be cautious with those risks? Vincent Tizzio: I would say modest, but I would feel remiss if I didn't congratulate my underwriting teams out of London that have been completely all over it, and they're very noted practitioners in the marketplace, and I would reason with you globally. So I'm very proud of how they have been navigating very uncertain times. So we've had selective and modest writings since the war was announced. We remain very interactive with our third-party consultants for vision on the ground in terms of our risk profile. We know exactly where our exposures are. We put up a provision of $15 million thoughtfully. We do expect, as time proceeds, some increase in that number. We don't think it's outsized with the available information we have today. But we're very encouraged by what we've been analyzing, reviewing, and we think that what we've picked is a proper measurement. Matt, if you want to come over the top? Matthew Kirk: Yes. I would just say this was great for me to see the exposure management team at work. I mean the moment this conflict picked up our team mobilized. We have a great understanding of our limits our exposures. We came up with the $15 million based upon that, based upon notices we've received based upon advisers we have on the ground. And so $15 million is a round number. Could it increase, as Vince said, Sure, it could, but we feel very comfortable as we have a great understanding of our limited exposures. Operator: And the next question comes from Andrew Anderson with Jefferies. Unknown Analyst: This is Charlie on for Andrew. So my first question is just on insurance. How sensitive is the loss ratio there to further deterioration in property pricing? And how does that compare to how you guys are thinking about loss trend and reserve adequacy on the long tail side. Vincent Tizzio: So Charlie, this is Vince. How sensitive. I'm not sure how to answer that other than to say, we know the collars of orders of rate change that would change our view of risk and our underlying loss ratio assumption. I'm not going to stipulate to what that is exactly. But I think it's the right question that would give confidence to our investors that we're not looking at the achievement of the gross line indifferent to both our loss picks, the mix of the business that's coming in or our net retention. And so will we, at an appropriate time, signal should rate deterioration extend beyond a point of tolerance most assuredly. How will you see that reflected? You'll see it as you've seen it in other classes, Charlie, by way of memory, primary casualty, public D&O, delegated cyber, we will begin to reshape those portfolios quickly and with earnestness. Hopefully, that gives you help on the question. Unknown Analyst: Yes. Yes, for sure. And then just a quick follow-up kind of along that line. It looks like the paid to incurred kind of dropped a little bit relative to where it was trending in the past few quarters. Is there anything -- I mean, would you guys attribute that mostly to like timing or cat experience versus how much of that reflects changes in underlying claims development patterns. Vincent Tizzio: I think we're going to tag team this. Let me go ahead, Matt. Matthew Kirk: Yes. So look, we're well aware of the attention that this data point gets. And we'll say the same thing now when the time that the ratio is trending lower as we did when it was trending higher. It's 1 data point of many that we look at our portfolio and held by itself, it's not a good metric. So you're seeing it improve on insurance. You're seeing it on improved on reinsurance. That's good news, but it will continue to be volatile. And we, as an organization, look at a number of metrics to manage and understand these relationships. So I'll just leave there Vince anything to add. Vincent Tizzio: I think you covered it right. We've unpacked reasons why we think that ratio by itself is not very indicative of much. I think you've fashioned the reason for that. There's lots of reasons it could move. But we're comfortable with where it is balanced against our other indices, which we've outlined in the past that have really involved claims expectancy, reserve adequacy and many other factors, but I'll leave it there, Charlie. Operator: And this concludes today's question-and-answer session. I would now like to turn the conference back over to Vince Tizzio, CEO, for any closing remarks. Vincent Tizzio: Thank you, operator. Thank you all for your time and your questions today. We appreciate it. I want to extend sincere appreciation to all of our AXIS colleagues for their earnest effort, our shareholders and customers for your belief and conviction in our company -- we earn your trust each day with confidence and responsibility. We look forward to reporting our progress at the 2Q mark and look forward to chatting with all of you in the interim. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Hello, everyone, and thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Landmark Bancorp, Inc. Q1 Earnings Call. [Operator Instructions] I would like to now turn the call over to Shelley Reed. Please go ahead. Shelley Reed: Thanks, Ian. Good morning, everyone, and welcome to Landmark Bancorp's First Quarter Earnings Conference Call. My name is Shelley Reed, and I'm the Head of Corporate Strategy and Development and Head of Investor Relations. Joining me today are several members of our executive leadership team, including our President and CEO, Abby Wendel; Chief Financial Officer, Mark Herpich; and Chief Credit Officer, Raymond McLanahan. During today's call, we may make statements that constitute projections, plans, objectives, future performance, beliefs, expectations and similar forward-looking statements. These statements involve risks and uncertainties, which should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. We caution that such statements and predictions only and that actual results may differ materially. We include more information on these factors in our earnings release furnished with our Form 8-K yesterday as well as our Form 10-K and Form 10-Q filings and subsequent filings with the SEC. Additionally, all statements, including forward-looking statements speak only as of the date they are made, and Landmark undertakes no obligation to update any statement in light of new information or future events. Also, our remarks may reference certain non-GAAP financial metrics, which we believe provide useful information to investors. Additional disclosures regarding non-GAAP metrics, including the reconciliation of those non-GAAP metrics to GAAP are contained in our earnings release, which we filed yesterday with the SEC and are also available on the Investors section of our website at banklandmark.com. We caution that these non-GAAP financial metrics should not be viewed as a substitute for operating results determined in accordance with GAAP as contained in our earnings release and other filings with the SEC. A replay of this call will be available through May 7, 2026. Access information can be found in our earnings release. I will now turn the conference call over to our President and Chief Executive Officer, Abby Wendel. Abigail Wendel: Thank you, Shelley. Good morning, everyone, and thank you for joining us today as we discuss Landmark's earnings and operating results for the first quarter of 2026. Landmark is off to a strong start this year, reflected in solid performance across several key areas that position us favorably for the remainder of the year. Total revenue reached a record $18.8 million for the quarter. Earnings per share increased to $0.83, an increase of 6.7% over the fourth quarter of 2025 and 7.2% compared to the first quarter of 2025. Our return on assets rose to 1.29%, which is an increase of 12 basis points on a linked-quarter basis and an increase of 7 basis points year-over-year. I am very pleased with the bank's performance and improved profitability levels, which are a direct reflection of our associates' hard work and advancement of our strategic initiatives. Our market positioning is strengthening as well, and we look forward to the months and years ahead. Net interest income increased 1.6% on a linked-quarter basis to $15 million, while our net interest margin expanded to 4.24%, up 21 basis points versus the fourth quarter of 2025. Our favorable net interest margin is supported by our solid core customer base and disciplined pricing approach, enabling us to sustain a healthy core revenue base. Loans ended the quarter at $1.1 billion, down slightly $13.5 million from year-end 2025, but up $23.3 million from a year ago. We are seeing strong growth in our commercial real estate portfolio, which offset reductions in our agriculture portfolio. Our residential mortgage portfolio was also down as more of our originations were sold into the secondary market versus retention on our balance sheet. The impact of selling more originations, coupled with payoffs and paydowns during the quarter accounted for slightly more than $7 million of the $13.5 million decrease in loan balances this quarter. Mortgage originations, however, were up 9% over the first quarter of 2025, driving an increase in gain on sale income as we sold more loans into the secondary market. On the deposit side, the reduction in balances for the quarter was largely driven by seasonal outflows of public fund deposits, coupled with the strategic decision to replace some brokered funding with FHLB borrowings. What I'm most excited about is the continued growth in our core customer deposits, which increased 1.6% on a linked-quarter basis, reinforcing the value our customers place in our relationship-based banking approach. We remain focused on growing our core customer accounts in our local communities to strengthen our presence and deepen our relationships within the communities we serve. Later in the call, Mark Herpich, our CFO, will provide additional details on our financial results. Net charge-offs were 13 basis points of average loans during the quarter, while nonperforming loans increased $384,000. Raymond will provide more details on our asset quality later in this call as well, but I want to highlight that credit risk management remains a top priority as we work to further enhance the stability and quality of our portfolio. Additionally, we remain focused on strengthening overall risk oversight and thoughtfully reinforcing our balance sheet and capital position. These priorities ensure we are well positioned to remain resilient and adaptable across all economic environments. Tangible common equity to assets increased 8.11%, while tangible book value per share ended the quarter at $20.89. I am pleased to report that our Board of Directors has declared a cash dividend of $0.21 per share to be paid May 28 to shareholders of record as of May 14, 2026. This represents the 99th consecutive quarterly cash dividend since the parent company's formation in 2001. Looking ahead, we will continue making targeted investments in revenue-generating activities to better meet evolving customer needs. At the same time, we are actively evaluating opportunities to improve efficiency and modernize how we deliver banking services across our footprint. I will now turn the call over to Mark Herpich, our CFO, who will review the financial results in more detail with you. Mark Herpich: Thanks, Abby, and good morning to everyone. While Abby has just provided a highlight of our overall strong financial performance for this year, I'll provide some further details on our first quarter results. Net income in the first quarter of 2026 totaled $5.1 million compared to $4.7 million in the first quarter of 2025, mainly due to continued growth in net interest income. In the first quarter of 2026, net interest income totaled $15.0 million, an increase of $234,000 compared to the fourth quarter of 2025, driven by increased investment portfolio yields and lower funding costs. Net interest income also grew $1.9 million compared to the same period last year. Total interest income on investments increased $21,000 as compared to the prior quarter to $2.9 million due to higher yields on investments improving from 3.39% to 3.55%. Average loans decreased by $12.8 million and while the tax equivalent yield on the loan portfolio remained flat at 6.4%. Interest expense on deposits in the first quarter of 2026 decreased $527,000 from the prior quarter, resulting from lower cost of deposits, while average deposit balances decreased slightly but remained steady at $1.4 billion in the first quarter. Interest expense on borrowed funds also decreased by $296,000 due to lower average balances and lower borrowing rates. The average rate on interest-bearing deposits decreased 16 basis points to 1.90%, mainly due to lower rates on deposits. The average rate on other borrowed funds decreased 8 basis points to 4.85% in the first quarter as a result of the lower short-term Fed funds rate. Landmark's net interest margin on a tax equivalent basis improved 21 basis points to 4.24% in the first quarter of 2026 as compared to the fourth quarter of 2025 and has improved 48 basis points compared to the first quarter of 2025. Noninterest income totaled $3.8 million this quarter, a decrease of $135,000 compared to the prior quarter, but an increase of $406,000 as compared to the first quarter of 2025. The decrease in comparison to the prior quarter resulted primarily from a $308,000 decline in fees and service charges, driven by a seasonal decrease in interchange income and lower overdraft income during the first quarter of 2026. This decrease was partially offset by an increase in gains on sales of investment securities, driven by $101,000 of losses recognized during the fourth quarter as part of our strategy to reposition our investment securities portfolio to improve future income and an increase of $87,000 in bank-owned life insurance income. Noninterest expense for the first quarter of 2026 totaled $11.9 million, a decrease of $362,000 compared to the prior quarter. This decrease related primarily to decreases of $492,000 in compensation and benefits expense and an impairment loss taken on repossessed assets held for sale of $356,000 in the prior quarter. These decreases were partially offset by an increase of $472,000 in other expense. The decrease in compensation and benefits resulted from lower incentive compensation in the first quarter of 2026 as compared to the fourth quarter of 2025. The increase in other expense was primarily related to $433,000 of fraud losses recognized during the quarter related to previously disclosed fraudulent activity by a nonexecutive officer of the bank, coupled with higher insurance loss reserves at our captive insurance subsidiary. The recorded fraud loss excludes any potential insurance recoveries we may receive. This quarter, we recorded tax expense of $1.3 million, resulting in an effective tax rate of 19.8% as compared to tax expense of $1.2 million in the fourth quarter of 2025 for an effective tax rate of 20.0%. Gross loans decreased $13.5 million in the current quarter compared to the previous quarter and totaled $1.1 billion at quarter end. Average loans also declined by $12.8 million in the current quarter as compared to the prior quarter. As of March 31, we experienced decreases in our agricultural portfolio of $16.2 million and our residential real estate loan portfolio of $7.0 million, which were partially offset by a $13.6 million increase in our commercial real estate portfolio. Investment securities decreased $6.1 million during the first quarter of 2026, mainly due to maturities exceeding our levels of purchases. Our investment portfolio has an average duration of 4.3 years with a projected 12-month cash flow of $68.7 million. Pretax unrealized net losses on our investment portfolio increased by $3.8 million to $11.3 million this quarter due to rising interest rates. Deposits totaled $1.3 billion at March 31, 2025, and decreased by $66.2 million in the first quarter compared to the prior quarter. This quarter, interest checking and money market deposits decreased by $61.6 million, while certificates of deposits declined by $10.8 million. The quarterly decrease in deposits was driven primarily by seasonal outflows in public fund deposit account balances, along with a decline in broker deposits as we were able to leverage slightly lower cost of funding from other borrowing sources like the Federal Home Loan Bank. These decreases were offset by growth in core customer deposits. Our total borrowings increased by $57.3 million during the quarter as deposit growth allowed us to reduce more expensive short-term borrowings. Our loan-to-deposit ratio totaled $82.1 million at March 31 and continues to provide sufficient liquidity to fund future loan growth. Stockholders' equity increased $980,000 during the first quarter to $161.6 million at March 31, 2026, and our book value increased to $26.50 per share at March 31 compared to $26.44 at December 31. The increase in stockholders' equity this quarter mainly resulted from net earnings from the quarter, partially offset by an increase in other comprehensive losses. Our consolidated and bank regulatory capital ratios as of March 31, 2026, are strong and continue to exceed the regulatory levels considered well capitalized. Now let me turn the call over to Raymond to review highlights of our loan portfolio and the credit risk outlook. Raymond McLanahan: Thank you, Mark, and good morning to everyone. As discussed earlier, overall loan balances declined modestly during the first quarter, reflecting our continued focus on disciplined growth and active balance sheet management. While total gross loans ended the quarter at $1.1 billion, down approximately $13.5 million from year-end, we continue to see targeted growth in our commercial real estate portfolio, which increased by $13.6 million during the quarter. This growth was offset primarily by seasonal paydowns and planned reductions in agricultural loans which declined $16.2 million, along with modest decreases in the one-to-four family residential, commercial and commercial construction and land portfolios. Consistent with our long-standing credit philosophy, we remain selective in new originations and proactive in managing exposures that no longer align with our risk appetite. While strategic exits were more limited this quarter compared to the fourth quarter of 2025, we continue to actively work down select relationships where credit fundamentals or longer-term outlooks warrant a reduction in exposure. Turning to credit quality. As of March 31, 2026, nonperforming loans totaled $10.4 million or 0.94% of gross loans, reflecting a slight increase from 0.90% at year-end. The increase was primarily attributed to a single $1.3 million commercial relationship that ceased operations shortly after quarter end. While no specific impairment had been identified at quarter end, we prudently moved the relationship to nonaccrual following the change in operating status. The borrower is working cooperatively with the bank to self-liquidate and subsequent to quarter end, the outstanding balance was reduced by approximately $500,000. We continue to closely monitor this situation and believe it is being addressed appropriately. Loans delinquent 30 to 89 days and still accruing interest totaled $7.4 million or 0.68% of gross loans compared to $4.3 million or 0.38% at December 31. The increase in past due balances was primarily attributed to a $2.2 million agricultural relationship and a $1.8 million loan secured by several 1-to-4 family residential properties. While this represents a quarter-over-quarter increase, the underlying drivers are borrower-specific, and we believe these metrics remain manageable as we work through resolution and expect improvement over time. We continue to benefit from a well-diverse loan portfolio and consistent underwriting standards, which have helped limit broader adverse credit migration. Net loan charge-offs during the first quarter totaled $349,000, consistent with the $341,000 recorded in the fourth quarter of 2025. On an annualized basis, net charge-offs represented approximately 0.13% of average loans, which we continue to view as manageable and reflective of the underlying strength of our portfolio. The allowance for credit losses increased slightly to $12.6 million, representing 1.15% of gross loans compared to 1.12% at year-end. We recorded a $500,000 provision for credit losses during the quarter, reflecting portfolio mix changes, updated economic assumptions and continued prudence in reserving practices. We believe the allowance for credit losses remains appropriately -- appropriate relative to the current portfolio risk and identified credit trends. From an economic standpoint, conditions across Kansas remains generally stable. Employment levels continue to support borrower cash flows. And while certain sectors are experiencing pressure from higher operating costs and interest rates, we have not observed systemic stress within the portfolio. Overall, certain credit metrics remain modestly elevated. We believe these trends are manageable and should improve over time as we work through a small number of borrower-specific situations. Our focus remains on disciplined underwriting and proactive risk management. Thank you, and I'll turn the call back over to Abby. Abigail Wendel: Thank you, Raymond. As 2026 continues, we will continue investing in our associates and making thoughtful strategic decisions that enhance our customers' experience and position us to grow in the markets we serve. I am sincerely grateful to our associates for their continued dedication to putting people first and for fostering the meaningful connections that support our customers and strengthen the communities we proudly serve. If there are any follow-up questions to today's call, please see our earnings release for our CFOs and our Investor Relations contact information. We appreciate everyone being on today's call, and we look forward to talking with you again in July. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good morning, and welcome to the Molson Coors Beverage Company First Quarter Fiscal Year 2026 Earnings Conference Call. With that, I'll hand it over to Greg Tierney, Vice President, Commercial Finance, FP&A and Investor Relations. Greg Tierney: Thank you, operator. Following prepared remarks today, we look forward to taking your questions. [Operator Instructions]. If you have technical questions on the quarter, please reach out to our IR team. Also, I encourage you to review our earnings release and earnings slides which are posted to the IR section of our website and provide detailed financial and operational metrics. Today's discussion includes forward-looking statements within the meaning of federal securities laws. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our most recent filings with the SEC. We assume no obligation to update forward-looking statements as required by applicable law. The definitions of or reconciliations for any non-U.S. GAAP measures are included in our earnings release. Unless otherwise indicated, all financial results we discuss are versus the comparable prior year period and are in U.S. dollars. With the exception of earnings per share, all financial metrics are in constant currency when referencing percentage changes from the prior year period. Also, share data references are sourced from Sircana in the U.S. and from Beer Canada and Canada unless otherwise indicated. Further, in our remarks today, we will reference underlying pretax income, which equates to underlying income before income taxes and underlying earnings per share which equates to underlying diluted earnings per share as defined in our earnings release. And with that, over to you, Rahul. Rahul Goyal: Thank you, Greg. Now before I begin, I want to recognize our team for the focus and commitment they've demonstrated this year. We're operating in times and the work happening across our markets gives me confidence in our people and our direction. In the first quarter, we announced Horizon 2030, our strategy designed to strengthen our business and drive long-term value creation. We took action right away. For example, we said we'd leverage M&A to fill portfolio gaps, and we did just that by establishing a position in RTDs. We also said we'd extend our share buyback program, and we executed on that as well. because we believe our shares are a compelling investment. While it's early in the year, we navigated a complex external environment and continue to make progress against our strategy. At the same time, the U.S. beer category started the year on better footing. However, macro uncertainty continues to put pressure on input cost and consumer behavior, especially lower income consumers. For beer, the number of trips and buyers improved while consumer sentiment declined. In EMEA And APAC macro pressures increased over the quarter, driven by geopolitical events, including the conflict in Iran impacting fuel costs and consumer sentiment. Now that said, we believe Molson Coors is positioned to navigate this moment and strengthen our business, supported by our strong balance sheet, free cash flow generation and our portfolio that spans price points, geographies and consumer occasions. And based on what we are seeing today, we are reaffirming our full year guidance and remain confident in our ability to execute against our priorities. As we move through 2026, we're acting with speed and intent balancing near-term execution with our goal of long-term growth. In Q1, we continued to sharpen our portfolio focus strengthen our commercial model and move accountability closer to our customers and consumers. While these efforts will take time to show up in our results, we're encouraged by the early progress. Our strategy begins with building strong and scalable brands that matter across beer and beyond beer. Our momentum in bars and restaurants and venues is a great example. Across the on-premise, our top 6 brands all delivered share growth in the quarter based on Nielsen CGA. This includes Miller Lite, Miller High Life, Coors Light, Banquet, Blue Moon and Peloni demonstrating our strength in the channel across a range of price points. In Q1, we were among the top bev-alc Barak advertisers during March Madness and the exclusive sponsor of ESPN's bracket challenge reflecting our commitment to high-impact occasions. Looking ahead to the summer, we are also making a single largest media environment in many years tied to the World Cup, which will include multiple brands across our portfolio. This investment includes in-match media buys, extensive local activation in key markets, podcasts and influencer partnerships. Now let's get into how our core brands performed in Q1. While U.S. brand volume trends improved, our share wasn't where we wanted it to be. We are executing against the actions we outlined in February, including new creative for all the 3 of our U.S. core brands. Coors Banquet continues to build momentum. And in Q1, it returned to national sports advertising for the first time in 5 years, an important milestone for a brand with enduring consumer relevance. Miller Lite faced challenges in the quarter, mostly driven by heightened competition in a couple of U.S. regions. So we are working quickly and taking targeted actions, including new ads in English and Spanish for the World Cup and a custom visual identity and activation platform for America's 25th anniversary. Outside the U.S., we are also taking steps to protect and strengthen our core brands. In Canada, Coors Light remains the #1 premium light beer and is holding industry share. In the U.K., we reintroduced a fan favorite in Carling Black Label. And in Central and Eastern Europe, several of our key brands including and Yellen remain #1 or #2 brands in their home markets despite challenging economic conditions. Now moving to the value segment. We've acted quickly while recognizing this is a long-term journey. While Miller High Life share has been fairly stable and is doing particularly well on premise, the needs some attention, and we are taking action. Distributor orders for Keystone Apple are pacing ahead of expectations. And even more recently, our decision to reintroduce Keystone Ice was extremely well received by our network. We're encouraged by the early signals as well as the continued expansion of Miller High Life Light, which is now available in 22 states and performing well. Turning to above premium beer we held U.S. industry share in Q1, supported by our priority brands. Peroni continues to gain momentum and saw increased media investment during the Winter Olympics. Blue Wound non-alc also continues to perform well, and we recently launched new creative for the Blue Moon franchise. We're encouraged by the sustained on-premise trend improvements for Belgium Wide, while recognizing that a full turnaround will depend on continued focus and consistent execution. In the U.K., we saw some softness inventory, driven by aggressive competitive pricing. Importantly, we do not believe this is a brand health issue. We're responding with intention, adjusting our commercial actions to remain competitive while protecting Madri's long-term strength. Our media investment for Madri is just now turning on for the year, and we continue to build the franchise with innovation like Madri Livon. Moving to Beyond Beer. We're scaling up here and we're making great progress. This is the fastest-growing part of our portfolio, supported by brands like Fever Tree, Hard and as of this month, Monaco cocktails in the United States. Fever Tree delivered strong execution and contributed meaningfully to our top line performance in this quarter. The brand continues to resonate with distributors, retailers and consumers reinforcing our confidence in its long-term potential. We just launched the brand's first national ad campaign in the U.S. a few weeks ago, which we will be supporting with in-person events at sponsorships this summer, including the PGA Tour. Moving to Topo Chico Hard, which returned to growth in Q1 after our regional focus last year. The turnaround of this brand is a prime example of local execution down right. Looking ahead, we believe Topo Chico Hard will benefit from World Cup media support in both English and Spanish language. We also announced the acquisition of atomic brand maker of Monaco Cocktails during this quarter. This brand is highly incremental to our portfolio and strengthens our position in convenience Importantly, we believe Monaco fits naturally within our route to market and gives us a platform to compete in RTDs. Integration is now underway, and we are approaching it with rigor. Monaco adds immediate scale to our portfolio and it fits into the M&A criteria that we outlined in February. As we expect Monaco to contribute about 1% to global MSR on a trailing 12-month basis, while also delivering incremental profitability in year 1 with 9 months in our portfolio. As part of this deal, we also retained about 80 members of Monaco sales teams, providing continuity and immediately expanding coverage for our Beyond Beer portfolio. Combined with the team members we added for non-ag last year, we are meaningfully expanding our execution muscle at the point of sale. These feet on street should allow us to be more present for our customers, more agile in the marketplace and more effective across Beyond Beer. To further support our portfolio ambition, we've also continued to rewire how our teams operate with an emphasis on speed and bold actions. We've implemented changes to our operating model including clear performance measurements and revised incentive structures, ensuring that our people have both the authority and accountability to drive the business. We've established new routines for our commercial teams that encourage responsive investments across the portfolio rather than silo brand level budgets. This approach recognizes that our commercial investments should be dithering with clear trade-offs being made to fund the highest impact initiatives in realtime. This practice takes local dynamics into account, in addition to factors like marketing effectiveness. These changes are designed to drive a strong results-oriented mindset across the organization while also improving the team's speed and execution. We've also taken steps to advance our 3-year $450 million cost savings program, announcing further actions in Q1 to strengthen our cost base. These include restructuring actions in EMEA and APAC and closing a brewery in the U.K. alongside other operational changes designed to unlock efficiencies in a region facing cost inflation and increasing macro uncertainty. These actions help us manage 2 periods of higher inflation, while the initiatives we put in place in the Americas last year should also deliver a benefit in 2026, help offset cost pressures. Traci will discuss this further, but to summarize, we are operating amid heightened valuability and are managing through it thoughtfully. Finally, Capital discipline remains central to how we run Molson Coors. We continue to apply a balanced capital allocation approach, investing behind our brands, pursuing M&A to strengthen the portfolio and returning cash to shareholders. We remain committed to our dividend and share repurchase program, and we continue to view Molson Coors as a compelling long-term investment. Now as we move into summer, we are clear-eyed about the work required to strengthen our business. This is complex work. We recognize it will take time. And while the external environment remains dynamic, 3 things hold true. Our direction is clear, our priorities are defined and our teams are executing with urgency and in depth. Just as importantly, where performance has been more pressured, we are now addressing it with far greater precision. For brands like Miller Lite, we have a much clearer view into where and why and how it's performing by region, by channel or by execution lever, and we are taking targeted actions. This sharper diagnostic approach gives us the confidence that we can stabilize trends and rebuild momentum overtime. The progress we're seeing across many brands, the more targeted ways we are addressing challenges and the operating changes we put in place all gives us confidence in our ability to improve portfolio performance and create long-term value. Now with that, I'll turn it over to Tracey to discuss our financial performance and outlook. Tracey Joubert: Thank you, Rahul. In the first quarter, on a constant currency basis, consolidated net sales revenue was up 0.1% and underlying pretax income was up 16.2%. Underlying earnings per share increased 24%. On an underlying basis, the key quarterly drivers were positively impacted by some phasing considerations, but otherwise, were largely in line with our expectations. The U.S. beer industry was down minus 1.6% based on our internal estimates. Our U.S. volume share was down 60 basis points based on our internal estimates, including relatively better share performance in the on-premise channel compared to the off-premise. U.S. domestic shipments outpaced brand volumes, resulting in a roughly 1 percentage point benefit to America's financial volume in the quarter. EMEA and APAC brand volume declined 3.4%, primarily driven by ongoing soft market demand and a heightened competitive landscape in the U.K. The Midwest premium remained elevated, adding approximately [ $13 ] million of year-on-year cost increase to Q1 cost of goods sold. And G&A was down 9.1%, largely due to lapping approximately $30 million in prior year transition costs, coupled with lower employee-related costs which more than offset additional investments in technology. Turning to the balance sheet. At quarter end, net debt to underlying EBITDA was 2.5x. This was an expected increase from year-end 2025, as we normally see a sequential uptick in the first quarter given lower cash balances. Earlier this year, we announced that we had increased both the amount and the duration of our stock repurchase program, increasing our total authorization to up to $4 billion through December 31, 2031. And in the first quarter, we continued to make progress against this authorization. We paid $94 million in cash dividends and $164 million to repurchase 3.4 million shares in the quarter. Since the plan was announced in October 2023, we have repurchased 14.8% of our Class B shares outstanding. And as we previously announced, in the first quarter, we raised our quarterly dividend to $0.48. This is an increase of 2.1% and represented our fifth consecutive year of increases. This clearly demonstrates our intention to sustainably increase our dividend. And given our share repurchases, we were able to raise the dividend while decreasing absolute dividend cash payment. With that, let's discuss our outlook. As Rahul mentioned, we are reaffirming our 2026 guidance. Now before we get into the details, I'll remind you that the impacts of the global macro environment are multifaceted and difficult to predict. And while we have included in our guidance our best estimate of some of these factors, external drivers may significantly impact our actual results either up or down. Starting with the top line, we expect to ship to consumption in the U.S. but now expect some variability by quarter. After relatively stronger performance in the first quarter, we expect our U.S. shipments to be down 6% to 9% in the second quarter our brand volume trends with shipments outpacing brand volumes in the second half of the year. And with the addition of monitor cocktails, we will recognize 9 months of NSR and profit contribution as we integrate the Monaco brand portfolio into our network. This impact is included in our guidance assumptions. All other top line drivers remain largely unchanged. We continue to expect the full year 2026 U.S. industry volume trend to improve versus the down 5% we experienced in 2025 and expect our balance of year share performance to improve versus the first quarter as we continue to execute our strategy. We continue to expect an annual net price increase of 1% to 2% in North America in line with the average historical range and expect mix benefits from premiumization in both business units. Moving down the P&L, we expect COGS to continue to be negatively impacted by rising commodity costs, as premium and base aluminum remain elevated versus the prior year. EMEA and APAC, in particular, experienced additional uncertainty given current geopolitical issues. On Midwest premium, we continue to expect elevated costs relative to 2025. For the balance of 2026, we believe we have meaningful hedge coverage, meaning that the impact of the recent rise in prices since February should be a manageable headwind. And on phasing, we expect Midwest premium to be inflationary over the balance of the year with the largest increase currently anticipated in Q2. Recall that last year, we highlighted that the rising cost of Midwest premium was a $35 million headwind with most of the increase realized in half 2. As for MD&A, we continue to expect a significant increase versus 2025 over the balance of the year due to several factors. First, as previously highlighted, we expect incentive compensation expenses to be higher than 2025, with the largest increase expected in the second quarter. We also expect to make additional capability and technology investments to help drive our strategy and modernize our ERP system. And as with most acquisitions, we will have higher costs in the first year as we integrate the Monaco business. As an example, we are adding over 80 members to our sales team and expect to incur additional costs as we market and integrate the brand into our business. And to mitigate near-term headwinds, we continue to take deliberate actions in driving our 3-year $450 million cost savings program. Rahul mentioned the actions we put in place in EMEA during the first quarter. We've also taken additional cost savings actions that are designed to optimize our supply chain within the Americas. These actions are expected to add to the savings driven by the implementation of the Americas structure and operating model at the beginning of the year. And lastly, we remain focused on driving capital allocation decisions that we believe deliver long-term shareholder value. We've just added Monaco Cocktails to our portfolio and have again made meaningful progress in executing our share repurchase program. We continue to be a very cash-generative business. And looking forward, we continue to have optionality in supporting growth initiatives, returning cash to shareholders and evaluating debt paydown versus refinancing scenarios, while continuing to expect our year-end leverage ratio to remain below 2.5x. In closing, with a solid start to the year, a strong global brand portfolio, a healthy balance sheet and strong cash generation, we are confident in our ability to navigate near-term uncertainty while supporting the long-term health of our business and brands. And with that, we will take your questions. Operator: [Operator Instructions] The first question today comes from Filippo Falorni with Citi. Filippo Falorni: Rahul, I was hoping to get your perspective on the U.S. beer industry. I think you mentioned like a 1.6% decline in Q1. Just what are your expectations as we move forward into the summer, especially with the World Cup and the Americas 250? And then, Tracey, I was hoping you can provide a little bit more color on the reason behind different shipment versus depletions in Q2 in the back half? What is driving the undershipment in Q2 and then stronger shipments in the back half? Rahul Goyal: Thank you for the question. If you think about the industry, and we spoke about this in February, coming into this year, we did expect 2026 to be better than 2025, right? And if you think about consumer sentiment and obviously, the challenges the category had in '25, the quarter 1 has turned out to be, I would say, a little bit better than what we expected. And all the science suggests that the balance of the year continues to be strong versus 2025. Your question about how do we see the summer? I mean, we're pretty excited about going into the summer for a couple of reasons for the category and for our portfolio. We have some big events that are occasion friendly from a beer perspective. So whether that's Americas 250th celebration, whether that's the World Cup, so we feel pretty good about the balance of the year in terms of what the category can do compared to 2025. Now we do need to just keep in mind some of the volatility that still exists from a consumer perspective, as you probably saw at the end of March, early April, fuel prices, consumer sentiment in the U.S. was pretty low. So again, we remain cautious in terms of -- and balance, but I definitely see the category being healthier than what 2025 is. And the exciting part in this is for our portfolio, right? I mean all the commercial tools that we have in getting behind our brands, whether it's in Coors Light or to a World Cup or it's Miller Lite with Americas 250, all the other brands, I mean all of that is coming live right now and getting into the summer. So I would say, broadly speaking, healthier category this year versus last year, and a lot to get excited about going into the summer. Tracey, do you want to touch on the Q2? Tracey Joubert: Yes. Thanks, Rahul. Listen, so I think overall, we want to say that we do expect to ship to consumption in the U.S. for the year, but we do expect some variability in the quarter. So as we said, we expect our STW to be down between 6% and 9% in the second quarter, trailing the brand volume trends. But we've been with shipments outpacing STRs for the second half of the year. So specifically, what impacts Q2, just looking at Q1, we did have some challenges with some one-off events related to weather and energy supply, et cetera, to our facilities, and we had some challenges with upgrades that we were making in our breweries and then also some challenge with some of our suppliers, particularly glass supply. But we have been working with our suppliers, and we were able to ship ahead of the brand volume in the quarter. But there still remains a few pinch points in some of our packages and our network is feeling it. But our team is focused on this, and we're confident that we'll continue to make progress throughout the quarter, and we are communicating consistently with our network. Also recall that we're citing relatively higher inventory levels from Q2 of last year. And then in addition, for Q2, we do have some planned downtime to make some line upgrades in our Shenandoah brewery. So that's also contributing to lower shipments versus the last year. But look, importantly, this is a temporary disruption. And we are expecting to benefit from our efficiencies and our qualities with all of these upgrades, et cetera, that we're making in the long term. Rahul Goyal: Yes. And if I could add something, Tracey. I mean we have a strong commercial program planned for the summer, and we feel good about making sure we can execute against that. And as Tracey mentioned, there is maybe a couple of packages that we have a few bench points on that we're working very closely with our network on. Operator: Our next question comes from Peter Grom with UBS. Peter Grom: Great. Thank you, and good morning, everyone. Maybe picking up on that a little bit. So you touched on the optimism around the path forward and related to Filippo's question. But obviously, the world has changed a bit over the last 2 months. So I'm just curious if you've seen any shift in demand or channel dynamics as you exited the quarter or through April? And then just the guidance for Q2, minus 6% to me, I mean, that's a relatively wide range for 1 quarter. So can you maybe help us understand what do we think to be at the more favorable end of that versus the lower end? Rahul Goyal: Yes. I think, Peter, I mean I know we don't talk about in-quarter results. But I think to your point of sentiment, I think that's where the, I would say, somewhat cautioned in the balance of the year thinking, right? I mean there is still some variability if you think about just what happened in the Middle East and the impact across consumer sentiment at the end of March, fuel prices play an important role in terms of how consumers think in terms of purchasing at convenience. So again, we're going into the summer with a level of confidence because we do have a lot of high beer occasion events planned. But on the other hand, we recognize the macro issues still around the category. So that's why we -- I would still mention that category health this year is probably better than 2025. How that plays out in the next few quarters, I think we'll obviously keep watching. So hopefully, that answers your first question. I think your question of phasing of Q2. Within the 6 and 9, I mean, we obviously, as Tracey mentioned, our goal is to always shift to consumption, that's what we're going to keep focused on. It's just we wanted to make sure we were being transparent in terms of on how second quarter is going to play out. Our supply chain teams are absolutely working with some of our glass suppliers to make sure we can get enough product out to our distributors. But again, these are particular packages in particular geographies. But overall, we feel good about making sure we can meet the moment in the summer. Operator: The next question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: So in the presentation, you talked about you would expect market shares to improve over the balance of the year relative to the first quarter. Can you just give us a sense of what an improvement means, does that mean back to share growth and some of the key drivers as you see them? And you just -- one, I guess, like logistical clarification, when you say that inflation will be the highest in Q2, are you referring to the increase in COGS per hectoliter should be the highest in Q2 relative to the full year? . Rahul Goyal: Thank you. So I'll take the first 2, and Tracey, maybe the inflation one, you can. So Chris, you're absolutely right in terms of share and as I said in my prepared remarks, I mean, we have work to do there. It is not where we want it to be. So if you break down our portfolio and shares and even Q1 and going into the balance of the year, I would say we've made progress, obviously, on the flavor side. So if you look at Pochico and flavor as a whole, I would say we've got to growth, share in growth, so flavor, we're making progress. If you look at our above premium beer, we're definitely making good progress in terms of share. The value segment is where we have had a leaky bucket for a long time, and that's why we emphasized on this as part of our new strategy. And frankly, this is where we have more work to do going forward. So High Life, I would say, is doing okay, and we have more on Keystone. So to your point of market share and balance of year, value is something we need to show progress on. Now one of the things we have done is done a few things to make sure we can get Keystone stronger. And so we are obviously launching Keystone Apple, getting ready for summer. We're bringing back Keystone Ice. So we have a few things in the pipeline that we've announced with our network to make sure we can slow down the leaky bucket in a way for our value part of the portfolio. I would say in our core portfolio, that's where probably we have a little bit more work to do on Miller Lite. and continues to grow Miller Lite is holding its own in a good way. But Miller Lite in a couple of regions in the U.S. in Q1 I would say we have more work to do there. But the good part is that we know where the issues are. We're taking actions, whether it's through campaigns, whether it's through other commercial levers. And this is where the local execution matters, right? Because this is not a national concern is in the particular geographies where there's competitive action, and our teams are reacting swiftly and strongly. So I think from your point of share, that's an important measure for us. Obviously, STR trends in Q1 were better than Q4. But I believe we have the right plans and get into summer. I think your question on drivers, I mean, those were the big ones that I would break out for different parts of our portfolio. And maybe the only other element I'd call out is a lot of the things we have on commercial pressure and the cyclicality of our business, as you know, is summer. So the next 4, 5 months, 6 months become important to win the year, and I think our teams are pretty energized to go after that. Tracey, do you want to talk about the inflation point? Tracey Joubert: Yes, Chris. So look, we do expect COGS to continue to be negatively impacted by the rising commodity costs that we're seeing. The Midwest premium and base aluminum and our fuel prices have continued to increase versus last year. Specific to Q2, we are expecting the Middle East premium to be inflationary again. But that largest increase we currently anticipate in Q2. Because if you recall last year, we highlighted that the rising cost of the Middle East premium was about a $35 million headwind, but most of that increase was realized in the second half of the year. So hopefully, that helps. Operator: Our next question comes from Robert Moskow with TD Cohen. Unknown Analyst: This is [ Seamus Cassidy ] on for Rob. I wanted to ask about capital allocation. You repurchased 3.4 million shares in the quarter, which was a big increase year-over-year, while simultaneously closing Monaco and you ended the quarter just above your 2.5x target leverage range. So question is how do you rank order those priorities from here? Specifically, is buyback pace a lever you pull back on? Do you delever towards the target? Or does the 2.5x ceiling kind of flex upward if the right incremental M&A opportunity were to come along? Rahul Goyal: Good morning. Thanks for that. Tracey, do you want to take that one? . Tracey Joubert: Yes, sure. Look, we do intend by the end of the year that our leverage ratio is back to the 2.5x below 2.5x. Now remember, Q1 is a cash use quarter for us. And so typically, we do expect the leverage to be a little bit higher. But as I say, our intention is to be aligned with the leverage ratio of below 2.5x by the end of the year. In terms of how we look at capital allocation, I mean, there are 3 main buckets. We use models to determine how it's return for our shareholders in particular year. And so of those buckets, we focused on continuing to invest behind our business, whether that be behind our brands or with M&A. And we announced on the first of April our acquisition of the Monaco Cocktail brands. So that would have been a use of our capital. But also, we do intend to continue to return cash to shareholders. And that is one of the capital allocation priorities. Now returning cash to shareholders is both dividends and share buybacks. From a dividend point of view, the intention is to sustainably increase our dividend, just as we have done for the last 5 years. And then as it relates to share buybacks because we do see our shares as a compelling investment. We did announce in February the extension of the program to the end of December 2021 and also the increase to $4 billion. So typically, we would look at our capital allocation priorities and make sure that we are getting the best return for our shareholders, and that may differ from quarter-to-quarter. But we are still focused on on returning cash to shareholders. The 1 thing this year is we do have a $2.4 billion debt coming due in July. And we have approval to refinance somewhere between $1.1 billion and $1.9 billion of that debt. So that's also one of the capital allocation priorities is to make sure our balance sheet remains strong, and we maintain our target debt leverage ratio. Operator: The next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: Great. I was wanted you talk a little bit about the value brand strategy in the U.S. that you talked about at CAGNY, particularly on sort of the more localized approach. You discussed it as being kind of analysis phase. But curious kind of where you stand on that? Are you starting to move into implementation mode, any kind of key thoughts as you move forward on that front? Because in the prepared remarks, you spoke more about -- you did speak about Miller, of course, and like local issues there, but really want to hone on the value portfolio. Rahul Goyal: Thank you, Lauren. No, absolutely. I think it's a great point because if you think about our focus on value historically, I mean -- and if you -- if you look at our results, I mean it has been a big leaky bucket, as I call it, right? And so we do need to -- we are putting all the right plans in place in terms of localizing. So if you look at our portfolio in terms of the value brand, we have a pretty large base of our business in the United States on value, but it is a very localized portfolio. I mean we have 2 big brands with Miller High Life and Keystone but then a number of other brands that are very local. So first, we want to make sure our big value brands are in a healthier place. So if you think about High Life on-premise share is pretty good. And if you look at Nielsen CGA, we grew share with High Life and on-premise. So I think you're going to continue to see us focus on High Life in different ways. I think I talked previously about High Life Light. Again, expanding into not the entire country, but I think we have now -- we have that now in about 20-odd states. So we are going to be very localized in terms of being sure that brands works well. Keystone is something we have more work to do, but you see us innovating around Keystone now with Apple with also Keystone Ice and bringing that in particular geographies. Again, when we talk about execution being local, that applies to our entire value portfolio. These brands have a lot of loyalty, a lot of following in particular parts of the country. And therefore, how we invest behind these brands, how we execute behind these brands is very different than how we think of worldwide and Miller Light. So it is something which is an important part of our strategy. It is something that probably will take a little more time just given our historical trends and the plans that we need to put in place. But I would say it's been a positive part of our portfolio for our distributors and our teams to get behind because it's a big part of our business and for our distributors. So more to come, Lauren, on this as we make progress, but hopefully gives you a few of the actions and drivers that we are taking to get this part of our portfolio to be a little bit more healthy. Operator: Our next question comes from Drew Levine with JPMorgan. Drew Levine: Tracey, I wanted to ask if we could double-click on the cost phasing, on COGS, particularly related to the Midwest premium? You noted it was $30 million in 1Q, peaks in 2Q. I think the prior commentary from last quarter was that overall it'd be $125 million headwind to the year. So one, can you just confirm whether that $125 million number is still good to think about or maybe it's moved higher? And secondarily, if you'd be able to maybe provide a little bit more context or dimensionalize the incremental headwind in 2Q relative to 1Q? And then, Rahul, just sort of playing off that, the commentary around input costs moving higher, you are hedged, and I think Tracey mentioned for a good part of 2026. But just thinking about the pricing environment, some of your peers, I think, are sort of projecting lower pricing this year around maybe 1%. Maybe you could just talk to or industry willingness to take more pricing in light of the escalating cost pressures? Rahul Goyal: Thank you. I think, Tracey, do you want to take the first part of it? Tracey Joubert: Yes, sure. So we did say at CAGNY that our guidance does assume an elevated Middle East premium which would impact our pretax income growth by about 9 to 10 percentage points. And that equated to that minimum of $125 million that would be at the low end of the range that you mentioned. And as expected, the Midwest premium and the base aluminum remains elevated versus last year. And then as we said in Q1, the Midwest Premium added about $30 million of year-over-year cost increase due to the cost of goods sold. But we have spoken about our extensive hedging program. We've also spoken about how difficult and how expensive it is to hedge the Midwest premium. . But we do believe for this year that we have meaningful hedge coverage, meaning that the impact of the recent price increases that we saw in February for us is a manageable headwind. And then just in terms ofon the phasing side, we do expect the Midwest premium to be -- continue to be inflationary over the balance of the year. But the largest increase currently anticipated in Q2, as we said last year, we did speak about most of the $35 million was coming in the back half of the year. Rahul? Rahul Goyal: Yes. So I think generally, maybe to pick up on a couple of comments there. Obviously, we have a lot of focus on making sure our top line and our brands are executing well in the context of consumer pressure. But I think as Tracey said, the teams are managing through a pretty complex input cost context, right, whether it is invest aluminum, obviously, there's phasing of when investment went high last year, which was in the second half versus lapping of this year. So I think those are the things that's playing out that I would say the teams are trying to manage through that, both with respect to risk mitigation, but also with the cost savings initiatives that we put in place. Your question about pricing and how we think about it. I mean, it is still within the 1% and 2% range, the guide of the guardrails we talked about earlier. But it is a competitive context out there. I think we're going to remain competitive for our brands. We talked about share and wanting to make sure we win with our brands. So probably can't comment on what my peers are doing with respect to pricing. But I think if you think about our business, we think about pricing, very, very granularly by brand, by geography. So we're going to continue to stay disciplined on that. We're going to obviously still be within the guardrails we shared, but we've got to be competitive. We want to be competitive in the context of where the consumer is. Now the good part in this is the last comment is I go back to our portfolio, right? So we have pretty broad portfolio. And so we're excited about the value portfolio that we have because we can meet consumers at different price points. So I think we got all your questions there, but thank you. Operator: Our next question comes from Christian Junquera with Bank of America. Christian Junquera: It's Christian on for Pete. I appreciate the color you guys gave on how to think about MG&A expense for 2Q, but can you walk us through on how MG&A should trend during the second half of the year? Any color on phasing of marketing and sales expense versus general and administrative expenses would be helpful? Rahul Goyal: And Tracey, do you want to take that one? Tracey Joubert: Yes. Thanks, Christian. So look, we do expect MG&A to be a significant increase versus 2025 over the balance of the year. There's a number of factors that go into that. We've spoken about the incentive compensation expenses will be higher than last year, with the largest increase coming in the second quarter. We also expect to make additional capability and technology investments that will help drive our strategy and modernize our ERP system. And then as Rahul mentioned, with any acquisition, we will have higher costs in the first year as we integrate the Monaco business into our business. And as an example, as we said, we're adding over 80 members to our sales team. We also expect to incur additional costs as we also market and integrate this brand into our business. And then typically, we spend most of our marketing dollars in the summer selling season. And obviously, with the the Soccer World Cup as well as Americas 250, you'll see continued pressure behind our brands. So that we show up on shelf, we show up to our consumers and drive our great brands into the summer. Rahul Goyal: Yes. Tracey, again, and just maybe to add a little color to that. Again, I think we said this in either the prepared remarks. I mean we're making some of our biggest investment in things like live sports, right, in the summer going into the next couple of quarters. So again, strong plans for our brands showing up in the right occasions, but also doing things differently, right, in terms of how we make sure our brands connect with consumers and with retailers. So thank you, Chris. Operator: The next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: I guess, Rahul, when you think about coming into your first year, if you think about taking risks, which us investor analyst types give you a little more freedom to do at the beginning. Are there any sort of big risks or big sort of things that you're thinking about, you really want to sort of go for in this first 12 months? And then, Tracey, to dig into the capital allocation question. When you think about your comments specifically on the stock being very compelling, what metrics are you using in terms of how you're thinking about the category, the profitability, it's obviously a long-term decision. So what are some of the sort of base metrics that you're thinking about when you think about buying back shares and the value of the business versus the current trading Rahul Goyal: So thank you for that. Your question, the first one, is a good 1 in terms of risk. And I'd go back and talk a little bit about 2030 when we laid out our new plan, right? So obviously, we have a good business, but we know what our portfolio challenges are, which I know a number of you are obviously familiar with. And we are working, I would say, in 2 different contexts, right? One is making sure our core is healthy and strong, and on the other hand, transforming our portfolio. And we are being a lot more aggressive in transforming our portfolio than we have previously probably So we are going to use our balance sheet in a stronger way. I think we shared metrics previously that are beyond beer agenda. We're getting up to close to 10% or we want to make sure we can make that meaningful, right, because you can then have a growth profile for this business for the future. I think some of the actions we are taking in terms of how we're executing the reorientation of being local, the reorientation of reallocation of our spend in ways that can meet our consumers, whether it's live sports or being very local. I think it is big changes that we are implementing for our organization the parts maybe we haven't spoken a lot about, but we want to make sure this category is healthy. So when we talk about championing beer, it is something we will continue to find opportunities and ways to keep focused on that. So I would probably point you back to the plans we laid out at Horizon 2030. We want to make sure we can take some of these big swings and the changes we are implementing for our system and for our business internally, but they are to get this business back into the medium-term growth commitments that we've made. Now capital allocation is another key element of some of the changes we're making in a big way, right? I know I'll pass it on to Tracey on the buyback comment, but again, using our balance sheet, investing in our business, but then also making sure we can recognize and reward our shareholders in that journey. So Tracey, you want to... Tracey Joubert: Yes. Kaumil, I mean, I think the important thing is, look, we put a very strong balance sheet. And because of the strength of our balance sheet, it does give us optionality. And when we look at capital allocation, and we run it through our model, we do take a long-term view on it. And that's why you hear us saying we're going to invest in our business to drive sustainable long-term growth because it's that sustainable long-term growth that is going to drive the share price as well. So we look at it long term. We look at what we believe the investment behind our brands, the investments behind M&A, the growth in our business, what that will mean for our share price. But as we're looking at that, obviously, because we have the strong balance sheet, we've got very strong free cash flow, we're able to do both. And so knowing that our strategy and our plans are all around sustainable growth, growing both the top line and the bottom line. And we believe that our share is a compelling investment. We are able to do both. So that's how we look at it. Rahul Goyal: Yes. And maybe to your question of just macro, how we think about the category, and we -- I think we recognize some of the challenges the category has. But again, we believe the category is going to get healthier as it is doing in '26 versus '25. And there's, as I mentioned, a little responsibility on everybody in the industry to make sure the category is in a stronger place in the future. Operator: The next question comes from Nadine Sarwat with Bernstein. Nadine Sarwat: Two for me, please. You called out Q1 doing a bit better at the market level in the U.S. I'm curious to hear what you believe were the underlying factors behind this. There's obviously the number and you called out consumer confidence season deterioration. So what do you think are the drivers of that being a little bit better than you expected? And then the second question, you called out different channel dynamics when it comes to the behaviors of consumers, how that relates to their position and their consumer confidence. Could you expand a little bit on that? Are you seeing different behaviors by pack size, downtrading? Anything else that can give us a flavor of how that U.S. consumer is reacting from the lens of a brewer like yourself? Rahul Goyal: Yes, thank you for that question. So if you think about Q1, obviously, Q1 was lapping a pretty bad quarter last year, right? So that's -- I would say that's a little bit of a baseline. But if you look at consumer trends, and I would call it out in maybe a couple of different ways. One is there is a group of consumers that are, I would say, pretty healthy. I mean that's where you see brands like Peroni, brands like continue to grow. So you do have a consumer cohort that is, I would say, doing okay. And the good part is we need to accelerate our portfolio with that consumer. But if you think about low-income consumer, et cetera, I mean, this year, trips are up -- call it, visits up in terms of stores. Now we can take a look at maybe, call it, size of basket, et cetera, I think there's still some pressure there, but in terms of both trips, households, et cetera, purchasing is up. So I think that this shows there's a little bit of confidence into -- coming into Q1. Obviously, there has been a little bit of a reasonable way lens on this. I mean, the West is significantly stronger this year versus last year. So there is some elements, I would say that giving us promise, right, as we think about the category and looking at it. Obviously, I balance that with still caution and just as we think about the balance of the year with obviously inflationary headwinds, the gas pricing at the end of the quarter and into April. But broadly, '26 should be better than '25. Your question then on channel. I mean that's an important one for us because in our category, consumers usually stick to the brands. And what we're seeing, and this couple of trends have been longer term, right? I mean the move into singles, the move into large bags, I mean those bags continue to do much better. The pressure has been on, I would call, small packs and medium packs. Small packs have done slightly better than Q1. And so there's definitely that element, again, both on the giving us confidence, but recognizing that people are still looking for particular price points, right? So small -- sorry, singles and large pack continue to be the main driver of people making their decisions. And then I do go back to, call it, value portfolio in terms of it shows up in different ways, maybe higher ABV or value portfolio in terms of beer. And this is why just one comment on Monaco, which gives us an excitement is, this business is predominantly a singles business and it's in convenience. So while we obviously are excited about the brand and the platform, it gives us for our business, Tracey talked about the people that are coming along with this business. And it's a great platform for us as we think about not just Monaco, but our overall capability. So hopefully, it gives you a sense of, I think, the 2, 3 parts of your question. So thank you for that. Operator: Our next question comes from Gerald Pascarelli with Needham & Company. Gerald Pascarelli: Great. Thank you. Rahul, I'd like to go back to the World Cup. It's a huge on-premise beer drinking occasion and your on-premise share trends currently look better than in the off-premise. I think that's what you mentioned in the prepared remarks. So that would seem like a clear channel advantage, especially considering some of the challenges in that channel, currently being realized from some of your competitors. So maybe if you could provide some color or commentary on just your level of optimism and the tailwind that you think that event could have on your volume trends related to channel, I think, would be helpful. Rahul Goyal: So thank you. Great. So if you think about 1 of the things that I know we've spoken about and I think broadly, probably heard from the whole industry is, we talk about occasions, right? We talk about wanting to make sure we can engage with our consumers and occasions. And I think that's where we get excited about something like the World Cup because it gives us a platform and occasions to really engage with our consumers. It is like Super Bowl for particular cities, right? That's what's happening is you've got multiple games in different parts of the country. And we got to make sure we are showing up to engage with consumers. So to your point of what gets us excited is, obviously, this plays into our our on-premise strength, but also making sure we can drive new occasions over the summer in bringing people around our brands. There's an element of people coming into the country for these games, again, we'll see how that plays out. But there's an element of, again, occasions for travelers coming into the country. And then to your point of how do we get folks excited about connecting to our brand. So if -- again, I'm going to make a little bit of a plug here for our new campaign, but if you guys go check out YouTube with the like campaign it is a way of engaging our consumers in fun ways, but resonating our brands with them. So I think to your point of its occasions, it's obviously channel and execution in retail and execution on-premise is important. But then it is about making sure our brands resonate with our fans. Yes, so I think excited. We feel we're going in with the right pressure and something to get rally around. Operator: Our next question comes from Chris Pitcher with Rothschild & Co Redburn. Chris Pitcher: A quick question on the integration of Monaco. I mean 10 years ago, you were buying craft beer brands and integrating them into the business. Can you give us a sense on Monaco about how you're going to retain these people that are coming across? Because it's a move into a new category, how are you going to ensure that you retain these salespeople. Is the founder locked in -- and then on the mechanics of it, I believe it's production is still outsourced. Is there scope to integrate that in the near term? And do you see an international opportunity in some of your other markets, particularly in the U.K. for these sorts of products? Rahul Goyal: Yes, thank you for that question. And I know you asked the question about Monaco integration. So I'm going to comment I start the comment with Fevertree because I want to make sure in terms of these brands, the discipline around integration is super important. And I think we've shown that with Fevertree as we focused on making sure we don't drop a case, right? So integrating Fevertree along with their teams, partnering and understanding what these brands stand for is important. Again, Monaco, we obviously closed in April. And our goal is to make sure we keep the magic that this brand has. I mean this is a brand that's been around for a while, right? This is not something that just grew in the last 3, 4, 2, 3 years. I mean this has been around for 10-plus years, and they have built this business very diligently on the back of a clear proposition with clear channel execution. And so we want to make sure we can bring that magic into our business. So that's where our focus is on making sure our teams we bring those learnings in. It is wanting to make sure that we keep the commercial pressure on the brand as we integrate the founders are involved, but we have 100% of this company, and we will execute on this within the Molson umbrella. And then to your point of production and other opportunities, I mean, we will obviously look at all of those pieces as we think through integration. For us, job 1 has always been sure we can keep the commercial pressure and the focus on the business going forward. Operator: Our next question comes from Bill Kirk with ROTH Capital Partners. William Kirk: My question is on fuel prices and maybe their impact on consumption. NBWA recently shared some regression analysis work that they had done that showed industry volume trends, actually improved when fuel prices went up. I guess the logic would be to leave the on-premise and the 2 beers there, and you trade it for 6 pack at home, I guess. I was a little surprised by this analysis. So I guess the question is, do you see a relationship where higher fuel prices result in a volume benefit? Rahul Goyal: Thanks for that question. I'm not exactly sure on the NPWA analysis. But I think the way we think about this is, obviously, fuel prices have a couple of correlations with consumers. One is obviously expendable income watch and be careful about how much money goes in there versus 2 is channels, right? I mean if you think about beer and one of our biggest channels in convenience stores and making sure consumers have that correlation when they are. And pack size, right, is how -- when there is a pressure. So I think to answer your specific question, I'm not sure I'm going to say that increased fuel prices increases volume. That's -- but I do think it's something we watch very carefully, right, we watch it carefully in the context of pack size, singles versus small packs, we watch carefully with respect to, again, channel, as I mentioned, and making sure we have the right offering in our channels across the portfolio. And then obviously, what it carefully in the context of consumer sentiment, right? So yes, I think that's how I would think about it in the context of our business. Operator: The next question comes from Rob Ottenstein with Evercore. Robert Ottenstein: Great. Rahul, I'd like to double-click on Miller Lite. Iconic brand, great liquid but it continues to bleed. And I know you talked about some regional, I guess, competitive issues and that you have a plan for that. But can you tell us what you think a reasonable outcome for that brand is over the next 1 to 2 years? I mean, can it get to stable volumes or hold share? And I do realize that the segment that it's in is challenged. And so I guess the bigger question is, apart from what's a reasonable goal and time horizon is can you do this with just kind of tactical moves or do you need to fundamentally rethink or refresh the brand proposition? Rahul Goyal: Yes, Rob, I know that's -- there's a lot of questions there. So probably maybe a couple of comments. So if you think about Miller Lite, obviously, first, let me answer your question of what's our goals and long-term ambition. Obviously, we want to get the brands all back to growth. But the first thing we need to do is make sure we can get our share stable, right? I mean that's, I would say, the short- and medium-term goal that we talked about even in February is to get our big brands shared in a healthier place. If you break Miller Lite's current challenge, I mean, the Great Lakes area continues to be where we need to make sure we are making progress. So it is something we are actioning. Your question of the proposition and the thinking around it, I mean we feel good about the campaign and the plans we have right now with Miller Lite, right? I mean this resonates with our consumers. It resonates with our distributors. I think our plans in the summer with Americas 250th and Miller Lite that plays both into the taste angle, but also the Americana angle. We feel pretty good about. So I do think -- we do think that it is something we need to just work through, call it, region by region and just make sure we can execute against it. But then having the right plans to get our share, I would say, in a healthy employee. I think that's the best way to think about our focus on this going forward. Operator: That concludes our question-and-answer period. You may now disconnect.
Operator: Welcome to the XPO Q1 2026 Earnings Conference Call and Webcast. My name is Kevin, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements and the use of non-GAAP financial measures. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities laws, which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as its earnings release. The forward-looking statements in the company's earnings release are made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements, except to the extent required by law. During the call, the company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables or on its website. You can find a copy of the company's earnings release, which contains additional information, important information regarding forward-looking statements and non-GAAP financial measures in the Investors Section of the company's website. I will now turn the call over to XPO's Chairman and Chief Executive Officer, Mario Harik. Mr. Harik, you may begin. Mario Harik: Good morning, everyone, and thank you for joining us. I'm here with Kyle Wismans, our Chief Financial Officer; and Ali Faghri, our Chief Strategy Officer. This morning, we reported record first quarter earnings with strong momentum across the business. Company-wide, we delivered adjusted EBITDA of $319 million, up 15% year-over-year, and our adjusted diluted EPS was $1.01, up 38%. In North American LTL, we increased adjusted operating income by 20%, and we delivered an adjusted operating ratio of 83.9%, that's an improvement of 200 basis points year-over-year, which is also well ahead of normal seasonality. These results mark a clear acceleration of outperformance driven by the disciplined execution of our strategy. It starts with customer service where we continue to make significant progress. In the first quarter, we reduced our damage claims ratio below 0.2% with damages at a record low. This is the service metric that matters most LTL customers. We've developed new AI-driven technology that addresses damages by improving how we load our trailers. These tools evaluate load quality in real time and helps us protect our customers' freight. We're also running one of the fastest networks in the industry with the largest number of standard 1-day and 2-day. Our mix of speed, coverage and safe handling combined with reliable on-time performance is delivering a superior experience for our customers. And this is translating into better commercial outcomes, including stronger pricing and ongoing market share gains. We've also built our network to support growth by investing ahead of demand across our workforce, fleet and service centers. These are the three main components of capacity to move freight for our customers. On the real estate side, we've added density in growth markets, and we continue to operate with more than 30% excess store capacity. This allows us to run our network efficiency today and respond quickly as volumes recover. Another area where we invest to gain a competitive edge is in our rolling stock of tractors and trailers. We have one of the youngest fleets in the industry with an average tractor age of 3.9 years. This gives us an advantage with reliability, safety and lower maintenance costs. Trailers are just as critical to capacity because they enable more efficient freight flows across our network. We've manufactured more than 20,000 trailers since the start of the trade down cycle. And from a labor standpoint, we have a proprietary workforce planning model that uses technology to flexed labor hours as demand changes. This allows us to improve productivity while maintaining high service levels. Taken together, our investments in capacity are creating strong operating leverage that will enhance our bottom line as the cycle turns. Another strategic lever is pricing, where we saw continued momentum in the quarter, with underlying trends that improve each month. As demand recovers, customers place more value on carriers that can rely on for both capacity and consistent service and that translates into stronger pricing and continued share gains for us. One area where we're continuing to earn market share is with local customers. In the first quarter, we grew shipments in this high-margin channel by mid- to high single digits, an acceleration from the prior quarter. We're also continuing to shift towards higher-quality freight, including shipments that did our premium services. The demand for our rollout offering was a key driver of our margin improvement in the first quarter. And we're seeing increased adoption in verticals like grocery and health care, where we fill a definite need as customers in these segments have service-sensitive freight. In short, we have multiple levers we can execute and a long runway to build on our momentum with a double-digit pricing opportunity over the years to come. And lastly, another important driver of our outperformance is cost efficiency. In the first quarter, our productivity improvement of 4% was well above our long-term target of 1.5%. We achieved this by ramping our technology to ensure that the benefits are both durable and scalable. Specifically, we're leveraging proprietary tools that use AI to improve planning, optimize trade flows and enhance day-to-day that with execution. This is especially valuable in linehaul and pickup and delivery operations where the savings can be significant. For example, we've rolled out our pickup and delivery tools for route optimization to about half the network, and we're seeing tangible efficiencies, including fewer miles and more stops per hour. We expect to have this fully implemented by the end of the year. And to bring down our purchase transportation costs, we've reduced outsourced miles to some of the lowest levels in our history. This has given us a more flexible cost structure that mitigates our exposure to rises and truckload rates. Importantly, these initiatives are driving structural improvements that will scale as volumes recover, creating further opportunities for margin expansion. In closing, our strong start of the year reflects the strength of our model and the consistency of our execution. We have a clear line of sight to achieving an LTL operating ratio in the 70s driven by ongoing service improvements, profitable share gains, above-market yield growth and robust cost efficiency across our network. Increasingly, all 4 of these drivers will be propelled by our proprietary technology and AI. We also see a significant opportunity to further compound earnings as we expect to generate billions of dollars of cumulative free cash flow in the coming years, accelerating share repurchases and debt reduction. This is how we're building our path to long-term value creation for our shareholders. With that, I'll turn it over to Kyle to walk through the financials. Kyle, over to you. Kyle Wismans: Thank you, Mario, and good morning, everyone. I'll take you through our key financial results, balance sheet and capital allocation. For the first quarter, total company revenue was $2.1 billion, an increase of 7% year-over-year. Revenue in our LTL segment grew 5% to $1.2 billion, primarily driven by higher yield and fuel surcharge revenue. On the cost side in LTL, we continue to operate more efficiently and with less reliance on purchase transportation. Our productivity gains in the quarter helped mitigate the impact of wage inflation, linehaul insourcing and volume growth. Our salary wage and benefit expense increased year-over-year by 4% or $27 million. On purchase transportation, we enhanced our structural cost improvement by further reducing our use of third-party carriers. This will help us control linehaul costs as the cycle recovers and truckload rates rise. Depreciation expense increased by $8 million or 10% year-over-year, reflecting our continued investment in the network to support long-term growth. Turning to profitability. We increased adjusted EBITDA company-wide by 15% to $319 million. Our adjusted EBITDA margin was 15.2%, an improvement of 100 basis points from the first quarter of the prior year. In our LTL segment, we grew adjusted operating income by 20% to $198 million and adjusted EBITDA by 16% to $290 million. Our LTL adjusted EBITDA margin improved by 230 basis points to 23.6%. In our European transportation segment, adjusted EBITDA was $33 million. And in our Corporate segment, adjusted EBITDA was a $4 million loss. Returning to the company as a whole, we reported operating income of $174 million for the quarter, up 15% year-over-year, and we grew net income by 46% to $101 million, representing diluted earnings per share of $0.85. On an adjusted basis, diluted EPS was $1.01, an increase of 38% year-over-year. Moving to cash flow and CapEx. We generated $183 million of cash flow from operating activities in the quarter and deployed $104 million of net capital expenditures. We ended the quarter with $237 million of cash on hand after repurchasing $30 million of common stock and paying down $30 million on our term loan facility. Combined with available capacity under our committed borrowing facility, our total liquidity at quarter end was $837 million. Our net leverage ratio was 2.3x trailing 12 months adjusted EBITDA, down from 2.4x at year-end 2015, continuing the trend over the last 2 years. We expect a meaningful step-up in free cash flow generation this year with momentum building over the next few years. This should accelerate the pace of share repurchases and deleveraging. Before I wrap up, I want to highlight an update to our full year 2026 planning assumptions. We now expect our adjusted effective tax rate to be in the range of 23% to 24%. This is reflected in the latest investor presentation. Our other planning assumptions for the year remain unchanged. With that, I'll hand it over to Ali to walk through our operating results. Ali-Ahmad Faghri: Thank you, Kyle. I'll start with our LTL performance where we delivered another quarter of strong execution and outsized margin expansion. Shipments per day increased 3% year-over-year, while weight per shipment decreased 2.8%, resulting in tonnage per day turning positive by 0.1%. We're continuing to drive profitable growth in the business by increasing the number of shipments, improving network density and prioritizing both freight quality and mix to support yields and margins. Our mix has managed to specific objectives, including share gains with local customers and market penetration with our premium offerings, and we're showing that we can achieve these objectives in any environment. Looking at the first quarter trend year-over-year by month, January tonnage was flat. February was up 0.1%, and March was down 0.4%. Notably, shipments per day trended up each month. January was up 1.2%. February was up 3% and March was up 3.8%. For April, we estimate that tonnage will be down about 1 point compared with last year outpacing typical seasonality and that weight per shipment will improve sequentially and on a year-over-year basis versus March, also trending better than seasonality. Turning to pricing. We delivered another quarter of above-market performance with yield up 4% year-over-year, excluding fuel. Importantly, our strong pricing trajectory is continuing to trend up. We expect both yield and revenue per shipment, excluding fuel, to accelerate on a year-over-year basis and improve sequentially through the balance of the year. We're driving this internally through continuous improvement in service and externally with our local customer base and premium offerings. These channels are both gaining traction with customers. Looking at first quarter profitability in LTL, we reported a 200 basis point improvement in our adjusted operating ratio year-over-year. We also improved margins sequentially, outperforming normal seasonality by 100 basis points. This reflects our momentum with pricing as well as the application of our technology, which excels at productivity and cost control. Most recently, our AI tools are enabling precision planning and execution in driving operating efficiencies consistently across the network. Turning to Europe. We continue to generate strong results. First quarter revenue increased 11% year-over-year. This was our ninth consecutive quarter of growth on a constant currency basis and we delivered another quarter of adjusted EBITDA growth that was better than seasonality relative to the fourth quarter. Before we move to Q&A, I'd like to summarize the key drivers of our momentum in LTL. First is above-market pricing growth, which we support by ensuring our customers receive strong service. This dovetails with our focus on mix and freight quality. And as I mentioned, we expect our pricing trajectory to accelerate as we move through 2026. At the same time, we're creating structural cost advantages in our network through productivity gains, capacity investments and the ramping of our technology. Each of these levers has a sustainable impact on our best-in-class margin expansion and each represents significant upside as the cycle inflects. With that, we'll take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Our first question today is coming from Ken Hoexter from Bank of America. Ken Hoexter: Congrats on strong performance here as we see some rebound. But Ali, maybe just -- or Mario, talk about contract renewals. You talked about strong pricing. Should we see a deceleration in core pricing, given the acceleration of fuel? Maybe just talk about the mix there? And then, Ali, just given the impact on that, your thoughts on sequential operating ratio. If we're outperforming seasonality by a sizable amount here in the first quarter and you're getting that pricing, does that accelerate and continue to outperform seasonality as we look into the next quarter or two? Mario Harik: Yes, you got it, Ken. This is Mario. So our contract renewals in the first quarter accelerated from where we had in the fourth quarter. they went up in the mid- to high single digits in Q1 of this year. Now we also expect from a yield perspective, an acceleration, as Ali mentioned earlier, both from a yield ex fuel perspective and revenue per shipment perspective on year-on-year and sequentially in Q2 and through the rest of the year. In terms of an outlook, based on what we have seen so far here and what we delivered in Q1, we do expect another strong quarter of margin performance in the second quarter. If you look at seasonal trends over the long term, we typically see our OR improve 250 to 300 basis points sequentially from Q1 into Q2 and we expect to comfortably outperform the high end of that seasonal range in the second quarter. This would also mean that on a year-on-year basis, we expect to improve OR in the second quarter more than we did in the first quarter. That's even a fast for us to get to a with an OR handle. I mean, obviously, we'll see how the rest of the quarter here would roll out. And this will be overall a strong outcome, given that we're still in the early innings of what could be a recovery year. Operator: Your next question today is from Richa Harnain from Deutsche Bank. Richa Talwar: I guess I just want to better understand what's happening on the pricing and weight per shipment side. I believe revenue per shipment was expected to come in mid-single digit range for the year. Rate per shipment to be roughly flattish. We're starting the year below target on both. Also revenue per hundred it was not as strong as I would have expected, despite the lower weight per shipment. So just trying to understand, obviously, Mario, you said you saw continued momentum in the quarter, are pricing should accelerate. I just want to make sure that those are still targets for the year, appropriate targets. And then obviously, comps are a factor. But just generally, what's going to get us back to the acceleration phase. Kyle Wismans: Yes, Richa, it's Kyle. So just I want to highlight a little bit on yield. So as we talked about for the first quarter, we had another strong quarter of pricing performance. I think as Mario mentioned, a lot of the strong pricing translated to our OR outperformance in the quarter. So for Q1, we were 100 basis points better than normal seasonality and on a year-over-year basis, we improved more than 200 basis points. And based on the price improvement we're seeing here in March and April, we would expect both yield and rev per shipment ex fuel to accelerate on a year-over-year basis in Q2 and through the rest of the year. I think what's important is reflecting an increasingly constructive price environment as well as about our internal initiatives help drive price further in the future. Ali-Ahmad Faghri: And then, Richa, on the weight per shipment side, specifically. So if you look at Q1, our weight per shipment was down 2.8% on a year-over-year basis. That was up about 2 points sequentially versus the fourth quarter, and that's very consistent with the typical step-up that we see as we move from Q4 into Q1. Now weight per shipment for us can bounce around from month to month. Specifically, if you look at Q1 for us, we did ramp out the rollout of some of our premium services throughout the quarter. We're also taking a lot of share with local customers. And both of those channels do come with a lower weight per shipment profile However, they are very accretive to our margins. And ultimately, that's what drove that meaningful OR outperformance in the first quarter. Now I think more recently, what's more encouraging is that weight per shipment trends have started to improve. So here in the month of April, per shipment was down about 1 point on a year-over-year basis. That was about 2 points better than typical seasonality. Usually, we see weight per shipment decline sequentially from March into April, and we actually saw an increase sequentially. And ultimately, that's what gives us confidence in that week for shipment trend improving as we move through the balance of the year. Operator: Our next question is coming from Scott Group from Wolfe Research. Scott Group: With the tonnage update is helpful, but I feel like comps get a little easier as the quarter goes on. Obviously, we've got big tailwinds coming from fuel. Any sort of directional thoughts on how you guys are thinking about sort of like total rev per day trends for the quarter? And then just given Q1 and the Q2 guide, like it feels like there should be good upside to the full year OR guidance of 100 to 150 basis points. Any sort of updated thoughts on how the full year OR could now look? Ali-Ahmad Faghri: So Scott, I'll start with the second quarter in terms of the moving pieces and then pass it to Mario on the full year. In terms of Q2, from a tonnage standpoint, if you just roll forward normal seasonality from here and keep in mind, we do have slightly tougher comps in the months of April and May, and then June gets much easier on a year-over-year basis. We would expect tonnage to improve in each month of the quarter, and that would put full quarter tonnage flattish on a year-over-year basis. From a pricing standpoint, as Kyle noted, we do expect our yield ex fuel and revenue per shipment ex fuel to accelerate on a year-over-year basis. here in the second quarter, we'd expect our yield to be comfortable in that mid-single-digit range here in the second quarter. So that should give you kind of some of the moving pieces in terms of the top line outlook. Mario Harik: And Scott, for the full year OR, I mean, as you mentioned, we delivered here in Q1, better-than-expected OR outlook than when we started the year. And we do expect Q2 to also be better than what we expected from the beginning of the year. As I mentioned earlier, we do expect to constantly outperform the seasonal trend into Q2 from Q1 and improve on a year-on-year basis, more than we did here in the first quarter. So it's fair to say that we had a high degree of confidence in potentially outperforming our outlook of 100 to 150 basis points of margin improvement this year. Now there are also more things that can go well. I mean, from a volume perspective, so far, volume has tracked in line with our expectations, Q1 through April, but we are hearing more possibility from our customers. So if we start seeing volume inflect as we head into the back half of the year, where underlying demand continues to pick up steam, then obviously, all of that would be upside to our forecast. If you look on the pricing side, as Ali mentioned, we expect an acceleration in Q2 for both yield and rest of ship, and we expect that to continue through the balance of the year as well. When you look at the cost side, our execution has been excellent. I'm very proud of the team in terms of having typically if you wanted a volatile quarter, but you couple that with fantastic AI and technology tools we launched, we've already so far launched our P&D optimization AI tool for half our network, and we haven't even done the large locations yet. And if you look at our outperformance in the first quarter, we improved productivity by 4 points. If that continues to compound through the rest of the year, all of that could be upside as well. So again, we started the year with a lot of momentum in terms of Q1 and Q2. And we -- it's still early in the year, though, obviously, as we make progress here, we'll update on the full year as we continue to deliver those kind of numbers. Operator: Our next question is from Fadi Chamoun from BMO Capital Markets. Fadi Chamoun: I think you touched on this a little bit, I'm not clear. I understand the revenue per shipment year-on-year and quarter-over-quarter, I think was the weakest performance that we have seen since 2023. And you talked about mix and a few other things. I just want to make sure I understand why you've seen this deceleration in Q1? And obviously, you're talking about an acceleration going forward, I suppose that's driven by the yield. But my main question really, I'll start with this clarification is, can you talk a little bit about what you're seeing from the customers' conversation in terms of what the demand outlook looks like weight per shipment seem to kind of be moving a little bit in other direction? Are we seeing more pallets? Or are you seeing -- like what are you seeing on the kind of core organic demand environment with your customers? Ali-Ahmad Faghri: Sure, Fadi. This is Ali. I'll start with the revenue per shipment trend and then pass it to Mario to speak about the customer demand outlook. From a revenue per shipment standpoint, as I noted, that can bounce around from quarter-to-quarter. And specifically for Q1 for us, we did see a lot of progress with some of our mix initiatives around local growth, around premium services which, again, those do come at a slightly lower weight per shipment profile but very accretive to our margins. And that's what drove that strong margin outperformance we had here in the first quarter. Now I think what's been encouraging for us is we've started to see that pricing trend accelerate as we move through the first quarter, and that acceleration continued here into the second quarter from an underlying yield standpoint. At the same time, we're also seeing that weight per shipment trend normalize as well on a year-over-year basis. So that acceleration that we're seeing in yield combined with that normalization on a year-over-year basis and weight per shipment ultimately, that's what's driving that positive outlook on revenue per shipment accelerating here into the second quarter, and that's consistent with what we've seen here in the month of April as well. Mario Harik: And Fadi, when you look at the overall the demand outlook, we are hearing more optimism from customers. As you know, every quarter, we do a survey with our top customers, and we ask them what are you expecting for the back half of the year, not so beyond at the end of the -- or beginning of the second quarter here? And we are hearing more optimism where double the number of respondents that expect -- that now we expect an acceleration into the back half of the year relative to where they were in the first half of the year, and there were nearly no customers that expect a deceleration in the back half of the year. We haven't seen those kind of survey results going back to 2021, which is very encouraging when we see what we're hearing from the customers. Now if I break it down, retail has been positive and consistently, you would see good demand on the retail side. On the industrial side, we're hearing a lot of the optimism, but we haven't seen it yet materialized in big swings. As you know, Fadi, if you go back since we've in an industrial recession now for 3 years and a freight recession in 3 years, volumes in the industrial economy are down in the mid-teens plus. And what we're seeing now with ISM being over 50 for 3 months to kick off the year is very encouraging. In terms of subsectors of the industrial economy, electrical continues to be good. Equipment for ag is doing well. Chemicals is doing well. And just recently here in the month of April, we are seeing also showing some legs as well. So as we continue to see that ISM, which definitely takes, call it, 3 to 6 months in the trial license high volumes, if that materializes as we have to do into the back half, with the customer expectations, this could be a great setup in terms of seeing more of that demand coming down from the industrial side of the economy as well. So again, early innings, but we're hearing much more optimism than we did a quarter or two ago. Operator: Our next question today is coming from Jonathan Chappell from Evercore ISI. Jonathan Chappell: Mario, I want to touch on the productivity comment again and one of your previous answers about the potential for that to compound. 4% is obviously significantly greater than your long-term target. So can you help us understand how you did so much better in 1Q from a productivity perspective? And is there a bit of, I don't know, front-loading, so to speak, that compounding at such a level may be just too high of a bar at least for the remainder of '26 as we think about the margin progression from here? Mario Harik: Well, overall, in the quarter, Jon, we did launch our new AI tool for P&D and optimization and it's now rolled out to have our network. And we're seeing measurable results out of the new AI solution with fewer miles, more stops per hour in our P&D environment. Now we already have implemented a number of solutions for line haul if you recall, middle of last year, end of Q2 heading into Q3 as well. And we are still seeing the wraparound effect of these improvements. We've also launched updated models for our dock efficiency and we'll continue to compel those as we launch more and more changes to it. Now as you know, though, technology, Jonathan, is not -- it's not linear path. I mean there's always you launch something, you get a lot of feedback from the field of how to make it better and then you keep on improving those. And if you look at AI learns from the actual outcome. So for every AI algorithm that we have, we typically compete the standard better of how the outputs are comparing to what the ideal output would look like, and we keep on refining them over time, over time as well. Now all of these tools had very strong execution in the field by our operators has contributed to that 4% productivity pick up in the first quarter. But we'll see how the year progresses from here. I mean we do expect to be above our target of 1.5% for the full year. And what you see here in the first quarter supports pretty strong compounding as well. But we're taking the conservative view on this, and we will see kind of where this goes from here. But AI is getting smarter. Operator: Our next question today is coming from Jordan Alliger from Goldman Sachs. Jordan Alliger: Just sort of curious, can you given sort of some of your comments and the hopefully improved trend on the tonnage, can you talk to your excess terminal capacity, have you seen changes in that? I think previously you were somewhere in the 30% range. Has that started to move lower? And then sort of tied into that, in terms of thinking about a sub-80% operating ratio over time, what would be required in terms of excess terminal capacity to sort of get below that level? Mario Harik: Yes, you got it, Jordan. If you look at -- by the end of the first quarter, first starting with our network capacity, we had more than 30% excess door capacity, which is a sweet spot to be in the LTL carrier in a softer freight environment and expecting demand to inflect at some point and accelerate from here. So we feel great about where we are on that. And keep in mind, over the last 3 years, we added 15% more door capacity, but not all capacity is created equal because if you look at a sort of market where you were tight versus another market where you have a lot of capacity, that site market could cause a bottleneck in your network. So when we've added this capacity with all in markets where historically, we were capacity constrained, think of in Atlanta, Georgia, I think in Texas, think Kansas, think Columbus, Ohio Gianapolis, Minneapolis, all of these are markets, Nashville. All of these are markets where historically, we did have a lot of capacity, and now we have fantastic, large breakbulk locations that will enable us to support our customers when that up cycle comes. In terms of other forms of capacity, one is around the trailer side, trailers or the currency by which we move freight on our network. And as I mentioned earlier, we've added more than 20,000 new regular trailers to our fleet over the last 3 years. So all these investments have had an impact on our depreciation expense being up. And despite that, we have been improving more automatically over that period of time. but all of these would enable us to support our customers what that demand kind of comes there. In terms of getting to an operating -- full year operating ratio into the 70s, all of the things that we are doing with enable us to get there. But the biggest contributor is about yield and yield performance. Today, we have a double-digit pricing opportunity for us to catch up with our best in class tier, and that comes through the 3 levers that Carl mentioned earlier on, where the first one is that continuous improvement in service. But if you look at this quarter, our claims ratio was sub 0.2%, and it's going to take us a bit of time for us to eventually become #1. That's the goal. But overall, it's going to enable us to get more price and more premium freight from our customers. The second lever is around premium services. We have launched a dozen or so incremental services that we are offering our customers. And today, when we started our plan, 9% to 10% of our revenue came from accessorial revenue. We're up to 12% to 13%, and our goal is to get to 15% as we continue to compound those. And the third component is growing business with that small- to medium-sized customers. So that alone gives us a massive runway even without a macro recovery for us to get into the 70s from an OR perspective. Now you start seeing demand in flat and we have the capacity to handle it and be able to support our customers. I mean, we see very strong incremental margins that come through that. Here in the first quarter, our incremental margins were 58%. Operator: Our next question is coming from Stephanie Moore from Jefferies. Stephanie Benjamin Moore: Mario, I think in the past, you've talked about total volume declines in this freight down cycle to the tune of maybe 15%, 20%. You can correct me on that. But as you think about what you view as XPO's ability to recover, if not the majority or even more so of that volume compression that we've seen over the course of the last several years. And then at the same point, can you talk about labor capacity? I think we talked a lot about door capacity, but where your labor capacity stands today? And then what would be required as you start to look at bridging that volume gap for the last couple of years? Mario Harik: Thanks, Stephanie. If you look at industry volumes, as you said, based on the cyclical factors we've seen here with the ISM sub-50 through end of last year for the better part of 3 years or we call it 3-year freight recession, we have seen the industry volumes be down in that mid-teens plus, somewhere in the 16 or so points over that period of time. Now keep in mind, 2/3 of our customers are industrial customers. So they have been impacted meaningfully by that freight slowdown over the last 3 years. Now as we mentioned earlier, we've seen that pickup in overall industrial demand. So this could be the early innings of an industrial recovery here. Now in terms of our ability to handle incremental volume, the current excess door capacity we have will comfortably get us into that plus 15% more freight into our network to be able to handle that inflection point and potentially more given that we have added a lot of that incremental capacity in markets where historically we were capacity constrained. Now looking at the labor side, usually, we want to make sure that our headcount is commensurate with what we are seeing in the volume environment and have enough buffers because in LTL, you can imagine if you have, on average, each one of your drivers or dock workers are working 40 hours a week, and they work now 45 hours a week. That alone is giving you double-digit more labor capacity in terms of hours and shifts that you can deploy. But if we continue to see that sustained demand environment lead to higher volumes and a full eventual full recovery, we would need to add headcount, and we can leverage our driver training schools where today, we can operate these in 130 terminals. And Stephanie, it's a great program where we get some of our dock leads or dock workers who are doing a fantastic job, and we invest in them where we train them to get their CDL license, then join our ranks and then have great careers with us over the years to come as they become a professional driver. We also, if you look over the last few years, we have had a meaningful decline in turnover rate of drivers and dock workers. I mean the whole leadership team has spent a lot of time in the field and listening to our employees and making sure that we are taking action on their feedback, and that has led over time with lower turnover as well of both drivers and dock workers. So first, you've got to hire or replenish your turnover and then hire for growth. And we feel great about our ability to do that given where we are today. Operator: The next question is coming from Chris Wetherbee from Wells Fargo. Christian Wetherbee: I guess a couple of questions here. So as we think about the outlook for the back half of the year, you noted the customer sentiment improvement. And I guess I wanted to think about what productivity might look like in the context of improving volumes. So you guys have done a wonderful job through what's been a pretty challenging freight environment. But we start to see tonnage grow and shipments grow more consistently, what do you think the productivity opportunity is relative to that 1.5 sort of longer-term target? Can it be sort of that 4% sustainable? Just want to get a sense of maybe how that plays out. Ali-Ahmad Faghri: Sure, Chris. This is Ali. So from a productivity standpoint, as volumes start to improve, we would expect productivity to only accelerate. Historically, when we've been in periods where we've been in a volume growth environment. So for example, if you go back to the 4 quarters after Yellow went bankrupt, we were growing volumes in that, call it, low to mid-single-digit range for a period of 4 quarters after that. We were improving productivity in that mid-single-digit range on a consistent basis through that period. So ultimately, as volumes start to improve, we do think there's more upside to that 1.5 points of productivity. Now as Mario noted, here in the first quarter, we were able to drive 4 points of productivity in a flat volume environment. So clearly, we have a lot of opportunity to drive upside just through our own initiatives even without a volume improving. But I do think the volume upside here gives us more confidence in delivering upside to that 1.5 points of productivity that's in our outlook for the year. Christian Wetherbee: And just a quick clarification. As you guys think about a point of productivity, we're still thinking about somewhere in that like $20 million, $25 million range, that's roughly the way to be thinking about it on a gross basis? Ali-Ahmad Faghri: Each point of productivity, Chris, is somewhere in that $25 million to $30 million of incremental EBITDA. Operator: The next question is coming from Tom Wadewitz from UBS. Thomas Wadewitz: So I wanted to ask you a little bit more about the kind of what's in your assumptions for 2Q and what your customer feedback points to. It seems like things aren't off to the races, but they're improving. And I think that's -- I think you talked about industrial, that's true. So in terms of what you bake into your commentary on 2Q, is that just essentially normal seasonality in your kind of tonnage and shipments per day comments? And then does the customer feedback maybe lead you to think that there's a good chance that later in 2Q or second half, you actually see the market do better than normal seasonality and show some acceleration? Kyle Wismans: So in terms of the tonnage outlook, we are just rolling forward normal seasonality. So if you roll forward what we saw here in April into May and June, that would put full quarter tonnage flattish on a year-over-year basis. Now as you noted, as the demand environment starts to improve and we see this continuation of above seasonal volume performance, there certainly could be upside to that outlook. But I think we think the more appropriate way to think about it is just rolling forward normal seasonality through the rest of the quarter here. Our expectation also is, as Mario noted, not only is that OR improvement is going to accelerate here on a year-over-year basis in Q2 versus Q1, but that we'll also see earnings growth or EPS growth accelerate on a year-over-year basis in Q2 versus Q1 as well. Thomas Wadewitz: Okay. But -- so we should look at that as upside. And I guess, Mario's comments on the survey given the kind of best results in terms of second half look you've seen in a number of years, that would be kind of upside to the way you're looking at things. Kyle Wismans: I think that's a fair way of thinking about it. Operator: The next question is coming from Brian Ossenbeck from JPMorgan. Brian Ossenbeck: I wanted to see, Mario, maybe if you can talk about the context around the accelerating price and yields. You mentioned the gap to core pricing, but obviously rolling out some of the better mix in accessorials and new markets. So is there any way to maybe put some context around the relative change or at least the rate of change? And what's driving that from each of those different buckets? And then I guess relatedly, you talked a little bit about fuel impact in the press release and a big topic for LTL, and it's hard to narrow down. But it looks like there was a bit of a net benefit this quarter. Just wanted to see how you're thinking about that and how we should be modeling that into second quarter as well given what we know now with energy prices? Mario Harik: You got it right. So first, I'll start with the high-level levers for pricing that I mentioned earlier on. So if you look at the size of the opportunity for us over the years to come, it's a double-digit runway for us to catch up with our best in last year on the pricing dynamic. Now if you break it down in terms of where that falls through, the lion's share of that, about 2/3 comes from an improving service product, where we are able to get more premium freight from our customers and higher quality freight. And we expect that to cause us to outperform typical yield trends in the industry by about 1 point per year on top of what we're seeing in the industry. The second lever, the cadence is still unchanged for us, which is on the premium services side. We do expect the growth in these segments of business. We have another, call it, 3 points of opportunity ahead of us just in that category alone. And we also expect to be at roughly a run rate of 1 point per year on incremental above-market pricing, driven by us growing our market share in those 3 services. And Brian, just to kind of give you an example, a lot of them, if you think of the must arrive by date or a retail sold rollout or many of these services today we are under plus in terms of our market share of the overall industry versus how much market share we have in each 1 of those premium services. Anywhere, it's been the low to mid-single-digit type market share contributions in those and we expect that to at least get to our overall market share of the industry, which is about 10% and kind of continue to grow from there, given the improvements in our service product. And then finally, on the local account side, we are roughly halfway through when we started our plan, we were at 20% of total were local accounts and our goal to get to 30. And our local sales team has been doing a phenomenal chaining with customers locally and onboarding more of that business. Just to give you an example, in the first quarter alone, we onboarded more than 2,600 new customers in that channel, which was an acceleration from where we were in the last year on a quarterly cadence basis as well. And that's roughly around 0.5 point of yield per year we expect to get. So the best way to think about it is if you look at a multiyear runway where if the market -- as you know, in LTL, if the market is soft, industry yield could be up low single digits, and we expect to outperform that by 2 to 3 points. If the market is normalized, it would be -- our industry pricing will be in that mid-single-digit range, and we expect to outperform that to all the dynamics I mentioned by 2 to 3 points. And ultimately, if we start seeing an inflection in the macro, where capacity is down and you start seeing the demand come up, then obviously, industry pricing will be in the mid- to high single digits, and we expect to outperform that. So that's how we think about it from a cadence perspective. And we're seeing these dynamics here in the near term, as you would see what we deliver in Q2, Q3 and Q4. And I'll turn it over to Ali to discuss the fuel side. Ali-Ahmad Faghri: And Brian, on fuel specifically, obviously, there's been a lot of volatility in oil prices here more recently. So ultimately, we're going to see how diesel prices trend through the rest of the quarter. We would expect our fuel revenue here to be up on a year-over-year basis in the second quarter. Just one thing I'd point out is naturally as fuel prices go up, our revenue increases, but so does our cost to procure that fuel as well. I think ultimately, if you zoom out, customers see our prices inclusive of fuel, all LTL carriers have very similar fuel surcharge structures in place. And when you're thinking about our second quarter outlook specifically, and our ability to outperform seasonality, ultimately, that's being driven by our strong operational execution, it is being driven by that above-market pricing growth we're delivering, our profitable market share gains as well as some of the ramping momentum that we're seeing on the productivity side as well. Operator: The next question is coming from Jason Seidl from TD Cowen. Jason Seidl: Mario team, nice quarter. There's been a big spike in truckload spot and contract renewal rates. Wanted to maybe walk through any potential upside this may provide to both your tonnage and also your pricing outlook as we move throughout the rest of 2Q and the rest of '26? Mario Harik: Well, Jason, when you look at truckload versus NPL, as we've said in the past, we expect that with the lower truckload rates through the trough of the truckload cycle, we have seen roughly around 2 to 3 points, call it, in that low to mid-single digit industry, LTL tonnage has moved from LTL to truckload. And we believe that kind of falls in 2 categories. One would be heavy shipments where when the truckload rates came down to the $2 mark with fuel, what you have seen is effectively the breakeven point of an LTL shipment to move over to truckload come down to about 15,000 pounds or so. And we estimate that to be somewhat in the 0.5 point to 1 point worth of industry volume that had gravitated or went over to the truckload industry. The second category is usually large customers have PMS systems that can optimize based on multiple LTL shipments, if the rate of truckload is now more desirable where the shipments can still make service, and that's very important, then they would convert that over to truckload as well. And we estimate that on a combined basis both of these to be again 2 to 3 points. Now as you point out, with the truckload capacity that has gone out of the market and with both spot rates going up, although contractual rates are starting to go up, but they haven't seen that mega increase here. But as this continues to go up, you're going to see more of that conversion of those truckload shipments come back to LTL. Now if we see that inflection happen accelerate in the back half of the year, obviously, you will see that follow 3 points come back to the LTL sector. faster than that, but we'll see how that kind of materialize. And one key point there, Jason, as well is that we have, with the in-sourcing of third-party linehaul, and keep in mind, we've been doing this for now more than 3 years, we have been able to reduce our exposure to truckload rates meaningfully. And what that means is those truckload rates go up, our cost structure will stay in check because we are using our own drivers and equipment to move that freight in the line haul network. So that's something we're excited about here in the next up cycle because that's going to give us much higher incremental margins by keeping that cost category check. Jason Seidl: Yes, you guys have clearly been putting yourself in a better position for the TL up cycle. But just so I'm clear that any move of those, call it, 2 to 3 points back towards the LTL sector is upside to the guidance that you're giving us? Mario Harik: That's correct. So if we see those -- that's going to come back to NPL, obviously us and all the carriers will benefit from that type of movement. It's going to put more pressure on the overall NPL capacity, industry capacity as well, which over time will lead to higher industry pricing, too. Operator: Next question is coming from Ari Rosa from Citigroup. Ariel Rosa: So Mario, I wanted to ask to get your thoughts on competitive dynamics across the industry. To what extent do you think competitors are also sitting on available capacity? And does that impede t's ability to take share, just kind of speak to the level of share gain that you expect to take especially as the cycle accelerates? And also to what extent maybe there's a tension between winning share and pushing yield, if you're seeing that or how you're thinking about kind of elasticity there? Mario Harik: Yes. So Ari, first, if you look at overall industry capacity. If you look at 3 pandemics, if you look at 2019, or pre Yellow bankruptcy, when you look at where we are now on industry terminal counts, that is down roughly around, call it, in the high single-digit, low double-digit range in terms of service center count. And then if you look from a door's perspective, overall door count is roughly down about mid-single digits over that same period of time. So today, you have less capacity than you had either prepandemic or, call it, post-pandemic but pre Yellow bankrupt. Now it's natural whenever demand has gone down over the last 3 years. With the industrial economy being slow, demand is down 15 points. So today, we have more than enough capacity to be as an industry to be able to handle 15% less volume. But as that starts to inflect what Jason asked earlier on about the blockload conversion back into LTM, coupled with the industrial economy at some point in this country that ISM continues to show those strong size of life, then obviously, you're going to start seeing demand go up and that you would have carriers that will have enough capacity compared to those volume increases. Now we see we're in a great position because we have been planning for that for the last 3 to 4 years, adding door capacity, adding equipment and making sure that we are very well positioned to capitalize on that. And importantly, service our customers in the right way. That's what it's all about. They can get of the customer. So that's how we think about it. In terms of pricing versus volume, we don't think about it in those terms. We think about it more that we have an opportunity to improve overall our yield performance given those 3 levers I mentioned earlier on. And this has multiple years of runway. But if you see the demand go up, you would see overall industry pricing go up. And we expect to outperform that by 2 to 3 points per year over the years to come as we continue to execute on our strategy and plan. Operator: Your next question is coming from Scott Schneeberger from Oppenheimer. Daniel Hultberg: It's Daniel on for Scott. Could you please discuss how you think about the top line outlook for Europe? How you anticipate performing versus the market? And secondly, how do you think about opportunities to improve the margin for that business? Kyle Wismans: Scott, it's Kyle. So the European business continues to perform really well in what's been a pretty soft macro for some time now. If you look at the first quarter, we grew organic revenue for the ninth consecutive quarter, and the team delivered another quarter of strong EBITDA growth in the outperforming seasonality. To your second question about thinking longer term on margins, we have a strong plan to improve profitability in Europe, both this year and next year. And we're really following a similar playbook that we've done in the U.S. So we're going to take meaningful cost out there, and we're executing on that now and we'll continue through the rest of this year. We're also expanding the sales force, driving more premium services and growing in new verticals, some of what we see here. That includes growing in aerospace, luxury goods and thinking more about our warehouse offering. And I think lastly, as 1 of our bigger levers here in the U.S. has been pricing, they're also looking at pricing, too, and they have a great service product. They want to make sure they get commentated for that service product. So we can really good about Europe and where the head in the future. Operator: The next question is coming from Ravi Shanker from Morgan Stanley. Ravi Shanker: Two, maybe the first 1 just on the cycle itself. There's a first up cycle that you guys are going in with a much lower reliance on PT. So how do you think about driver inflation, especially as the TL market kind of tightens up and maybe that pressure going to spill over to LTL as well? And maybe a bit of the off-the-wall kind of big picture question for you, Mario. I know XPO today is a product of the bigger XPO breakup, but do you feel the need to have a logistics operation within the company just given the traction some of the brokers are having and maybe the direction the industry is going down? Mario Harik: I'll talk with the second half of the question. I mean, overall, with an LTL carrier, and we're focused on being in a LTL carrier. So we don't see a logistics offering adding value, the runway we have in terms of margin expansion and EBIT and op income growth over the next 4, 5, 6 years, there is tremendous ahead of us, Ravi. So we don't see a need to -- a combination of both top line growth as well as meaningful margin expansion is what will enable us to grow earnings meaningfully over the years to come. And there's another dynamic associated with that which is accelerating free cash flow generation. As I mentioned earlier, we expect to generate cumulative billions of dollars of free cash flow over the years to come, which will further compound that earnings growth, a combination of paying down debt and buying back shares is going to enable us to return the capital back to shareholders after we back on the business. So we see this as being the levers for long-term value creation for us here. We also do intend to, at some point, sell our European business. It's a question of not a matter of if and when we do that, it's going to be an acceleration of our capital allocation story. In terms of the lower reliance on PT, for drivers capacity that you mentioned. So typically, in LTL, obviously, our turnover of drivers is meaningfully lower than what you see in the truckload industry, and it has also improved a lot over years, given our focus on our front line working and listening to them and feedback loops and adding new trucks and taking care of the customers from a service perspective. So we have seen the turnover of our drivers and dock workers come down meaningfully and we -- as I mentioned earlier on, we have an ability to hire our -- train our own drivers in our driver schools. So in an up cycle, we would lean on that where we have the capacity to graduate up to 2,000 drivers per year where we actually paid their wages and we actually invested them and eventually they become a professional driver with us. So that's how we think about driver capacity and that upside of being able to add to it. Operator: Our next question today is coming from Eric Morgan from Barclays. Eric Morgan: I wanted to follow up again on the 2Q OR comments in LTL. Mario, I think you mentioned a 7 handle. It could be a possibility this quarter. So just wondering if you could expand a bit on what gets you there? Are you saying that if volume accelerates over the next couple of months, that's a possibility? Or can you do that with the flattish tonnage number you noted for the full quarter? And also just maybe how fuel plays in there. Does it become less likely if diesel prices come down a bit from here? Mario Harik: Yes, you got it. So Eric, if you look at the quarter as a whole, as Ali mentioned earlier on, if you think about our tonnage for the quarter, and April for us was slightly better than seasonal trends when you compare it to March with also a pickup in weight per shipment as well. If you roll forward seasonality of April through the rest of the quarter, that implies that tonnage would be called it flattish for the quarter. So if we see that tonnage do better, then obviously, there's more upside here. Now if you look at the first quarter, though, our first quarter was in line with our expectation on tonnage, yet we still outperformed on margin improvement and earnings growth in the quarter. So that is a path for us to get there even if tonnage stays flat through the quarter. Now going back to the other levers. One level is around yield, we are seeing a yield acceleration, as Kyle mentioned, here in the month of April, higher cost factor yields in the first quarter, our premium services continue to compound, our additions of new small to medium-sized customers continue to accelerate, so if we see yields accelerate beyond our expectations, that could be incremental to our margin improvement. And then when you look at it from a cost perspective, we are not expecting the same level of productivity improvement at Q1, although we are launching our solutions to more terminals. So in theory, we could get more. So we'll see how that kind of plays out through the rest of the quarter here. But we are just 1 month and then we have 2 more months to go. But no matter how you look at it, we do expect to outperform comfortably outperform the high end of the seasonal range of sequential improvement from Q1 to Q2. And generate a very strong margin improvement here in the second quarter with that path to the 7 handle, but we'll see what the other has in store for us here for the next 2 months. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Chairman and CEO, Mario Harik. Please go ahead. Mario Harik: Well, thank you, operator, and thank you, everyone, for joining us today. We're off to a great start of the year with accelerating momentum, and we expect another year of strong margin improvement and earnings growth. We look forward to updating you on our performance next quarter. With that, operator, end the call. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Thank you for standing by. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Murphy USA First Quarter 2026 Earnings Q&A Call. [Operator Instructions] I would now like to turn the call over to Christian Pikul. Please go ahead. Christian Pikul: Okay. Thanks, Melissa. Good morning, everybody. Thanks for joining us. With me this morning are Mindy West, President and CEO; Donnie Smith, CFO; and Ash Aulds, Director of Investor Relations and FP&A. Before we get started, I need to remind everybody to refer to the forward-looking statement commentary we included in our prepared remarks yesterday. I also assume you have all read through our earnings release and the prepared remarks, [Audio Gap] Unknown Executive: [Audio Gap] Volatility, low price environment. Obviously, now we are in a different situation. But honestly, my crystal ball isn't going to be any better than yours and this is unprecedented volatility and geopolitical risk, and it's changing every day, minute by minute. So I honestly wouldn't know what fuel margin to put into the model to give you an accurate forecast. So at this point in the year, just not going to update. What we will do though is wake up every day react to market conditions on that day. We know we have to be nimble, change our playbook as needed and ensure that the business delivers the best outcome, whatever the environment is throughout the remainder of the year. But that's really all I can say about where we might end up year-end. Obviously, our guidance that we gave last quarter is going to end up being on the conservative side but the year is going to be what it is, and it's too soon to tell now exactly what that will be. So we're going to remain focused on execution. Irene Nattel: That's really helpful. And then just as a follow-up and sort of it comes back to a little bit of what you said about the fuel margin. But that $0.069 per gallon from, let's call it, inventory, revaluate inventory gains in fuel supply, how should we think about the evolution of that number as we go through the year. Mindy West: Well, fuel supply results were high in the first quarter as we explained. The core business, though, generated $0.025, including the impact -- excluding the impact of those higher prices. So if prices continue to increase, then you should expect the positive inventory valuations in that part of the business that prices decline, you're going to get the opposite impact. But at the same time, that should serve to expand retail margins at the same time, hopefully, volume as well as we can put some of that margin on the street to create separation and have chances to gain volume, but that part of the business is going to continue to be volatile month-to-month, quarter-to-quarter and largely dependent on the direction of prices, but also the magnitude and duration of those price changes. Operator: Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: All right. I did have a question on the consumer. And I guess I'm wondering, Mindy, if your outlook for the consumer has changed, I'm thinking about the context of prices at the pump tracking around $4 a gallon across the nation. So curious to hear how have purchasing patterns may be changed, especially for the lower-income consumers, if at all, and then are you seeing more consumers down-trading potentially to your stores? Is this an opportunity, for instance, for you to gain share? And any kind of change of behavior at the pump would be helpful. Mindy West: Yes, great question. I'll start first with the trade down because candidly, by the time customers are shopping at Murphy USA for our everyday low prices, much of that traditional trade down has already occurred. So as a result, we really see relatively little pressure, especially in the nondiscretionary categories even in the higher price environment. What we know is our everyday low price model is what brings customers in the door. And then once they become regular shoppers, we just don't see significant trade down behavior within the store. What we do see and we'll see are some different decisions being made inside the store in discretionary categories like salty snacks, or really even lottery where there are just more venues and opportunities available to customers to participate in that. And as -- and remember what we said in the prepared remarks, the Murphy customer is maintaining their spend in our store. So results are actually stronger. Our non-nicotine sales were up 2%, with margins up over 4% at Murphy stores. So we are still seeing strength in that core customer. We're seeing margin growth across most of the inside the store categories. But I'll remind you, while that does speak to our customer is, it also has a lot to do with our team and our offer because that margin growth doesn't come automatically. Our team has to look to innovate for new promotions and vendor partnerships, and we'll keep at it and do a great job because we're seeing the results. What is interesting to see at these higher prices is we are seeing new customers coming into our stores. We're also seeing last customers returning to our stores. That's telling us 2 really key things. First, they're changing their behavior and becoming more value-seeking shoppers, which is what we would expect. Second, and this one is really important. They remember Murphy USA as a low-priced retailer and we are their store of choice when they're seeking value for low-priced goods in the store and low-price fuel. So we know we have the right to keep this customer and they're going to return to us in periods of higher prices, and we're encouraged so far by what we're seeing already. Bonnie Herzog: All right. That's helpful. If I may just ask -- as a follow-up, I guess, on a different topic, if I do want to comment on your newly dubbed fuel supply business, and I definitely appreciate that and all the colors. I think that's really helpful. And I guess I'm curious to maybe understand a little bit more about the benefits from RINs, which was really huge in Q1. And then just monitoring those prices across the board do remain quite high. So just want to make sure I understand how we should think about the magnitude of the contribution you could recognize from fuel supply in Q2? Mindy West: Bonnie, we really look at it on a blended basis. You see the windfall in RINs because we report that as a separate category, but they're really just a pass-through because the RIN value is actually factored into the acquisition costs when we purchased the product. So with sustained movement in one direction over quarter, yes, they can have a slight impact over a short period of time. But over time, those impacts cancel out as rent prices move up and down, that's really just a part of the fuel supply business that's already reflected in what we paid for the product to begin with. As we look at the quarter, if you're trying to get a land at what could product supply and wholesale be for -- I can't really speak for the quarter, but for the month of April. I know we guided you guys in the speech that we were going to be $0.35 to $0.40 a gallon. What we are comfortable saying with the books obviously not closed on the month yet is we're expecting retail somewhere in the low $0.30s that would imply product supply and wholesale would be -- I don't want to give an exact amount, but trend above the normal levels that we would expect to see just because of the volatility that we're continuing to see in the market. Operator: Our next question comes from the line of Thomas Palmer with JPMorgan. Thomas Palmer: In some of the earlier answers, you've noted the price advantage versus competitors and how that's aided maybe some customer choices in terms of shifting towards you. I did want to ask how you think about the relative pricing advantages that you have as you watch fuel prices migrate higher, do you think about the level of discount that attracts customers as perhaps being different -- so maybe like less discounting is needed relative to the environment when fuel prices are lower and more stable? Mindy West: Sure, Tom. We've said before that last year with the very low price environment that was making our value-seeking customer less price sensitive. And we were putting roughly $0.02 a gallon on the street to hold our volumes given the low prices and customer price sensitivity, but also competition. But when we said that -- remember that $0.02 is not necessarily chain-wide. It's concentrated in certain areas. So where competition is very intense, we were putting more than $0.02 on. Other places where the competitive pressure was not so much, it was less than $0.02. And so I think as we return to a higher price environment, we will have to be less aggressive. But again, in certain markets, we are still going to price where we need to, to hang on to volume as we see competitive pressures. Thomas Palmer: Okay. And then just maybe an update given the likely elevated cash flow that's resulting from the strong earnings on capital allocation priorities and likely uses of this excess cash? Mindy West: Yes, it's going to be a good problem to have. First [ call on ] capital is always going to be the growth CapEx. So we are committed to building our 45 to 55 sites for the year. So that's going to be the first priority. We will also look to balance that with ratable share repurchases as well. There may be also some opportunities if we need to procure some supplies in order to bolster our new-to-industry stores. We need to go out and buy tanks. We need to go out and proactively buy other things. We will certainly do that. Deleveraging could be an option, but honestly, given our very low leverage ratio, it's not going to be a high priority but that could factor in at some point. But I think what we're going to do, the priority is going to stay the same with making sure that we are managing our growth layer in some reasonable amount of share repurchase. And as I started by saying it's a great problem to have. Operator: The next question comes from the line of Bobby Griffin with Raymond James. Robert Griffin: I appreciate all the detail on the prepared remarks last night. I guess, Mindy, when you kind of think about what's developed here geopolitically and some of the changes inside the supply market, what do you look at? Or what should we be thinking about when we try to determine how much of this we can capitalize going further? And I guess I'm asking that more in the context of like what needs to take place or has it already taken place to move the market back from loose to tight and keep it more in a tight supply market on multiple quarters versus just a short-term benefit, if that all makes sense. Mindy West: It does make sense. Bobby, great question. I would say that the market is moving closer to balance than what it was. So what I would look at is we're seeing increasing exports, total motor gasoline inventories in the U.S. have now returned to the 5-year average level. So they're not beneath it, but that has removed the overhang from last year. We're also seeing supply replenishment slowing globally, and there's a lot of market concern, especially for diesel and jet fuel, remains to be seen the amount of damaged infrastructure that might have occurred overseas and the time that that's going to need to recover. So we could see some supply pressure, the longer this goes on which would work to our benefit with our unique ways that we can procure supply. And additionally, I think one of the investment banks just increased their Brent and WTI forecast for the end of year by $10. That would work to our benefit as well, obviously, keeping prices higher, that will continue to impact customer sensitivity. But I would expect that there is going to be some tightness in supply in certain pockets throughout at least the rest of this quarter and probably through the summer. But there are still a lot of unknowns there. But those are the things that we're looking at. How long does this conflict last? When does the strait open and how much damage to infrastructure is there? And what is the time frame needed in order to get that back up online? Robert Griffin: Okay. That's helpful. I appreciate it. And then maybe switching gears and going inside the store. I think you called out the Murphy's non-nicotine was up 2%, so it kind of implies the drag here on the same stores being down one is in the Northeast on QuickChek. I know there's been some things you guys have been working on. So just maybe curious, you kind of unpack some of the progress there. Is the drag still just competition in QSR factors or anything else for us to kind of glean out of that? Mindy West: Yes. A lot of it is just that drag in the Northeast region where we're experiencing a lot of QSR pressures. It's just a different competitive situation than what we have in our MUSA markets. We're not sitting still, though. We are taking steps to try to improve the business. We're focusing on the core items in the food offer, tank coffee, breakfast, sandwiches we're really simplifying the menu, rationalizing the assortment, improving the margin. One of the other things that we're doing that I really think is going to help is we are actively working to evolve the culture inside the QuickChek stores into a sales-first mentality. That's something that we successfully leverage at Murphy USA, and it's something that is not part of their DNA the same way it is in ours. And it's really an intentional change supported by the leadership changes that we've already made in that business. It's too soon to really give you proof points. We are just in the early stages of that, but we are really excited about what kind of impact that we're going to have there. This shift in focus is going to make our promotional calendar even more effective, similar to how well we execute large promotional opportunities at our Murphy stores, and we should also see benefits that will help drive all the center of the store categories, not just food and beverage. But we also know we need to double down on efficiency. We need to improve time to serve, and we need to ensure our sales and promotional calendars are reinforced with products with the right margin structure versus making up ways to drive traffic that are not margin accretive. But I'm really excited to see how a sales culture at QuickChek can be implemented and really drive results because I think that we're going to be really happy with the results. And I know they are really excited up there to make that change. Operator: The next question comes from the line of Edward Kelly with Wells Fargo. Edward Kelly: Looking at gallons, your gallon performance wasn't quite as positive. I thought it would be with prices rising. I know there's some weather impact, but beyond whether even that seems to be the case. April seems a little bit better, maybe there's some lag in the trade down. I'm just kind of curious, are you seeing the consumer trade down taking place as you would have expected this quarter? Is there anything else happening there? Mindy West: Yes. What I would tell you is volume uplift from higher prices takes time, and we're really too early in that cycle. Many markets were only in the mid-$3 range as they exited March. And historically, we really see pronounced shifts once prices stay elevated and particularly elevated above $4 for a sustained period. So in April, we are seeing volumes holding up well, roughly flat year-over-year. And as the longer the prices stay high, the more customers we attract, but that shift doesn't happen all at once. It's more a gradual build. And in fact, only 1/4 of our chain is sitting at or above the $4 level now. Importantly, though, for our Murphy Drive Rewards, we saw approximately 600,000 more loyalty sign-ups. That's the highest monthly total that we have seen since 2022. And we are viewing that as a really strong signal of those customers actively seeking value and choosing Murphy as part of their everyday routine. Also remember, though, that price-sensitive customers are only one factor that impacts volume. You can't discount the market dynamics in different geographies and different competitive intensities. So Colorado continued to see volume pressure because we're growing there. Everyone else is growing there, too. We are seeing some signs of market stabilization though as margins are now returning to a more new normal markets like Florida, we're still seeing highly competitive activity. So that's pressuring both volume and margin in that region. It's not a single market, but there are many markets in Florida that are still in a highly competitive phase as everyone is trying to attract their fair share of customers. But then we can look at Texas, which we would call a more mature market. And while there's still these new store opportunities in the market, the players are already well established, and so there's not as much volume and margin pressure in a state like that. And then when we look at the quarter, weather was also definitely a headwind. We would estimate that headwind, I think when we looked at it last year, it was roughly 2%. It's probably a bit more than that this year given the sheer number of closures that we had in the duration. But if you just say it was 2%, that was definitely a headwind that would have made our volumes for the quarter up versus down had those not occurred. And also, when we look at Opus and examine that versus our data, it would tell us that we're outperforming in all of our regions even with all those pressures. So I think the price sensitivity will come. It's just too early in the cycle as most of these -- all those price pressure really happened in March. Those customers have only had a paycheck or 2, a [ fill-up ] or 2. They haven't even received their credit card statements for those purchases yet. So it's just going to take some time. Edward Kelly: Great. I just wanted to follow up on store operating expense, really well controlled in Q1. It looks like you're running below the full year guide. Can you just talk a little bit more about the changes you made to the store labor model and the impact that's having and how we should be thinking about APSM growth moving forward the rest of the year? Mindy West: Yes. We take the roughly flat increases as very positive data point and we think it's demonstrating our ability to implement the self-help that we did last year. Controlling what we could during challenging periods, and that's giving us benefits now. What we're seeing is benefits continuing in the labor model, making sure that we have the stores fully adequately staffed during the busy times, but not overly staffed when they're not busy. So continuing to fine-tune the labor model continuing progress on shrink where we have made it a focus area. We've also incorporated it as a goal for the sales team. So we're paying a lot of attention to that. And also the shift in maintenance mindset. So going from a proactive -- being more proactive and taking a business mindset versus an administrative approach where we were in the past, just trying to clear the tickets. Now we're taking a step back and prioritizing tickets and batching tickets were possible. And I use the example in an investor presentation where instead of when one light bulb goes out in the canopy instead of calling in a tech and having the site visit cost, the cost for the special scissor lift that it takes to get you on the canopy. Why don't we wait until the second light bulb goes out because it's not causing a material discrepancy in the illumination with one bulb down. But things like that may seem small, but over the -- when you spread that over 1,800 stores, those little things can quickly become big things. So we're just taking a different approach to the way we're thinking about maintenance thinking about it more from a business standpoint versus just trying to clear the tickets. As a reminder though, as our new stores enter the network, we do expect roughly half of our OpEx growth to reflect that. with the same-store to trend at least in line, if not better, than our peers. But when we look at our '26 guidance, we are ahead of that right now. But as we feather in our new stores, we do expect to get more back in line of our guidance range in the second half as those stores come online. Operator: 5 The next question comes from the line of Jacob Aiken-Phillips with Melius Research. Jacob Aiken-Phillips: Congrats on the strong quarter. So Mindy, just -- I know you've been in the business for a long time with your first full quarter as the CEO and the environment has completely shifted. I'm curious if the new environment has changed your thinking about experimentation, growth investment to help initiate those or capital allocation or anything? Mindy West: It's been an interesting turn of events, one that, quite frankly, I didn't expect during the quarter, but it doesn't change our overall strategy. We're going to continue to lean into every day low price, that's staying the same. Continuous improvement mindset. We're only going to accelerate that going forward. Capital allocation remaining unchanged. We are pushing an innovation agenda. We want to collaborate quicker. We want to try and test these things. So that unlock was something though that I talked about even [indiscernible] so it doesn't diminish in importance just because the fuel macro environment is different we know that we still need to improve the underlying business of our same stores. We also need to make decisions that can improve the trajectory of what we're going to be building that's new in the future. And so while it's easier to have a call when things are going like they're going now, it doesn't change the focus and the intensity of our efforts in needing to improve the business going forward because we can't always count on an environment like this sustaining. Jacob Aiken-Phillips: All right. And then so on nicotine, last year, there was a concern with the promotion that it should be viewed as a one-off, but clearly, like you're still performing super strongly in the -- can you give color on just -- sorry? Operator: We are currently experiencing technical difficulties. Please stand by. Christian Pikul: Sorry, guys apparently we cut out. I don't know where we left off, Jacob, can you queue us up? Jacob Aiken-Phillips: Yes, yes. I say the question again. So on nicotine, last year, there was a concern that it was a one-off promotional activation and that it wouldn't repeat. But clearly, you're still doing very well in the continued category. So can you talk a bit about the promotional environment now and throughout the year? And what gives you confidence that, that's actually a durable component which you're having 600,000 additional reward memberships? Mindy West: Yes. The reward membership definitely does help. Look, we love the category. We put a lot of attention on it. As we mentioned in our prepared remarks, promotional activity has been favorable in the first quarter, and we're continuing to see strong performance even as we go into April. We're continuing to grow share and accelerating growth in that category. It's really growing at a very rapid pace. And importantly, customers are still trying to figure out their desired flavor and strength. There's really no clear winners yet. Manufacturers know this. So they're investing in trial. So you'll see similar to energy drinks, you're going to see continued strong promotional activities as those brands invest to try to gain that customer. And we're going to continue to be a preferred retailer for those manufacturers to pass through savings and attract those customers, especially as they target combustible customers where our share in cigarettes is 20%. So we are ideally situated, happy to help their promotional efforts and have demonstrated the ability with them to hold on to those customers post-promo as we continue to gain share. I do want to remind everybody, everybody remembers the promotion we did back in the third quarter, and that is going to be a very tough comparison in quarter 3 when we lap that. So we're probably going to want to look at a 2-year stack as we progress through 2026, but we are going to continue to get promotional dollars we're likely not going to have a promotion as lumpy as that particular one was, but we do see strength in the category, and we do have intentions and the ability to continue to grow share. Jacob Aiken-Phillips: Great. Congrats again. Mindy West: Thank you. Operator: Our next call comes from the line of Brad Thomas with KeyBanc Capital Markets. Bradley Thomas: Mindy, I wanted to ask about the exciting opportunity here to be picking up some incremental customers. And I know that this will all depend on how long gas prices stay high and how high they go, but can you give us any perspective of historically the company's ability to retain incremental customers that they brought in during periods like this. And then what is the company doing differently or made you differently as the months and quarters go on here at elevated gasoline prices? Mindy West: Well, I think our loyalty initiatives are key. Murphy Drive Rewards, QuickChek Rewards, what we're seeing as new member counts are up, and we would expect that. We saw the same thing when we saw prices spike in 2022. But the 600,000 new members was the highest new member month that we have on record. We're also seeing an increase in overall active members that are up 8.5% year-over-year in March. Total transactions up around 12% also. So you see the dynamic of those customers. Yes, they're buying slightly less per field trip, but they're having to come in more often. And so these digital programs, these loyalty programs are more valuable to customers as they become more and more price sensitive. And as I mentioned earlier, what we're really excited to see is those new or lapsed customers, the last customers returning to our sites, new customers that we're acquiring because of the higher prices, and we become the store of choice because we are every day low price. And I'm sorry, Brad, what was your other question, what are we doing differently because prices are high? Bradley Thomas: But yes, exactly. I mean really just around the idea of retention. If there's anything that you are considering changing about the loyalty program and how you market to customers, et cetera, to try to retain more of these potential folks coming in your stores in this current environment? Mindy West: We continue to make our digital programs more sophisticated being able to tailor offers to customers. So we will certainly continue to leverage that. But honestly, every day low price is every day low price. It just means more when prices are high and budgets are constrained. And importantly, we sell a great deal of what is called nondiscretionary categories, so things like fuel and nicotine, where we are the lowest price out there, customers know that and the offer resonates even more in this type of environment. So no, we're not necessarily doing a lot of things new, but we really don't need to. Bradley Thomas: That's great. And if I could ask just a follow-up around sort of the underlying Murphy store model. And the question that investors were asking last year was does it need to evolve because of industry conditions. Clearly what's setting up in 2026 is it's a great model. As you consider the opportunity to expand food or in the case of the site that's got reduced labor, will there be any incremental investments or testing because the year is shaping up to be so different here? Mindy West: I wouldn't say it's because the year is shaping up to be different. I feel the same way about it this quarter as I did last quarter, that absolutely part of our innovation agenda is about evaluating new formats that can profitably serve more customers and more locations. We're also going to look to think about what is the next layer of products and services and trip missions that customers will buy from us. And then obviously, how do we maximize the productivity of the stores we have. So I think, yes, our model needs to evolve. I think both our format needs to evolve. Also what we have in it likely needs to evolve. Whether that evolves to a full food offer in Murphy USA locations, what I would say is not necessarily and certainly not everywhere, and we're going to be very thoughtful about how we step into that. I don't want to really provide a lot of color on what we are testing and what we are looking at because it's very early days, and they need time to incubate and prove themselves out. And honestly, we're going to probably hit some singles and doubles, but we'll probably strike out on several things as well. But the focus hasn't changed just because the year is shaping up differently. We know that next year may look different, the next year may look different from that. here for the long run, and we need to make sure that our format and our offer is evolving, meeting the customer where they are meeting their expectations and also giving them value in everyday low price. Operator: The next question comes from the line of Pooran Sharma with Stephens Inc. Pooran Sharma: Congrats on the strong results. maybe just wanted to ask if you could speak to the structural pressure on higher fuel margins, kind of the longer-term structural pressure. You kind of alluded to it in your release and on the call. And more specifically, in this type of environment where you see a strong rise in wholesale fuel prices or RBOB, you would expect to see the retail side of the equation more challenged, but you've seen it hold up. What do you think is driving that? And do you think this type of dynamic where you have really high fuel prices facilitates that thesis even more? Mindy West: I think that's a great question, an interesting idea, and I think you're probably right. I think what we're seeing is that marginal retailer becomes that much more on the margin when prices or what they are. They feel even more pinched. We saw the start in the Ukraine invasion back in 2002 where competitors were restoring multiple times a day, they were pre-restoring ahead of what they felt was going to be a price increase the next day. We're seeing that kind of, again, I think that when things get really tight, people become less comfortable riding it out and more eager to go ahead and relieve the pressure. And so I definitely think that, that is playing into it the fact that the marginal retailer becomes that much more on the margin. We've also seen a lot of competitive entry in markets and the cost to serve doesn't go down when that happens and those retailers are going to need to make a margin on those stores as well. And so they're going to fill the pressure also when prices rise, they're going to want to keep up with that fairly quickly as well. So I think both of those dynamics are in play. But it definitely is unusual that in a period of rising prices that we would be able to post favorable product supply and wholesale results -- or excuse me, I messed up, fuel supply results, we would post positive fuel supply results, but also fairly good margin as well. And that dynamic is playing out again in the month of April, too. Pooran Sharma: Okay. Appreciate the color there and the thoughts on that. I wanted to kind of get more specific on my follow-up on the -- I guess, just what you've seen thus far through April the $0.05, I think, $0.05 or so cents of PS&W margin. Is that -- does that include kind of the price spikes that we've seen up since the start of the quarter. Does that -- do you expect some normalization from those price spikes from RBOB? Just wanted to just get a better understanding of the RBOB commentary. Mindy West: Well, it reflects what we think we know at this point with the books not closed. You can appreciate there's a lot of moving pieces with that fuel supply part of the business. So all that we're really comfortable commenting on now, we know that retail margins are around $0.30 a gallon or in the low $0.30s, and we think we're going to be in the range of 35% to 40%, and that's counting all of the volatility that we the price rises that we've seen both on the -- we're accounting for that both on the retail side, when I say retail margin, but also the products [ plant and ] wholesale side. But I appreciate that this part of the business can make large swings from day to day. And until we close the books, we really don't know where we are precisely. I appreciate that. Operator: The next question comes from the line of Corey Tarlowe with Jefferies. Corey Tarlowe: Mindy, I was just wondering if you could walk through the trends that you saw maybe by month in the quarter. And the reason I ask is because I believe you were lapping some pretty significant storms from the prior year. So I was wondering if you could talk about volume and merchandise trends maybe on a monthly basis, if you could to kind of give us more color on what you saw throughout the quarter. Mindy West: Yes. We started the year fairly strong. But again, completely different fuel environment so you can appreciate that that price-sensitive customer wasn't quite as price sensitive. So we definitely saw some momentum as we got into March that we didn't see January, February. And then on the fuel side, obviously, the margin exploded during the month of March, was challenged when we looked at January and February, I apologize. I didn't bring month-by-month comparisons. But over the course of the quarter, when we saw the volatility return to the market, we saw customers behaving differently inside our stores. They were pressured, but they were still spending money, especially on the nondiscretionary part of the basket. And then obviously, the fuel volume will come with time. It just hasn't had enough time to season for that customer to really return in droves. But loyalty sign-ups that we're seeing are really a key leading indicator for us that tells us that we are going to gain momentum, especially as we go into the summer if prices are still high. Corey Tarlowe: Got it. And then just on the PS&W business. And again, I recognize it's only a month of data. But as you think about sort of the close to 10% that we saw in Q1 and the close to kind of 5% or thereabouts where you're seeing so far in April. Could you just talk to kind of the driver behind that change specifically, if there is anything meaningful to call out? Is it the variability within pricing? Curious what you saw. Mindy West: Yes. It's the variability within the price environment, just the magnitude and the direction of the price movements were magnified in the month of March and particularly in particular, while we're continuing to see prices rise in the month of April, it hasn't been as dramatic. And so you would not expect products plant wholesale results in that month to be as strong as what they were in March. And then again, I can't -- certainly can't extrapolate that out over the full quarter remains to be seen. Operator: There are no further questions at this time. I will now turn the call back to Mindy West for closing remarks. Mindy West: Thank you so much for your participation today, and really thank you for your interest in Murphy USA. I hope you guys are getting a better understanding that the first quarter results were not simply a byproduct of volatility and the price-related impacts because our team works really hard to optimize that volume-margin relationship. We're also seeing benefits in the work we've done to make merchandise and store operations more resilient. Sitting here last quarter, we talked about what a return to volatility could mean did not see it happening really at all this year, much less so much so fast. Obviously, a lot can change just in a few months. That said, the reverse can also happen. So we are not relaxing because the macro is going our way. What did we emphasize in the first quarter? We emphasize improving the business? What are we focused on now? The same thing. Volatility does work in our favor and you can see that in our results, but we can't rely on volatility. We talked about it in some of these questions. Our focus hasn't changed since last quarter. We're not relaxing because the environment has improved. We can't. We have work to do to grow the business. We're very happy with our new store pipeline. So high-quality growth is going to continue in the years ahead. We also have work to do to continue to improve our existing business, and we're excited to get after it. I know all of us here are energized, excited to do the work to build the business and take Murphy USA to the next level, which is why we will continue to focus on what we can control. We're going to execute with precision and continue to grow our business and make it better. So thanks, everyone, and we will talk again next quarter. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, everyone. Welcome to the Wyndham Hotels & Resorts First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Matt Capuzzi, Senior Vice President, Financial Planning and Analysis and Investor Relations. Mr. Capuzzi, please go ahead. Matt Capuzzi: Thank you, operator. Good morning, and thank you for joining us. With me today are Geoff Ballotti, our CEO; and Amit Sripathi, our CFO. Before we get started, I want to remind you that our remarks today will contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent reports filed with the SEC. We will also be referring to a number of non-GAAP measures. Corresponding GAAP measures and a reconciliation of non-GAAP measures to GAAP metrics are provided in our earnings release and investor presentation, which are available on our Investor Relations website at investor.wyndhamhotels.com. We are providing certain measures discussing future impact on a non-GAAP basis only because without unreasonable efforts, we are unable to provide the comparable GAAP metric. In addition, last evening, we posted an investor presentation containing supplemental information on our Investor Relations website. We may continue to provide supplemental information on our website and on our social media channels in the future. Accordingly, we encourage investors to monitor our website and our social media channels in addition to our press releases, file submitted with the SEC and any public conference calls or webcast. With that, I will turn the call over to Geoff. Geoff? Geoffrey Ballotti: Thanks, Matt. Good morning, everyone, and thanks for joining us today. We're very pleased to report a strong start to the year with first quarter results highlighting the strength of the value proposition we deliver to our owners in a faster-than-expected RevPAR recovery for our U.S. select service brands. Our development momentum continued with net room growth of 4% and a pipeline which increased for the 23rd consecutive quarter to a record of over 259,000 rooms. We delivered 21% growth in ancillary revenues. We generated $64 million of free cash flow, and we returned $85 million to our shareholders. Global RevPAR improved 450 basis points sequentially from the fourth quarter. Domestic RevPAR, excluding last year's hurricane impact, improved over 600 basis points to essentially flat and ahead of our down 2% to down 3% expectation as demand continued to pick up throughout the quarter. January's 4% RevPAR decline improved to plus 1% growth for February and also for March. Our 3 largest states of Texas, California and Florida which account for 1/4 of our U.S. room count improved by 800 basis points sequentially from down 11% in Q4 to down only 3% in Q1. The Q4 strength we saw in our Midwest and industrial states continued into Q1 without performance in Iowa, Illinois, Michigan, Oklahoma and Wisconsin. Immigration and trade policies that created an environment of uncertainty appear to have stabilized and strong leisure demand over the spring break travel season has provided improved confidence among many franchisees as they approach the peak leisure summer travel season. April month-to-date RevPAR growth has been consistent with February and March. International RevPAR growth was consistent with the fourth quarter at down 1% in constant currency. In Canada, RevPAR increased 8% on increased pricing power and improved demand. In EMEA, RevPAR grew 1% with strong performance in Turkey, Greece and Spain, offset by softness in the Middle East, which declined from plus 18% in Q4 to down 5% in Q1. RevPAR in Mexico fell with lower U.S. inbound travel driving pricing pressure and dropping our Latin America RevPAR by 4% versus prior year. Excluding Mexico, our Latin America region saw an 11% RevPAR increase, driven by strong pricing and demand growth in Argentina, Brazil and the Caribbean. Asia Pacific RevPAR improved nearly 700 basis points from down 7% in Q4 to down 1% in Q1. Strength in Thailand and Vietnam was offset by China where RevPAR improved 540 basis points sequentially from down 10% in Q4 to down 5% in Q1, driven by continued occupancy improvement, which remains a significant tailwind at only 88% of pre-COVID levels. Earlier this month, the large contingent of our franchise sales, operations and technology team members attended a [indiscernible] '26 the Asian American Hotel Owners Association Conference in Philadelphia, which aside from Wyndham's Global Hotel Conference is the largest gathering of select service hotel owners in the U.S. our booth at [indiscernible] trade show was the busiest it's ever been, and developer enthusiasm for our brands and our AI-driven technology offerings designed to capture revenue at every touch point of the guest journey was strong. Developers are increasingly noting that our best-in-class technology, powered by providers like Sabre, Oracle, Salesforce, Canary Technologies is making our brands ever more efficient and less expensive to operate and that our rapidly expanding AI-enabled shared service approach is lowering their breakeven point and making their hotels more profitable to run. This increased interest in our brands is certainly reflected in our first quarter results where new hotel contracts awarded in the United States increased by 8% and where our global development pipeline grew to a record of over 2,200 hotels as the most asset-light player in the industry, with the development pipeline whose domestic and international rooms carry a 30% PPAR premium. We're structurally upgrading Wyndham's long-term earnings power as we continue to move towards higher tier and higher RevPAR segment brands. As we previewed on our last call, net rooms were flat domestically, which included legacy affiliated room exits from the sale of Vacasa Vacation Rentals to Casago, along with T&L's closure of 17 vacation resorts from our Blue Thread Partners previously announced resort optimization initiative. On the opening side, momentum was driven by strong conversion activity from upscale Travelers' Choice Award winners like the Vapi Palm Springs, which joined our Dolce by Wyndham brand, and [indiscernible] boutique Island Sky Ocean Hotel, which joined our trademark collection by Wyndham, a brand that has grown to over 100 hotels in the U.S. with 99 hotels in its global development pipeline. Domestic new construction activity was again fueled as it will be for the decade ahead with new Echo Suites by Wyndham hotels opening in markets like Colorado Springs, our seventh in the past 6 months, with our 20th opening 2 weeks ago in Bozeman, Montana. We also saw more new construction upper mid-scale dual-branded La Quinta Hawthorn Suites prototypes, opening and popular tourist destinations like 11 Worth Washington and more new construction upper upscale hotels like the Dolce by Wyndham opening in the heart of South Beach, Florida. Internationally, we increased the number of net rooms by 9%. And EMEA grew net rooms by 7% with standout new conversions like our 90th Ramada by Wyndham in Turkey with the opening of the Ramada Encore Mid yacht along with several new construction additions, including the Remosa Plaza Tashkent located in the heart of Uzbekistan's capital. Latin America and the Caribbean grew net rooms by 12% with several notable trademark conversions, including the new parka Boutique Hotel in the heart of Cartagena's old City, along with the Decameron Baru, a TripAdvisor Holly Fame award-winning resort near Playa Blanca. In Southeast Asia, in the Pacific Room, we grew net rooms by 11% and driven by exceptional new construction additions such as the Wyndham Garden Manila Bay, which marks our first Wyndham Garden property in the Philippines. And in China, we once again delivered double-digit net room growth for our direct franchising system and 13% net room growth across Mainland China in total, with several new construction additions, including the Wyndham Grand Tongcheng Hot Springs, our first Wyndham Grand in the Tongcheng Yanan province and the Wyndham Fuzhou Guo [indiscernible] which marks the first Wyndham 5 Star Hotel in the bustling downtown of Fuzhou's capital. Ancillary revenues increased 21% in the quarter fueled by our renewed and very successful suite of Wyndham Rewards credit card products, along with the continued expansion of our strategic partnership initiatives and ongoing technology innovations. Key to this growth is our award-winning loyalty program, where Wyndham Rewards occupancy contribution increased 120 basis points to a record 54% domestically. Global membership enrollments grew another 10% year-over-year and the collective length of stay for our 124 million members grew by 6%. Our Wyndham Rewards experiences platform is increasingly helping to drive that growth as well as deeper member engagement. In the first quarter, we introduced exclusive new opportunities for members to redeem for even more unforgettable experiences like a private tasting with Chef Lorena Garcia at our Miami culinary Loft, who stays at our new registry collection Valor Miami Beach Hotel, and private suite tickets for Harry Styles and Lady Gaga concerts at Madison Square Garden. Looking ahead, we'll continue to leverage our premier partnerships to deliver these once-in-a-lifetime moment. Next month, Wyndham Reward members will have the exclusive opportunity to redeem points to play in the program with PGA Tour professionals at the 20th Wyndham Championship the last stop on the PGA Tour prior to the FedEx Cup playoffs. As our technology innovations have increasingly helped our franchisees operate more efficiently and more profitably, we're rapidly deploying AI, making it easier for guests to discover and book Wyndham hotels. Today, every property that utilizes Wyndham Connect+ effectively has its own AI-powered voice agent. With more than 1,100 hotels live on this platform domestically and now ramping globally. That's over 1,100 AI agents answering calls and chats on behalf of our owners, helping to drive nearly 300 basis points of incremental direct contribution for these hotels through agenetic voice channels while also driving meaningful cost savings for these owners by taking labor out of their hotels and front offices. In addition, nearly 5,000 franchisees already live on Wyndham's proprietary AI-powered Wyndham Connect platform, are collectively earning millions of incremental dollars by autonomously generating revenue from early check-in, late checkouts, room upgrades and pet fees, incremental amenities and services and so many other creative upsell opportunities they develop themselves. Together, these initiatives are creating a durable competitive advantage that we expect to compound as adoption continues to ramp. Building on this momentum, AI is transforming our marketing economics and booking process performance, amplifying our reach, transforming our digital acquisition model and optimizing our unit economics by allowing us to drive significant reservation volume growth while consistently compressing our cost per click and cost per acquisition by embedding AI across the full guest engagement journey and leveraging our partnership with Adobe, we are dramatically increasing personalization while keeping guests engaged longer, driving higher conversion rates shifting demand into direct booking channels and improving the foundational profitability of our business. Our strategy to meet guests wherever their travel intent is formed is working. And increasingly, that's beginning inside of OpenAI's ChatGPT, inside of Anthropics Cloud and inside of Google search AI mode. Wyndham's distribution engine has expanded into these important channels where our growing demographic of younger guests are progressively searching, planning and booking. Last quarter, we announced our direct integration with Anthropics Cloud enabling subscribers to conduct intent-driven searches. This quarter, we're excited to share that we've launched Wyndham apps on both Cloud and ChatGPT, delivering that same functionality through a more visual and interactive experience. including dynamic mapping, rich property tiles and detailed hotel pages, representing a highly interactive hotel discovery and decision journey. And we're pleased to report that we continue to make strong progress with Google to develop our direct booking genic AI experience in AI mode, allowing our guests to experience the full value of booking directly with Wyndham through natural conversational interactions without ever leaving Google's AI mode. In closing, the over $450 million investment we've made in technology, which is enabling our AI innovation and which is detailed in our investor presentation posted last night to our Investor Relations website, serves as a powerful engine for franchisee profitability regardless of the economic climate. As we look ahead, we're incredibly optimistic and see clear signs of strengthening consumer and business confidence, which we're well positioned to capitalize on as RevPAR in the select service segments continues its recovery. Most importantly, we want to extend our gratitude to our team members worldwide whose unwavering commitment and resilience throughout the challenging macro environment over the past year has been the bedrock of our success. And now I'm very pleased to formally introduce Amit Sripathi, our newly appointed Chief Financial Officer. Amit's been in the lodging industry for most of his distinguished career and with Wyndham for the past 5 years in a variety of roles, leading our M&A, our strategic development and our franchise sales efforts, most recently as our Chief Development Officer. Amit's combination of deep finance and capital markets expertise his firsthand operational leadership at Wyndham and his strong relationships with our franchisees, have positioned him very well to take over as our CFO. And with that, Amit will now walk us through our financial highlights and full year outlook. Amit? Amit Sripathi: Thanks, Jeff, and good morning, everyone. I'm excited to step into the Chief Financial Officer role and to speak with all of you today. In my prior role as Chief Development Officer and collaborating with our regional presidents, I gained a strong understanding of the value proposition we deliver to owners and developers through the Wyndham Advantage. The continued development momentum we've seen across our system and our pipeline reinforces my confidence in the strength of our brands and our ability to achieve our long-term growth outlook. Turning to results. My remarks today will include a detailed review of our first quarter financial performance followed by an update on our cash flows, our balance sheet and our outlook. Before I begin, let me remind everyone that the comparability of our financial results continues to be impacted by the timing of our marketing fund spend. In the first quarter of this year, marketing fund expenses exceeded revenues by $9 million compared to expenses exceeding revenues by $22 million in the first quarter of last year. to enhance transparency and provide a better understanding of the results of our ongoing operations, I'll be highlighting our results on a comparable basis, which neutralizes the marketing fund impact. In the first quarter, we generated $327 million of net revenues and $156 million of adjusted EBITDA. Net revenues increased 3% year-over-year primarily reflecting a 21% increase in ancillary revenues and system growth of 4%, partially offset by lower other franchise fees and the deferral of fees from Riva Hospitality Group. Ancillary revenue growth was driven by the full quarter impact of our renewed long-term co-branded credit card agreement, which occurred at the end of first quarter last year. Adjusted EBITDA declined 1% on a comparable basis primarily reflecting the absence of onetime cost reductions, partially offset by our revenue growth. Adjusted diluted EPS for the quarter was $0.96, down 3% on a comparable basis. as a 1% comparable adjusted EBITDA decline, a marginally higher effective tax rate and increased interest expense was partially offset by the benefit of share repurchase activity. Development in advanced spend totaled $29 million in the first quarter, roughly consistent with our spend in first quarter 2025. We continue to see an increased appetite for our brands, and we're happy to put our excess cash to work to bolster our footprint in some of the PPAR accretive markets Jeff mentioned earlier. We continue to be disciplined with the use of development in ANSYS and underwriting above our cost of capital. With these hotels historically entering our system at a PPAR premium of roughly 40% above our systems PPAR. We returned $85 million to our shareholders in the first quarter through $51 million of share repurchases and $34 million of common stock dividends. In February, we issued $650 million of senior unsecured notes at 5.625% and primarily used the net proceeds to fully repay our then outstanding revolver borrowings and term loan [indiscernible] bonds. Pro forma for the transaction are nearest maturities in the second half of [indiscernible] and nearly all our debt is fixed at attractive rates. We ended the quarter with approximately $1.1 billion in total liquidity, and our net leverage ratio of 3.5x remained as expected at the midpoint of our target range. Now turning to outlook. We are reaffirming our expectation for full year global net room growth of 4% to 4.5%, excluding any potential termination impact associated with Revo's ongoing insolvency. As Jeff mentioned, first quarter U.S. RevPAR trends exceeded our expectations, and we've seen sustained 1% growth in the U.S. over the past 3 months. As such, we've updated our expectations to include our first quarter U.S. outperformance as well as assumptions that the U.S. maintains this level of growth through the second quarter. Our expectations for the back half of the year in the U.S. remain unchanged at approximately flat until we gain further visibility in the peak leisure summer months. Accordingly, we're raising our global RevPAR outlook to a range of up 1% to down 1%. As part of our efforts to pursue all available remedies related to Revo's ongoing insolvency proceedings, and optimize the recoverability for our shareholders, we exercised our rights during the first quarter to foreclose on and take ownership of 2 properties in Europe that were previously owned by Revo. We expect these properties to generate approximately $10 million of net revenues in full year 2026, with a limited impact to earnings as we work to stabilize operations and implement an asset management plan to maximize value. As such, net revenues are now expected to be $1.47 billion to $1.5 billion. The impact from our increased RevPAR outlook falls within our adjusted EBITDA outlook range of $730 million to $745 million, which therefore remains unchanged. We've updated our adjusted net income range to $351 million to $365 million to reflect the impact of increased interest expense resulting from our issuance of senior unsecured notes, which is offset in adjusted diluted EPS by the impact of share repurchases. As such, our adjusted diluted EPS outlook range of $4.62 to $4.80 remains unchanged. Our expectation for the marketing fund to break even on a full year basis also remains unchanged. With respect to seasonality, we expect the funds to underspend by approximately $10 million to $15 million in the second quarter, bringing the first half under spend to approximately $0 million to $5 million, which we then expect will reverse in the back half of this year. In closing, our first quarter results underscore the strength and appeal for brands to guests, developers and owners as reflected in the meaningful recovery in U.S. RevPAR and continued growth in our system size and development pipeline. We've remained disciplined in our capital allocation approach, prioritizing investments in high-return growth opportunities and digital technology advancements while consistently returning excess capital to shareholders. We're confident that our resilient asset-light business model and strong balance sheet position us well to drive solid results in 2026, while providing clear visibility into our long-term growth trajectory. With that, Jeff and I would be happy to answer your questions. Operator? Operator: [Operator Instructions] We'll go first this morning to Michael Bellisario with Baird. Michael Bellisario: Amit, congrats on the new role. Can we start big picture on the demand side? Just first, sort of where and when did you begin to see the RevPAR improvement in the first quarter? And then second part, how much of what you've seen through April is maybe actual underlying demand improvement versus maybe just easier year-over-year comparisons. Geoffrey Ballotti: We began to see it, Mike, really, as we talked about on our last call in January, we're midway through February. The Q4 RevPAR, as we talked about in the script of down 8% was down 4% in January. And then it just jumped to plus 1% for February and March. And April month-to-date is continuing with that same strong demand, that same February and March improved performance. We saw it specifically in states like Texas, which we talked about the combination of Texas, Florida and California improving 800 basis points. But Texas alone was a 700 basis point improvement, and it was up 2% year-over-year, which was great to see -- and we have 700 hotels in Texas, 2% up for the quarter. That was a big deal. -- improvement, of course, in California and Florida. We saw it, as we talked about, across the Midwest infrastructure states, collectively a big group of them, up 8%, we're seeing corporate contracted in that everyday business pick up. And sequentially, it was both occupancy and rate. We saw nongovernment infrastructure pick up oil and gas pickup. Our oil and gas market tracks, which are 12% of our room count picked up by 400 basis points. And in terms of what we're seeing now in April, if we just look at STR for the last 8 weeks, U.S. economy occupancy is running up 140 basis points to prior year. So that's demand driven, with Wyndham's economy brands outperforming over those last 8 weeks, the STR economy industry occupancy by 120 basis points. And our economy brands are continuing to drive rate index gains. And we talked about in the last call, and we continue to see it ADR being the biggest opportunity for our small business owners moving forward, especially in select service. Our economy and mid-scale brands continue to gain rate index. There's a lot of runway ahead. We know that economy ADR has a long way to recover. It's only up 11% to 2019 versus higher-end segment like luxury being up 30%. So as wage growth continues to outpace inflation and consumer confidence continues to stabilize, the pricing opportunity for our franchisees to catch up on both the demand side, which we're seeing and now looking forward on the rate side is significant. Operator: We'll go next now to Brandt Montour with Barclays. Brandt Montour: Maybe we'll just keep that thread going, Jeff. If we were to sort of read between the lines in terms of business travel versus leisure travel, sequentially, it sounds like business travel might be driving some -- a little bit more of the majority of the sequential strength. So maybe talk a little bit more on the leisure side. do you feel like you're seeing closer to home trends pick up? Do you think that you're seeing tax refunds sort of more than offset sensitivity to gas prices? What are you kind of seeing near term in terms of like booking trends and booking window, the length of the booking window. Any other sort of KPIs you're looking at leases that would be helpful. Geoffrey Ballotti: Sure. Thanks, Brandt. There is so much optimism out there in the United States, both obviously on the U.S. development side, but on the consumer demand side, specifically cancellation rates are improving. They're getting better. Booking lead times are really solid. And the lengths of stay interestingly are getting longer. They're up to prior year, and they're up significantly, 540 basis points to where they were pre-COVID. And we're seeing guests drive a bit further than last year and drive a lot further than they were post-COVID with that revenge travel coming back. And whether it's a C-shaped or an E-shaped economy with that middle tier of middle-income consumers, our sweet spot feeling better. They are gaining confidence in purchasing power. And our franchisees across the country, you're feeling it, you referenced tax refunds. Those second half tax refunds absolutely have the potential to unlock further discretionary spending. U.S. travel published a research report earlier this month, which estimates that one out of every $9, 9% of the estimated $57 billion of tax refunds will be spent on travel. And that middle-income guests U.S. travel believes and their research shows will drive 70% of that, meaning an extra 1 out of 9 on $57 billion, 70% of that, $3.5 billion, $4 billion that their research estimates will be spent on domestic travel this year. And our internal consumer research shows that our middle-income guests continue to express a higher intent to travel this year, certainly than they were at this point last year. Wage growth, as we saw yesterday, is robust enough to support increased discretionary spending, which, again, are small business owners are seeing -- and while Amit mentioned in his outlook comments that while we have limited back half visibility, we know our comps ahead get easier. And we're expecting a stronger June. We're expecting a stronger July with FIFA, where we're already seeing our hotels within 20 miles are pacing considerably ahead of prior year, which should contribute. We're estimating about 20 bps of uplift right there. And then we have events planned for the Route 66 and the America 250 celebrations this summer and fall that have our -- here in this building, our PR, our sales teams, our marketing teams targeting drive-to guests with mobile offers to boost room night demand across the hundreds and hundreds of our hotels along U.S. highways and byways like Route 66. So it was more leisure to your question, but it was similarly and we could save it for another question. blue collar and infrastructure business, which is strengthening government showing signs of improvement, a lot of optimism out there with oil and gas in those markets that we're in. But there is a lot to be confident about. Operator: We go next now to Steve Pizzella with Deutsche Bank. Steven Pizzella: Just wanted to follow up on AI. How have your initiatives benefited Wyndham and your owners? What have you seen in terms of increasing direct bookings? And what are the upside cases you're hearing for your owners in terms of additional ancillary spend? Geoffrey Ballotti: A lot in there, Steve, and it's something I was sitting with owners in Southeast Asia and the Pacific last month, and it's -- whether I was in New Zealand talking to a developer building La Quintas or in Singapore, in a full-service hotel, there is nothing that they're more excited about in terms of everything you asked in that question, incremental revenue and more direct bookings. I mean, AI is moving so quickly. And our whole AI forward 6 year, we've talked a lot about it on these calls, a $450 million investment that Scott Strickland and the team has led has really accelerated our AI readiness. We are now 100% cloud-based. We're fully optimized across all of our platforms with best-in-class partners like AWS and Salesforce, Oracle, Adobe. And the foundation is enabling us to launch products like we've talked a lot about. I won't go into it, the Wyndham connect AI with Canary, it's in our investor deck powered by Open AI. That was launched 2 years ago. And that gave us a very early lead in removing friction across the guest journey for franchisees. And it delivered to your question, commercial value to our owners, allowing them to focus more on hospitality. Because we're deploying it at scale across all of our guest touch points, we're no longer piloting. We're driving up to in an engaged full-service hotel up to $25 million of additional NOI ancillary revenue, that is real money for those hotels. We've got engaged economy hotels driving $120,000 of incremental spend incremental spend from guests, which is flowing straight through to their bottom line and incremental mid-scale hotels driving a $150,000 through that 1 product. And so it's -- it's really exciting in terms of what it's driving for them, and it's certainly helping us. It was a big topic of conversation when we were at the AoA conference I referenced in my remarks today in terms of what's differentiating Wyndham from -- in the Select service space, their competitive sets to do business with us. And we're really excited about to your direct contribution question. I think that's, for us, the biggest benefit that as we roll this out, we talked about 1,100 hotels right now and rolling it out across the world with our Wyndham Connect+ product that's also in the investor deck, we are taking millions and millions of dollars of costs out of those hotels front office. We're taking millions of guest calls, millions of questions away from people that would have to answer them. And we're autonomously handling those labor-intensive tasks that they no longer have to stack to. That's what's saving the money. But it's also resulting in better or interactions with our guests. We have no drop calls, faster handle times, handle times have improved by 25%. And it's that AI product that we've deployed that's driving that. We talked about in the script, 300 basis points of increased direct contribution to those franchisees, which they're very excited about. Operator: We go next now to David Katz with Jefferies. David Katz: Just following on the AI thing, given the slides that you have in your deck and the amount of commentary put on it. Do you have any statistics or any perspectives on customer uptake? I think that's obviously going to be one of the gating factors for how much and how soon and how fast -- how are you measuring that? Geoffrey Ballotti: Yes. The incremental revenue upside that I'm talking about, David, is with with Steve's question is the most immediate important measurement for our franchisees. I mean we're looking at everything that we could do to drive incremental revenue to their hotels. We're looking at how much margin we could drive by taking a guest service agent, perhaps or a PABX operator. off of their payroll and allow them to free up staff for others. We're looking at the percentage that we're able to drive to the hotel from a direct booking basis because the call wasn't dropped or it wasn't lost, and that's that 300 basis point KPI that we're tracking right now for the 1,100 hotels, only 1,100 so far of our 8,000 as we roll it across the world in 100 different languages that we're looking at. So our job is to make sure that the small business owners are engaged with these tools that can drive hundreds of thousands of dollars up to 100,000 maybe in a -- or over 100,000 in an engaged franchise economy hotel to $0.25 million in a very engaged leak point of Vista Palace in Orlando that complex is just all over this, and is really, really creative. And we can't underestimate the KPI for guest satisfaction. We're continuing to see -- we've seen an uptick of 400 basis points in guest satisfaction because those calls are answered right away. I mean we have that single source of truth, where David Katz is booking a reservation and we now know that autonomous agent now knows all about David. Before we did not, that front desk agent might not. We have that basic information that was not easily at their fingertips about what David and his daughters like and not having to ask David to give us anything about them in terms of his loyalty is booking behaviors these agents are able to answer any question imaginable that I guess might ask about his stay in moments, not minutes and book the Cat family into their preferred room based on their past day history and then work to sell them a suite upgrade and really check an late checkout or an F&B amenity package. All of this being done autonomously is just so exciting. We would not have had the time to do that before, and it's the revenue generated that we're looking at. It's the it's the direct bookings because that call wasn't dropped and you didn't hop off on to a third-party to book, and it's the increased satisfaction that we're delivering for our guests at time of booking. And then you just multiply that on -- in terms of everything that we're doing. With the LLM in terms of where we're live today with Cloud and Open AI and and Google, and it's really, really, really exciting. I mean we're scratching the surface with so many new initiatives underway that we're not going to talk about or disclose on this call, but we're very well positioned as these platforms continue to evolve. Gregory Miller: And David, if I could, if I could just add on your customer uptick and uptake question studies are showing that almost 40% of travel searches are coming through LOM. So really, we want to meet guests wherever they're choosing to book and offer Wyndham hotels and their engagement through our Wyndham mobile app through interacting with the properties, front desk and all of that, we're seeing strong increases. So guests are definitely embracing it as -- and we're right there to meet them. Operator: We go next now to Dany Asad with Bank of America. Dany Asad: And congrats on the new role. My question for you is more on the ancillary side. Can you just help us understand the big drivers of that increase in the quarter? And then more importantly, I think how should we think about that opportunity long term here? Gregory Miller: I'm excited to be in the new role. Ancillary, we had a strong quarter this year, 21% year-over-year growth, primarily driven by the credit card program. As you kind of think about that, we have -- we've guided to low to mid-teens for the full year. That's still the outlook for the full year Q1, the 21% is really driven by lapping. We renewed the credit card agreement with Barclays in March of last year. So as you look at it for this quarter, we had a full quarter versus just a month last year. So that's really the lapping. But with -- as far as the full year, it's still the low to mid-teens guidance that we provided, and we're excited about [indiscernible] continued growth in the ancillary side. Operator: We'll go next now to Patrick Scholes with Truist Securities. Charles Scholes: Wonder if you could give us a little bit more color on your performance out of China. Certainly, across the industry and 1Q results, we've seen just a very wide volatility in RevPAR results out of China, certainly, Smith Travel sort of implied up low single digits, some companies reported, we're doing up in the teens. You folks were negative 5%. A little bit more color on what drove the negative 5% versus, say, the industry where perhaps what you know about the other companies? And then your expectations for the near to midterm for China. Geoffrey Ballotti: Sure. looking at the industry, looking at STR, and we've talked about this before, Patrick, our brands in China were much like here in the U.S., the first to recover coming out of the lockdown. And looking at our overall RevPAR today versus where it was pre-COVID were in line with STR. Certainly, we want to see that minus 5% become positive in overall, China RevPAR did improve. It was 540 basis points of improvement from last quarter to this quarter. And what was great to see was occupancy improving a full 12 points to being up 8% to prior year. ADR is still the issue over in China, continued deflation. The deflationary environment in China is the longest it's been since a long, long time, back in the '60s. But -- it is estimated to likely soon turn, and we're looking forward to that RevPAR continuing to improve and get back to a positive, which I think is our expectation for the full year. Occupancy is the big tailwind. It's still trailing by a long, long margin where it was pre-COVID. But with PPI turning positive for the first time in 41 months at up 1%. And with the government boosting service consumption and travel demand visa-free entry in international inbound is a lot of our peers have been talking about as that picks up with increased flight capacity, we're optimistic. But where we're most optimistic in China is the continued growth on the development front. Our Q1 NRG double digits for both our direct franchising system and our overall system with direct franchise signings up a solid 5%. We've increased our direct franchising business. We continue to grow it. It's up 100% since spin. It's sitting at about 100,000 rooms with over 400 hotels -- direct hotels now in our pipeline. And this accelerating double-digit net room growth is helping grow our international royalty rates. And as we pivot from MLAs to direct franchising agreements, it's at a significantly higher, 3x higher royalty rate is what it was for Q1. So we're really pleased with how things are going in China. We've got strong direct development owner relationships. 12 of our 25 brands are now registered for sale in China. And we've taken back these legacy MLAs like days in, which has grown significantly since we did that, and we're growing across the capitals of Beijing and Shanghai, our brand really resonates tech centers we talk about on every call as we did this. The Elite 8 cities, great growth. We've just -- we're very proud of what our Chief Development Officer over there, Bill Wang and his team's significant growth has been delivering and continues to deliver and achieve for us. Gregory Miller: Just if I could just add on. As Jeff mentioned, we have recovered on pace with 2019 versus the industry. Patrick, I think you look at it, we recovered ahead of the industry. So we're right now kind of in line with the industry. So the recovery is just the timing of it. And then for the full year basis, last year, we were down 9%. And as we said, we expect to see that kind of like flat to positive growth this year. So it's really a huge sequential improvement year-over-year to almost 10% to get to that level. Operator: We go next now to Ben Chaiken with Mizuho. Benjamin Chaiken: Maybe on the U.S. demand front, you touched on it briefly earlier. I think in response to a previous question, you mentioned that leisure was improving. And then if I call you correctly, you also suggested that kind of like blue collar infrastructure was improving. Am I correct that that latter comment, infrastructure in blue collar was more of a forward-looking comment? And then especially in states like Texas that are seeing rapid improvement, I guess how long do you need to see the stabilization improvement for that eventually show up in pipeline or net unit growth. Geoffrey Ballotti: Leisure was up about 100 basis points versus business in terms of improvement, but we're seeing we're still seeing it improve. I mean our overall infrastructure business that I touched on, Ben, was while it was still down to prior year, improved 10 points sequentially from Q4. And the nongovernment infrastructure revenue increased double digits in the first quarter, which helped our total business segment, if you think about 70% of our business being leisure, 30% being business, we were down 7% year-over-year for Q4, and we were flat for Q1. So significant improvement. And it helped boost our weekday occupancy, our weekday demand to flat for both February, March, and we're seeing that again in April. A piece of that is oil and gas and energy infrastructure spending, that, as we talked about, increased really, really impressively for Q1. And in terms of forward-looking, our GSO consumed infrastructure revenue for the quarter grew 12%, while the contracted infrastructure revenue, what's on the books forward-looking continues to pace well ahead of the same time last year. And the second part of the question, Amit, did you pick that up? Amit Sripathi: Yes. I think you were asking about, I think, Ben, about net rooms growth. I think if you look at it, the even last year with the RevPAR backdrop that we had we had record openings in the U.S., just kind of underline the strength of our brands and the performance. Really, our brands are resilient through periods of RevPAR cyclicality and then turn looking at this year, you see U.S. signings up 8% global pipeline up to a record 259,000 rooms and 2,200 hotels. So yes, we're seeing continued growth. Geoffrey Ballotti: Yes, mid former franchise sales team, now led by David Willner, Jared Medan, Brian Parker and Brad Gant, they did not miss a beat as Amit was promoted, and they saw very strong momentum domestically. The 8% they signed, more U.S. development contracts than last year. I think what impresses us all is how they are coming in for more upscale and more accretive rooms, significant PPAR premium growth of 30% above our U.S. system average. And yes, we're just thrilled right now with a pipeline that grew by domestically 300 basis points. It's sitting at a record 110,000 rooms. And openings as well, opening 6,300 domestic rooms being in line with last year's record Q1 openings, all fueled by extended today, which we know there's going to be a lot of demand in stabilizing economy base and increasing upscale executions, is something that we're feeling good about. Operator: We go next now to Stephen Grambling with Morgan Stanley. Stephen Grambling: On AI, do you find that all these benefits sound really encouraging, but do you find any difference in the impact as we think about either property type or customer type, meaning high-end or low-end properties, maybe have different impacts or leisure versus business customers or even thinking through different geographies. Geoffrey Ballotti: It really gets back to the engagement of the property in terms of what they could think of, Stephen, to market to the Grambling. If you're flying across the country and you're arriving in -- on the West Coast and it's still early in the morning, it's pretty easy to sell you that early check-in an amenity package to get you in the Grambling kids to their room. Obviously, the higher up the chain scales, you move, there are increasing opportunities from what you could do with food and beverage in the hotels. I mean that's where we're seeing a lot of our success in full-service hotels like the one I mentioned in Orlando, where you do have food and beverage outlets and experiences. But it's just a really great opportunity from an incremental revenue standpoint for really all chain scales to drive. And it's most impactful, I think, to the small business owner that is able to drive something that's in their minds, really offsetting the rising labor costs and the rising brand fee costs and the rising distribution costs that obviously the whole industry always talks about. I mean it's a massive, massive offset for them. Operator: We go next now to Dan Politzer with JPMorgan. Daniel Politzer: You gave a little bit of color a few minutes ago on the development front. I was wondering if we could just kind of circle back there. How do you think about net rooms growth in the U.S. for this year and the potential to grow there? And can you maybe give a little bit more detail on the affiliate rooms that came out in the quarter? And how we should think about that on a go-forward basis? Geoffrey Ballotti: Yes. We -- I mean, we had -- as we previewed to all of you in February, affiliate rooms come out. The U.S. system was certainly pressured in Q1 with the outsized removal of what were legacy travel and leisure rooms that they've talked a lot about publicly and a legacy all the way back to our worldwide days of our Vacasa vacation rental affiliate room product as that company was sold, which could always happen from time to time. But when we look ahead with net room growth domestically to the first part of your question, I mean, we had a record 72,000 room openings last year. We had a big piece of that being domestic. And as rooms open, they come out of the pipeline, but we also had the ability to really add to that pipeline as I was just talking about in terms of the the team that have it built by signing 8% more U.S. contracts than they did last year for those more upscale and accretive rooms. Our economy segment, which saw stabilization last year, to a large degree. It still has room to go, but our economy rooms were up 4% on a gross additions basis. We're running a best-in-class economy retention rate still that's been stabilizing. And as we put more sellers on the street to sell new brands like our premium economy [indiscernible] brand that has so many competitive advantages going for it like its lowest cost, AI-enabled PMS CRS technology stack able to drive the type of incremental revenues that we're just talking about. We're looking forward to that domestically, but we're really seeing growth is an extended stay in mid-scale and above. Our extended state pipeline is up over 4% year-over-year to a record 45,000 rooms in a segment where we know demand outstrips supply by 3x and is going to for years to come. We're seeing really strong interest in our Echo Suites extended-stay product, our Hawthorne Suites extended stay product and our upscale water walk brand that its pipeline is up 2x from last year on small numbers, but a lot of interest and a lot of demand. And our upper mid-scale and upscale brands are resonating in markets so often oversaturated with larger peer supply. We're seeing good increases for our Wyndham Grand brand, our Dulce. We recently opened 3. It's on the cover of our investor presentation we put out yesterday and a good double-digit growth for our registry collections domestic pipeline. So -- with 85% of our pipeline in the U.S either extended-stay, mid-scale, upper mid-scale, upper up or luxury as we continue to push our system into higher fee part segments, We're, again, feeling good. Our domestic pipeline at spin was 1/3 of our total pipeline, and it's now over 43% of our pipeline and growing. Operator: We go next now to Ian Zaffino with Oppenheimer. Ian Zaffino: Question, I guess, will be on the RevPAR guide, kind of a lot of puts and takes here, right? We have a few attacks refunds. We have the IIJ kind of finishing out here. But then we have the comments about your optimism. So -- how do we kind of put that all together to kind of arrive at that RevPAR growth? And then if I could just sneak in one more about the credit card business. How much runway do we have in that business? What's sustainability of it? And any other levers that you can pull any initiatives that you plan to roll out going forward? Gregory Miller: I'll start with your RevPAR puts and takes. I think you kind of look at the Q1 outperformance relative to our expectations of down to down 3%, we're 250 basis points ahead of that. That's about 30 basis points on a full year global basis. And then Jeff kind of touched on April momentum and kind of what were continuation of the trends we're seeing. So that kind of -- we're assuming those continue into the second quarter. We don't really -- and so we're assuming about another 20 basis points from that plus 1% in Q2 on our full year outlook. So that's kind of how we got to the 50 basis points shift in the low end of the high end to kind of get to flat on the midpoint. As far as like the puts and takes, look, we don't have -- you know the booking windows. They are just over 2.5 weeks, they remain short. We certainly have a lot of catalysts, FIFA and other things. But until we kind of get to odontoid the summer season, we don't want to be -- we don't want to predict what that's going to look like. So we're being measured in what that is. As far as your low end and high end, you look at. Q1 was down minus 1% and if you -- for full year to kind of be there, you just assume the rest of the year, is that minus 1. It gets to the high end of plus 1 million you basically need to make up the minus 1 you had in Q1. So assumed like plus 1.5% for the rest of the year to kind of get to that. And then your second question around credit card business, look, we are credit card and loyalty really tie in well together. We had a very strong order on ancillary overall, and that was largely driven by the credit card. Some of it was the lapping that I mentioned from Q1 of last year. When you look at the sustainability of the credit card and the ancillary business as a whole, we have -- this year, we're projecting low to mid-teens for that long-term outlook for ancillary growth is kind of the, call it, the high single digits. And then there's multiple catalysts within the credit card. We are -- there is markets like Canada where we have strong presence, which we -- as we previewed, we're expanding into later this year. We've also got other markets in Latin America and Asia with strong Wyndham Rewards members and hotel presence that are also opportunities for that. And then there's other -- within ancillary, there's others with some of the AI technology and other initiatives that can also kind of help fuel that growth. So credit cards. We think there's a long runway as well as these other things to kind of get us to a high single-digit ancillary growth going forward. And we also -- we launched the Window debit card, which is we were the first in the industry to do that. And so yes, we feel very good about the prospects for ancillary growth going forward. Operator: We'll go next now to Meredith Jensen with HSBC. Meredith Prichard Jensen: Yes. Quickly, I was hoping you could flip that to international and 2 quick points. You mentioned strength in Turkey, and I know that's an important business for you all, and I was hoping to see if you've seen some sort of shifting of demand that could be sort of rather than trips not taken trips taken with Wyndham elsewhere? And then secondly, if you could just speak a little bit more about the plans for the Rego properties and how you might leverage that opportunity there? Geoffrey Ballotti: Sure. I'll start and and Amit has been very involved and engaged on -- as it relates to Revo, and I'll ask him to talk about the work that's going on with our finance and legal teams. But yes, Turkey, we are seeing just great demand and great growth and strong occupancy and demand growth throughout the quarter, and we think throughout the year to people looking for great places to vacation. We got a lot of hotels in Turkey right now. It's growing. Certainly from a development standpoint, a pipeline standpoint, an opening standpoint. We've got growing royalty rates as our brand becomes more aware and it's a real bright spot for the European development team over there right now. And Amit, do you want to talk about the update? Amit Sripathi: Yes. And if I could just kind of close out the Middle East in Turkey. I think Meredith Middle East represents only about 1 -- we've got 50 properties there. really just 1% of our portfolio in terms of EBITDA. And Turkey has limited impact from the war that's outside of the Middle East. So overall, Middle East, we don't really see it having a huge impact that obviously impacts our EMEA, but on a global basis, really not much of an impact. And then turning to Rio the owned hotel set -- the 2 owned hotels in Europe that I mentioned in my prepared remarks, it was really kind of part of exercising all available remedies to recoup our investments. So we foreclosed and took ownership of 2 properties on consolidated books about $36 million of gross value, about $23 million of net asset value. these properties are expected to contribute about $10 million in revenue, which is why we revised our outlook range to account for that. Really no earnings impact there. Our plan is to stabilize and improve profitability of these 2 assets as we kind of explore strategic options for them. Operator: We'll go next now to Lizzie Dove with Goldman Sachs. Elizabeth Dove: I just wanted to go back to the U.S. rooms growth side of things. I know you kind of flagged the 3,000 rooms lost from the T&L rooms. But it looks like it was a little lower than that this quarter. I'm curious just your expectations are making that up for the rest of the year and whether the expectation is still for U.S. rooms growth to be positive this year? Geoffrey Ballotti: Yes. As you mentioned, the U.S. and our net rooms growth this quarter, that was primarily impacted by the the affiliate rooms from T&L and Vacasa, the openings were generally in line with last year. And so it was really the -- on that side. As we look ahead, as Jeff mentioned, we feel very good about the -- our development momentum across the U.S. portfolio. New signings are up. U.S. pipeline is up 3%. And the other thing is that the rooms we're bringing in are at a significant fear premium to the rooms that are leaving the system in the U.S. almost a full year, that delta was over 30%. And we are seeing continued demand for our brands across really all segments. So we manage net rooms growth on a full year basis. And Q1, as we previewed with you, was expected to be this way. And we look forward to kind of our development team executing the momentum that we have going on from 2025. Operator: I'll go next to now to Trey Bowers with Wells Fargo. Raymond Bowers: Just I guess a quick accounting question. The $114 million of reported royalty and franchise fees, do you guys mind just kind of providing a bit of a walk of without Revo and maybe kind of initial franchisees, et cetera, what that number would look like on a more normalized basis? Gregory Miller: Yes, the royalties and franchise fees line item that you're mentioning, it has a couple of components. I'll go through in sequence about the first 1 on the royalty side, about $3 million of that was related to the revaled deferral which we had previously communicated. And we also had a little bit of higher da amortization just year-over-year, which kind of offsets some of the RevPAR increase we saw in the first quarter. The other item that's in there is franchise fees, and we've always said they're not linear compared with our drivers. So we have some outsized franchise fees in Q1 of last year that we noted at that time and really was lapping those in Q1 of this year. And then you -- on a full year basis, if you look at franchise fees, in particular, like the cadence last year, it was front-weighted and kind of reversed in the back half. We are kind of expecting the inverse this year franchise fee. So aggregate, we expect franchise fees to be down a few million for the full year. and Revo will have a $12 million impact on that line item on the full year as well, both of which are already factored into our full year guidance and what we had kind of guided you guys to previously. Operator: And gentlemen, it appears we have no further questions this morning. Mr. Ballotti, I'd like to turn things back to you, sir, for closing comments. Geoffrey Ballotti: Well, thanks, [indiscernible] as always, and thanks, everyone, for your questions and your interest in Wyndham Hotels & Resorts. Amit, Matt and I look forward to talking to and seeing many of you in the months ahead at many of the upcoming investor and industry conferences that we'll be attending like NYU's HIF on May 31. And later next month. In the meantime, have a great weekend ahead, and thanks for joining us. Operator: Ladies and gentlemen, this concludes today's Wyndham Hotels & Resorts First Quarter 2026 Earnings Conference Call. Please disconnect your lines at this time, and have a wonderful day.
Operator: Hello, everyone, and thank you for joining us on today's ICE First Quarter 2026 Earnings Conference Call and Webcast. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Steve Eagerton to begin, Head of Investor Relations. Please go ahead, when you are ready. Steven Eagerton: Good morning. ICE's first quarter 2026 earnings release and presentation can be found in the Investors section of ice.com. These items will be archived, and our call will be available for replay. Today's call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in forward-looking statements, please refer to our 2025 Form 10-K, 2026 First Quarter 10-Q and other filings with the SEC. In our earnings supplement, we refer to certain non-GAAP measures. We believe our non-GAAP measures are more reflective of our cash operations and core business performance. You will find a reconciliation to the equivalent GAAP term in the earnings materials. When used on this call, net revenue refers to revenue net of transaction-based expenses and adjusted earnings refers to adjusted diluted earnings per share. Throughout this presentation, unless otherwise indicated, references to revenue growth are on a constant currency basis. Please see explanatory notes on the second page of the earnings supplement for additional details regarding the definition of certain items. With us on the call today are Jeff Sprecher, Chair and CEO; Warren Gardiner, Chief Financial Officer; Ben Jackson, President, and Chris Edmonds, President of Fixed Income and Data Services. I'll now turn over the call to Warren. Warren Gardiner: Thanks, Steve. Good morning, everyone, and thank you for joining us today. I'll begin on Slide 4 with our first quarter results, which represented the strongest quarter in ICE's history. First quarter adjusted earnings per share were $2.35, up 37% year-over-year. Net revenues reached a record $3 billion, up 18%. Adjusted operating income totaled a record $1.9 billion, up 26%, with meaningful contributions from all 3 of our operating segments. This is the product of a deliberate strategy, disciplined execution and a platform built for precisely this environment. These results build on an already strong base. In the first quarter of 2025, we delivered 8% revenue growth and 16% adjusted EPS growth, which were both records at the time. That compounding dynamic is what distinguishes ICE. Our business deepens with use, our recurring revenues compound over time and our expense discipline creates the capacity to invest in future organic growth by simultaneously delivering strong operating leverage and free cash flow. On the topic of expenses, adjusted operating expenses totaled $1.035 billion, in line with the midpoint of our updated guidance range. The update reflected performance-related items such as license fees and compensation directly tied to the strength of our results with these costs more than offset by revenues. Looking to the second quarter, we expect adjusted operating expenses to remain consistent with the first quarter and be in the range of $1.030 billion to $1.040 billion. Adjusted free cash flow generation was a first quarter record $1.2 billion, a figure that speaks to the quality of our earnings and the capital efficiency of our model. In the first quarter, we repurchased approximately $550 million of our own stock including an incremental $200 million executed during mid-February when the market price of our shares further disconnected from the fundamentals of our business. And in total, including dividends, we returned nearly $850 million to shareholders during the quarter. Let me now turn to Exchange segment on Slide 5. First quarter exchange net revenues reached a record $1.8 billion, up 27% year-over-year. Critically, these results compound on top of 12% growth in 2025 and 11% growth in 2024. Transaction revenues grew 33%. Our interest rate complex grew nearly 70% versus the year ago period as investors and institutions increasingly seek to manage duration risk. In Energy, our global oil complex increased 47% year-over-year, reflecting the continued primacy of ICE's energy benchmarks as a reference point for global capital flows. Natural gas and environmental products, which represent half of our Energy revenues grew 37% a testament to the structural reality with the multi-decade evolution of the global energy mix is increasing the need for sophisticated risk management tools. I want to offer some important context on our volume composition for those who may be wondering about sustainability. March was exceptional for our Energy business, but the underlying momentum was well established before those events. In addition, energy open interest through April remains up 6%, and that persistence is what matters. Customers are not simply reacting to headlines. They are building long-term exposure. Meanwhile, interest rate open interest stands 63% above year ago levels, signaling structural expansion and the breadth of how our customers are managing rate risk. In fact, total future and options open interest reached a new record just this week up 23% year-over-year, further underscoring that the activity we saw in the first quarter is carrying forward. Our recurring revenue streams, Exchange Data Services and our NYSE listings franchise reached a record $405 million, up 10% year-over-year, with Exchange Data and Connectivity Services growing 13%. These revenues grow as more participants embed ICE's data into their workflows, creating network effects that make us more valuable, the more widely they are used. At the NYSE, we continue to set the standard for quality listings globally. In the first quarter, we welcomed 25 new operating companies, facilitated the largest transfer in our history with AstraZeneca and maintained a retention rate above 99%. Turning to Slide 6. In our Fixed Income and Data Services segment, we delivered another quarter of strong broad-based execution. First quarter revenues totaled a record $657 million, up 9% year-over-year. Transaction revenues grew 14% to a record $143 million. Performance was led by our CDS Clearing business, where revenues increased 18%, driven by elevated global macroeconomic volatility, while recurring revenues reached a record $514 million, growing 8%. Within Fixed Income Data & Analytics, we achieved record revenues of $322 million, up 7%, aided by strong net new business trends in our pricing and reference data offering and continued momentum in our Index business, which ended the quarter with a record $829 billion in ETF AUM, up 21% year-over-year. In total, there is now approximately $2 trillion in assets benchmarked to ICE indices, roughly double the amount tracking this franchise when we acquired the BofA Merrill Indices less than 9 years ago, a trajectory that reflects the power of our data platform. Data & Network Technology revenues increased 11% in the first quarter, reflecting strong demand for our ICE global network, consolidated feeds and desktop solutions. Private global data center network connecting over 750 data sources and 150 trading venues across 24 countries is a physical infrastructure asset that cannot be replicated quickly or cheaply, and it continues to benefit from secular demand trends, including higher messaging activity and AI-driven demand for capacity. Please turn to Slide 7 for our Mortgage Technology segment. First quarter revenues totaled $539 million, up 6% year-over-year. On a pro forma basis, inclusive of Black Knight, this represents our strongest quarterly performance since Q4 2022. The broader mortgage origination market remains well below its long-run normalized potential, and yet we are growing, which speaks to the strategic value of what we have built. Recurring revenues totaled $401 million, reflecting continued product adoption and the beginning of normalization and Encompass contract renewals. Recurring revenues also benefited from roughly $4 million of one-time items. Accordingly, we anticipate second quarter recurring revenues will remain around current levels. Transaction revenues totaled $138 million, up an impressive 22% year-over-year, driven by a significant increase in Encompass closed loan revenues, which materially outpaced industry volumes as customers increasingly exceed their contractual minimums and by the double-digit growth in Closing Solutions, supported by strong refinancing activity. The strategic logic of the Mortgage Technology segment is increasingly evident. The integration of our Encompass Origination System with MSP has transformed what was once a collection of stand-alone products into a true end-to-end mortgage platform, processing a loan from initial contact through origination, servicing and secondary market execution, a unique offering in the industry. We have the cost structure, the customer base and the network in place for when the market normalizes, and we are investing through the cycle to ensure that opportunity is captured. In closing, we operate at the intersection of markets that respond to different forces. By connecting those forces through our Exchange infrastructure, our Data Network, and our Mortgage platform, we have built a model that is designed to perform through cycles not around them. This quarter demonstrates what this platform can deliver when all 3 segments are executing well simultaneously. But even when they are not all in sync, as has been in the case in prior quarters, the model still compounds. The forces that are driving our results are structural, the irreversible digitization of financial markets, the global expansion of risk management needs, the growing reliance on proprietary and institutional-grade data by AI systems and human decision-makers alike and the analog-to-digital conversion underway in the U.S. mortgage market. We are confident in our trajectory for the balance of 2026 and beyond as the forward opportunity set remains as large as it has ever been. I'll be happy to take your questions during Q&A. But for now, I'll hand the call over to Ben. Benjamin Jackson: Thank you, Warren, and thank you all for joining us this morning. Please turn to Slide 8. Across ICE's Derivatives platform, we've built technology that evolves with our customers' needs combining deep liquidity, global participation and transparent price discovery into a single connected marketplace. The first quarter was a clear validation of how we've built and scaled our markets. In environments that test liquidity, capital efficiency and operational resilience at the same time, the value of integrated global market technology becomes visible very quickly. This quarter, our platform was used exactly as intended to absorb complexity, facilitate price discovery and allow customers to manage risk at scale. That translated into significant activity across our markets. March marks the highest monthly volume in ICE's history, exceeding the prior record set just 2 months earlier by more than 70%. For the quarter, total average daily volume increased 45% year-over-year, with records across interest rates, global commodities and energy. In addition, looking forward into Q2, total open interest across futures and options hit new records over the past week alone, growing more than 20%. As we have consistently said, open interest is the leading health indicator of our markets, and rising open interest alongside record volumes signals that customers are building and maintaining positions, not speculating and exiting. As market shifts directly impacted inflation expectations, demand for interest rate risk transfer accelerated sharply. At the start of the year, SONIA futures were pricing 2 U.K. rate cuts. By mid-March, the outlook had reversed to rate hikes, driving a rapid reset in short-term pricing. Customers responded by turning to our markets in size with SONIA ADV increasing more than 120% year-over-year and open interest more than doubling as participation broaden. Similar dynamics played out across our European Rates Complex. Euribor futures and option delivered record volumes as expectations for ECB policy shifted. On March 3 alone, ICE traded over 9 million lots of Euribor futures, underscoring the depth of liquidity our platform provides when markets shift materially. Another contributor to our strong performance is the deliberate method that we have developed for our Global Energy franchise: our approach has been consistent, establish a trusted benchmark with deep liquidity then surrounded with differentials, spreads and regional contracts, creating network effects and giving customers increasingly precise tools to manage exposure. We applied that blueprint to Brent and crude oil, ICE gas oil and refined products and to TTF in global natural gas. As participation grows, those network effects compound not only through new products and customers, but also as existing participants deepen their activity across the platform. Historically, participants who come onto our platform during period of heightened volatility, stay once conditions normalize, and we expect this cycle to be no different. Importantly, performance was already strong in January and February. Before the Iran conflict escalated in late February, Energy ADV was up double digits and open interest was also up in both months. As disruptions on energy infrastructure and trade flows emerged, energy markets repriced rapidly and our platforms easily facilitated the global demand. In oil, record Brent ADV increased 60% year-over-year with record participation up 10%, positioning the benchmark as the primary venue customers turn to, during periods of stress. In our global natural gas markets, TTF delivered record ADV up 61% year-over-year with record participation up 12%. TTF set a new single day volume record of 2 million lots on March 3 and by the end of March, year-to-date volume was already at 46% of the full year 2025 total. In Asia, JKM hit both volume and open interest records as drone strikes on Qatar's facility, representing 17% of the country's LNG exports reinforce the critical role of Asian gas benchmarks in managing supply disruption risk. JKM also achieved record participation up 9% from last year. This strength extended to our environmental markets, where record first quarter average daily volume grew 30% year-over-year and participation here has grown double digits on average over the last 5 years. Supporting markets at this scale requires more than liquidity. It requires margin frameworks designed for volatility. ICE Risk Model 2 is now deployed across more than 1,000 energy contracts, improving portfolio margining efficiency so volumes can scale while appropriately increasing capital requirements. Even through recent periods of heightened volatility, margin calls were met without disruption, markets stayed orderly and risk managers have remained comfortable with the resilience of the system. Underpinning all of this market activity is the data and connectivity infrastructure that allows participants to operate with confidence. Please turn to Slide 9. We built the Fixed Income and Data Services business with the understanding that high-quality data, governance and secure distribution are foundational to how modern markets operate. That conviction matters even more today as workflows become increasingly automated and model driven. In the first quarter, FIDS delivered a record quarter, with both total revenues and recurring revenues at their highest levels to-date up 9% and 8% year-over-year, respectively. Pricing and reference data formed the foundation of the business. Each day, we evaluate approximately 3 million illiquid instruments across more than 150 countries. It is important to highlight that only a small percentage of municipal and corporate bonds trade on any given day. Stated simply, this is not data that can be scraped, inferred or generated synthetically. Our evaluated pricing methodologies have been built and refined over more than 3 decades and are deeply proprietary. They feed directly into regulatory, compliance, valuation and risk processes across the global financial system. These data sets are embedded in client workflows and switching providers typically requires a board-level decision for fund managers. That same pricing foundation supports our Index franchise. During the quarter, ETF assets under management tracking ICE Indices reached record levels, up more than 20% year-over-year. The Indices business also achieved a record quarter with revenues growing at a double-digit rate. Because our Indices are built on top of ICE's own evaluated pricing, the defensibility compounds over time. Shifting from data advantage into delivery and access, our Data and Network Technology business is an increasingly important growth driver within FIDS, led primarily by the ICE Global Network. Demand across this business continues to be driven by clients' needs for reliable, low latency connectivity to reference data, consolidated feeds and execution venues. As clients scale their data consumption and deploy real-time valuation engines, proximity to reference data sources becomes critical. This favors ICE's owned and operated infrastructure where data, compute and connectivity sit together rather than in public cloud environments. ICE owns and operates its data centers, and we're building additional capacity as client demand accelerates, delivering operational security, data protection, cost predictability, and the low latency performance our clients' workflows require. Turning next to our CDS Clearing business. It delivered a record revenue quarter with growth approaching 20% versus last year, driven by elevated activity across index, option and sovereign CDS products, which delivered a record of $2.7 trillion in notional clear on March 20. We invested in this business coming out of the great financial crisis and continue to innovate as the market evolves. Treasury Clearing is now operationally live following SEC approval in February, and we are actively building the repo rule book well ahead of the regulatory mandate. A meaningful development during the quarter was the launch of ICE Private Credit Intelligence with Apollo as our anchor partner. This initiative builds directly on ICE's strength in fixed income data, analytics, and market infrastructure extending those capabilities into the private credit market, one of the fastest-growing asset classes. Private credit participants are increasingly operating alongside public fixed income markets in portfolios and risk systems, and ICE Private Credit Intelligence is designed to support that convergence. By leveraging our existing data science, analytics, and secure distribution capabilities, we are positioning ICE to play a central role as private credit continues to institutionalize and scale. Across FIDS, we continue to expand the breadth and relevance of our data sets to complement our traditional market data. During the quarter, we launched our Polymarket signals and sentiment product, which normalizes prediction market data for institutional workflows and is available exclusively through ICE Feeds. We are also incorporating additional correlated data sets, including Reddit and Dow Jones content to provide broader context around market sentiment and information flow. As these data sets scale, the ways in which clients use our data continue to expand, whether powering automated workflows, AI models or real-time decision-making, every use case requires high-quality proprietary inputs and we believe ICE controls the most comprehensive and institutionally trusted data sets across these markets. Importantly, customers are embedding our proprietary and secure real-time data for inference in their workflows and not simply consuming it to train models and then move on. As these use cases deepen demand for ICE's proprietary data increases rather than decreases. The dynamic of growing client engagement is also evident in our Mortgage Technology business where we continue to advance the platform to support clients across origination, servicing and capital markets. Please turn to Slide 10. The opportunity in mortgage remains significant, and our platform is positioned to capture it across market cycles. The business continues to execute against its core thesis, helping clients automate connect and scale in a highly cyclical environment. In the quarter, revenues grew 6% year-over-year, driven by double-digit growth in both Origination Technology and Closing Solutions. Manual intervention still exists across parts of the mortgage workflow, and we see a long runway to continue automating and delivering real savings for our clients. Because this is a highly regulated market that requires a deep understanding of risk, audit and governance before deployment, we embed AI directly into the systems of record, reinforcing ICE's role as a neutral trusted platform that does not compete with its customers. That approach is especially relevant as the GSEs publish updated guidelines around AI usage. Our clients should take comfort in the fact that ICE Mortgage Technology operates under one of the most comprehensive risk and compliance frameworks in the industry. This includes enterprise technology risk assessments built for multiple regulators, annual GLBA reviews, independently audited SOC reports shared with clients, application level compliance and data privacy assessments and former quarterly risk reports to an independent risk committee. Our AI capabilities are deployed within that same framework, not outside of it, which means the governance auditability and controls our customers rely on extend fully to every automation we deliver. Our client's interaction with our platforms continues to evolve and what we're seeing is not displacement, but deeper integration. In March alone, our Servicing business processed approximately 4 billion API and web services calls up nearly 20% year-over-year driven by increased use of our AI and Business Intelligence tools, a signal that our infrastructure is becoming more embedded in client operations, not less. On the product side, platform modernization remains a core priority. In February, we launched our enhanced MSP user experience and the efficiency gains are already measurable. Take escrow as an example. What was previously a 46 touch-point process spanning 10 days, now requires just 6 touch points over 2 days. At our ICE Experience Conference in March, we unveiled AI-powered Voice and Chat Agents for Mortgage Servicing to handle routine borrower inquiries, execute common loan management actions and help servicers manage fluctuating call volumes. We also launched 16 exception-based automation agents for complex servicing workflows, including escrow management, investor reporting and disaster-related processes. Our MERS eRegistry surpassed 3 million registered eNotes in the quarter, which are the work product of a fully digital closing. Leading lenders are now registering between 30% and 80% of their originations digitally. I'm also excited to announce that this month, we signed an Encompass deal with a large superregional bank that is also an existing MSP customer. A great example of the cross-sell flywheel between origination, servicing and data that continues to drive growth across the business. Stepping back, what ties together ICE's best quarter in our history is the breadth of our model and the discipline behind it. Each of our businesses contributed, whether through record exchange and clearing activity or continued momentum in data and workflows that compounds over time. The integration across our segments remains a competitive advantage, one that we will continue to execute on. With that, I'll hand it over to Jeff. Jeffrey Sprecher: Thank you, Ben. Good morning, everyone, and thank you for joining us. Please turn to Slide 11. 25 years ago, I started with a single idea that opacity and inefficiency in markets were not inevitable conditions. They were problems that technology could solve. That conviction is the foundation upon which our technology rests, and it's never been more relevant than it is today. This was a record quarter. In fact, the strongest quarter in our company's history. This milestone is not the product of one favorable market environment. It's the compounding output of an all-weather business model that's been deliberately constructed, one that's designed to grow in all conditions. Since inception, ICE has built markets that bring efficiency and transparency to an increasingly complex, regulated and constantly evolving world, a reality that is intensifying, not receding. Global systems are more interconnected. Capital moves faster and expectations for oversight and transparency continue to rise. Our role has never been to forecast which scenario will emerge, but to build the technology that allows markets to function across all of them, essentially a picks-and-shovels strategy. This is why we've intentionally placed ICE at the intersection of markets influenced by both physical dynamics or the Acts of God and those shape by policy and human decisions or the Acts of Man. During periods of volatility, we see participants turning to our futures platforms to manage risk, with increasing demand for trusted fixed income data and evaluated pricing. At the same time, our Mortgage Technology business benefits from structural tailwinds as the digital modernization continues to advance. We do not build point solutions for moments in time. We build mission-critical systems that operate through cycles across jurisdictions and under regulatory oversight. Artificial intelligence fits squarely within that strategy. It accelerates the way regulated workflows are processed by embedding intelligence directly into our systems of record, preserving governance and audibility and while improving speed and insight. Importantly, as automation increases, value shifts towards workflow outcomes rather than seat pricing. We recognized that early on that pricing on workflow outcomes would be the preferred pricing model. As AI is incorporated into these workflows, that pricing model remains durable and stands to benefit us. Internally, we're already deploying AI in production across our organization. Teams are using it to undertake code writing, enhanced pricing workflows, accelerate index calculations, support client interaction and earlier identified loan servicing issues. These are not experiments. Our data team is actively transforming our proprietary and nonproprietary financial, market and commodity data into AI-ready formats. And they themselves are internally integrating AI technologies into ICE to enhance data utility, extraction and analysis for our clients. ICE now offers an AI model control protocol server, or MCP server located in our data center and available on the ICE proprietary Cloud to ease access to ICE's nonproprietary data. And we are actively engaged with major AI model vendors to explore the development of additional server protocols and topology for further access to and the protection of ICE's proprietary data. The nonproprietary data in ICE's MCP server recently launched and is being offered under existing license agreements to some of our customers to see if this type of delivery has benefits versus traditional data connectivity methods. And you can see from our quarterly results that the revenue from ICE's data and data infrastructure showed very strong growth. New technologies such as tokenization and prediction markets are drawing increased attention. We approach these developments from first principles. How is risk managed? How does settlement function from where does trusted data originate and how do participants gain regulated access. Those questions matter regardless of the form that risk transfer takes and they are questions that ICE has spent decades learning how to answer. At the New York Stock Exchange, we're putting this into practice. We're building a tokenized securities platform that combines our high-velocity pillar matching engine with blockchain-based distribution and settlement designed for 24/7 trading. We are pursuing regulatory approval under existing federal law, and this initiative is not dependent on any pending legislation. We've also signed a memorandum of understanding with Securitize, naming them as the first digital transfer agent to support the tokenized security issuance and life cycle management on our platform. Our partnerships with Polymarket and OKX reinforce these initiatives from different angles. Polymarket continues to deliver strategic value through differentiated event-driven data that we've begun distributing to our institutional clients. And Polymarket's engineering team is collaborating with us concerning on-chain settlement and 24/7 capital movement. OKX, which serves more than 120 million users globally, is working with us to connect its crypto native audience to ICE's regulated markets, including U.S. futures and NYSE tokenized equities while giving us a pathway to launch regulated crypto futures tied to OKX spot crypto prices. These initiatives complement our core franchises as our center of gravity remains the technology that supports global risk transfer, price discovery and capital formation. Last month, with Apollo as our anchor partner, we announced the launch of ICE Private Credit Intelligence. The private credit asset class has grown into one of the largest in the world, yet it still operates without the standardized reference data framework that is foundational to the transparency in traditional fixed income markets. No consistent reference data layer currently exists, and there's no common foundation for assessing risk across portfolios. We're beginning with the data layer, establishing common reference data, governance and permissioning from the outset. This is the same playbook we follow with publicly listed fixed income instruments where reference data evaluated pricing and indices became essential market utilities over time. The objective is to introduce comparability and consistency into workflows that it increasingly requires. We've navigated similar development cycles before. European natural gas once lacked benchmarks, holding broad participation and confidence. We invested early, built the foundational capabilities. And today, our European TTF natural gas market serves as the cornerstone of a global natural gas franchise. This private credit intelligence initiative follows a similar playbook, and the intent is to build upon our reputation as one of the leading providers of pricing, reference data and indices to bring greater transparency to an asset class currently in need of such industry standards. To close, this was a record quarter for ICE with adjusted earnings per share growing 37% year-over-year. More importantly, our performance reflects choices we made years ago, investments that were deliberate, integrated and built for durability. The world is more complex and more volatile than when we started. That complexity is not a headwind for ICE. It's a condition that our business is designed for. And this perspective continues to guide how we think about the next phase of growth. I'd like to conclude today's prepared remarks, thanking our customers for their continued business and their trust. And I'd like to thank my colleagues at ICE for their execution and commitment that made another exceptional quarter possible. I'll now turn the call back to our moderator, and we'll conduct a question-and-answer session until 9:30 Eastern Time. Operator: [Operator Instructions] Our first question today comes from Chris Allen from KBW. Christopher Allen: I wanted to dig a bit deeper on the health of the energy marketplace. OI is holding in, growing year-over-year. We recognize that. But given the recent pullback in volumes, we're getting a lot of questions on whether we have tilted into bad volatility territory and are now in a period of market exhaustion or some major desks or sideline post meaningful losses to start the year. So I was hoping you could provide some additional color to address these concerns in the energy marketplace. Benjamin Jackson: Thanks, Chris. It's Ben. So as you alluded to in the way you framed your question, our markets were doing and performing very well even before the Iran conflict broke out. Obviously, there's a confluence of major issues around the world that clients are managing risk around even prior to this with trade and tariffs, geopolitical issues, weather sensitivity, concerns around energy supply security, tight energy supplies and growing demand for energy and power. And throughout all that, last year and even at the start of this year, OI, market data subscriptions and market participants all remain strong. Then the Iran war broke out, and obviously, there's new risks that people need to manage. And the key things that we look at for the health of the market are -- and you highlighted one of them, is that our open interest right now is higher than where it was at year-end for futures and options for energy, for oil, for Brent, for gas and TTF. And even over the past week, open interest hit all-time records across futures and options. At the same time, when you set our desk sideline, et cetera, we're seeing market participation across a whole bunch of our markets, in particular, across energy as well as data subscriptions -- are all at or near all-time records and highs. So we're seeing more and more participation coming into the market. And we've also seen some particularly strong growth in our options market with options OI up 40% across our options franchise. And for oil, gas and environmentals, all are up about 25%. And as many people know, options tend to be the most capital-efficient way to hedge and manage risk around a range of outcomes as well as tail risks. If you expand out and just look at it from a longer-term perspective, there's no doubt that global energy supply chains today continue to be rewired. And virtually every leg of that rewiring runs through our global energy franchise and through our contracts. And if you use just one particular example of many would be that Asian buyers right now are already lining up for alternative sources of fuels, refined products and LNG, all of which are primarily our markets where we have the most deep liquid markets. But it also means there's going to be longer-haul trade routes, more demand for freight, fuel oil, clean fuels, all markets where we hold near 100% share. So there's no doubt that there's more hydrocarbons that are in demand around the world, more supply routes that are being established. All of this means there's more risks for people to manage long term. And this isn't a single event. It's a multiyear structural repricing across energy. And our franchise is no doubt the only one that can truly support this for our clients. We also have the most diversified franchise where as supply and demand dynamics change, as volatility increases, what we see is that it brings in more participants into the market. And when those market participants come in, they tend to stay, which is another really good sign. And then lastly, we've talked about our portfolio margining capabilities with ICE Risk Model 2. That enables us the combination of the things I said before as well as the portfolio optimization that we're able to provide and the capital efficiencies that we're able to provide to clients to manage these risks is another thing that we point to as a long-term sign, positive sign for the growth of these markets and risk management tools for our customers. Operator: Our next question comes from Ken Worthington from JPMorgan. Kenneth Worthington: I wanted to build on Chris' question on the cyclical to one on the secular. Can you talk about the energy trading business and how Gulf Oil is poised to expand? Maybe you can start by sharing or highlighting your share in Gulf oil and talk about the transition the market is seeing in the physical delivery from Cushing to physical delivery of Midland. And then lastly, what is happening in the capacity to ship to Asia and what this all means for ICE? Benjamin Jackson: Thanks, Ken. It's Ben again. You hit on a very interesting part in the way you asked that question because the thing I would start with when you think about market share in the Gulf -- to us, what's most important is the commercial use of these commercials that are in there using these markets for the core utility that they provide, which is risk management. And I've alluded to this on prior calls that the physical deliveries, the number of barrels that are actually going into delivery into these futures contracts on HOU versus our peer at Cushing, HOU has been anywhere from 2x to 3x the number of deliveries that Cushing has seen. And if you look back at just March alone of this year, our HOU contract had 9 million barrels that went into delivery and Cushing had 1.6 -- so I think that tells you that the commercials and the commercial interest in what we've developed as a risk management tool with HOU is an important development for the -- an important sign for the future development of that market. The other thing to point out is that within Brent, some time ago now, WTI oil is flowing into that specification. And that WTI oil that's flowing into that is basis Houston. So our HOU contract is the best price point for people to manage that risk and really think about oil that's hitting the water and going into the Brent spec. And if you expand out even further into what is the spot market, the spot market is dated Brent. And that is the spot price for the pricing of oil moving around the world, and that is 100% ICE's market. And then when you think about the Iran situation that's going on with the effective closing of the Strait of Hormuz, we see that as, again, a rewiring of supply chains that I just referred to in the answer to Chris' question a minute ago. And that should lead to a tremendous amount of more opportunities for us to help clients manage risk. And another perfect example is that Asian buyers right now are lining up for alternative sources of crude, refined products and LNG. All of those are on us. And as I mentioned before, these longer-haul trade routes, demand for freight, fuel oil and marine fuels, 100% of our market. So we see this as a development that's going to -- that's a multiyear restructural repricing across the energy supply chain and that our end-to-end solution is the one that clients are going to go to. Operator: Our next question comes from Michael Cyprys from Morgan Stanley. Michael Cyprys: I wanted to ask about tokenization. Just curious to get your latest views there. And if blockchain-based settlements reduce settlement times to near instant. Just curious how you think about that impacting clearing revenues and collateral economics across your platform? And more broadly, curious your views on any sort of gating factors, regulatory technology or client readiness as you think about what determines whether tokenized securities scale over the next couple of years versus more of a 10-plus year timeframe? Jeffrey Sprecher: Michael, that's a very good question. This is Jeff. So I think embedded in your question is the view that we have, which is the main benefit of tokenization is going to be a rewiring of the movement of money and value and that essentially, it's going to allow that to happen on the Internet as opposed to the conventional banking wires. And as your question suggests, it's going to allow that to happen quickly with bearer instruments and will change your ability to custody, self-custody or work with third parties very quickly to provide custodial services. And all that to us means that there'll be more volume of trading and transactions. When you make something easier, people do more of it. And as you've probably seen from the equity markets, when the equity markets simply went from T+2-day to T+1-day settlement, look at the volume growth in equities, I attribute much of the volume growth over the last year plus because it's been cheaper for people to trade equities. If you just look at ICE launching our IRM2 clearing model and look at the volumes of trade that we just reported, I don't think it's coincidental that making it better, faster and cheaper to move capital against trading positions results in increased volumes. So I think over time, people -- and it's partly why we're doing this, people that are adopting settlement and capital movement on chain will benefit from increased activity. The one wrench that may be thrown in that is that none of us may want to put our worth on the Internet if somehow the encryption can be broken by quantum computing or hacking or any other technology that would suggest, hey, we should stay on a private banking network. I do think that the incumbent participants in the market, including not just exchanges, but banks and brokerages and other third parties will all benefit. There'll obviously be new actors. There are new actors and there will be new actors that will embrace these technologies faster that can take share. But I think the reality is we're going to probably end up with tokenized bank deposits, tokenized trades on ICE and our peers. And that we, ICE are in a good position. You heard us talk about we built an MCP server that is there for AI, whether or not that becomes an Oracle for reference data, which will be in demand for people trading on chain. Obviously, in our data center now, we settle and transfer title in conventional ways. I suspect that we will become a validator on chain and similarly have that business. And as we've talked about right now, our model is to hook our conventional trading platforms to the chain so that -- because our platforms are so high velocity and have so much interconnectivity with the market that we do think that matching will still happen on conventional technology, but title transfer and custody and capital movement will move via the Internet through encrypted tokens. So anyway, that's at a high level, how we're thinking about it and embracing it because I think it's coming. And as long as we can get the encryption right, this will open up new opportunities for higher volumes and more activity on our conventional platforms. Operator: Our next question comes from Brian Bedell from Deutsche Bank. Brian Bedell: Maybe switching over to fixed income data and data and tech. Just noticing the really straight-line improvement in growth here, FIDS overall recurring revenue going up 5%, 6%, 7%, 8% and now 9% on a year-over-year basis the last 5 quarters. And it looks like the contribution is coming both from FIDS and data and network technology with data and tech obviously now in the double digits. So can you just talk about what have been the 2 or 3 or so biggest drivers organically for that and outlook throughout 2026. I assume the Polymarket initiative is going to be included in this area. And then I guess, just overall, I guess the punchline is, does the mid-single-digit revenue growth guidance in FIDS recurring revenue seem conservative given the really strong momentum here? Christopher Edmonds: It's Chris. I'll take the first part of that and may kick it to Warren for your last part of your question. Certainly, the appetite for data across the entire segment with some of the comments that Jeff made around AI and things that we're doing that, there are 3 real components that we have in the portfolio, a very large segment of proprietary data, that is very well versed in the regulatory community. What I mean by that, folks customers across the entire space depend on this data in order to meet certain regulatory requirements they have in their business. So as the market continues to grow and the proprietary data that we produce continues to be used in more fashions, whether it be coming across an MCP server in the future or things of that nature, that opportunity at the end of the day gives us a much broader path of engagement with the clients. The delivery mechanisms of choice or the flexibility for you to consume that data across the portfolio is also something that we are, one, proud of; and two, continue to expand upon along the way, so we can meet the customer exactly where they are. And so really, it's a confluence of these events of a greater need, a greater portfolio that we continue to invest in on a consistent basis based on specific client demand I'll point to your part of your question around Polymarket and the other sentiment pieces that we have out there is a prime example of that interest and further demand and our ability to deliver that in a way that is not disruptive to the current operations of the clients that depend on us daily for that activity. So it's really those 3 things working together and providing that protection of that intellectual property that gives us the opportunity to continue to expand with our clients as their needs continue to develop over time as market changes. Warren Gardiner: Brian, it's Warren. And then on your question around the guidance, it was obviously a really good start to the year. And so that gives us a lot of incremental confidence in the targets that we set, which were towards the higher end of the mid-single-digit range for the full year. I think 1 -- 2 things I would just point out around that is one of the benefits we've had over the last couple of quarters and showed through the first half of this year was selling Hall 5 in our data center within our Mahwah data center. We've largely done that, and we will -- and filled out that Hall. And so as we get to the second half of this year, those comps do get a little bit tougher. But that said, Hall 6 is coming right behind it next year and Hall 7 behind that. And so that's really just -- it's nothing structural there. That's just timing. But that will probably lead to a little bit lighter growth on the data network technology line as you get to the second half of this year. And then again, it is still a little bit early in the year, but the one thing I can't predict what markets are going to do. So some of the AUM revenues within our index business could fluctuate, of course, as we move through the year. They've obviously had a great start to the year. But that's just one thing we can't really predict. So maybe being a little conservative around that. So ultimately, I think the quarter just gives us a lot more confidence that we can hit those targets that we set for you guys back in February. Operator: Our next question today comes from Alex Blostein from Goldman Sachs. Alexander Blostein: I wanted to touch on mortgage, seeing a decent improvement here recently. Obviously, the overall base is still relatively low, but the momentum seems to be building a bit. So I was hoping you could speak to what you're seeing with respect to, I guess, the recurring revenue improvement sequentially, where that sort of coming from? And as you think about the opportunity to start charging on overages if volume picks up, where you guys are in that process, kind of how far away are we to start to see some of those benefits? Benjamin Jackson: Thanks, Alex. This is Ben. So what you're seeing is a combination of different factors. So we did have, as we've talked about many times, some headwinds on subscription revenues with clients that have renewed or signed onto the platform back in '20 and '21. And we've worked through the vast majority of those renewals. But recall that when we were doing those renewals, any time that we had pressure on subscription, we were increasing the per closed loan fee on those loans, which would put us in a position to benefit from the volume environment when it returns with getting higher per transaction fees. And we've seen that come through. This past quarter on the legacy Encompass business, closing business alone, we were up approximately 30% in terms of our transaction revenues there. So that's really good, and we're continuing to work through. And as I said, we've worked through a lot of the cohorts that came in that high-volume environment. So very well positioned there. We're also seeing the benefit of clients, all the sales success that I've mentioned in past calls, we have more clients that are going live on platform, both across our servicing business as well as on the Encompass business, and we continue to have great sales success. If you look at MSP alone, we're at a record number of clients that are on the platform. We have more that are implementing. We closed 6 new MSP deals last year. We closed another one here in the first quarter. We obviously now have UWM, United Wholesale Mortgage now live on the platform and building loans. And then also on the servicing side, from a macro perspective, there was a lot of fear from a lot of our banking clients around how the Basel rules were going to be implemented and that there would be a potential for punitive capital treatment for holding MSRs on their books. And all signs are that, that's going to change substantially, and we're already seeing -- and that there'll be incentives for banks to get back into the MSR business. And we're already seeing a lot of that activity with some of the banks start to step in and buy MSR portfolios. So that's a positive. And then on the Encompass side, we closed 90 deals last year. 90 deals on Encompass last year, 30 in the fourth quarter. Some of the deals that we closed late last year, one of them is with one of the largest correspondent lenders in the United States that's already on MSP and they're now implementing. We closed one of the largest HELOC lenders in the U.S. that is on MSP that's now implementing. And as I mentioned in the prepared remarks, the large super regional bank that we've closed here in April is Huntington Bank. So they're already on MSP and one that we're going to be in the process of implementing. And we've had a number of clients go live. So we have JPMorgan that continues to ramp. We've had M&T go live. We've had Howard Hanna go live and a number of others. So to me, it's all those things that are feeding into a lot of the tailwinds we're seeing now on the mortgage side. Operator: Our next question comes from Dan Fannon from Jefferies. Daniel Fannon: So Jeff, I was hoping you could talk about your appetite for M&A currently and how that weighs against the share repurchases here in the short and medium term? Jeffrey Sprecher: Sure. This is Jeff. I would refer you a little bit to Warren's prepared remarks that one of the big M&A transactions that we did in the quarter was to buy back our own stock, which we think has had disconnected from the fundamentals of the company. And we had the flexibility and obviously, cash flow generation to do that. We continue to generate tremendous cash flow, free cash flow. And if you look at us today, we're buying back more stock. We -- our dividend is at an all-time high. We've been able to reinvest in the business with many of the initiatives that Warren and Ben talked about in their prepared remarks and invest in things like Polymarket and OKX and a few other AI-related investments that we've been making. So we're in a very good spot right now. We always look for should we buy versus build if we need to in terms of moving forward. Valuations are complicated right now. Some people look to be undervalued. Other people seem to be massively overvalued. And so as you probably are aware, when we do look at M&A, we're looking at the terminal value and whether or not there's something that ICE can do to some third-party business that would -- that, that management team is not able to do on their own. And if we find those opportunities, we'll weigh those against the M&A of buying our own shares back and whether or not the ROI is better in that case versus -- and would accelerate future cash flow faster than us continuing to buy back our stock. Operator: Thank you. With that, unfortunately, we have run out of time. So I'll hand back over for closing remarks. Jeffrey Sprecher: Well, thank you, Drew, and thanks for moderating the call, and I appreciate all of you joining us this morning. We'll be back to update you again soon. And meanwhile, we're going to continue to innovate to build an all-weather business model to generate growth on top of growth. And with that, we appreciate your participation in the call, and hope you have a great day. Operator: Thank you all for joining. That concludes today's call. You may now disconnect your line.
Operator: Hello, everyone. Thank you for joining us, and welcome to ATI's First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to David Weston. Please go ahead. David Weston: Good morning, and welcome to ATI's First Quarter 2026 Earnings Call. Today's discussion is being webcast at atimaterials.com. Joining me today are Kim Fields, President and CEO; and Rob Foster, Senior Vice President and CFO. Before starting our prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call. Those slides provide additional color and details on our results, capabilities and outlook and can also be found on our website at atimaterials.com. After our prepared remarks, we'll open the line for questions. As a reminder, all forward-looking statements are subject to various assumptions and caveats. These are noted in the earnings release and in the accompanying presentation. Now I'll turn the call over to Kim. Kimberly Fields: Good morning, and thank you for joining us. We're off to a great start in 2026. We delivered strong first quarter performance by driving higher quality revenue, expanded margins and improved cash flow. This quarter demonstrates that the ATI model is working. We're prioritizing the right volume, expanding margins and converting demand into earnings and cash flows. First quarter results exceeded the high end of our guidance, supported by disciplined operational execution and richer mix. Demand across our core markets remains robust, and we continue to grow alongside our customers. I'll highlight the quarter's results. Revenue was $1.15 billion, in line with expectations, with 69% attributed to aerospace and defense. Adjusted EBITDA was $232 million, up 19% year-over-year and above the high end of our guidance. Adjusted EBITDA margin reached 20%, up more than 300 basis points year-over-year. Adjusted free cash flow was $75 million, a meaningful improvement from last year and a clear indicator of strong cash discipline. This performance reflects more than favorable market conditions. It signals a fundamentally stronger ATI. What sets us apart today is the improved quality and resilience of our earnings. We are strategically allocating capacity towards our highest value opportunities in aerospace, defense and specialty energy. That shift is driving better mix, stronger pricing and more consistent execution. Order activity continues to be strong with our order backlog growing by 10% sequentially to an all-time high of $4.1 billion. Additionally, lead times are extending for our most differentiated products, super alloy nickels, premium quality titanium, isothermal forgings and exotic alloys. This is a key point. This is not short-cycle demand. It is tied to long-term contracts, production schedules and well-funded programs, giving us strong visibility into future performance. This momentum accelerates throughout 2026. Operationally, our disciplined execution is delivering results. Across ATI, we are improving throughput, increasing yields and streamlining production flow, particularly in melting, forging and downstream processing. That demand strength is most valuable when we convert it to deliveries, and that's where execution is making a difference. Across operations, we are unlocking capacity through productivity. Weekly output at our primary melt facilities increased by more than 15% year-over-year. We achieved record shipment levels across multiple product lines in both segments, and we continue to improve flow through forging, testing and finishing operations. These structural operational improvements are being driven by better equipment reliability, tightened product quality control and targeted investments in the highest return areas of the business. Combining this execution with the strong market demand provides the foundation to raise our full year adjusted EBITDA guidance by $35 million, bringing the midpoint to $1.035 billion. This represents 20% growth year-over-year. Our full year outlook is now adjusted EBITDA of $1.01 billion to $1.06 billion, adjusted EPS of $4.20 to $4.48, adjusted free cash flow of $465 million to $525 million. Our outlook reflects continued strength across our core markets, focused execution and confidence in our ability to convert demand into earnings and cash flow. Importantly, a significant portion of this growth is already embedded in our $4.1 billion order backlog and long-term contracts, providing strong visibility into the second half outlook. Like others in the industry, we're closely monitoring the geopolitical developments in the Middle East. The primary areas we're watching are demand impacted by fuel price, MRO activity levels and aircraft retirements. We've seen no material impact on demand or order activity. There have been no changes to our order books or request for delivery deferrals. In fact, last week, I personally had several calls from customers eagerly emphasizing they'll take any capacity that opens up. With our record backlog and the ability to redeploy assets to support multiple differentiated markets, our portfolio is designed for this kind of dynamic environment. Turning to defense. Revenues grew 9% year-over-year and are on track for mid-teens growth in full year 2026. Our materials support a broad range of platforms across air, land, sea and missile systems with accelerating demand across key programs. I am pleased to share that we have renewed a 5-year agreement supporting the naval nuclear program. This agreement is projected to generate $1 billion in revenue over the contract term at attractive aero-like margins and more than doubles annual revenue over the prior contract. Q1 marks the third consecutive quarter our Advanced Alloys & Solutions segment has achieved margins in the high teens, well ahead of plan. It reflects the success of our strategy to focus on differentiated products, driving stronger value capture and sustained margin expansion. The most notable evolution in recent months is the acceleration of missile-related demand. Q1 revenue in missiles and missile systems more than doubled year-over-year as customers are scaling production and replenishing inventories. We have seen a meaningful increase in customer inquiries and order activities tied to the production ramps, even in advance of program funding. Our materials, titanium, nickel and hafnium are vital to missile platforms like Tomahawk, PAC-3 and THAAD. These materials are used for structural applications and propulsion systems where high temperature performance, strength and durability are required. This is a small percentage of our business today but provides an opportunity for accelerated growth and strong visibility ahead. Our execution is also being recognized by our defense customers. In high-performance titanium plate and sheet for ground armor, we were honored to be named General Dynamics Land Systems 2025 Supplier of the Year. Selected from over 2,500 suppliers, this award recognizes our execution on key programs, including the XM30 prototype. This distinction reflects not only the quality and performance of our materials, but also our team's speed, adaptability and coordination. We appreciate the recognition and congratulate the ATI Specialty Rolled Products team for their outstanding work. Turning to aerospace. Fundamentals remain strong. Commercial aerospace continues to be supported by increasing build rates and significant aircraft backlogs. We are encouraged by progress at both Boeing and Airbus and are well positioned across these platforms. Airframe performance reflects timing and supply chain phasing. Customer schedules, backlog and production plans support a second half ramp. We remain confident in our full year outlook with revenue growth in the mid- to high-single-digits. Within aerospace, jet engine is our largest and most important growth market. Jet engine sales grew 12% year-over-year, supported by both OEM production and aftermarket demand. The full year outlook for revenue growth remains in the mid-teens. This is driven by high fleet utilization, increasing shop visits and continued growth in engine platforms like LEAP and GTF. Our materials are vital in the most demanding parts of these engines where performance and reliability are essential. We supply 6 of the 7 most advanced jet engine nickel alloys. This remains a capacity-constrained market where our differentiated capabilities allow us to capture both share and value. Finally, in specialty energy, strong momentum continues. Revenue grew 22% year-over-year, driven by nuclear and land-based gas turbine markets. We recently extended our long-standing partnership with Cameco through a new 5-year agreement, reinforcing ATI's role as a trusted supplier within the global nuclear supply chain. This $250 million agreement includes meaningful improvements in product mix and pricing. More broadly, our Advanced Materials portfolio, including highly engineered specialty alloys like zirconium and hafnium support specialized applications across energy, defense and space. Performance requirements in these markets are ever increasing and leverage the unique capabilities of ATI. Bringing it all together, our strategy is delivering measurable results. We delivered a strong first quarter with higher earnings, expanded margins and significantly improved cash flow. Our customers are ramping, our backlog is growing, and our portfolio is aligned with the most attractive highest value markets, especially in A&D and specialty energy. With strong core market demand and record backlog, we are confident in our increased full year outlook. $5 billion of revenue at 20%-plus margins is in clear sight with an increasing share converting into earnings and free cash flow. That performance enables us to reinvest in the business, create value and return capital to shareholders. We are focused on execution and raising the bar for performance. I'll now turn the call over to Rob. James Foster: Thanks, Kim. The first quarter delivered strong results, exceeding our plan despite typical scheduled seasonal maintenance. Looking ahead, we see robust demand across our aerospace and defense markets. Momentum is building through the year, supported by favorable trends in price, mix and volume in our highest performing markets. Our strong positive free cash flow generation in Q1 puts us in a great position to generate positive cash flow in every quarter of 2026. Q1 revenue was $1.15 billion, driven by 6% growth in aerospace and defense. Within that market segment, jet engine sales increased 12%, airframe revenue declined by 9% and defense-related revenue grew by 9% compared to the prior year. Specialty energy revenue increased by 22% year-over-year. Q1 adjusted EBITDA was $232 million, up 19% over 2025. This was $11 million above the midpoint and $6 million above the high end of guidance. Q1 consolidated EBITDA margin percentage was 20.1% as we realized a richer mix from 80/20 initiatives and other portfolio rationalization actions. Adjusted free cash flow was $75 million, compared to a use of $143 million in Q1 last year. This is a $218 million improvement year-over-year. Managed working capital as a percentage of sales at the end of Q1 was 34.8%, which is a 110 basis point improvement over Q1 2025. Capital expenditures were $55 million, including $21 million funded directly by customers. All key growth projects remain on schedule and on budget. Margins in both segments came in above our outlook this quarter. HPMC reported 24.9%, a 250 basis point increase over 2025. AA&S was 18.1%, a 320 basis increase over 2025. Both segments were powered by improvements in price and mix across our aerospace and defense and specialty energy markets. This proves the structural work to expand our margins is working. As Kim mentioned, we're increasing our full year guidance across all key financial metrics. For the second quarter of 2026, we are positioned for adjusted EBITDA of $245 million to $255 million, which equates to an EPS range of $0.98 to $1.04. At the midpoint, this represents a 20% increase in adjusted EBITDA over Q2 2025. This 8% sequential increase at the midpoint of guidance is driven by the strength of price and mix, particularly within A&D. For the full year, we are raising our adjusted EBITDA guidance to a range of $1.010 billion to $1.060 billion. The midpoint of $1.035 billion is a 20% increase over full year 2025 as we continue to execute strong operational performance and capture increased demand for our products in aerospace, defense and specialty energy. These earnings translate to a full year adjusted EPS range of $4.20 to $4.48. Turning to adjusted free cash flow. We are raising the midpoint of our range by $35 million, setting the range between $465 million and $525 million. The $495 million midpoint is $115 million higher than 2025, a 30% increase year-over-year. This is driven by our projected $35 million increase in earnings. We look forward to continuing gains in cash flow efficiency throughout the year. Our CapEx range remains consistent with our prior guidance. Gross CapEx investments of $280 million to $300 million will be partially offset with customer-funded CapEx of $55 million to $65 million. As we previously stated, returning capital to shareholders is a priority for ATI. In the first quarter, we repurchased $75 million in shares. We see share repurchases as the most efficient and effective way to return capital to shareholders. We increased our share authorization by $500 million in Q1, with the total remaining authorization now at $545 million. With strong and increasing free cash flow, share repurchases remain a priority. Now turning to end markets. We see strong demand in our major end markets and confidence in our outlook remains unchanged. In jet engines, our largest end market, we see growth rates in the mid-teens for the full year 2026 as we leverage price and mix to our advantage. In airframe products, we see mid- to upper-single-digit growth, with most of the growth occurring in the second half of the year as OEM production rates increase and customer inventory balances normalize. In defense products, we see growth rates in the mid-teens. Our A&D sales mix will continue to be a significant portion of our sales volumes. Aerospace and defense sales are in line to represent more than 70% of sales for full year 2026. Moving to specialty energy. We continue to evolve this business into a model of sustainable and profitable growth. We're leveraging long-term contracts with accretive A&D-like margins and are targeting mid-teens growth for the full year 2026. As we have previously mentioned, we strategically prioritized aerospace, defense and specialty energy, using 80/20 and allocating differentiated production capacity to capture further growth within these high-value markets. Sales for our industrial, medical and electronics are trending down by low- to mid-single-digits for the full year 2026. Looking forward to adjusted EBITDA margins, we see continued margin expansion in 2026 with full year consolidated margins in the range of 20% plus. We exceeded our margin outlook in Q1 due to favorable mix and price, and Q2 margins are tracking to be similar, expanding above 20% in the second half of 2026. In the second half, sales, profits and margins will be lifted by price increases and mix under LTAs. At a segment level, full year margins for HPMC will be in the range of mid-20s and AA&S in the upper teens. Full year consolidated incremental margins will average 40% with second half margins outpacing first half margins due to LTA pricing and mix. As stated, HPMC incremental margins are typically higher than AA&S, reflecting sales mix and end market pricing dynamics. Both are general guidelines that fluctuate by product, end market and customer, serving as primary indicators of ATI's future growth. To summarize, we are off to a strong start and remain confident in our outlook. We are focused on delivering consistent performance. We are well positioned to execute and deliver, meeting and exceeding the expectations of our customers and shareholders. Kim, I will turn the call back over to you. Kimberly Fields: Thanks, Rob. We are off to a great start. We are executing well and building momentum in 2026, supported by strong demand, differentiated products and consistent execution. Let's open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of David Strauss with Wells Fargo. David Strauss: I wanted to ask about the aero aftermarket piece of your business, Kim, maybe size that for us, how it performed in the first quarter? And if you're seeing any sort of impacts out of what's going on with the Middle East and higher fuel, or how you're thinking about that business from here? Kimberly Fields: Sure. So aftermarket continues to be very strong across the aerospace, especially in jet engine where we're continuing to see both MRO shop visits, upgrade packages driving demand. And as I look at our lead times, we did talk a bit about our backlog and our lead times, those are moving out substantially based on that demand that's coming in. Like others in the industry, we're continuing to monitor what's happening there in the Middle East. But we're not seeing any impact to our business. No changes in demand or the deferrals or any disruption to the order book. In fact, just over the last week, the conversations I've been having with customers, the first thing they say is if there is any openings that come, that they want them, and they will contract and commit to them. So demand is very strong across the board. As you saw, that backlog went up to $4.1 billion, our highest level ever. And it really reflects that sustained demand. As we look forward, the things that I'm looking at and thinking about are changes to possibly retirements due to fuel-driven demand. But frankly, as we go forward, those type of retirements are going to be in those legacy, less-fuel-efficient engines, and the shift will accelerate towards the next-generation platforms like LEAP and GTF where our content is roughly 2x where we are on the legacy engines. And so that will continue, I think, to sustain that MRO demand as we go forward. So stepping back and just looking at it all, demand is strong, the backlog is growing, and we're not seeing any near-term impacts from the conflict. David Strauss: Great. And a quick follow-up, Rob. I guess, the guidance increase, especially on the adjusted EBITDA side, what is the source of that? It sounds like you kept the margin forecast for the segments about the same place. I guess, where is the -- what is the source of the uplift in the EBITDA guidance? James Foster: Yes. We're really confident in where the guide is at. We're seeing the strength, primarily within the defense and jet engine business. So I didn't change the guide for the full year, right? We're still in the mid-teens for jet engine, and defense, low to mid-teens. But I'd say my bias is towards the upper end of that guide. So it's really the defense business and the jet engine business and the contracts that we're securing give us the confidence. David Strauss: Okay. So HPMC. James Foster: Not just HPMC. We've got contracts in defense for our defense business in both of our segments that we're securing the contracts and the full year guide, like I said, I have confidence in that higher end of the low to mid-teens. The bias is towards the higher end of that defense business for both HPMC and AA&S. Operator: Your next question comes from the line of Richard Safran with Seaport Research Partners. Richard Safran: I was very interested in your comment in the slides and opening remarks about pricing and HP margins. I wanted to know if you could expand on that. And maybe talk a bit more about pricing and why, in the midst of an OE ramp, where the model is typically to see a step-down in price, you're actually going in the opposite direction? Kimberly Fields: Yes. So Rich, so we've shared over our past that we don't really see a differentiation between OE versus MRO, that our parts, we make a disk and we're not always have clear visibility to which use it's going to. And so really what you are seeing is that price and that mix is a material driver in the first quarter here. And we see that continuing to accelerate as we go through the year. And really where that's coming from is there -- this is a constrained market. We're doing the most differentiated materials. Our backlogs are moving out for those differentiated materials on the engine side to a year plus. Now in some cases, titanium PQ is almost to 2 years. So we're seeing that tightness in these contracts as we're reviewing them. They're getting embedded. We're getting price. It's reflecting the value of what we supply. It's not just short term based on scarcity, but it's long term and contractual, and it's getting built in. And it's coming through all kinds of sources. There's step-ups, there's escalators, there's price resets given where markets have moved. And alongside that, we've talked a lot about increased content on these platforms and expanded scope. We're still getting calls today, where there are others in the supply chain that may not be able to meet the full demand and are struggling to meet that level that our customers are looking for, and we're picking up share gains as well. And again, in those situations, we're able to capture a large portion of the value that we're creating to continue that ramp and helping them meet their commitments. And so as I look through, it's a structural shift. It is in HPMC, but it's also on the AA&S side. And I just wanted to add, that is a structural shift, and it's been deliberate around our portfolio management. You see it in some of our other end markets and some of the reductions and not growing in those non-core markets because we're really focusing, especially in our exotic alloys, on those differentiated markets where we can capture the value that we're really providing, particularly in aerospace, especially in defense and specialty energy. So a lot of great work by the team, and you'll see that continue to accelerate and it will be even more pronounced in the second half. Richard Safran: Okay. Now second, the -- no secret, the Department of War has been pressing industry for additional capacity. At the same time, we're seeing a rate ramp in aerospace, which you've been talking about. I want to know if you'd be willing to discuss planned or anticipated capacity additions and then maybe comment on when they might come online? Kimberly Fields: Sure. So defense is -- has been very strong in the first quarter. And I know we've guided to low and mid-teens. But as Rob just shared, our bias is to the upside on that. And so to your point, we're seeing very strong demand across our whole portfolio. And as we look at the capacity to meet that, especially in missiles, that's been an area that's really upticked from inquiries, order placements even in advance of that funding by the Department of War. But as we look at capacity, we've announced previously our titanium investment. Our nickel investment is in progress. Both of those 2 are both on track and on schedule to come online. Nickel remelt will be this year and then the primary VIM melting will be online next year. In titanium, we're in -- already in qualifications for premium quality engine. So both of those are on track, and we're in a good position. I think as we think about some of the missile, some of the nuclear naval applications, we've got capacity in place to support that ramp as we go forward. Now that said, as we go and think about some of our other exotic alloys or isothermal forgings, which has consistently been over 2 years' worth of backlog, that's an area that we'll continue to have conversations with our customers and make sure that we're aligned with them. We're not at a stage to announce any new significant projects today. But we are talking with those customers. We have very strong, close relationships with regard to capacity planning, how they're seeing that landscape change. And I do believe though as you look forward, defense is going to be an important growth market for us for 2026 and beyond. Operator: Your next question comes from the line of Scott Deuschle with Deutsche Bank. Scott Deuschle: Rob, did AA&S see any benefit from this new Cameco contract in the first quarter? And if not, when should we start to see that benefit flow through the P&L? James Foster: Yes. Thanks, Scott. There wasn't much benefit accrued into the Q1. That's really going to be a prospective benefit. And as Kim mentioned, that's going to be some of those exotics, the zirconium and hafnium. And we're really making structural changes in that business. And what you're going to see is, I'll call it, more aero-like margins starting to come through. So that's going to go into the AA&S segment and benefit that segment here for the foreseeable future. Scott Deuschle: Okay. And then are you seeing firm purchase orders today that support the second half ramp in airframe sales? Or are those purchase orders expected to come a little bit closer to the second half? Kimberly Fields: Now as you think about our airframe story, as I shared, we're looking at it as a story of really 2 halves. The first half of the year, which, as I shared at the last call, is going to be flattish as that inventory normalization continues to align more closely with production orders, and we are expecting to see that acceleration ramp in the second half. Based on -- these are all contract driven. And our orders are typically placed around 12 to 18 months, and so most of those orders and certainly all of the forecasts have been shared with us and we are aligned to those. And even in the last week, I've had conversations and reconfirmed. And as many, I won't speak for our customers, but they've come out and reaffirmed that they're sticking to those targets and build rates. And so we have strong visibility based on these relationships and contracts to those backlogs and shipments. So we feel confident where we are today. It is not short-cycle buying. Most of this long-term agreements allow us that visibility and alignment. And we've been talking, in some cases, since last September around what they were going to be looking for as we went into the year, and we have frequent updates with them. So most -- again, we're 9 months -- 9 to 12 months ahead of the production schedule. So most of those forecasts are all in and most of those orders are already booked in our books. And our contracts, just to remind everyone, have -- most of them have minimum quantities and frozen order windows, where changes can be made, and we're rapidly approaching where the rest of the year, the back half of the year, will be frozen. Operator: Your next question comes from the line of Andre Madrid with BTIG. Andre Madrid: Looking -- you made a comment backlog is the highest it's ever been, over $4 billion right now. I mean, could you give us a split as to how that looks across all the different end markets you play in? Kimberly Fields: Yes. So yes, the backlog is at the highest level ever, just almost a year's worth business. And as I've shared in the past, it really needs to be taken in conjunction with our lead times, which as I just mentioned earlier, they are moving out substantially based on demand coming in. And so we're at a year plus and from forgings and PQ billet, titanium PQ, it's close to 2 years. So you need to look at both of those together. We are seeing those extend. As I look at the distribution, I would say about 3/4 of that is in our HPMC segment given the strong demand in jet engine. Andre Madrid: Got it. Got it. That makes sense. And then looking at jet engines, pretty impressive, rose to about 41% of total company sales in the quarter. I guess, should we expect this to grow any higher as a percent of sales? And kind of in a similar range too, with the rebound of airframe in the second half, I mean, just how should we expect, I guess, the percent of titanium sales to shift going forward? Kimberly Fields: Yes. So jet engine, as you said, it's about 40% of our market today. This is where some of our most differentiated capabilities are, both for nickel alloys as well as our isothermal forgings. As we look at jet engine, I mean that could -- jet engine and aerospace, let's just say aerospace in total, that could go up another point or 2. A&D is around 69%, 70%. Those are going to continue to grow, and that's going to be intentional. We're prioritizing, as I said, that valuable capacity to those highest value opportunities where we're able to get long-term contracts and margins are the strongest. So as I look at that, A&D mix is going to continue to go higher, which will help us continue to drive higher margins along with stronger value creation. So I would expect they're going to be above 70% and it could trend up. Jet engine may be up a couple of points as well. As far as titanium sales, I think, as I said, with airframe sales, the first half is going to be somewhat flat and it will start accelerating through the second half. So you will -- we will start to see some of that titanium SQ that typically goes into the airframe start to increase. But what I would anticipate you'd see, more substantial increases for airframe in '27, and certainly as the widebody start to gain in their ramp and build rates. The one area that we are seeing quite a bit of demand though for titanium is in defense. It does go into structural applications that are used for high temperature and performance. And so that we are seeing now and is starting to come into our mix. And so you may see that uptick here through the year as well. So there's a couple of key markets drawing on that. But I would say you'd probably see much stronger titanium sales growth in '27. Operator: Your next question comes from the line of Myles Walton with Wolfe Research. Myles Walton: Kim, last quarter, you talked about the missiles as a percent of your defense exposure. Can you remind us where that is now given what seems to be a constant doubling of revenue? And then are you party to the 7-year frameworks? Are they trying to lock in your supply for longer-than-normal duration? Kimberly Fields: Yes. So missiles is one of those markets that we're seeing really meaningful uptick in demand and inquiries. It is a small portion of our revenue, as you referenced, but the rate of acceleration is really what's notable there. Yes, we've seen that increased inquiries, order activity. As I mentioned, folks are placing orders, because of the lead times that we've got, they're placing orders in advance of that total funding that's come through just based on the replenishment needs for our military and missiles and munitions. So the programs that we're on that really require the performance materials that we have are PAC-3, THAAD, Tomahawk, all substantially been advertised, they're up 3x, 6x, 10x as they're trying to build the supply chain. And we're really working with those folks in the supply chain to increase our -- and align our capacity to those needs. And it's really across a couple of key areas. I talked about titanium, our premium-quality titanium, our exotic alloys like zirconium, hafnium, niobium, and that's continuing to drive this uptick. And yes, it grew triple digits. I expect that will continue to grow at that rate to become a meaningful part of the portfolio, both from a growth and margin perspective. Just to remind you, right now, we've got -- we've kind of laid out the low to mid-teens growth for the year. But I would say my bias is to the upside given just the recent activity here in the last month to 6 weeks. Myles Walton: Okay. And Rob, can you just remind us of your tariff outlook for '26 after the changes with IEEPA and 232, where we are positive, negative? Kimberly Fields: Yes. Just to jump in there. So yes, for tariffs, we've kept -- right now, we're status quo. We've got pass-throughs for all of our contracts. So any tariffs that we're still experiencing, we're passing those through. Clearly, given the administration, we're still trying to work through what may be a refund policy, although, I'll be honest, there has not been a lot of progress in that regard. So we're continuing as those come in. We've got alignment with our customers, and we're able to. And we are recovering any tariffs that we're seeing. Operator: Your next question comes from the line of Gautam Khanna with TD Cowen. Gautam Khanna: I was wondering if you could opine on where we are on that debottlenecking initiative that you announced about 3 quarters ago? And if you could characterize kind of what percentage of your nickel alloy capacity is being utilized at this point and how that might change over the next 6 to 18 months? I'm just curious how close to 100% utilization you're at? Kimberly Fields: Sure. So I think, the debottlenecking you're talking about is in our primary nickel melting. There is some other work that's going on downstream, but I think that's what you're referring to on the nickel side. And so that's progressing very well. I shared in my prepared remarks that we've seen a 15% uptick in output. And maybe more importantly, we've seen a significantly improved product quality control parameters. So not only are we getting more output, but we're also making a higher percentage of material that doesn't need to be reworked or have any additional steps taken to make it ready for delivery. And so we are well ahead, I will say, walking through the plants. They are doing a phenomenal job. And quite frankly, this was in advance and in preparation for the capital investment that I shared around our remelt assets that are going to be coming online here towards the end of the year in the fourth quarter. And it will be just in time. Like I said, we are rapidly working on how we increase productivity through our remelt operations across our system to take advantage of that increased primary melt. But there's still some work to do. And so as I look, you said how we think about that over the next 6 to 18 months, I do think we are already seeing upticks. You're seeing that both in output and mix and pricing as well, because we really are focusing that in our highest value products. But as I'm looking forward, you'll see the first uptick in the beginning of next year where we really unleash, call it, 5% or so more volumes through the operations. And then we've got the primary melt that's coming in at the end of next year, which I've talked about is kind of that 8% to 10% uptick that will continue to allow us to take advantage of all the improvements and all of the investments that we're making. So from an overall, I'd say we are being selective and deliberate in how we're directing our capacities. We're going after the hardest-to-make, most differentiated products. I talked a lot about those 6 of 7 alloys that in 5 of those cases, we're the only ones making those today. And so, we are prioritizing that. You're seeing it in the margin uplift. But we're continuing to drive those bottlenecks and finding meaningful capacity through the work that the team is doing and, frankly, the learning curve improvement of our employees as we continue to move up that base and people get more experienced and learn our operations. Gautam Khanna: And Rob, I just wanted to get your opinion on incrementals by segment. I remember Don used to talk about 40% and 30%, respectively, HPMC and AA&S. Is that what you think we should be penciling in over the next 1.5 years, 2 years, whatever? James Foster: Yes. So I'll break it down. But first, I'll start with the consolidated look. For the full year 2026, modeling in something close to that kind of 40% consolidated incremental for the full year, is how I'm thinking about it. And if you double-click and unpack that by segment, I think what you'll see is margins on the incremental basis kind of drifting higher from the HPMC segment and maybe a bit lower from the AA&S segment, for the overall composite of about 40%. And that's an improvement from where we've been historically. If you think about where we would historically guide, it was in the mid-30s to maybe the upper end of 40%. I think we're now pretty confident in that 40% year-over-year incremental margin on a consolidated basis. Gautam Khanna: Got you. And any view on '27 with that framework? James Foster: Yes. I won't talk about 2027 other than, from a model standpoint, we have the guidance out there from 2027. And I'm very familiar with that guidance, I was part of the team working with Don and Kim that prepared that. And overall, my confidence is really high in our ability to get into that guide range. And if you look at the second half run rate here, which we're thinking about, you'll see if you connect the dots, that puts you well within the range. And the point I want to make is we're not going to stop growing. So I think what I would say is I have a bias towards the upper end of that 2027 guide for the EBITDA dollars and the consolidated margin percentage. Yes, we'll go through our normal process and you can expect an update sometime in the Q4 time frame. Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: I wonder if you could talk a little bit about the supply side angle of things that are going on in the Middle East. When we think about upward pressure on anything in your cost base, whether that's energy costs or any particular inputs or the availability of any inputs, anything you're monitoring? And any way, maybe in particular to think about the way that you can pass through higher energy costs? Kimberly Fields: Yes. So as we -- coming out of COVID, supply chain monitoring, I think, has become one of the strengths that we have. I'm sure every company does as well. So we are monitoring a couple of things. We have not seen any uptick, so there's been no impact to date. But I will say one key input is helium that goes into our processes, so that I know several of the suppliers have started to export that from the U.S. And so we're monitoring that closely. It's a small portion of our costs. So it's not critical. And we do have alternatives that are readily available. So that's one area that we're paying attention to, mainly from a just Middle Eastern supply and transport aspect. From an energy cost standpoint, we are seeing other impacts outside of just what's happening with the Middle East, but data centers and other things that are providing and putting more pressure on some of the electrical pricing and other things. And so we've got multiple mechanisms to deal with that. One, we do pass through all of those inflationary costs through in our contracts, and so we've got protections and mechanisms to do that. We manage natural gas hedges that we have become more conservative with as we look out 12 to 18 months and, in some cases, even longer than that, that, again, allow us not just -- not to control it, but to allow us to stay aligned with those mechanisms from an inflation indexing standpoint so that we're able to stay flat and align to what those costs are. And then there's some other innovative ideas and things that we're pursuing projects or pursuing around energy and energy generation that long term may come into play as we think about how we want to manage those costs. But to date, no impact from the Middle East and what's happening there from a cost standpoint. And we'll monitor a couple of those things. But so far, it's been very stable. And then energy cost is something that, even before what's happened over in the Middle East has been on our agenda and something that we've been working on. Seth Seifman: Great. That's super helpful. And then just maybe thinking a little bit about the cadence. Obviously, a lot of demand, and so high confidence in the revenue outlook for this year. The A&D growth rate, and in particular also the jet engine growth rate, I guess, should be accelerating from here. Should we look for some of that acceleration in Q2? Or is that something that's going to be more back half weighted? Kimberly Fields: Yes. You will see that acceleration. It's going to be sequentially stepping up as we go through the year. So you'll start to see it in Q2. It's coming through, as you said, in both demand, in enhanced mix and expanded content, as well as price. And so you'll see that coming through. We are being very deliberate around how we allocate our resources, our capacity. And so you'll probably see that those impacts more heavily weighted towards our margin and EBITDA line more so than the revenue line as we go through the year, and we continue to pivot our mix and portfolio to support those high-value markets. Operator: Your next question comes from the line of Pete Skibitski with Alembic Global. Peter Skibitski: Kim, going back to the start of the Q&A, you were talking to Dave about the impact of higher jet fuel prices on potentially driving the retirement of legacy aircraft. I just want to get a sense, if we think about commercial aftermarket for jet engines, is your revenue at this point on the newer jet engines aftermarket, is that the same or above the aftermarket revenue for legacy jet engines? Or are we not there yet? I'm trying to get a sense of where we are sort of in the cycle for you. Kimberly Fields: Yes. I would say it's heavily weighted towards the next gen. We've got twice the content, as I've shared in the past. A lot of these next-gen engines are still in the life cycle of an engine in the early cycle. So there's upgrade packages, durability packages. And we're seeing that demand on top of the OEM build rates and just the first round of shop visits that LEAP and others are starting to hit. And so those are all coming together. So there is more revenue and demand, that is more heavily weighted. So it is a very favorable trend for us as we accelerate into those next-gen engines. And those legacy engines, for those materials, what we find is our assets are very fungible. And so they're very useful in other markets like specialty energy, which uses similar material, similar capabilities and are required for those, which is, it's basically, an engine on the ground. And so between specialty energy and some of these defense applications we were just talking about, we're able to pivot to those high-value, very differentiated capabilities into those other markets as we -- as they start to retire some of those legacy planes. Operator: Okay. Great. I appreciate the color. Just one last one for me. On the defense growth this year, I'm kind of -- obviously, missiles is growing really fast. It's still small. I'm trying to get a better sense for the core driver for you in military. And it seems like recently, the shipyards are showing a lot of improvement in throughput, hiring more people, supply chain is improving in shipyards. So is it the exotics for you within defense, zirconium for the nuclear navy, is that kind of driving -- is that the biggest muscle mover for the military growth, or are there other factors as well? Kimberly Fields: The nuclear -- the naval nuclear is our largest contributor when you look at our overall defense sales. As you mentioned, it's very long-cycle funded programs. They are looking to expand that capability. I shared that new naval nuclear contract that we just signed, which is about 2x the revenue over the next 5 years than we had in the past contract. And as you said, we're seeing strong growth in that area, and that is an area that we're continuing to invest in. It is predominantly coming from those exotic alloy, zirconium, hafnium, some nickel as well. So it does translate to a little bit into our HPMC business as well, but predominantly the AA&S. And you're seeing that with the margin accretion that you've seen over the last 3 quarters. Operator: Your final question comes from the line of Samuel McKinney with KeyBanc Capital Markets. Samuel McKinney: Just given the rich margins that you guys get in defense aero, can you just talk to us a little bit about how you're thinking about managing or prioritizing line time on some of these assets that can serve both the defense and commercial aero in the context of the OEM build ramp? Kimberly Fields: I'm sorry, it cut out a little bit. Could you repeat that question? Samuel McKinney: I said, given the rich margins that you get in defense aerospace, can you talk to us about how you're thinking about managing or prioritizing line time on some of these assets that can serve defense or commercial in the context of the OEM build ramp? Kimberly Fields: Yes. So as we thought -- as we said, we are prioritizing capacity and line time, as you call it. And what we find typically is jet engine is our highest-margin business, although that's been rapidly shrinking. As we think about defense and specialty energy, we're seeing both of those start to accelerate very quickly, given the tightness of the market and the differentiated nature of the materials that we're using. So obviously, some of these military programs are priorities. And so we're continuing to make sure that we're aligning our capacity and we can support those. But we are, again, with those long-term contracts, having conversations around what are the forecasts, what are those needs, so that we're making sure that we're also prioritizing our jet engine customers. What you are seeing though, and where you will see through the rest of the year, and we've kind of talked about down low- to mid-single digits is in our medical, electronics, our overall industrial applications, we are deemphasizing those and moving the capacity to those other 2 higher markets -- higher-margin markets. Samuel McKinney: Yes. That all makes sense. And then next one, you just -- you called for mid-teens revenue growth in specialty energy this year, but that's off the back of a 20-plus percent increase in the first quarter. If you could just give us a little more color about both what's exciting for you in that market and the rationale for the softer comps that you're implying later this year? Kimberly Fields: Sure. With specialty energy, as you said, we delivered strong performance in the first quarter, and as you said, we are saying mid-teens for the full year. As you look at that growth, it's going to be somewhat lumpy as the orders come in, in an intermittent, kind of chunky fashion. But it's being driven by really 2 core areas: the first being the land-based gas turbines. Demand is continuing to be driven there based on data centers and energy security. And that's really going to tap into our high-performance nickel alloys, where, as I just mentioned, we're very well positioned with our capabilities and differentiation. The second is in nuclear. We just talked about that. We've got the Cameco agreement that I talked about in my prepared remarks. We're seeing strong demand from that as well, both with life extensions and refueling cycles. And that's really focused around zirconium, nickel and hafnium. So as we think about it, it's going to be somewhat lumpy. We do see growth as we go through the year, but -- and we had a great first quarter. But again, those orders come in, in a larger size and they also deliver in larger chunks. Operator: We have reached the end of the question-and-answer session. I will now turn the call back to Kim Fields for closing remarks. Kimberly Fields: All right. Thanks, everyone, for your time and for your continued interest in ATI. Just to wrap up today, our message is clear, ATI's executing at a high level in a strong demand market. We're expanding margins, we're generating meaningful free cash flow, and we're continuing to strengthen our position in the most attractive aerospace and defense markets. Our teams are focused on delivering for our customers, capturing the opportunities in front of us and driving long-term value for shareholders. We look forward to updating you next quarter. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the Hershey Company First quarter 2026 question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the call over to your host, Anoori Naughton, Vice President of Investor Relations for the Hershey Company. Thank you. You may begin. Anoori Naughton: Good morning, everyone. Thank you for joining us today for the Hershey Company's First Quarter 2026 Earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks,, both of which are available on our website. In addition, we have posted a transcript of the prerecorded remarks. At the conclusion of today's live Q&A session, we will also post a transcript and audio replay of this call. Please note that during today's Q&A session, we may make forward-looking statements that are subject to various risks and uncertainties. These statements, including expectations and assumptions regarding the company's future operations and financial performance. Actual results could differ materially from those projected. The company undertakes no obligation to update these statements based on subsequent events. A detailed listing of such risks and uncertainties can be found in today's press release and the company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe provide useful information for investors. The information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. A Reconciliations for the GAAP results are included in this morning's press release. Joining me today are Hershey's President and CEO, Kirk Tanner; and Hershey's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question. Operator: [Operator Instructions] Our first question comes from the line of Andrew Lazar with Barclays. Andrew Lazar: I was hoping maybe to focus in a little bit on North America confectionery to start. I think in the press release, you mentioned that lower year-over-year CMG market share due to increased marketplace competition. And I know investors are understandably sensitive to this, just given the significant drop in cocoa prices of late and the concern that this could lead to sort of incremental competitive activity to spur volumes in light of elasticity. So I was maybe hoping you could dig into just what you're seeing in the marketplace a bit more? And what would you would expect as some of the activations and tentpole events sort of kick in? And would you, I guess, anticipate that Hersey returns to share growth either in 2Q or as we move through the year? Kirk Tanner: Yes. Great question. Yes. I'd start with competition continues to be highly rational. There's no change in the pricing environment. I just want to start with that. We have seen increased competitive innovation and merchandising from both mainstream and premium competitors. That's what makes this category so attractive to consumers. It's one of the reasons it's so resilient. And so some of that happened a little earlier than we expected. We feel really good about our position as we exit spring resets in a net positive position across items and key channels and our spring and summer merchandising programs ramp up. Premium chocolate continues to be that segment that grows really well. But we are charging into that space aggressively. And we have plans in the back half of this year to have some innovation, and we'll continue to develop that. But overall, yes, we're in a competitive environment. We feel good about where we're going. We have momentum planned for the second half of the year that we feel really good about. But it is a rational pricing environment, Andrew. Andrew Lazar: Great. That's really helpful. And then you mentioned Easter sell-through was ahead of expectation. I guess it looks like maybe share was a bit weaker just in the past few weeks of data. I was just hoping you could sort of square those 2 things for us. And I guess how is Easter share sort of versus your expectations? Kirk Tanner: Yes. I mean I look at the category in the first quarter. Overall, the category in confectionary was really resilient, growing high single digit. Overall, Easter was good for us. Category sales declined really due to the 2 fewer weeks versus last year, but our sell-through was really strong and outperformed our expectations. I'd say that's the notable part, given that Hershey share -- we're a share leader at the season, and we typically index much higher. And so the 2 weeks was a big impact on the overall season. But we're very happy with our performance and the sell-through that we saw those exceeded our expectation, and our share was also ahead of our expectations coming out of Easter. Operator: Our next question comes from the line of Megan Klepp with Morgan Stanley. Megan Christine Alexander: Great. Maybe I could -- I wanted to start on the macro. When we sat here 2.5 months ago, I think the initial outlook you provided included what you called prudent assumptions, which you reiterated today. But obviously, since then, the backdrop has gotten more challenging. You talked in your remarks, there's elevated geopolitical uncertainty and we're seeing higher gas prices as a result. So wondered if maybe you could just in terms of what you've seen in the macro so far relative to your expectations, particularly on things like SNAP, where maybe you have a little bit more data -- and then just broadly, as you sit here today, do you think the guidance that you have for the remainder of the year still kind of gives you the same degree of cushion on the macro as you thought in the beginning of the year. Kirk Tanner: Yes, really, really relevant question. Thanks for that. Consumer behavior, let's just kind of start with this quarter and then as we move through the year, but consumer behavior remained really steady throughout the quarter with shoppers making thoughtful choices. GLP-1 trends remain consistent. Net impact was mild given waivers were limited to 5 states and higher gas prices had minimal effects. We continue to monitor those very closely. But overall, the macro environment is tracking within our expectations of the year. When we talk about SNAP specifically, we realistically modeled the possible effects right from the beginning. In the first quarter, the 5 steps -- the 5 states that were in place, which means the overamp impact was, as I mentioned, pretty mild or minor -- in those states, they affect both the category and our business aligned with our estimates, which gives us much more confidence for the full year outlook. Now where implemented, we do see considerable consumer confusion and it's possible that, that would improve over time. So we plan for this headwind to increase over the course of the year with SNAP, and we will adjust our plans to meet the needs of the consumer with portfolio pack types but it's in our assumption. I think that's the important thing. We're not seeing anything that's kind of out of how we've modeled the year and our outlook for the year. So I think that stays on track as far as SNAP goes. Megan Christine Alexander: Great. That's helpful. And maybe just a related question on elasticities. Last quarter, you talked about planning for around 0.8% even though actuals are running better and talked about that as maybe being potential upside to your expectations for the guidance. This quarter, you talked about elasticity is seeing favorable versus planned levels. So -- has anything changed in April so far? Or are you still embedding that same level of conservatism on elasticity for the balance of the year? And as we think about the second quarter and what's implied from an organic sales growth perspective, how much of that is just the shipment timing and use reversing versus maybe something more fundamental in how you're thinking about demand? Kirk Tanner: Yes, I'll kick that over to Steve for that one. Steven Voskuil: Sure. Yes. On the elasticity, you said , we continue to model what we have before that point. We're pleased is still holding. We have some things that will be coming to market, price pack architecture, for example, hitting shelves right now. So we'll continue to watch that to see if elasticity has evolved as they can sometimes. But right now, right in line with what we've -- better than what we've modeled and expect that to continue. And then relative to Q2 -- our Q2 sales expectations, yes, the biggest piece is on the organic side were the timing issues. Two parts to that. Kirk said Easter sell-through was strong. And so 1 upshot from that was earlier shipping of some of our spring program, including Smores, for example, which is actually getting activated as we speak. That's earlier than we typically would have seen. We also had a little bit of pull forward internationally at some customers were doing playing a little bit of defense trying to get ahead or often trying to get ahead of potential disruption in the Middle East. So those were the 2 big pieces that sort of pull things forward from our standpoint, nothing structurally different relative to Q2 expectations. Operator: Our next question comes from the line of Peter Galbo with Bank of America. Peter Galbo: Steve, maybe if I can -- if I could pick up on the back of Megan's question there on 2Q organic sales. I think be implied, is that confection organic may actually dip negative in the second quarter, just given some of the timing aspects. So I just wanted to press on that a little bit, just as a clarification point. Steven Voskuil: Yes, it is expected to be slightly down in Q2 due to that timing that we just talked about. Peter Galbo: Okay. Great. And then just a broader question, Steve, in terms of just the margin cadence over the rest of the year, obviously, there was a little bit of favorability, I think, on the gross margin side. maybe because of some of the volume, but maybe you can just help us think about gross margin phasing over the back 3 quarters of the year. Steven Voskuil: Sure. we're expecting in Q2 gross margins to increase by nearly 300 basis points versus the prior year period. So that's where you really start to see the inflection. And then as we get to the back half of the year, we expect something great basis points. And again, we've got the year pretty well planned out. So I'd say we have good visibility to that. But that's how that inflection starts in Q2 and then accelerates in the back half. Operator: Our next question comes from the line of Peter Grom with UBS. Peter Grom: Great. Thank you, and good morning, everyone. So Kirk, in your prepared remarks, you touched on some of the drivers that you believe will keep topline momentum in the back half of the year as you annualize pricing impact. So can you maybe just unpack that a bit more? And maybe more specifically, what's the degree of visibility or level of confidence on that momentum or that momentum can be sustained as you look ahead? Kirk Tanner: Yes. Good question. Yes, we have confidence in H2, driven by a few things. One, we see a really strong seasons plan for the second half. Our tentpole will deliver a full point of growth Americana, the Hershey movie, we've got a lot built into that, a lot of support from our customers. Resets have been really important. So gains across several channels, mass, grocery, dollar, drug. So we see a positive position coming out of the spring resets, which is important to us. And then innovation. That -- we've got good innovation. We'll have a big innovation on Hershey's in the fall as well that we're really excited about gets us into that accessible premium space. So that is really important. Now of course, we're watching the macros just like everyone. But when we think about what we can control we feel really good, and we have a lot of confidence in where we're going as we ramp up our execution and deliver against our plan. So we feel good about H2. Again, we'll keep an eye on the macro and control what we can control. Peter Grom: No, that's great and very helpful. And then just a follow-up on snacks. -- a strong quarter at 5%, but I think it's a bit below what we see in terms of consumption. And in the remarks, you touched on plant reduction and private label production and product recall. So do those items account for the entire gap relative to what we see in consumption? And then maybe specifically, any thoughts around how we should be thinking about growth for this segment moving forward, especially just in the context of the implied guidance? Kirk Tanner: Yes. One thing that I would say on snacks are on our salty snacks is -- that's primarily driven by private label. And so our core brands in salty are up nearly 10%. So that is not the issue. Now -- as you know, as we brought those businesses in, we had a private label business that's getting smaller in our business over time. So that's a bit of it. Our salty brands are doing exceptionally well. Steven Voskuil: Yes. I'll just say in terms of the profitability side, you really pointed to the 2 things. We had a couple of discrete things, the voluntary withdrawal is actually immaterial in total, but that combined with the delayed opening of the DC meant that we spent more on logistics, trying to -- with a fast-growing business, trying to maintain strong service. And so those additional costs were incurred in the quarter, they're done. And so now we're in a better spot than we expect operating income to grow and increase by double-digit small speed bump in the first quarter, but passed it and back on track. Operator: Our next question comes from the line of Chris Carey with Wells Fargo Securities. Christopher Carey: Can I just follow up on the Snacks margin. So obviously, kind of some discrete headwinds in the quarter, relatively low watermark on margins. You talked about accelerating profit from here. Is that mostly driven by just the sequential improvement in margins as opposed to, say, top line? And then do you still feel good about the margin targets that you had put out there at Investor Day. Just maybe you contextualize that and then I have a follow-up. Steven Voskuil: Yes, the margin will improve on the basis of just not having those onetime issues. That will be the biggest factor. We are going to have some amortization that will come along with the LesserEvil acquisition. So that's sort of in the base and there's some mix impact with LesserEvil in the mix at a kind of total salty level. But those are expected. And aside from that, you kind of on the core business, we'll continue to see that margin improvement over the course of the year. Christopher Carey: Okay. And just a follow-up on the spring resets. A lot of exciting activity from here. Can you just give us a bit more insight on some of the key wins how you expect those benefits to come through and some of the timing. Kirk Tanner: Yes. Yes. I think about those 2 things, space in the number of new facings, new SKUs that we have in the sets across the primary channels across mass, dollar, drug and grocery, that's a big part. So winning at the shelf is the first thing I think about, and we're in a positive position there. The second is the support that we're getting from retailers on the perimeter with our tentpole events. I think the combination of both winning at the shelf and winning on the perimeter supported by our retail sales team is really get, but it really is both winning across DMG and Salty for both shelf space wins and perimeter into. And we're tracking that. We're very disciplined about looking at that every single week. So we feel really good about where we're going. Operator: Our next question comes from the line of Leah Jordan with Goldman Sachs. Leah Jordan: You noted a mild impact from higher gas prices on the consumer. But just if you could provide more color on how your sales have trended in the C-store channel specifically and how you think about potentially supporting that channel if these macro challenges sustain? Kirk Tanner: Yes. We made those comments early in Q1, right, we saw a very little impact because it was a later event. I think it really comes to how high the prices go and how long they stay. C-store is the right question to ask. We look at that as well, and our confection business continues to perform in line and we look at things like our immediate consumption business. And those continue to do well through this time. Again, we know that this is a little longer issue that could have a bigger impact. But right now, we see that performance standing in check. And so we feel good about that. But we're always staying focused on that and looking for other things that we can do with our retail partners in the convenience channel to keep the business part in mind. We know that when high gas prices happen, frequency goes up with consumers. So they come to the gas station more, they buy less. They are purchasing less, but the frequency goes up, that keeps the channel robust, at least with our category. And again, we continue to see results as expected right now. So we're feeling good about it, but we're very stay focused on and stay very focused on that. Leah Jordan: Okay. Great. And then just a quick follow-up from an earlier question. Just seeing if you could provide more color on your visibility maybe around cost for packaging and freight specifically. I guess what have you actually seen in higher costs so far? And then what are you baking in for the back half? Steven Voskuil: Yes, I'm happy to take that one. So far, we're really not seeing a big impact. Again, in the hedging program and our commodities team, some of these impacts and commodities are managed through that group. And so we've got good visibility really through this year and in some cases, even beyond. And so now having said that, like Kirk said, if it looks like it's going to be prolonged and it's going to be significant, then we'll be looking further out at some of the implications. But right now, from everything we can see, we're in a good spot, feel well covered for 2026. Operator: Our next question comes from the line of David Palmer with Evercore ISI. David Palmer: I wanted to ask you a couple of questions on the merchandising front and some of the stuff you touched on in your prepared remarks and back at the Investor Day, you talked about the evolution of pack types and shelf sets and I know some of that was planned maybe more into the fall. Like I think you said the stand-up bags versus take-home where maybe something that would get increased distribution into the second half of the year. But -- you mentioned some stuff earlier on. So maybe you can give a summary of maybe what you're doing now and what's coming? And then as far as promotions, I wonder, are we going to see in scanner data more display year-over-year in the data as you're more all months on, so to speak. Kirk Tanner: Yes. The right questions. When you get down to the details of how we execute at retail, I think that's really important, David. We start with the number of SKU gains that we are getting across mass, grocery, dollar, and we're building that into kind of the pipeline. We are deploying the stand-up bags versus LifeLab bag. So that is something that is consumer preferred. It elevates -- we've tested that, that is well received by consumers, and it just drives visibility and is something that makes the category easier to navigate, shop, accessible, all those things that category management drives. So that's the first. So we're looking at how productive the shelf is. We're measuring on-shelf availability just as our customers do, and we go over that every single week. So that intensity around the shelf is really important. The second area is this perimeter. And what does tentpole activation on top of seasons. And we measure inventory points of interruption on the floor amount of inventory that we have on the floor and location in the store. And I think that helps us drive what's incremental, how this delivers against the plan, how much growth we're getting into this space and what new occasions we're driving, new occasions are like as we come into the celebration of the 250-year celebration of our country for the 4th of July, we are bringing Hershey Kisses our Hershey bars platform, our smores platform and our dots pretzel platform into that. So we're going after that new occasion being a part of that celebration in a party that's incremental to what we have done in the past. And that's really the element of what tentpoles brings, it is more activation on the perimeter, getting into more occasions and more moments that consumers are celebrating. And the combination of those 2 things is what we give us a lot of confidence for the second half of the year. David Palmer: I just wanted to get a sense from you. I remember last Halloween, you were talking about how you maybe had some regrets about some bits of execution, maybe pack types you're promoting and some other things. But it's bigger picture, it feels like seasons we such a rich harvest for Hershey. You guys were leaning into it, particularly during the COVID era. And maybe some of this is just an error that happened where seasons, the going was good, and you got a lot out of it. But I'm wondering how you're thinking about seasons going forward, not just Halloween, but is this going to be something that kind of tracks with confectionery growth overall for you? Or how do you think about seasons going forward? Kirk Tanner: Yes, we have a great foundation for seasons, but I think that we can be even more disruptive and looking for what consumers are looking for. As we go into Halloween even this year, we feel really good about what we learned and then what new things we can bring to consumers that they are looking for that make that season even more robust. So we -- that as a leader in seasons, it's on us to be much more thoughtful about where consumers are going, continuing to modernize it, but we're building from a very strong base. But as I look at seasons in the second half, we feel really good. We can see customers, we can see what's landing and you can evaluate, "Hey, are we going to have a really good season? Is this going to be an okay season." We're feeling really good about the back half seasons with what we've been able to partner with our customers with. Operator: Our next question comes from the line of Tom Palmer with JPMorgan. Thomas Palmer: Sorry to kind of be the third person to ask here, but I did just want to maybe clarify on the expected headline organic sales growth slowdown in the second quarter. I appreciate you've really highlighted it as more shipment timing than anything else. But could we just kind of quantify the specific items that are driving the slowdown. There was 2 points for, I think, ship ahead in the first quarter, there was maybe some Easter timing to consider? Is there anything else? Just could we kind of quantify like underlying maybe what 1Q with you if we strip out some of this timing? Steven Voskuil: Yes, you've got the biggest pieces. We said slightly down in Q2 due to the timing. Easter sell-through was strong, so the Q2 impact is bigger than anticipated. That end up a little bit in international that we talked about are really the 2 biggest drivers of pulling forward. Kirk Tanner: Yes. Let's just share a little bit of how I think about it. So the Easter was timing issue, right? So we saw that. We saw sell-through go really well. That pulled a few of our programming into quarter 1. But then if I look at what success looks like that overall consumption trends are staying consistent. So once you get through the overlap in April, you'll see momentum pick up in May, and you'll see momentum pick up in June. So you think about those consistencies, if you remove those onetime events, I think you've got -- you're going to see very consistent performance on consumption, sell-through and execution. So I'm looking at April the impact of Easter, May with some momentum certainly building, getting back on track in June following that. Thomas Palmer: Okay. And then a question on the spring shelf resets. Maybe frame it relative to past years. Is this more impactful, more changes than we've seen recently? Kirk Tanner: Yes. We feel good about what we're seeing from an increase versus a year ago versus what we've seen in the last couple of years. So I'm confident that this is a win for us. It's a win for the portfolio that we have, plus some of those we made for making the gondola much more shoppable and inspiring for consumers. So when you package it all together, number of facings, standup, merchandising, and how we were merchandising with category management insights, I feel really good about where we're going this year versus last year, yes. Operator: Our next question comes from the line of Robert Moskow with TD Cowen. Robert Moskow: A couple of questions about innovation. I wanted to know what are your expectations for this Hershey premium product you're launching in the second half and Hershey's struggled to introduce viable premium offerings in the past. I think there's questions out there about how far the brand can stretch. So I'm trying to figure out how big of a bet it is? And then I have a follow-up. Kirk Tanner: Yes. Well, overall innovation, we feel really good about. When we talk about Hershey, this elevated experience. This is a truly elevated. And maybe, Robert, if you were at Investor Day, you had the opportunity to try this. I absolutely love products. So hopefully, you love them. I know I -- all right. Well, I love them. They're they're an important part, right? I think that when you look at innovation, it is a collection of those things. So we have high expectations for that brand. And we think it's right in the sweet spot of what Hershey can deliver. And that's on deep consumer research and understanding and testing. So we know that we have the opportunity with Hershey to nail it and knock it out of the park with that innovation. But we also look at innovation and totality. So across our portfolio, across our suites portfolio with Jolly Rancher. We also continue to see Reese Oreo be as add on the Hershey innovation, and you see that plus then we have a big Hershey experience with Hershey movie coming out in quarter 4, but it's the collection of those things is how we model and build our business. It's not reliant on one thing. It is the collection of those things that make the business strong. Having said all that, we have really good expectations for this elevated Hershey experience. And we are launching a product that consumers in the testing have loved. Robert Moskow: Got it. Okay. My follow-up was about sweets. Can you tease out sweet performance in first quarter and what your expectations are for this year. The data shows that the Shack product line is down substantially. The sweets portfolio had been growing 20% plus. I just want to get a sense of your confidence that you can capitalize on the strong consumer demand for -- especially among young people for this segment? Kirk Tanner: Yes. I mean our biggest brand in sweets is Jolly Rancher and Jolly Rancher performed very well within my opening comments. It performed much faster than the category. So that continues. There was some really good innovation on Heat Wave, et cetera. Now we've launched a new item with the Shack lineup that will give us some momentum later this spring and in the summer. So we feel good about where we are with sweets, Jolly Rancher will continue to be a hero in the space. We've got a strong program around Twizzlers this summer. And we have a robust pipeline in '27 and '28 across sweets, that we'll share. We've shared some of the Suites portfolio and the innovation that's coming. So we're going to continue to invest in this. When we talk about investing in R&D, there are some specific areas that we're focused on. One is premium, 2 is sweets, 3 is better for you. And you'll see us continue to make that pipeline much more robust in the future. And we've seen that. We're -- that is in our R&D right now, and we've seen that pipeline, so we feel really good about where we're going. Operator: Our next question comes from the line of Max Gumport with BNP Paribas. Max Andrew Gumport: I wanted to return to some of the macro headwinds you're watching. So 2 of them included the accelerated health and wellness trends and increasing GLP-1 adoption. Can you just provide an updated view on what you're seeing there and also how you're looking to navigate your portfolio through these headwinds? Kirk Tanner: Yes. Thanks for the question. I was just going to go back to 1 of the key drivers of the confection category in particular, is that this is an emotional category. It is a treat, not a meal. And I think that's playing out with GLP-1 users and the overall health and wellness trends. Consumers on these drugs, specifically GLP-1, continue to enjoy the category in smaller portions. We know that. Our research supports the confection category is relatively insulated compared to other food categories. Our framework for estimating the GLP-1 impact includes scenario assumptions for both the near and the long-term horizon for adoption rates. So we have been monitoring calorie reduction, user lap rates and other behavior changes. Now the accelerated adoption rate alongside affordability and new formats are well contemplated in our outlook. So we spend a great deal of time understanding this. It is in our outlook. It is in line with what we've seen and what we expect, but we'll continue to do this. But this is something that we are continuously monitoring. But overall, again, the category is about a treat. It's still being enjoyed through this. Again, it's about 40 calories per day, 2 to 3 servings per week for the average American on confection. So that's just the scope of what we're seeing. And so that gives us the confidence of where we're going here with this macro. Great. Max Andrew Gumport: And then just returning to price elasticities. It sounds like everything you're seeing is quite a bit so far. It's running better than planned. competitors have followed, retailers have accepted the price elasticity response to just consumers are not showing a worse reaction than peers. But can you just provide a bit more color about how this informs your view of your performance from here? And also how it factors into the 2% to 4% organic sales growth target you gave for '27 just a month ago. Steven Voskuil: Yes, sure. I'd be happy to take that one. So yes, as I said, elasticities are running favorable. They have so far, they continue to -- and it just points to the resilience in these categories, especially in instant consumable,, refreshment and seasons, we've talked in the past how seasons are so precious to consumers. So as we look out, we don't see a material change. It doesn't change as we think about the outlook for the year, we're not changing the guide so we're still inside the earlier guidance, even though the Q1 results look strong. And it's partly because we still have that price pack architecture hitting shelves as we speak. And we know elasticities can move. So I'll say we're being a little bit cautious there. But we'll continue to monitor it over the coming quarters, we'll be in a better spot to take a look at the guide at the midyear mark. We'll have most of the price pack architecture in place at that point and have a better B. But we're really encouraged by what we're seeing so far and the resilience of the consumer in the category. Operator: Our next question comes from the line of Jim Salera with Stephens Inc. James Salera: Kirk, you mentioned tentpoles are poised to add a full point of growth this year. I'm wondering if you can offer some detail around the retail execution, given there's a much higher frequency compared to traditional calendar with really just the seasons and I imagine there's at least some kind of different messaging, whether it's marketing or in store that's going to call attention to kind of the unique test of each of those tentpoles. Please walk through how the sales force is dealing with that and maybe how the marketing team is calling attention to each of those unique occasions? Kirk Tanner: Yes. I think that is a great question. This really brings the best of demand creation and and demand execution or demand fulfillment. So these moments like the fourth of July is typically where we did not participate, right? This -- between salty and sweet, we have this great opportunity to participate in these big moments of celebrations that are relevant with consumers. So that's kind of the -- that's the motivation, the inspiration behind it. Now what we've done is we've worked with our customers. We put the demand creation together with the marketing -- and then what we do is we bring that to life like we've never done before at the 4th of July, and we've activated that with our sales force. Our customers are encouraged by this because, look, it just makes these events bigger in-store. It brings more retail theater to the store with our big brands like Hershey and dots. And that makes the overall season better for the retailer. So that is kind of leveraging our strength as a business to bring more relevance to these holidays. And it gives us a chance to capture some of that share, that share of that occasion. This allows us to go from a season into a tentpole into a season into a tentpole, again, and that allows our sales force to be constantly focused on how they develop those big moments in retail. And our customers are very supportive of this. It gives more for the shopper to engage with. But this is -- I would say this is playing to our strength. James Salera: Do you have any sense for how much of a gap there is between some of the tentpoles and the traditional season events. I just wonder if there might be a concern of some overlap, if somebody stocked up on Hershey [indiscernible] or LesserEvil popcorn ahead of what would otherwise be kind of a seasonal purchase window? Kirk Tanner: No. I mean there's enough view that we're measuring incrementality and the breadth of our portfolio allows us to play in these tentpoles and seasons without being redundant or cannibalizing each other. We are the #1 season executor in CMG. We have the largest share of seasons. So when you bring tentpoles to life, we're bringing them to life with different brands, different opportunities, and we're making them as incremental as possible. I would tell you a big collaborator in this is our customers. Our customers own the categories as well. And this is leveraging the best of what we have and the best insights that they have, and that's really what the magic is. But right now, I feel like there's a really good cadence. So you'll see this summer, you'll see us execute the 250 anniversary. You'll see us execute more and summer travel then you're going to go into Halloween. And there's a nice gap between those to have the sell-down and then the build for Halloween, it really makes sense for retail. Operator: Our next question comes from the line of Alexia Howard with Bernstein. Alexia Howard: Can I ask about the Reese's expansion in Europe. I know a while back, you mentioned that in the U.K., the household penetration was in the high teens, I believe, but that was a while ago. Where have you got to now? I believe you may have gone into some other countries in Europe with Reese's. And at what point do you start to think about actually putting plant manufacturing capacity into that region? Kirk Tanner: Yes, great question. We continue to see Reese's drive in the U.K. and other European countries. Our plan is to continue to develop that. We have a win with Reese's plan that is working. We see innovation off that platform. And that is a real platform in the U.K. We're today leveraging a couple of things. We are leveraging imports, and we're leveraging local manufacturing for some of the products. The plan is to scale Reese's internationally, especially in the U.K. and Europe. Once we scale, then we'll look to in-source. I think that's the natural progression of of how we build that business and make it much more profitable. I would tell you what we've learned in the playbook that we've learned in the U.K. and Europe is allowing us to take at other places. So I was just recently in Brazil, -- it's starting in Brazil, having the same impact. Brazilians love peanut butter. And so it is -- again, we'll run that playbook and allow us to build that platform also working in Mexico. Now we manufacture in Mexico, so it's a little closer to home. But those are the playbooks that we are developing in one country or one market that we're able to take into other markets. And Reese's has been very exciting for us in that regard. Alexia Howard: Great. And then just to follow up on Rob Moskow's question, innovation, are you able to quantify where you're at in new products as a percent of sales introduced over, say, the last 3 years? And are you at the level that you think you want to be at? Can you sustain the level or do you need to go higher? Kirk Tanner: Well, I think that's a great question. From it's a high single-digit level of contribution to percent of sales for us. There's always opportunity. And I would tell you that our innovation strategy is one of focus meaning we are innovating in those places that we have the greatest opportunity for us that is premium sweets, better for you. I think I would think about that also in concept of growing our core brands. Our core continues to grow faster than the category. And so when you have a healthy core business in Reese's and Hershey, your innovation is even more meaningful. So again, innovation will be focused. It will -- I think there's always more for us to do, especially when we get more breakthroughs with sweets and premium and better for you, that will give us even further traction as we develop the portfolio. Now on the salty snacks side, we continue to innovate as well. Also, really important part of building our portfolio. We just recently launched the snack mix behind the Dots brand, and that's done exceptionally well. So again, that same model of healthy core and then innovation that's more disruptive in nature in salty, where we're taking the snack mix category and disrupting it with Dots and seeing a lot of traction with consumers there. I would tell you, this company is very focused on raising the bar on innovation, and we have a lot of momentum in front of us. Steven Voskuil: All I would add there is 1 of the reasons you talked about incremental R&D investment coming to help build that capability and build that muscle for the future. Operator: Our next question comes from the line of Scott Marks with Jefferies. Scott Marks: First thing I wanted to ask about in the prerecorded remarks, you noted that the Hershey and Reese's brand nonseasonal grew pretty materially. I think you called out 11% and 10% growth there. Could you help us understand the drivers behind that? I know you called out March Madness as tentpole, but is there anything else kind of helping support that strong performance? Kirk Tanner: Yes. There's a couple of things. On our Hershey campaign, if you remember, during the Olympics was very well received, and that gave a lot of lift to the Hershey brand. That, I think, is really important. On Reese's, Reese's was the center of our big tent pole event for March Madness. So that allowed us to build inventory and get traction on the brand. But when we look at programming behind creating demand for Hershey -- brand Hershey's and Reese's, this is an example of how it comes to life and works, and it works on the core. So this is -- Q1 is just an example of how that can come to life. Scott Marks: Okay. Clear on that. And then second question from me in terms of how you're thinking about the cocoa market and outlook 1 of your chocolate competitors earlier this week said that they believe current prices fairly reflect where supply and demand are globally. Just curious if you can give us an update on your thoughts around the cocoa market and how you're thinking about the go forward from here. Steven Voskuil: Sure. Yes, we still remain in the view that long term, Coca could remain above some of those really lower historical levels that we've seen. Now we'll see how it plays out. So I'd say long term, we probably have a somewhat cautious view. In the near term, we continue to anticipate a larger surplus in '25 and '26, partly the diversification of the supply chain, strong crops, declining demand, continued expansion in new origins and so forth. So if that happens, if we would see Coco fall, as we talked about at the investor conference, we have ability to participate, particularly in '27 and beyond in that downside. And so those would be things that could trigger upside opportunity to our '27 and '28 outlook. But we're watching the space closely and I believe making sure that we're managing the business for the long term in terms of hedging, but also in structures that allow agility to participate in downside. Operator: Our next question comes from the line of Michael Lavery with Piper Sandler. Michael Lavery: Just picking up on '27 there. I know it was only a month ago, you gave a preliminary outlook there. But any thoughts on? And maybe in particular, could you help contextualize how to think about some of the risks from higher oil-related costs, maybe how much are of COGS that impacts or just how to think about what to watch there. Steven Voskuil: I'm happy to kind of take that. I think -- and we talked a little bit about the conference in general about things that could go up upside or downside for '27. We kind of broke them into controllables and non-deal. I think that basket is still largely the same. The things that we can control around innovation and media, ROIs, tentpoles as we just talked about, elasticity to some degree, and of course, continuing to deliver on productivity and cost savings. I think all of those things, we continue to have high confidence in our ability to manage and execute. We do have some factors outside of our control. We just touched on cocoa being one that could be -- could potentially be an upside. We'll see where the market goes. And then the macro headwinds and, of course, competition. So far -- and I'll come to oil. As Kirk said earlier, from a macro standpoint, there's nothing we're seeing that's sort of outside the bounds of what we would have talked about back at the conference. We didn't expect those areas to get better in '27, and that's factored into the outlook. With respect to oil, in particular, it's pretty small exposure for us. The bigger impact would be indirect through packaging and so forth. And those impacts take time. So it does go back a little to what Kirk said how high and how long would the oil price impact last stage sitting here, we wouldn't change anything as we look to '27 and beyond. Michael Lavery: Okay. That's helpful. And just a follow-up back on the '26 outlook. You had pointed to elasticities remaining favorable as a potential driver of upside to guidance. And it sounds like that's so far sticking and staying true I guess what's some of your thinking on holding it then? Is it just that it's a little bit early still? I know you mentioned some price pack architecture, can you just still coming? Or are those maybe more significant than we might appreciate? Or how do you help us think about some of that? Steven Voskuil: Yes. I think it's just being cautious. As I said, we're really pleased with the start to the year. I feel really confident about the balance of the year, items that we can control, elasticities as they can move around, but we like what we see and our projection is still strong, like we just talked about oil prices kind of a new macro to keep an eye on it. And in general, there's still a lot of movement and evolution in those macros. So I think it's just a prudent approach. By the time we get to the midyear, Mark, we'll have a lot more visibility on all of this and be able to take potentially a different position. Operator: Our next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Just first, a quick follow-up. Kirk, I think you mentioned earlier just in talking about the snacks growth rate that your choice is to you prioritize some of the noncore nonbranded parts of the portfolio was a bit of a notable drag on the top line relative to consumption. I guess just want to frame how big that noncore part of the portfolio is today and whether that is something that we should keep in mind as a drag that will continue or if it was more just isolated this quarter? Kirk Tanner: Yes. There will continue to be a drag, and then we'll continue to communicate kind of where the brand performance is versus the private label. I mean, this is something that as planned, and it's something we're working with our customers on. So we feel really good about that. I think our focus is on driving meaningful volume and growth with our branded products, and we like where we're going. We are driving a significant amount of the growth in the category. So if you look at Salty, the drivers of growth are definitely Dots, Skinny Pop, LesserEvil. They're driving exceptional growth. And we see that continuing. Now, part of the private label, yes, that will be a drag. But overall, we'll be in a really good place, full year on both top line and bottom line for our salty portfolio. Stephen Robert Powers: Okay. Perfect. And then I just wanted to ask on functional snacking. I don't think we've talked about it yet on this call. It was one of the higher growth platforms. I think you you highlighted and we discussed at the Investor Day, just a little perspective on how that part of the business is situated as we go into the balance of the year. And I guess maybe from your perspective, if perhaps that is a higher priority for incremental investment attention, then maybe on the outside, it's perceived. Kirk Tanner: Yes, absolutely. And that's a big growth. I mean the business is relatively small compared to the rest of our business. That is an area that we are investing in. This is a space that consumers are -- they're in. And we're seeing a high level of growth reflected in our earlier comments -- that will be -- that will continue to be a part. Now our job is to build this business to be a much larger, more influential part of our business. And we're doing just that. We're investing in R&D. We're updating our formulas. You'll see really good brand work across one and fulfill -- we've also entered into a JV with VivaKi, which is -- has breakthrough protein delivery that we really like to see and that R&D will be meaningfully different. And we know that we have to be differentiated in this space, and we feel really good about where we're going with the protein and functional business -- and right now, we're seeing high mid-single digit -- or double-digit growth on our business today, and we know we can build that for the future. So more to come from us on this area. It's small, mighty part of our growth, and you'll see the investment in innovation, and we'll have a lot more to talk about for some of these breakthroughs that we're working on. SP1. Operator: Our next question comes from the line of Rob Dickerson with Jefferies. Robert Dickerson: Great. Thank you. I'm a BTIG now. But I appreciate the shout out. Yes, Steve, I just wanted to come back to the margin but more specific to confection. I mean, obviously, there's been a lot of volatility over the past few years for pretty well understood reasons, clearly did better in Q1 versus last year's Q1, but then there's some shift in Easter and there's reinvestment, their optimizations coming. And so I'm just kind of curious, I guess, it's more specific to cadence, but also for the rest of the year, but also just kind of relative to history, right? If we kind of exclude the past few years, your confection margin was somewhat stable, let's say, quarter-to-quarter. Clearly, some seasonality differences, but somewhat stable. So I'm just curious, like as we think through kind of this year, right, with Cocoa coming down? And then also, I guess, into next year. Is there kind of a perspective that, yes, like I think the next few quarters, there should be more stability? Or should we see it like they're going to come down a little bit in Q2 and then really ramp as we get through the back half of the year? And I have a quick follow-up. Steven Voskuil: Sure. Yes, we are going to see some movements still [indiscernible]. Our challenge always is season, season timing, I feel like forever, we'll be talking about seasonal timing quarter-to-quarter variability related to that. But as we look through the balance sheet, there's nothing big change you have we have more tentpoles to plan for more activation to plan for. But we're going to -- particularly as we get to the back half of the year and we start lapping some of the higher priced cocoa and commodities. We're going to see that step up. And so we're not -- we're going to see that play out over the course of the year. I would say there's nothing unusual to really point out in that sequence. Robert Dickerson: Okay. So if we think about kind of where the gross margin cadence kind of planned for the year. It would seem like kind of plus or minus, let's say, kind of the op margin and confection would kind of follow. Is that fair? Steven Voskuil: Can you say that again, I'm not sure I totally understood your question. Robert Dickerson: Gross margin, right? You spoke earlier [indiscernible] as implied in Q2 and then the back half, I'm just curious, like is the cadence kind of the trajectory on North American confectionery margin -- operating margin should kind of basically track with gross margin. Steven Voskuil: The difference is where they will disconnect is the investing in media, which will pick up certainly in Q2 and and even in the back half. So that's the disconnect team, say, gross margin and operating margins as expected. So that's all part of the plan for this year. So that's where the 2 will have some deviation. Robert Dickerson: All right. Great. And then just a quick follow-up, which you just touched on. SM&A came in a little bit light in Q1, I think relative to expectations, but it sounds like expectations for the year haven't changed. And then just given timing of shelf resets, what have you, you've spoken to? It sounds like that SM&A will then be kind of ramping as we get through the year? Is that right? Steven Voskuil: Yes. You got it. Yes. The expectation for the full year is unchanged, still expect to see double-digit increase in marketing and advertising. We did have some movement between Q1 and Q2. Some of that was delayed nonworking media development, which slipped into Q2. And then we've also tuned a little bit more towards spring activations in the working media. So -- but overall, for the full year, no change in expectation. Operator: Our final question this morning comes from the line of John Baumgartner with Mizuho Securities. John Baumgartner: Kirk, I just wanted to come back to premium chocolate. At Investor Day, there was reference to Brookside, and that seems to be differentiated when it was acquired, but you ended up stalling out on competition. And then in premium trade up, the Hershey's blessed, that was a play on texture, but that faded after a few years. So I'm curious, when you speak to breakthrough now, is the plan here to essentially sort of outpace and out texture or competitors in the mass market and reset expectations for the mass market? Or is the target more so new consumers and channels that maybe have not been a traditional focus for Hershey? How do we think about that balance there? Kirk Tanner: Yes. I think those are really relevant. I think about premium, I think about accessible premium, consumers are looking for new experience. that's not changed. We have three brands that we love for this. One is Brookside, as you mentioned, we'll innovate on Brookside. We're seeing growth in Brookside. We also are investing in Cadbury. Cadbury has a lot of potential in this market. It is a premium experience and it's accessible as well. And we'll innovate on Cadbury as part of that. So you've got between Brookside and Cadbury, there's really good momentum. And then like we talked about, we're building some accessible premium on our Hershey's brand and we'll have new brands that we talk about later in this year for next year that create this great experience for consumers. So indulgent premium really targeted towards Gen Z consumers. So we feel really good about where we're going with our premium business and being a part of that. But I think there's -- it's it's a small part of the business today. So when you think about pure premium, it's about 5% of the total category. Now there's a lot of growth because there's a lot of experience inside premium, and that's drawing consumers to that. So we are definitely going to be in that space and leading in that space through some of our key brands that we have. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Ms. Naughton for any final comments. Anoori Naughton: We look forward to catching up with many of you over the coming days and weeks. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, and thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alnylam Pharmaceuticals Q1 Earnings Conference Call. [Operator Instructions] I would now like to turn this call over to the company. Please go ahead. Christine Lindenboom: Good morning. I'm Christine Akinc, Chief Corporate Communications Officer at Alnylam, with me today are Yvonne Greenstreet, Chief Executive Officer; Tolga Tanguler, Chief Commercial Officer; Pushkal Garg, Chief Research and Development Officer; and Jeff Poulton, Chief Financial Officer. For those of you participating via conference call, the accompanying slides can be accessed by going to the Events section of the Investors page of our website, investors.alnylam.com/events. During today's call as outlined in Slide 2, Yvonne will offer introductory remarks and provide some general context. Tolga will provide an update on our global commercial progress. Pushkal will review pipeline updates, clinical progress and upcoming milestones, and Jeff will review our financials and guidance before we open the call to your questions. I'd like to remind you that this call will contain remarks concerning Alnylam's future expectations, plans and prospects, which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those in our most recent periodic report on file with the SEC. In addition, any forward-looking statements represent our views only as of the date of this recording and should not be relied upon as representing our views of any subsequent date. We specifically disclaim any obligation to update such statements. With that, I'd like to turn the call over to Yvonne. Yvonne? Yvonne Greenstreet: Thanks, Christine, and thank you, everyone, for joining the call today. The first quarter of 2026 demonstrated continued strength of the business and represents the type of execution that will drive continued growth at Alnylam. Our leadership in TTR amyloidosis was on display, having achieved over $900 million in total net revenues from AMVUTTRA and ONPATTRO combined. We also entered into exciting new collaborations that we expect to drive TTR disease awareness and diagnosis and improve overall care pathways for patients. On the R&D side, we continue to progress our deep pipeline of investigational medicines, including the presentation of impactful data for vutrisiran and zilebesiran at ACC. We also initiated a Phase I trial of ALN-2232, which is our first adipose-directed RNAi therapeutic and targets ACVR1C. And on the financial front, the more than $1 billion in combined net product revenues generated in Q1, marks Alnylam's first quarter, exceeding the threshold in our history, an important milestone. We're also reiterating our full year financial guidance, reflecting continued confidence in the AMVUTTRA CM launch and the strength of our overall portfolio. Alnylam stands apart in biotech with a differentiated model built on a proven durable innovation engine and strong commercial execution, positioning us for sustained long-term growth. As the leader in RNAi therapeutics, we have established a modular reproducible approach to drug development and a product engine that has consistently translated scientific innovation into successful medicines. This high-yielding platform, combined with our outsized historical probability of success relative to the industry will be key to driving future growth. That capability is reflected in a deep pipeline of more than 25 programs currently in clinical development with continued expansion into new indications and therapeutic areas along with evolving platform capabilities. Lastly, today, there are 6 Alnylam invented medicines that are collectively generating several billion dollars in annual revenues, reaching hundreds of thousands of patients around the world. My colleagues will outline for you the commercial, R&D and financial progress we made in the first quarter of 2026. All of this progress builds our momentum towards accelerating innovation and scaling our impact as we look to deliver on our recently announced 5-year vision, Alnylam 2030. These ambitions are anchored in 3 strategic pillars: the first is to establish global leadership in TTR while continuing to build a durable franchise; our second pillar focuses on growing through sustainable innovation where we aim to deliver therapies that not only slow the progression of disease, but prevent, halt or reverse it; and the third pillar is scaling with discipline and agility to enable durable profitable growth. Taken together, Alnylam 2030 represents our strategy to become the leading science-driven, fully-integrated global biopharmaceutical company and to maximize the potential of RNAi therapeutics for patients. With that, let me now turn the call over to Tolga for a review of our first quarter commercial performance. Tolga? Tolga Tanguler: Thanks, Yvonne, and good morning. I'm pleased to share our continued progress in bringing Alnylam's therapies to patients globally. Q1 was another strong quarter of commercial execution and marked our first quarter exceeding $1 billion in product revenue. Specifically, we delivered $1.036 billion in combined net product revenues, up 121% year-over-year and 4% over Q4 2025. While our TTR franchise continues to be our primary growth engine, we continue to see consistently strong performance in our rare disease business. So let's start there. Our rare disease portfolio continues to deliver meaningful impact for patients and consistent performance for our business. We generated $126 million in rare disease net revenue up 15% year-over-year. Growth was driven by increased patient demand, partially offset by higher gross to net deductions across U.S. and international markets. Now turning to our TTR franchise. One year into the ATTR-CM launch, AMVUTTRA continues to show strong momentum. Global TTR net revenues reached $910 million in Q1, up 6% from Q4 and 153% year-over-year. In the U.S., TTR revenues grew 9% versus Q4 and more than 230% year-over-year, reflecting continued growth in patient demand. The $59 million in U.S. revenue growth over Q4 was achieved despite fewer Q1 shipping weeks and customary insurance reauthorization dynamics earlier in the year, anticipated headwinds that we shared with you on our February earnings call. Access remained broad, pull-through was strong and adherence exceeded 90%. Outside the U.S., revenues declined $7 million from Q4, primarily reflecting our previously announced updated pricing in Germany following the ATTR-CM launch, but grew 35% year-over-year. Importantly, international TTR revenue outperformed our Q1 expectations shared in February, primarily due to continued strength in Japan, where our CM launch execution remains on track with leading analogs as well as strength in PN performance across our international markets. This strength provided more balance to the quarter than anticipated as we did see the expected headwinds from the price adjustment in Germany. We remain confident in our 2026 TTR revenue guidance as we continue to expect more substantial quarter-over-quarter growth in TTR revenues, both in the U.S. and across the world over the balance of the year. As we move into the next phase of U.S. ATTR-CM launch, our focus is grounded in the strong foundation established in 2025. First, physician preference and utilization. AMVUTTRA's clinical profile has driven a strong and compelling first-line positioning with strong preference demonstrated by physicians who have experience using it. Second, access and affordability. Our access has improved versus 2025 and continues to be durable with over 90% patients covered with first-line access and most facing 0 in out-of-pocket costs. Third, site of care infrastructure. We built a robust provider network designed to deliver a seamless patient experience. These fundamentals enabled a highly differentiated launch with rapid uptake and strong utilization across lines of therapy. Importantly, our initial success has shown that physician experience with AMVUTTRA leads to deeper and sustained use over time. As highlighted during our TTR investor event, moving forward, we're focused on the following 3 indicators of continued launch success. First, prescriber base expansion. We've already built a large and expanding base with more than 1,200 unique new U.S. prescribers since last March. When we look at prescribing trends on an individual healthcare professional basis, we generally see that initial utilization of AMVUTTRA by a new prescriber is relatively balanced between first and second lines of therapy. Second line use is being driven primarily by moving that prescriber's existing base of patients progressing on stabilizer onto AMVUTTRA, either a switch or combo therapy. Over time, as the existing base of stabilizer patients is transitioned, we generally see that prescriber's new second-line scripts reduced to a normalized level. Importantly, healthcare professionals' experience with AMVUTTRA breeds a greater number and proportion of new scripts in the first-line setting. So our experience with AMVUTTRA has translated into a durable preference, and we also see significant opportunity coming from expanding the number of prescribers. We will do this by increasing engagement with physicians who don't yet have experience with AMVUTTRA, reinforcing the role of AMVUTTRA across the full patient journey and maintaining seamless patient access. Second, sustained category growth. ATTR-CM remains significantly underdiagnosed and undertreated with an estimated 200,000 patients in the U.S. and more than 80% still untreated. We are addressing this gap directly as part of our TTR leadership agenda, advancing practical, AI-enabled partnerships to facilitate earlier diagnosis and treatment. Collaborations with Viz.ai and others as well as support for an initiative with American Heart Association are embedding AI diagnostics into real-world care pathways, expanding patient identification, and accelerating access to therapy. Third, adherence and persistence supported by quarterly dosing and actual patient adherence. Pushkal will share some more color in a moment, but recently presented real-world data demonstrate greater than 90% adherence to vutrisiran over more than a 2-year period. This profile translates into sustained benefit for patients and by extension into sustained revenue, which is central to any long-term growth outlook. Alnylam's global footprint is enabling strong execution on international market access for AMVUTTRA, reflected in a series of positive reimbursement milestones across key markets. In Europe, we're seeing favorable health technology assessment outcomes and reimbursement momentum, including recent launches in Austria, the U.K., Switzerland and Italy, supporting broader patient eligibility and more streamlined treatment pathways. Taken together, these developments reinforce the growing global recognition of the value of AMVUTTRA and positions us well to expand patient reach around the world. With that, I'll turn things over to Pushkal. Pushkal Garg: Thank you, Tolga, and good morning, everyone. Alnylam undoubtedly has one of the most robust pipelines in biotech with over 25 clinical programs, spanning multiple therapeutic areas across rare, specialty and prevalent indications, representing a tremendous opportunity to improve patient health and create value in the years ahead. Over the next few moments, I'll double-click on some of these programs to highlight some key near-term value drivers in the pipeline. In support of our ongoing efforts to demonstrate AMVUTTRA's unique profile that we believe supports first-line use, we shared new data on the drug's impact on patients with ATTR-CM at the recent American College of Cardiology Annual Meeting. As Tolga briefly mentioned, a retrospective cohort study of approximately 4 years of real-world data in patients with transthyretin-mediated amyloidosis indicated high adherence and persistence to vutrisiran treatment. Over the treatment period, greater than 93% of patients were adherent to vutrisiran, defined as 80% or more days covered by vutrisiran and over 85% remained on therapy for more than a year. These data stand in contrast to the low adherence and persistence we've seen with many oral therapies and support the potential for vutrisiran's clinical trial benefits to translate into a real-world setting. In another analysis, we looked at diastolic dysfunction, which is known to be prognostic of poor outcomes in patients with ATTR-CM. A post-hoc analysis of HELIOS-B assessed outcomes at month 30 in patients who had evaluable diastolic dysfunction grades, DDG, at baseline. There were 3 key findings: first, higher DDG at baseline corresponded with adverse outcomes in ATTR-CM in the HELIOS-B study; second, vutrisiran was associated with a lower risk of worsening DDG compared to patients receiving placebo; and finally, vutrisiran reduced the risk of all-cause mortality and cardiovascular events during the double-blind period, irrespective of patients' baseline DDG. Together, these data continue to underscore the differentiated and substantial impact of vutrisiran in ATTR cardiomyopathy. We also continue to advance our next-generation TTR silencer, nucresiran, in the TRITON Phase III program. As a reminder, interim Phase I results with nucresiran demonstrated greater than 95% mean TTR knockdown and were supportive of a twice-yearly dosing regimen. TRITON-CM is a randomized double-blind, events-driven outcome study of nucresiran versus placebo. We initiated the study last year and are encouraged by the very strong interest we've seen from both investigators and patients who wish to participate. As a result, enrollment is proceeding faster than expected. In addition, and as anticipated, the patients enrolling in this study have somewhat milder disease on average than those enrolled in HELIOS-B due to greater disease awareness and earlier diagnosis around the world. Our study already includes a built-in safeguard against potentially low event rates in that it is event-driven. In other words, we will continue the study until we have enough endpoint events to ensure sufficient study power. Today, we are announcing that we will take advantage of the fast pace of enrollment to utilize a prespecified option in our protocol to expand enrollment by approximately 500 patients or from 1,250 to about 1,750 in total. This increase further mitigates the risk of low event rates while maintaining or potentially even accelerating time lines for this important study. Given the rapid pace of enrollment and the anticipated accrual of endpoint events, we still project a launch by 2030, assuming positive data and regulatory approval. In addition, the TRITON-PN Phase III trial in hereditary ATTR polyneuropathy is also ongoing, and if successful, has the potential to support approval in this indication by 2028. As we look ahead to the next period of R&D evolution at Alnylam, we're guided by our new Alnylam 2030 set of 5-year goals, specifically the pillar of growth through sustainable innovation. As a reminder, we've committed to delivering at least 2 new transformative medicines beyond TTR with blockbuster potential. We also anticipate achieving RNAi delivery to at least 10 tissue types with over 40 programs in the clinic by the end of 2030. And lastly, we aim to invest approximately 30% of revenues in non-GAAP R&D through this period to support our next wave of medicines. We're on our way to achieving these goals and look forward to many clinical readouts in the coming quarters and years to unlock these transformative programs, which will propel Alnylam into its next phases of growth. As for 2026, we plan to share updates from across the pipeline as outlined here. In the first half of the year, we expect to complete enrollment in the cAPPricorn-1 Phase II trial of mivelsiran in cerebral amyloid angiopathy and to initiate a Phase II trial of mivelsiran in Alzheimer's disease. We're also on track to initiate a Phase II trial of ALN-6400 in a second bleeding disorder. In addition to these study milestones, we also look forward to several clinical readouts from 3 different programs in the second half of the year. For ALN-6400 in bleeding disorders, we plan to share Phase I data from healthy volunteers and Phase II results in patients with hereditary hemorrhagic telangiectasia. We also plan to share Phase I data for ALN-HTT02 in patients with Huntington's disease and ALN-2232 in development for obesity and weight management. Within our robust pipeline are several programs, each with multibillion-dollar potential that we believe represents the next wave of transformative medicines. ALN-6400, which we believe has potential application across a wide range of bleeding disorders; zilebesiran, which has the potential to reduce the risk of cardiovascular events by providing continuous control of blood pressure; and ALN-HTT02, which we are studying to treat Huntington's disease are among the many opportunities in our pipeline that may improve human health and accelerate growth in the years to come. Given these are novel therapeutics that have the potential to change the practice of medicine, I'm excited to announce that we will be discussing each of these programs in greater detail during upcoming webinars starting this summer. Those of you who have followed Alnylam for a while may recall our RNAi Roundtable series in which we spotlight key pipeline programs of interest and discuss disease areas, treatment landscapes, unmet needs and the differentiated impact possible with RNAi therapeutics. We'll be using a similar format to deep dive into each of these programs and outline the opportunities this summer. Stay tuned for more details in the coming weeks. With that, let me now turn it over to Jeff to review our financial results and 2026 guidance. Jeff? Jeffrey Poulton: Thanks, Pushkal, and good morning, everyone. I'm pleased to be presenting a summary of Alnylam's first quarter 2026 financial results and discussing our full year guidance. Let's begin with a summary of our P&L results for Q1 2026. Total global net product revenues for the first quarter were more than $1 billion or 121% growth versus Q1 last year, driven by the continued uptake of AMVUTTRA and ATTR cardiomyopathy. We achieved $910 million of TTR revenue in the first quarter, $52 million increase versus Q4, consistent with the Q1 phasing expectations we discussed on our year-end earnings call in February. For the first quarter, collaboration revenue was $82 million or a 17% decrease compared with the same period last year. The decrease was primarily driven by a $30 million milestone payment received from Vir in Q1 2025. Royalty revenue for the first quarter was $49 million, representing an 85% increase compared to the first quarter of 2025, driven by higher global LEQVIO sales. Gross margin on product sales was 80% for the first quarter, representing a 5% decrease compared with Q1 last year. The decrease in margin was primarily driven by increased royalties on AMVUTTRA as higher revenues in 2026 resulted in an increase in the average royalty rate payable to Sanofi compared with the same period last year. Additionally, a quick reminder that the royalty rate we pay Sanofi on sales of AMVUTTRA resets each calendar year. As a result, as AMVUTTRA sales increase over the course of the year, we anticipate that the average royalty rate on sales of AMVUTTRA paid to Sanofi will increase, resulting in a decrease in quarterly gross margin on product sales over the course of the year. Our non-GAAP R&D expenses of $335 million increased 39% compared to last year, primarily driven by the costs associated with our ongoing 3 Phase III clinical studies, including the ZENITH cardiovascular outcomes trial for zilebesiran and the TRITON-CM and PN studies for nucresiran. Beyond the pivotal programs, we continue to increase investment to support important programs for bleeding disorders, Huntington's disease and CAA as well as early pipeline investment to deliver new INDs. Non-GAAP SG&A expenses of $283 million increased 36% compared to last year, driven primarily by investments in support of the AMVUTTRA ATTR cardiomyopathy launch in the U.S. and in key international markets as well as increased employee compensation costs and other scaling investments to support the organization. We achieved non-GAAP operating income of $339 million, which represents a more than 4x increase compared with last year, driven primarily by the strong top line results that I previously highlighted. We continued to deliver profitability on both a GAAP and non-GAAP net income basis in the first quarter, which represents our third consecutive quarter of both GAAP and non-GAAP profitability. Finally, we ended the first quarter with cash, cash equivalents and marketable securities of $3 billion compared with $2.9 billion as of December 31, 2025. The primary driver of the increase in cash during the quarter was our strong operating performance. Now turning to our full year guidance. Today, we are reiterating our 2026 guidance as presented during our last earnings call and as summarized on our guidance slide. Notably, on TTR revenue, as Tolga previously highlighted, our guidance continues to reflect an assumption of significantly higher quarter-on-quarter revenue growth for the balance of the year in order to achieve our $4.4 billion to $4.7 billion TTR product sales guidance. Let me now turn it back to Christine to coordinate our Q&A session. Christine? Christine Lindenboom: Thank you, Jeff. Operator, we will now open the call for questions. [Operator Instructions]. Operator: [Operator Instructions] Our first question comes from the line of Ritu Baral with TD Cowen. Ritu Baral: So Tolga, I wanted to ask you a little more about your comments around first-line use and second-line use. You said that they were balanced, and I believe you mentioned that use improves with experience. And then you said something about second-line use reducing to normal levels. What is that sort of experience that you're seeing? Is it that doctors are starting with second line and then with increased exposure and experience willing to start patients on first line? Or are they starting on first line? And how much does your detailing -- sort of detailing contribute to it or combination therapy contribute to it as well? Yvonne Greenstreet: Thanks, Ritu. There's quite a lot in that question, and we'll try to plan to unpack it as we go. But just before I turn it over to Tolga, I mean, just to kind of reiterate our confidence really in the fundamentals of the AMVUTTRA launch. And we're really pleased with the progress that we've made as we march towards achieving our goal of TTR leadership by revenues through this next period. But Tolga, let's dive a little bit into Ritu's question. Tolga Tanguler: Sure. No, I think it's an important dynamic and happy to expand more on that. So what we're really describing is the natural evolution of second-line dynamics as the launch progresses. As new prescribers begin using AMVUTTRA, essentially initial utilization is typically balanced between first and second line. Early second-line use is obviously driven by physicians treating patients progressing on stabilizers. They had these patients that were already progressing in the last 5, 6 years, and they were waiting for a product with essentially an orthogonal mechanism of action. So over time, as those patients have transitioned, second-line volume normalizes. At the same time, what we're really excited about is the growing physician experience has been leading to increased adoption in the first-line setting. I think that's a really important element to highlight. So we see this as a really positive and expected progression that you would see early in the launch dynamics. Today, the business is modestly weighted towards first line, while second line remains an important and ongoing contributor to growth. And obviously, we are -- given our orthogonal mechanism of action, we are the -- we have the highest share in that respect. But what's also important is this is a gradual shift in mix as physicians move from early adoption to more established prescribing patterns. And from a strategic standpoint that you've asked, our focus remains on strengthening first-line positioning, which in turn supports both broader and more durable utilization, including second line given our differentiated product profile. So for us, the key driver from here is really going to be about expanding the prescriber base, bringing more physicians into the AMVUTTRA experience, which we consistently see that translates into deeper and early line use over time. Operator: Our next question comes from the line of Paul Matteis with Stifel. Paul Matteis: Congrats on the quarter. I was wondering, Jeff, if you could try to help do some math for us on the call as it relates to the headwind this quarter from selling weeks. I know you talked about 2 selling weeks, but I think that might be related to one specific SP. And then conversely, maybe if there was any sort of inventory headwind or benefit this quarter? And sort of when you net it out and take a step back, how would you sort of simplify for us what we're seeing in terms of actual demand growth from 4Q to 1Q for AMVUTTRA in the U.S. Jeffrey Poulton: Great. Thanks for the question, Paul. Look, good question. I think Q1 played out generally in line with our expectations in the quarter. If you look at the U.S. results, $59 million in growth. That was primarily demand driven. There was some positive inventory impacts in the quarter, but that was offset by pricing, which is continuing to trend in the direction that we expect. Just to remind you on the things that we talked about impacting the quarter, insurance reauthorizations in the U.S. were part of the story. And we did see that. I mean, if we look at demand and start form generation across the quarter, January was the lowest, and we saw sequential improvement in February and March. So that played out as we expected. And then you hit on the ordering patterns. Yes, that's correct. The number of Wednesdays in the quarter actually does make an impact in terms of comparisons quarter-to-quarter just because of the way the ordering works in the U.S. So the way things work in the U.S. for us is there's one wholesale distributor that we work with that drives about 80% of the volume. They order every week on Monday in the U.S., product ships on Tuesday and inventory is received and is recognized on Wednesday. Just the way what the calendar fell last year and then into this year, there were 14 Wednesdays in Q4 last year and 12 in Q1. So that contributed. Look, if you looked at the TTR growth in Q4 last year in the U.S., it was $111 million and again, $59 million in Q1. So I think, again, this all played out as we expected. Paul Matteis: We have the Wednesday dynamic... Yvonne Greenstreet: Sorry. Paul Matteis: I was just going to say we have the Wednesday -- I just wanted to clarify on the selling weeks. We have that dynamic at like close to an 11% sequential headwind. Is that an exaggeration of selling week dynamic or kind of roughly where we should be modeling it? Jeffrey Poulton: Yes. Again, I'm not going to get into maybe the specific detail on that, Paul, per your question, but it did have an impact and which was one of the reasons why we flagged it on the call in February. Just thinking about going forward, right, for Q2, there will be 13 Wednesdays. Q3 will have 14 and then Q4 will have 13, right? And so over the course of the year, there's 52 Wednesdays, but that's how they're going to fall. So again, it's one of the things that drives confidence in our view in terms of growth going forward, higher levels of growth on a quarterly basis going forward in the U.S. Tolga Tanguler: If I could add in terms of how the quarter should be characterized from a demand perspective, it was really largely driven by demand. So we did have some inventory benefit, but that was really offset by the gross to net adjustments. So net-net, this was really about demand growth. Yvonne Greenstreet: That's spot on, Tolga, and thanks for providing some color to the quarter. I mean we were really pleased to be able to maintain patients, how well the authorizations went, how patients were able to kind of get access with our commitment to make it as easy as possible for them. So we're really seeing kind of good progress from 2025 to 2026. Thank you. Next question. Operator: Our next question comes from the line of Tazeen Ahmad with Bank of America. Tazeen Ahmad: There's a study coming up for a competitor who has a silencer. I think there's a lot of eyes on the portion specifically related to adding that silencer onto a stabilizer. So I wanted to get your thoughts if that portion of the study proves to be robust, is there any reason to think that a result like that would not have been replicated with AMVUTTRA if you had designed that trial? And looking ahead, how do you think physicians would interpret that type of data? Would that be specific to the drug itself? Or do you think it would be validating for silencers overall? Pushkal Garg: Thanks, Tazeen. Maybe I'll take a question and Tolga may have something to add as well at the end. Yes, look, I think we're obviously looking to see the CARDIO-TTRansform results as they come out. I think we're expecting a little later this year based on the announcements yesterday. But I think as it relates to the combination portion of that study, yes, it's -- they've got an upsized portion in that study. And we fully expect that, that study will be positive and that those results will be positive. The reason we believe that is because we have the HELIOS-B results, which have already shown that the silencing mechanism is effective in monotherapy and in combination therapy when it added on a background of stabilizer. We saw strong results in that category. It was not powered specifically for that group, but we saw additive benefit that was commensurate with the benefit we saw as a monotherapy and that was realized then in the product labeling as well, where it was recognized that there was equal effectiveness on or off tafamidis, and that's captured in the label. And so we're obviously able to communicate that appropriately with prescribers and then Tolga can talk more about that dynamic. So I do expect that they'll see a static benefit there, but I think it really -- it just enhances and further validates the signal that we've already seen with this drug. The other thing I would just mention is that we talked today about the nucresiran study with TRITON-CM. And that is going to, as we've talked about before, be primarily a study adding on top of patients who are on a stabilizer. And with today's announcement, I think we'll have perhaps the largest experience coming out of that study. So a very, very rich data set showing the benefits of adding a silencer on top of a stabilizer. So I think we're looking forward to those results as well. So I think we're very well positioned both for how treatment patterns are today and how they're going to evolve over time. But Tolga, maybe you have anything to add. Yvonne Greenstreet: It's worth making a kind of commercial comment or 2 here, Tolga, I think you've kind of focused very well on how we think about eplon. But I think it's worth referencing our success in the PN indication. Tolga Tanguler: I mean I think as you have seen in PN, there are 2 real dynamics that works in our favor. First and foremost, obviously, we have a significant -- we had a significant lead time when eplon came out in PN. And what you now see is we have a pretty robust and durable market share in terms of new patient starts over 75%. And then the good news is the category continues to grow in PN. And when you actually translate it into the CM, which is a much larger, obviously, category, when you have a deeper, more durable and sustained knockdown effect, which we already have with AMVUTTRA, it's going to be only advanced by nucresiran, hopefully. We are really well positioned given the lead time that we have. And again, from a label perspective, we already have combination use in our label. We really feel good about another study actually confirming some of the benefits of the silencer class. Operator: Our next question comes from the line of Kostas Biliouris with Oppenheimer. Konstantinos Biliouris: Congrats on the quarter. Maybe I'd like to reverse Tazeen's question and ask about the scenarios that CARDIO-TTRansform fails to show an effect under the silencer stabilizer combo, but nucresiran can demonstrate an effect under the stabilizer silencer combo. Do you think that your competitor will be able to leverage nucresiran's combo data or it will be specific to nucresiran because of the potency and the durability of the drug? Pushkal Garg: Yes, Kostas, it's -- there's a lot of scenarios there to work through. I appreciate the nature of your question. I don't know that I can answer it directly. Look, I think again, I think there are commonalities between the eplon approach and what we're doing in that they both knock down TTR, although at the same time, there are different molecules and they use different mechanisms. We use an RNAi mechanism, they use an ASO mechanism. Their knockdown tends to happen a little bit longer over time based on the data that they've seen -- that I've seen published, whereas we get to higher levels of knockdown a little bit earlier. So I think it's really difficult to sort of prognosticate all the different scenarios. I think maybe they'll see an effect, maybe it's not static. I don't know. I don't want to speculate at all, but these are different molecules, but there are overlapping areas. And I think as we get the data sets, there'll be some inferences made in terms of where we can connect the dots and where there may be unique aspects of the molecules or study designs, for instance, that may have contributed. Our studies are event-driven, for instance. And so we may -- that may give us as we've talked about, additional insurance and help with powering of the studies overall. So again, I think we'll wait to see how those studies pan out. But I think we feel very good based on the HELIOS-B results, our patient level insights that we have from those studies and the detailed data we have in terms of how to design TRITON-CM and to establish its success. And so we feel very good about that. And that is why part of the reason we had talked about the sample size increase as well today. Yvonne Greenstreet: That's great. I think the quarterly subcutaneous regimen as well for AMVUTTRA provides additional differentiation. I think that's one of the reasons why we're seeing such good adherence to AMVUTTRA as well as obviously, the compelling clinical profile that we provide. Operator: Our next question comes from the line of Salveen Richter with Goldman Sachs. Salveen Richter: With regard to AMVUTTRA, how are you thinking of the trajectory in 2026 post the headwinds that played out in 1Q? And in particular, could you just comment on the ex U.S. pricing dynamics in Germany and elsewhere and whether those have stabilized yet or are still ongoing? Yvonne Greenstreet: The question is referring to the ex U.S. picture. I think Tolga, clearly you'll answer that, but I just want to say how pleased we are with the progress of our launches ex U.S. Tolga touched on this in his prepared remarks. And I think it's a testament actually to our pricing and reimbursement organization that we've been able to move forward with a number of AMVUTTRA CM launches in Europe and in Japan. Tolga, maybe you want to comment on pricing specifically. Tolga Tanguler: Sure. Thanks, Salveen, for that question. So let's unpack that a little bit in terms of our ex U.S. pricing dynamics. And we touched upon this in our earnings call, the prior earnings call. And obviously, it worked out better than what we had anticipated. That was primarily driven by our Japan launch progress that's going really well as well as obviously the robustness business in our PN. But if you look at the rest of the year, I think the way we should be thinking about it is when we launch the CM indication in markets outside the U.S., it does typically involve a price adjustment for AMVUTTRA, which can have an impact on the existing -- our PN business base. The magnitude of that impact obviously varies by market, primarily driven by the size of the price adjustments and the relative scale of that business, existing business. In that context, Germany did represent the most significant impact in Q1 across all our international markets. And importantly, this was obviously a deliberate and expected step in expanding into a larger opportunity. Over time, the CM volume more than offset the impact of the initial price adjustments on the PN base. And a helpful way to think about this is a mix shift. We're effectively trading a smaller, higher-price segment for access to a significantly larger patient population. And then as the mix evolves, the overall value of the market will expand. And what does this mean for the rest of the quarter is we expect this to become a net positive growth for starting in Q2, building throughout the year and contributing incrementally on a full year basis. I think what we had said is essentially, the contribution of growth is going to be about the same net-net as ex U.S. did contribute last year. Operator: Our next question comes from the line of Cory Kasimov with Evercore. Cory Kasimov: Apologies for asking another one related to CARDIO-TTRansform. But assuming that does, in fact, read out positively, how do you think about the evolution of pricing as another silencer enters the picture, especially given the Part B versus Part D dynamic? Is there any reason to think that pricing could materially change? Or is the PN experience applicable in CM in this case as well? Yvonne Greenstreet: pricing. Tolga Tanguler: Look, it's never a good idea to speculate your competitors' pricing. But what we've seen so far is we've done really well in '26 in terms of how we've been able to actually increase our first-line access with payers. We anticipate that to continue. Payers are taking this disease very seriously and price sensitivity right now is not really in the works as we've seen and being able to demonstrate that. Currently, Wainua is slightly more premium than our product on an annual basis. What we've seen so far, and they had priced it after us. I think they're also seeing how the pricing is working. We don't really anticipate any significant shift in the moment. And of course, we have been managing this very, very thoughtfully and monitoring it very carefully. Operator: Our next question comes from the line of Ellie Merle with Barclays. Eliana Merle: Congrats on the quarter. In your prepared remarks, you commented on how second-line use is reduced to a normalized level. But can you comment on the trends you're seeing in the first line? Are you seeing a steady number of naive starts or an acceleration in the number of naive starts? If you could just help characterize what you're seeing there, that would be helpful. Yvonne Greenstreet: You touched on that, Tolga, but maybe to add a little bit more color. Tolga Tanguler: Yes. I mean I think what's really exciting is what we've been seeing consistently is that when physicians initiate patients on AMVUTTRA, utilization deepens and shifts towards earlier using over time, and that really strengthens our first line. So early adoption has largely been driven by treating patients progressing on stabilizers in the second-line setting and the opportunity is to work through prescribing naturally evolves toward a greater proportion of first-line use. Therefore, we feel very good about so far how we've been able to managing this. And essentially, our aspiration is to continue to grow that first-line use by expanding our prescriber base. Operator: Our next question comes from the line of Jessica Fye with JPMorgan. Jessica Fye: I was wondering if you could touch on how, if at all, the recently announced Pfizer settlement for Vyndamax impacts how you think about the TTR cardiomyopathy landscape looking out over the next several years? Tolga Tanguler: Yes. Great question, timely. Look, I think we've been rather consistent in how we've been characterizing that our growth outlook is really not dependent on the timing of a generic entry in the stabilizer class. We do expect the impact on our TTR outlook from the settlement to be rather limited. This -- just to remind everyone, this remains a significant underserved category with a large proportion of patients untreated. And we know that nearly half of those patients that are on a stabilizer continue to progress and they are in need of an orthogonal mechanism of action. Importantly, demand for AMVUTTRA reflects a fundamental shift toward treating this disease at its source, which we see as durable and independent of pricing dynamics within the stabilizer class. We also believe that the TRITON-CM study positions us really well to generate a robust data package for nucre, supporting continued leadership in an evolving treatment landscape. Today, we're really well established with broad first-line access, strong patient affordability, growing physician preference and well ahead of any potential LOE considerations. So taking it all together, I think we feel very well positioned to sustain growth through both continued AMVUTTRA adoption and frankly, the advancement of our next-generation pipeline. Operator: Our next question comes from the line of Luca Issi with RBC Capital Markets. Unknown Analyst: This is Shelby on for Luca. Yesterday, AstraZeneca printed a pretty meaningful miss for TTR-PN and Wainua is actually down 35% Q-over-Q. So I guess from a competitor standpoint, is Alnylam a net beneficiary of that miss in PN? And then maybe bigger picture, could you walk us through your latest thinking on the PN competitive landscape here in the U.S., especially given the Medicare Part B, Part D dynamic and with the prefilled syringe coming for Wainua? Tolga Tanguler: Yes. I mean, look, I think it is customary to see some softening in the first quarter of the dynamic. When I look at our numbers throughout PN, we had certainly seen that, but that tends to actually recover in March, and we've always been able to post good growth based on our base business. So I think you guys should raise that question with them. What we know is even before the CM indication, we have been able to establish a very strong new patient market growth -- market share upwards of 75%, while the category continued to grow. So we are very pleased with that experience, and we certainly have every plan to replicate that success in the CM landscape as well. When it comes to Part D and Part B, look, I think we're really well positioned in terms of how we've been able to provide that access. The fact that our product is a quarterly subcutaneous injectable meets very nicely with the cadence of how those patients actually visit those offices. And it's -- and by the way, again, we've been able to expand our actually access nearly 100% when it comes to overall access and over 90% in terms of first-line access without any step edits with 0 patient out-of-pocket costs. Those dynamics not only been secured, but also improved versus last year. So -- and that's, again, testament to the product profile as well as actually testament to the payers who really understand this disease and they leave it up to the physician and their choice in how they want to manage this category. Operator: Our next question comes from the line of Myles Minter with William Blair. Unknown Analyst: This is John on for Myles. Maybe to switch gears just a little bit. Just wondering where you're seeing cemdisiran sitting in the MG competitive landscape, along with some of the next-gen complement CD19, or FcRns. And any thoughts as to why more complete complement inhibition in the combo therapy didn't result in better efficacy there? Yvonne Greenstreet: No, we're clearly pleased with the progress of cemdisiran in patients with MG. The results were really quite supportive of use in this disease. Pushkal, are there any additional perspectives you'd like to add? Pushkal Garg: No. Look, I think -- I guess I'll just echo what Yvonne said. I think we're really excited that Regeneron has advanced cemdisiran. I think the data in myasthenia are incredibly compelling that they've generated. We think this is going to be -- and we hope and expect this will be a formidable drug for these patients where there's a lot of unmet need. I think the detailed questions in terms of the market and the opportunity, I think we should leave for our colleagues over there, but we're very excited about the molecule and its opportunity to help patients. Operator: Our next question comes from the line of Mike Ulz with Morgan Stanley. Michael Ulz: And maybe just a follow-up on the generic question. Would you anticipate increased combo use in the frontline setting? Or would that be more of a second-line setting effect? And then do you think you need the data from nucresiran combo to kind of accelerate that? Or do you not need that? Tolga Tanguler: Yes. Look, I think as I explained, we've been able to establish ourselves as a first-line treatment over 35% in a short 9 months since the launch as the third entrant. That really is the fundamental question in a way, how the market is going to be unfolding. In respect to combination use, as we had shared before, there are physicians who prefer to have a second-line use in a switch or combo. And if that were to happen so far, we haven't seen any significant headwinds. we don't really speculate on that, how payers are going to be managing that. I think once goes generic, certainly, that dynamic will evolve. And I think, obviously, nucre will be in a great position given the data we're generating. We already also do have combo data in our label as well as obviously, physicians have been experiencing it already over a year. So what we, again, appreciate the fact that it is how we got out of the gate in terms of our launch dynamics, and we continue to maintain that posture. Yvonne Greenstreet: Yes. No, absolutely. I think the key point here is that, as you said, Tolga, our fortunes aren't tied to the genericization of the stabilizer class, and we're quite excited about the TRITON-CM design for nucresiran to deliver a very robust data package to support the evolving treatment landscape. I think we've come to kind of our last question. So I will just wrap up by thanking everybody for joining us today. I think we're off to a good start in 2026. And as we maintain momentum with the ongoing launch of AMVUTTRA in ATTR cardiomyopathy, we also continue to deliver significant advancement across our really quite exciting and deep pipeline of innovative RNAi therapeutics. Thanks, everybody. All the very best. Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining us. You may now disconnect. Have a good rest of your day.
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Climb Global Solutions' financial results for the first quarter ended March 31, 2026. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Matthew Sullivan; and the company's Investor Relations adviser, Mr. Sean Mansouri with Elevate IR. By now, everyone should have access to the first quarter 2026 earnings press release, which was issued yesterday afternoon at approximately 4:05 p.m. Eastern Time. The release is available in the Investor Relations section of Climb Global Solutions website at www.climbglobalsolutions.com. This call will also be available for webcast replay on the company's website. Following management remarks, we'll open the call for your questions. I'd now like to turn the call over to Mr. Mansouri for introductory comments. Sean Mansouri: Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. -- these forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements. which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. Our presentation also includes certain key operational metrics and non-GAAP financial measures, including gross billings, adjusted EBITDA, adjusted net income and EPS and effective margin as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. I'd now like to turn the call over to Climb's CEO, Dale Foster. Dale Foster: Thank you, Sean, and good morning, everyone. In the first quarter, we generated double-digit organic growth in our core business and also had some benefit from our acquisition of Interwork cloud. We remained disciplined in our signing high-quality vendors to our line card, while moving slower performing vendors to our Climb division. Our performance underscores the momentum across the business, driven by the strength of our global platform and the depth of both vendors and partners. During the quarter, we evaluated 39 net new brands and selected only 2 consistent with our strategy of cultivating strong high-impact vendor relationships across our platform. Notably, we signed Czech MK, an industry recognized innovator in comprehensive enterprise-grade monitoring and observability. As a strategic distributor, we provide channel partners with streamlined access to Czech MK's unified monitoring and servability platforms. Delivering deep visibility across hybrid environments and key domains, including infrastructure, networks and applications from a single solution. Combined with enterprise-grade scalability, high automation and open core architecture, Czech MK enables partners to confidently position and sell and deploy unified monitoring platform at scale seamlessly across diverse customer environments and use cases. We also launched a company called Logic Monitor during the quarter, following the successful pilot with a large customer in the fourth quarter of 2025. Logic Monitor is an AI-powered hybrid observability platform that provides unified visibility across cloud, on-prem and multi-cloud environments, enabling organizations to proactively identify and resolve issues. Through this partnership, we are bringing Logic Monitors capabilities to our partner ecosystem, equipping VARs and MSPs with a differentiated solution, enhanced visibility, improves operational resilience and drives long-term customer value. We look forward to building our relationship with both Czech MK and Logic Monitor as we take their products to market. Alongside expanding our vendor portfolio in February, we acquired Interwork a Greek distributor that brings over 600 cloud resellers and managed service provider relationships as well as strong vendor to our existing strong line card. While early in the integration process, we are seeing meaningful opportunities to deepen our presence in Southeastern Europe by leveraging Interwork's established network as well as expanding cross-sell opportunities across our broader platform. Overall, we are encouraged by this early progress we're seeing and look forward to generating additional synergies as we fully integrate the teams in the months ahead. As we continue to scale our global platform, we are focused on driving greater alignment and efficiency across the organization. To support this effort, we promoted Cera Peters to Senior Director of Alliances to our EMEA team. there is working closely with regional leadership to replicate the process discipline and execution framework that we have produced -- that have produced strong results in North America. Importantly, our underlying alliance strategy remains unchanged. We continue to take a highly selective approach to onboarding new vendors while prioritizing deep engagement with existing partners. As our pipeline of opportunities expand, -- we are also seeing increased activity across both new valuations and reevaluations, which require a similar level of effort and reflect the deep growth and maturity of our vendor portfolio. Looking ahead, we remain focused on driving organic growth while maintaining a disciplined approach to capital allocation. As we continue to scale the business, we are investing in infrastructure need to support that growth. including advanced automation and AI-enabled tools that enhance visibility, streamline our workflows and improve overall operating efficiencies. We currently have over 41 IT projects in the works that have streamlined and will continue to stream line our workflows. We're using AI tools and agents to connect our partners that will help our team be more efficient as we grow. These initiatives are designed to increase throughput across the platform and enable us to support higher volumes of activity without the commensurate increase in head count. At the same time, we continue to view M&A as a strategic lever to complement our organic growth. We are actively evaluating opportunities that align with our high-performance culture as well as our service offerings and in our geographic reach. We believe these initiatives will enable us to execute on our 2026 plan and deliver yet another year of strong results. With that, I will turn the call over to our CFO, Matt Sullivan. Matt? Matthew Sullivan: Thank you, Dale, and good morning, everyone. A quick reminder as we review the financial results for our first quarter, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As reported in our earnings press release, gross billings in Q1 2026 increased 14% to $542.8 million compared to $474.6 million in the year ago quarter. Distribution segment gross billings increased 15% to $520.9 million and Solutions segment gross billings increased 4% to $21.9 million. Net sales in the first quarter of 2026 increased 32% to $182.4 million compared to $138 million in the year ago period. This reflects double-digit organic growth from new and existing vendors as well as contributions from our acquisition of Interwork on February 24, 2026. Gross profit in the first quarter of 2026 increased 13% to $26.5 million compared to $23.4 million for the same period in 2025. The increase was driven by organic growth from new and existing vendors in both North America and Europe as well as the contribution from interworks. Selling, general and administrative expenses in the first quarter of 2026 were $20.3 million compared to $16.8 million in the year ago period. The increase in SG&A expenses was primarily driven by onetime investments to drive organic growth from new vendors and in our infrastructure to support long-term growth initiatives. More specifically, we expanded our IT capabilities to enhance system efficiencies and further aligned our sales organization across teams and geographies and continue to build out our Fortinet focused sales resources. In addition, SG&A reflects higher legal and professional fees associated with strategic initiatives, including our stock split. SG&A as a percentage of gross billings was 3.7% for the first quarter of 2026 compared to 3.5% for the prior year period. Net income in the first quarter of 2026 was $3.3 million or $0.18 per diluted share compared to $3.7 million or $0.20 per diluted share for the prior year period. Adjusted net income was $3.6 million or $0.19 per diluted share compared to $3.9 million or $0.22 per diluted share for the year ago period. Both net income and adjusted net income in the first quarter of 2026 were impacted by a higher effective tax rate compared to the prior year period. Adjusted EBITDA in the first quarter of 2026 increased 4% to $7.9 million compared to $7.6 million for the same period in 2025. The increase was primarily driven by organic growth from both new and existing vendors partially offset by the aforementioned investments in our infrastructure to support long-term growth initiatives. Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit was 29.9% compared to 32.7% in for the same period in 2025. Excluding the previously mentioned onetime investments and costs, effective margin for the first quarter of 2026 was higher compared to the prior year period. Turning to our balance sheet. Cash and cash equivalents were $41.8 million as of March 31, 2026, compared to $36.6 million on December 31, 2025. The increase in cash was primarily attributed to the timing of receivable collections and payables. As of March 31, 2026, we had no outstanding debt or borrowings outstanding under our $50 million revolving credit facility. As previously mentioned, our Board approved a 4-for-1 forward stock split effective in March to enhance liquidity and broaden access to our shares, while maintaining each stockholders' proportionate ownership. We believe this action improves the accessibility of our stock and supports a more efficient trading environment for a broader base of investors. Looking ahead, our balance sheet remains a strategic asset with over $41 million of cash and no outstanding debt, we have ample liquidity and flexibility to execute on our growth initiatives in 2026. We remain active in evaluating accretive M&A opportunities that can deepen our vendor portfolio, broaden our geographic footprint and enhance our operating platform. We believe these initiatives, coupled with our demonstrated track record of success will enable us to continue driving value creation for our shareholders. This concludes our prepared remarks. We will now open up the line for questions. Operator? Operator: [Operator Instructions]. We'll move first to Keith Housum with North Coast Research. Keith Housum: And thanks for the opportunity here. In terms of the extra spending here on the SG&A for the quarter, I noticed you guys had a number of onetime items, including IT and legal costs and investments like before in that. Can you perhaps bifurcate that a little bit more so we understand like I'm assuming increased costs before net will continue going forward, some of your onetime IT costs probably onetime in nature. Any way to bifurcate some that growth in SG&A to understand a little bit more going forward? Matthew Sullivan: Keith, the buses go ahead, Matt. I'll fill in. I was going to say the largest driver there or a big piece of the driver there was the Ford net investment. And the investment in that relationship has been -- is slightly different than the investment in the typical onboarding of a new vendor where we had increased cost, building out teams and additional onetime costs as we start that relationship here in Q1 of 2026. So that really was about $0.5 million worth of costs that were in the first quarter that it was a driver -- negative reduction to adjusted EBITDA that we expect to turn the other direction as we move into the remainder of 2026. Dale Foster: Keith, this is 1 of the -- Keith, real quick. This is 1 of the things. We typically -- when we sign vendors, we'll do some small investments and a lot of times, it's paid by the vendors. If you take a look at Fortinet, it's a market cap $60 billion company, I think, $6 billion in annual sales. And the relationship was just a little different. We agreed and didn't have it in all of our budget to put this investment out there because we see it such an opportunity. It's an anchor for us as we go forward. And it's 1 of the top 4 cybersecurity vendors in the world. So that's why we put this investment in there. the sales are coming along, and we'll be able to report those better in Q2 as we have been ramping those up along with the team that we've born on board. Keith Housum: Yes. That was my follow-up question. What's kind of the breakeven point for that? And how fast does it take to ramp up some like Fortinet. Will you see the return on investment here before the end of the year on that? Dale Foster: We will. I mean Q2 is already ramping up pretty quickly, but it will be Q3 when we'll see that return on investment. So yes, there'll be some of those SG&A costs in Q2 of that team and then covered in Q3. Keith Housum: Okay. Got you. And then the -- it looks like the mix between gross and net revenue here despite really on the gross side. I think the highest has been several quarters if not several years. Is that attributable to some of the new vendors? Or is there anything you can point to as we think about going forward, the split between gross and net revenue. Matthew Sullivan: It's not an impact of the new vendors. It's really just the product mix of our existing vendors. And that can fluctuate from a given quarter, you're right, it is the highest this quarter of any quarter in recent time. But that's really driven by our existing vendors and what specific products we are selling to them. Keith Housum: Okay. Got you. And then the memory issue is wreaking havoc in the hardware world, in your realm in the software space, are you guys seeing a benefit as people prioritize some of their spending away from hardware with increased prices towards software? Is it too early to tell? What's your thoughts on that? Dale Foster: We did not see the impact, Keith. I mean some of the delays on potential people doing installs or if they're doing a hybrid cloud or going into a data center, we see some of that. But remember, 80% to 90% of ours are reoccurring revenue and renewal, so we just haven't seen that slow down. We haven't seen the seed licenses decrease like everybody got crazy in Q1 to talk about, I think, the adults are coming back and saying, "Hey, this is sophisticated software that people are selling where we've got 2 things going for us. Number one, we have a strong renewal stream, and number two, we're 60-some percent in the cybersecurity world, which people are always going to protect their infrastructure first. Keith Housum: Got you. And maybe the last question for you. In terms of the targeted onetime investments that IT in the first quarter, what's your expected ROI on that? And I guess, are you satisfied with some of the progress you've made with those initiatives? Dale Foster: Yes. So our new CIO that's done on board to be coming up on a year in Q2. Just I wanted to point out, the first time I'd pointed out how many projects we have going because the list continues to grow. We went to our ERP over 1.5 years ago, and we've been streamlining it. But now we're using so many of the AI tools to just make our systems faster. And that is not only the ERP place of it, but all of the associated applications that we can use agents to do a lot of the work that we've had to do before manually. So here's our goal that I have said, and that is we're throwing technology at it, so we don't have to increase headcount, as I mentioned in my remarks, and that is we need to be able to scale this business. our goal is to double it in the next 3 years but not double our head count because we would just be running on a treadmill at that point. So that's -- our goal is using the technology, and it's out there to use we just keep putting the projects on the list to make it more efficient. Operator: We'll move next to Vincent Colicchio with Barrington Research. Vincent Colicchio: Yes, Dale, was the organic growth broad-based in the quarter across your -- and were there any lumpy deals that impacted the period. Dale Foster: Yes. It is our top 20 that happened. We had some fallover typically happens that from Q4, they come in, the deals didn't get closed on that side. But no, it was just a good quarter for us. when you look at just the vendor performances, we had some vendors that finished their fiscal year at the end of March. So there's going to be and some of our new members -- or new vendors that did that. But other than that, it's just across all of our vendors and decent performance. Vincent Colicchio: And as gross billings momentum carried through April? Dale Foster: Yes. I mean we're closing in April. We don't want to talk too much about that. But Yes, we are not seeing a slowdown definitely in our workloads. So that's where our focus is right is how would it become more efficient with those workloads. But if you look at our adjusted gross billings, so the whole talk about AI, and it's going to take over this and it's going to take our receipts. Here's my comment on that, and I've commented before on it. is that we're going to use AI more than we're going to sell it this year, including our vendors are going to use it more internally, to develop the products faster. That's the thing that gets talked about the most when we have all of our QBRs with our vendors. -- is how much faster they're being able to develop products. AI does a great job with repetitive process, and that's how we're using it inside of con. But when it comes to sophisticated, somebody that's going to go and attack your network. We're seeing the tools that we're selling as important as ever, and we haven't seen that slow down. Vincent Colicchio: And curious about VAST data. Does the pipeline remain substantial there? Dale Foster: Yes, it's still going to be lumpy with VAS, but it's still I mean if you look at best as a company, how much money they've raised, they only -- they appeal to the high-speed data pull for AI engines, and that's where they're claim to fame is, they're still on a good job. So you'll see throughout this year, some more lumpy deals that are coming in. But it's just hard to predict because they're all based in back to Keith's comment about memory. They're going to be affected by that. Anybody that's going into data centers going to be affected by some of the chip stuff. Vincent Colicchio: Is it -- are you able to give us some help in terms of when Interwork will provide meaningful cross-selling synergies -- or is that tough to talk about in terms of timing? Dale Foster: It's the cross-sell that we have, and this is our strategic plan when we acquire companies in various regions and the opportunities that typically start with vendors in the U.S. and move there. They have a big Microsoft practice, which goes right in line with our Microsoft practice in the U.K. And I mentioned that before that we meet the threshold to stay as a distributor. We're working on becoming a frontier distributor, which is a new designator by Microsoft. We think that -- and here's the uniqueness about Interwork. They transact all of their business through a cloud platform, which we have a small portion of our business. So we want some of that DNA to come to our newly dedicated MSP team in the U.S. and then to the greater company in Europe as well that we can transact on a platform as we keep getting better and better with our systems. So it's going to be going both ways. Then on -- from the Greek team to us on how they actually transact and from vendors to the great team that they're looking to add more vendors. So you'll see the cross-selling and really the onboarding of new vendors in Southern Europe with -- and as I mentioned, there Peter has taken that role and that was 1 of the reasons for it. Operator: Move next to Howard Root with Fairhome Capital. Unknown Analyst: I want to follow up a little bit more on the SG&A line. So that -- if you look sequentially, I think it went up about $2 million and year-over-year, about a $3.5 million increase -- you kind of pointed out that Fortinet was about $500,000 of that. And then you called it primarily onetime investments. Can you -- the other like $1.5 million sequentially. Can you kind of give us a little bit more detail on what that was and quantified. And then when you say 1 time, does that mean 1 quarter? Or is that going to continue into Q2 and for the rest of the year? Dale Foster: Yes. yes. So when we refer to that as onetime, I mean, specifically with the Fortinet relationship, that was a net cost of about $0.5 million to Climb as a company. We expect that to begin to turn to a positive contribution in the later part of 2026. And we start to see that in Q2 here and really see that ramp up in Q3 and beyond. And like I said earlier, that was a different type of investment than our usual investment cycle. And then we had other onetime professional and legal type costs associated with the stock split and some other initiatives there. So like I mentioned in the prepared remarks, our -- if you exclude those items, our effective margin from Q1 of 2026 compared to Q1 of 2025, increased. And typically, Q1 is our lowest effective margin quarter of the fiscal year. So even if you look back at 2025 that 32.5% or so, that continued to climb as the year progressed, and we expect no changes to that trajectory as we move forward here in 2026. Unknown Executive: So just looking forward on Go ahead, Dale. -- sorry. Dale Foster: Yes, real quick, Howard. -- when Matt and I look at it as we're going through the quarter, we just have some mess, we say onetime things, but we had some legal stuff that we typically didn't have in the past for those quarters. So it was unfortunate, but a lot of those are onetime things as the quarter, as we pointed out. If you look at the actual SG&A, I think it went from 3.5% to 3.7%. But yes, we got to get that in the other direction. And as you often point out, can we get to the and I talked about it now with some of our investors and of course, our Board how do we get our 5% to more of a 50-50 on our SG&A and our effective margin. So that is the goal that we have. And we do not see -- and our vision has not changed on that. Unknown Analyst: Okay. So the -- I wish you guys would start giving a little bit of guidance. But just looking at this line, generally, it's around a little $20 million, $20.5 million for the quarter. Do you see Q2 on a dollar basis being I've decreased from that, an increase from that are relatively the same? Dale Foster: Well, it all depends -- we'd have to go by percentages, Howard, because it all depends on our Q2 is going to be typically higher than Q1. We're going in with our education that's where all the buying starts happening and all the quoting starts happening. So -- and that's how our gross profit is affected by the commissions that we put out there. So I can't give you a hard number that way. But percentage-wise, we're going to see that drop. Unknown Analyst: Okay. So then you mentioned the 532, which we talked about before, I mean, 5% gross profit off of your gross billings, which is kind of the way to look at your business, I think, then 3% for SG&A, leaving 2% roughly for income from operations via depreciation as well. And you said that's still kind of your target, but is that a goal? Is that an expectation? Or is that just kind of -- what is that an. Dale Foster: Yes, our gold, Howard, and we -- and our executive meetings, we kicked off this year, including presenting to the Board is to get that to a 50-50. And this -- we had our sales kickoff both in the U.S. and overseas, and it's to get the 5 to 2.5%, 2.5%. I mean, we know where our competitors are. We know we can get there, but it's an efficiency play for us to get to split that 5% in half and drop that through. So that is our hard target to get to. that we have set for ourselves as a management team. Matthew Sullivan: And our expectation is that 532 doesn't change? Unknown Analyst: Okay. 532, but 2.5% would be what your real goal is here, not just to better than that. Dale Foster: That's where we have our site set is to take the $5 and just put it in half and half of it is going to our SG&A, the other Hasco dropping through. Unknown Analyst: Okay. All right. Then just bigger picture, and I don't want to get too nitty I mean, congrats on the revenue growth, you guys are still doing a great job. On the M&A environment, though, the Interwork, it was kind of 1 of these new things where it was kind of acquire or go out because of the Microsoft vendor that you talked about before and they had to get bigger or they just weren't going to have that card. Do you see that continuing in the environment? Or how do you see more generally the M&A environment in terms of the opportunities and the valuations today? Dale Foster: Yes. So the valuations are still stayed and this is targeting mostly in Europe, a little bit in the Middle East that we're looking at we'll prospect 2 years out into some territories. But yes, it was opportunistic that we did it with this company because we already had a relationship with them from the cloud platform piece of it. So yes, we're doing it that way. But -- right now, there's still a lot of opportunities on my list, a lot that I've met with when I was -- Matt and I were over in Greece with the team. and did a stop by to talk to some other potential targets out there. So it's good -- it all depends, and everything is depends on what that company internally does -- are they reliant on 1 vendor, 1 territory. There's some different factors that go into the valuation piece of it. From a where we acquired Douglas Stewart at 4.5% up to paying close to 8.5% for other companies, and it just depends on what their makeup is and where we see that we can effectively grow them and how quickly we can grow them is what we pay. Unknown Analyst: Great. All right. Congrats on the progress. Operator: We move next to Bill Dezellem with Titan Capital. William Dezellem: After signing the Fortinet agreement, given the size of that organization, has that led to any follow-on effects with other large vendors that basically raise their eyes to what climb may be able to accomplish? Dale Foster: Thanks for the question, Bill. It actually has -- we've had this -- our talk track is we're going after emerging vendors. And if you look at our line card, and even our top vendors that we talk about solar wins and so forth have been great partners for us and continue to be that. But as far as looking at like a Tier 1 vendor like a Juniper, Fortinet, that are out there, we typically don't market toward that environment. So when this 1 came up, it was not an immediate -- oh my gosh, this is going to be great. It's going to change Climb. -- for the better. I -- my first reaction to was, I don't want to change our culture where we become like a broad line distributor, right? Because I think there's so much value in what we do and what we take to market. But to your point, after that happened, Charles Bass, which runs our alliances team, we've had some pretty large companies reach out to us say, "Hey, I didn't realize you guys did this. I didn't realize you win is wide in some of the markets that you do. And if you look at the North American market, you have the 3 large distributors, now all public with Ingram going public last year. And then it's all the way down to where we see climb we're very small compared to these $50 billion, $60 billion companies. We don't want to be them, but we're having vendors that are coming to us and saying, "Hey, either we want to keep them honest or we want to do a targeted approach to a group of resellers that we think you touch much better than the broadliners do. So -- the answer is yes. I won't give you names, of course, until we announce them. But yes, it's nice to have them coming to us instead of us going and trying to knock on every door. William Dezellem: So Dale, the implication then of what you just said is that there are other meaningful potentially needle-moving vendors that you are in discussions with now? Dale Foster: I'll leave it at that, yes. William Dezellem: And I'll try to not let you leave it at that. Would you anticipate that if these -- if any 1 of these come to fruition that it would happen this calendar year? Or are these discussions much more drawn out than that? Dale Foster: No, that would happen in this calendar year on the ones we're looking at. But I mean, it's just like -- we expected Fortinet to have a little faster start than we have. It always is you're putting energy and as we showed in Q1, we're putting resources and expenses into getting it going. But as I told my field sales team that I'm putting tons of pressure on, right, to launch this and getting into net new customers, and that's where we're really going after. -- is that is, hey, we're going to take advantage of this vendor line for the next 5, 10, 15 years, right? Because I think we're just a better go-to-market play than our competitors. So that's why we're putting the energy in right now. I mean everybody has their day jobs to do, but we're pushing to our field teams to say, "Hey, this is important to us. It's going to drag along a lot of cross-sell opportunities. If you take a look at Fortinet's technology partner page on their website, you'll see all the vendors that they work with. There's quite a few on the list. One number one, there are 7 or 8 that we already work with. So there's cross-selling and we do marketing programs together with them. But if you look at that list, it is big on the solar security side and associated platform side, even on the monitoring piece of it. So yes, more new targets for us, but Yes, it's -- I see more and more of that coming our way. William Dezellem: And if you were to sign 1 more of them, the onetime investments that you've discussed here relative to Fortinet, would those scale to, let's just call them, vendor B -- or are these resources really dedicated to Fortinet and you would then have the same scaling that you would do for vendor B. Would you help us understand behind the scenes how that would work? Dale Foster: Yes. I'll give you an example that's real time. So when we acquired Douglas Stewart, Adobe was a big part of that relationship, and they had a separate team and that team being maintained separate until we put them to our ERP. Now the Adobe platform, the Adobe marketing, all that stuff is part of climb, right? We want a 1 climb approach to how we go to market. Same thing for net, it will eventually morph into our overall team and become part of the climb ecosystem. But right now, we kept it separate so we can track it so we can show our progress. But every everybody -- we have 80 some sellers in North America. They're all selling for net products just like they're all selling Adobe. It wasn't that way to start with. So it depends on the -- you're not going to like the sense, but it depends on the opportunity, right? If the vendor, if it already is in our same work stream like most of the vendors we sign are. It just goes right in. And as I mentioned in my remarks, we are pushing vendors that are not in our top 70 or that are drifting or don't have the investment to our Climb Elevate team, which is really a transactional team. It doesn't get marketing, it doesn't get sales support, but just transactional. And I'm trying to continue to move vendors off so we can focus on our core. I would like -- we started 100 vendors, we're down to 70 in our core. I would like that number to go down to 50 because -- if you look at our top 20, they represent 90-some percent of our business, we want to keep doing that focus, and that's what our vendors want on the top side, and that's what our customers expect to be able to deliver the message. How many sales -- I mean how many vendors can a sales rep really represent, so we want to limit that. So we're really extension of the vendor sales force. William Dezellem: Great. Thank you for the additional perspective. Dale Foster: Thanks, Bill. Operator: And there are no further questions at this time. I would now like to hand back to Dale Foster for any additional or closing remarks. Dale Foster: Thank you, operator. Again, thanks to the entire client team. Hard work this year. A lot of things going on, a lot of moving parts Also, I want to welcome the team members from our new acquired Greek team in both Semanie and Afton. Matt and I had a chance to go over and spend time with them. And it was just a doubling down on the culture that we produce that we have at Climb. It's the same thing that same strand goes right through our team in Greece and just a great time. So they fit with not only our go-to-market, but they have the same type of values that we have as far as taking care of our customers and our vendors. Last thing I want to mention is we will be doing an Investor Day on July 7 in New York City. And for our shareholders, we'll be sending out invoice for that I'd love to see you in New York. Thank you,operator. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, and welcome to the PHINIA First Quarter 2026 Earnings Call. I am Frans, and I'll be the operator assisting you today. [Operator Instructions] I would now like to turn the call over to Kellen Ferris, Head of Investor Relations. Kellen Ferris: Thank you, and good morning, everyone. We appreciate you joining us. Our conference call materials were issued this morning and are available on PHINIA's Investor Relations website, including a slide deck that we'll be referencing in our remarks. We're also broadcasting this call via webcast. Joining us today are Brady Ericson, CEO; and Chris Gropp, CFO. During this call, we will make forward-looking statements, which are based on management's current expectations and are subject to risks and uncertainties. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings. We caution listeners not to place undue reliance upon any such forward-looking statements. And with that, it is my pleasure to turn the call over to Brady. Brady Ericson: Thank you, Kellen, and thank you, everyone, for joining us this morning. I will start with some highlights on the first quarter and discuss our strategy at a high level. Chris will then provide additional details on our first quarter results and discuss our 2026 financial outlook. We will then open the call for questions. The first quarter developed largely as we expected with highlights including solid revenue growth from both Fuel Systems and Aftermarket, keeping us on track to achieve our full year guidance. At the same time, we've maintained a healthy balance sheet while paying dividends and repurchasing shares. While the environment continues to evolve rapidly, our teams are managing our business well and delivered results that strengthen our foundation for the long-term. Our diversification across regions, customers, end markets, and products helped offset variability in any single region or segment. Now let's jump into the first quarter results on Slide 5. In the first quarter, PHINIA continued to demonstrate resilience in a mixed macro environment. Demand conditions across key end markets remained steady, supported by durable replacement cycle fundamentals and some encouraging green shoots in the commercial vehicle industry. At the same time, we navigated ongoing geopolitical and trade-related uncertainty, including tariff volatility, shipping disruptions, and regional production variability. We faced these challenges with strong operational execution and disciplined cost management. For the fourth consecutive quarter, we delivered year-over-year growth in both the Aftermarket and Fuel Systems segments. Total net sales in the quarter were $878 million, up 10.3% from the same period of the prior year. Excluding FX impacts and the contribution of SEM, revenue was up 3.6%. we reported adjusted EBITDA of $115 million for the quarter, up $12 million and a margin of 13.1%. Total segment adjusted operating income was $107 million with a 12.2% margin. The Fuel Systems segment delivered a strong quarter with sales of $549 million, up 12% and adjusted operating margin of 9.3%. The Aftermarket segment had sales of $329 million, up 7.5% with adjusted operating margin of 17%. Adjusted earnings per diluted share, excluding nonoperating items, was $1.29 for the quarter compared to $0.94 in the same period of the prior year, a 37% increase year-over-year. Closing now with a comment about our balance sheet. PHINIA continues to demonstrate financial stability and consistency. We exited the quarter with a cash position of $328 million and total liquidity of $808 million. Our net leverage ratio was 1.4x, nearing our target of 1.5x. We returned $67 million to shareholders in the form of share repurchases and dividends. Our balance sheet provides financial flexibility to support future growth initiatives and return to shareholders. During the quarter, we also hosted a successful Investor Day in New York, 2 days after historic blizzard, which in hindsight, may have been the universe's way of testing whether our investors were truly committed. They showed up, so did we. We were able to showcase the diversity of our products, our business model, and our long-term growth outlook. We had more than 200 live viewers watching from 30 countries. So all in all, it was a great experience for us and want to thank everyone who helped make such a wonderful inaugural Investor Day. In summary, while the external environment continues to evolve, we remain focused on the things that we can control. The first quarter performance underscored the durability and resilience of our business amid a rapidly changing global environment by serving a broad mix of regions, customers, end markets, and products. Moving to Slide 6. We had a good quarter when it comes to new business, which reflects continued progress across multiple fronts. Importantly, we are continuing to grow with our existing customers while also bringing in new ones, and we're starting to see real traction in some newer areas for us. Aerospace and Defense is an area where we are incrementally winning business and building a presence with customers. Recent wins highlight the strength of our offering and our ability to compete and win in adjacent markets with the same manufacturing and human capital as well as an important long-term growth opportunity. During the quarter, we were awarded a new program with a new customer for use in unmanned aerial drone. The program leverages our GDi injector technology to power the drone engine. It highlights our growing capabilities in advanced propulsion solutions in the aerospace and defense market. It is encouraging to see our capabilities translate into success in this new market as we continue to expect to see additional announcements in the future. Additionally, this quarter included notable wins across Fuel Systems and Aftermarket channels, reinforcing customer trust, technology differentiation and PHINIA's ability to deliver premium solutions to our customers. In addition to the aerospace and defense win I just highlighted, notable fuel system wins in the quarter include compressed natural gas fuel rail assembly with a leading global OEM, marking our third consecutive quarter of a major alternative fuel program win in India, direct injection fuel rail assembly with a major Chinese OEM supporting a luxury SUV platform equipped with a dual fuel injection V8 engine. Now to Slide 7. Our Aftermarket business continues to be a steady and reliable contributor to our solid results. We're seeing consistent demand driven by an aging fleet and a growing vehicle parts. As vehicles stay on the road longer, we are well positioned to support our customers around the world with the quality parts and service they depend on every day. Our strong and recognizable brands, broad and consistently expanding product offerings, and focus on customer service are helping us build deeper relationships and win new opportunities. Recent wins were across diverse geographies, further strengthening our position in the independent aftermarket. A few notable wins during the quarter include expanding our product portfolio with a major warehouse distributor in the Americas by adding steering and suspension and vehicle electronics, adding 2 new customers in Europe and growing our propulsion-agnostic program within the Asia-Pacific region. We're doing a start-up program with a global commercial vehicle on an off-highway OEM, reinforcing our long-standing presence to supply starters for civil duty and long-haul applications. These wins show our consistent progress towards seamlessly diversifying into higher-growth end markets by leveraging our existing human and manufacturing capital. Now moving next to Slide 8. This is from our Investor Day deck and is a reminder of the diversification of our business across regions, customers, and end markets. Off-highway, industrial, and other, which includes aerospace and defense and power generation, is our fastest-growing end market followed by service. We expect both of these end markets to become larger parts of our overall business in the years to come. Customer and regional diversification has also been beneficial for us. We've highlighted numerous natural gas fuel injection wins in India and have strong relationships with the Chinese OEMs as roughly 80% of our revenues for China are for the local OEMs, putting us in a favorable position as they look to grow their market share globally, which we expect to be a tailwind for us. As we highlighted in prior calls, several regions of the world are not switching to electric as quickly as previously expected and some markets like South America and India are leaning into ethanol, natural gas, and alternative fuels rather than battery electric altogether. As we shared in our Investor Day, we see our business continuing to diversify further as well as moving towards higher long-term growth markets. Moving next to capital allocation on Slide 9. There's no change in how we're thinking about capital allocation. We're staying disciplined and balanced, continuing to invest in our business to support long-term growth, both organically and through strategic opportunities to strengthen our competitive position and expand our long-term opportunities. At the same time, we are committed to maintaining a healthy balance sheet and returning cash to shareholders through dividends and share buybacks. This approach reflects our strong financial position, our confidence in the path ahead, and our focus on long-term value creation. During the quarter, we repurchased approximately $56 million worth of shares and paid $11 million in dividends, with $258 million remaining under our current share repurchase authorization. Since the spin-off in July 2023 through the first quarter of this year, we have repurchased $492 million worth of shares, representing approximately 23% of our original share count and paid $120 million in dividends. In total, we've returned over $600 million to shareholders through share buybacks and dividends since July 2023. We've achieved all of this while keeping net leverage below our target, preserving strong liquidity, and continuing to fund the growth of the business. I will now turn the call over to Chris to discuss our financial results in more detail and discuss our 2026 outlook. Chris Gropp: Thanks, Brady, and thanks to all of you for joining us this morning. As a reminder, reconciliations of all non-GAAP financial measures that I will discuss can be found in today's press release and in the presentation, both of which are on our website. In the first quarter, we delivered results in line with our expectations and reflect both the strength of our diversified portfolio and the benefits of our operational discipline. Diving into the details, which you can find in Slides 10 and 11 of the presentation, I will bridge our revenue and adjusted EBITDA for the first quarter. Specifically, during the quarter, we generated $878 million in net sales, an increase of 10.3% versus a year ago. Compared to Q1 2025, our top line rose 4.9% on favorable foreign exchange of $39 million as the Euro, Chinese Renminbi, British Pound, and Brazilian Real strengthened against the U.S. dollar. We saw a positive contribution from volume and mix of $17 million or 2.1% as higher sales in the Americas and Asia offset flat sales in Europe. Revenue in the quarter also benefited from tariff recovery of $12 million, while SEM contributed sales of $14 million in the quarter. Excluding the FX impact and the SEM contribution, sales were up 3.6% in the quarter. Moving next to the bridge on Slide 11. Adjusted EBITDA was $115 million in the quarter with a margin of 13.1%, representing a year-over-year increase of $12 million and a 20 basis point increase in margin. Supplier savings and cost control measures were a $6 million tailwind. Net tariff pass-throughs were $3 million. volume mix, SEM, and all other changes were an additional $3 million year-over-year. The operational performance of our segments and functions was solid and in line with our high expectations. We continue to effectively execute our disciplined capital allocation strategy, successfully balancing significant cash return to shareholders with the potential for strategic accretive M&A. Cash and cash equivalents at quarter end were $328 million, while available capacity under our credit facilities remained at approximately $0.5 billion for a resulting liquidity of $808 million. Our strong cash generation enabled us to continue returns of capital to our shareholders through cash dividends and buybacks. In January, our Board approved increases to both our quarterly dividend and share repurchase program, reaffirming their confidence in our disciplined approach to capital allocation. Cash flow from operations was $53 million, an increase of $13 million over the first quarter of 2025. Adjusted free cash flow was $42 million, our best first quarter since becoming a stand-alone company with capital expenditures of 3.6% coming in below our target of 4% and efficient uses of working capital in the quarter. Share repurchases and dividends represented our primary use of capital with value back to our shareholders of $56 million and $11 million, respectively, in the quarter. We remain confident in our ability to generate strong free cash flow to support our future capital allocation priorities. Our broadening portfolio of products, solutions, and services, coupled with our healthy balance sheet will enable us to continue to deploy capital with discipline, focused on delivering long-term sustainable, profitable growth, creating value for our shareholders. Now moving next to Slide 12 to comment on our 2026 outlook. We had a solid start to the year and reiterate the full year guidance we issued earlier this year. Specifically, at the midpoint of our revenue outlook range of $3.5 billion to $3.7 billion, we would expect an increase in net sales in the mid-single-digit range, inclusive of FX. Excluding expected FX, our growth is projected to be in the low single-digit area. We are guiding adjusted EBITDA to be $485 million to $525 million with an EBITDA margin of 13.7% to 14.3%. We believe the business is well positioned to continue generating meaningful free cash flow and our 2026 outlook for adjusted free cash flow is $200 million to $240 million. We expect the adjusted tax rate to be in the 30% to 34% range. Overall, we expect to continue to deliver strong results in 2026 as we drive operational efficiencies and search for new areas of growth for both segments. As a reminder, our outlook does not account for potential impacts from recent or future government policy changes that could influence our operations or technical centers. This includes measures such as additional tariffs, tax reforms, or any other policies that may either increase or decrease our revenue assumptions and/or alter our cost structure. It should be noted, however, we do not see a material change in our tariff position based upon the recently issued Section 232 tariff clarifications. We are also not currently experiencing any material supply chain or revenue disruptions related to the conflict in the Middle East. As we look forward to the rest of the year, we are taking disciplined actions to manage controllable factors, including optimizing costs, aligning supply with and where current demand exists while preserving financial flexibility. PHINIA is well positioned to navigate global market conditions and changes, and we are confident in our operations and our ability to generate sufficient cash for our needs while also continuing to invest in the future. We want to thank all of you for joining us today on the call. We're ready to open the call. Operator, please open the lines for questions. Operator: [Operator instructions] And your first question comes from the line of Joseph Spak from UBS. Joseph Spak: Chris, maybe to start, just the negative mix that weighed on the EBITDA line relative to the positive volume growth. Maybe you could sort of give us a little bit of sense of sort of what really drove that? What sort of products or anything? And I'm assuming that's in Fuel Systems, not Aftermarket, but maybe you could provide some clarity there. Chris Gropp: Hello, Joe. Yes, a little -- it's mainly going to reside in the Fuel Systems and it's relating to some programs that are launching and have not gotten fully up to full ramp. There's also -- well, he's talking just about the mix on it. But yes, there's FX and tariffs. But yes, it's some programs that we're launching. They're not up to full volume. It's mainly in Europe and Asia-Pacific. They will get up to a better volume mix, but it's going to take about a year until they're at their full capacity, and then this should go away. Not a concern for us. We knew this was going to be an issue as they ramped up. Joseph Spak: So we should expect that sort of softer flow-through to persist for the next couple of quarters? Is that the view? Chris Gropp: Maybe for another quarter or so, it gets better as the year goes on because this is obviously going to how the year flows in automotive, you start off and you get going and then third quarter, you hit full volume. So it gets better as the year goes on. Joseph Spak: Yes. And then, Brady, you mentioned some green shoots in commercial vehicle. Like have you actually revised some of your outlooks for the different end markets? Like is that considered in your view? Or if things start to come in better, does that portend some upside? Brady Ericson: Yes. I mean it's still early in the year, but we are seeing positive signs on order boards as far as orders for trucking in North America. China is actually already starting to see some uptick in their revenues on the CV side. So early indications are positive. As you know, the CV forecast was very back-end weighted. And so at least right now, we're feeling good that we're starting to see some positive signs that that's coming, and we'll probably evaluate again maybe later on this summer once that order board fills in for the second half of the year. Chris Gropp: Yes, we really saw it in Europe and Asia-Pacific. In China specifically, pass car was down slightly, but our CV more than made up for it. And then in Europe, the same thing. It was rather flat for us in Europe, but CV was actually up. Joseph Spak: Last question, just can you remind us roughly like how much you paid in IEEPA-related tariffs last year? And have you filed for a refund? And if you get that, do you think you can keep any of that? Or is that something you're going to have to give back to your customers who reimbursed you for it maybe prior? Chris Gropp: It's about $40 million. Brady Ericson: $40 million in total for the 3 quarters. I think they've replaced that with other tariffs kind of going forward. I mean our expectation is most of those IEEPA tariffs will flow back to our OE customers once we get that. So we're already in conversations with them. It will then have an effect on revenue, no effect on EBITDA. So it will be accretive to margin, no effect on EBITDA dollars. Joseph Spak: And have you filed for that refund already? Or is that still a work in progress? Brady Ericson: Yes. I mean we're still working through that. So some of them have started to go through. The process is going to be slow. but we're not booking anything until we receive the cash. Operator: Your next question comes from Bobby Brooks from Northland Capital Markets. Robert Brooks: Sorry about that, guys, some technical issues. Yes. Congrats on the strong quarter. The first question I was looking to hear on was it was nice to read about the fuel injector win for the drone engine. Just was curious on, is that -- like first, is that a specific drone company or an aerospace company making drones? And second, is this for a product that is going into commercial production? Or is it still in the testing phase? Brady Ericson: It's going into commercial production. It's for the engine manufacturer that's also making the drone as well. It's defense. And so it's a larger combustion -- internal combustion engine. So it's for a larger [indiscernible]. Robert Brooks: And so that would be now your third customer like in the aerospace defense market? Brady Ericson: Second customer fourth program. Robert Brooks: Second customer fourth program. Thank you for that clarity. And then there's a little bit of a sequential step-up in SG&A. Could you maybe -- Chris, could you maybe just expand a little bit more on what drove that and maybe how to think about it turning forward? Chris Gropp: Most of it was just going to be the normal bonus and some of the other comps that we're seeing come through this year, some of the shares, it's the third year in session. And so it's the third year tranche of the performance and other shares that go into effect for the management teams going down. So that's the biggest issue. That kind of -- that acceleration sort of stops overall and stays flat from here on out. But we also did -- we were down a little bit on some of our IT costs. So the restructuring program that we announced last year is going into effect. And we are seeing some reductions in our IT structure area. So that did offset a little bit. Robert Brooks: So probably safe to think it's flat or a touch down going forward? Chris Gropp: I'd say flattish. Brady Ericson: Yes, I mean sequentially, I think we were -- sequentially Q4 corporate costs were $29 million. Are you talking about just SG&A or corporate costs? Robert Brooks: I'm talking about SG&A like overall. Brady Ericson: Yes. Robert Brooks: I guess I should have said on a year-over-year basis, that's my bad. But just -- and last one for me. I was just curious, obviously, you guys had like a $12 million benefit in the first quarter from tariff recoveries. How should we think about that going forward? Is that -- I would guess it's not all you have available and might continue in the second quarter? Just trying to get a sense of how that trends. Chris Gropp: So we did have a $12 million benefit. We had $12 million in tariff pass-through. We had a $3 million positive drop to the bottom line where we recovered some that were related to last year's expenses. Going forward, we see the tariffs on a quarterly basis in roughly the same pass-through area, even with the 232 changes. But I don't see really a tailwind going forward. It will be pretty much flat. So... Brady Ericson: Yes, year-over-year, I mean, pretty much immaterial. So you won't see that from a year-over-year perspective. So really, I think as we get into Q2, tariff becomes immaterial and FX is kind of at a similar to [indiscernible] as well. I would say mainly the 117. Chris Gropp: Yes, yes. Brady Ericson: And again, the benefit that we've seen in FX for the last 3 or 4 quarters actually kind of gets us back to an FX rate where it was in '22 and '23 when we first started coming out. So anywhere in that 115 to 120, we think is more a normal when it really dropped down to the 121, 105 in 2024 was more of the abnormal. Operator: [Operator Instructions] There are no further questions at this time. I would now like to turn the call back over to Brady Ericson for the closing remarks. Please go ahead. Brady Ericson: Great. Thank you. We delivered a solid start to the year, reflecting the benefits of our diversified portfolio, our disciplined execution, the strength of the markets that we serve. I want to thank our teams for their continued commitment and execution, just keeping this solid performance consistently in a very, very dynamic environment. We continue to remain focused on delivering consistent growth and profitability while building a strong PHINIA for the long term. So thanks, everybody. Thanks for joining us this morning and have a nice day. Operator: Thank you, everyone, for joining the conference. That concludes our meeting for today. All participants may now disconnect. Thank you.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the TechnipFMC First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Matt Seinsheimer, Senior Vice President of Investor Relations and Corporate Development. Please go ahead. Matt Seinsheimer: Thank you, Regina. Good morning and good afternoon, and welcome to TechnipFMC's First Quarter 2026 Earnings Conference Call. Our news release and financial statements issued earlier today can be found on our website. I'd like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current expectations, beliefs and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our most recent 10-K, most recent 10-Q, and other periodic filings with the U.S. Securities and Exchange Commission. We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. I will now turn the call over to Doug Pferdehirt, TechnipFMC's Chair and Chief Executive Officer. Douglas Pferdehirt: Thank you, Matt. Good morning and good afternoon. Thank you for participating in our first quarter earnings call. Our quarterly results reflect strong operational performance throughout the company, driven by solid execution. Total company revenue in the period was $2.5 billion. Adjusted EBITDA was $453 million with a margin of 18.2% when excluding foreign exchange. Free cash flow was $277 million with total shareholder distributions of $285 million in the quarter. This early momentum positions us well to achieve our full year financial targets. Turning to Subsea. Orders in the quarter were $1.9 billion, driven by robust services and unannounced project activity. Our inbound highlights the importance of strong and enduring customer relationships as we continue to benefit from a high level of direct awards to our company. Importantly, we see a strengthening trend in order activity as we move through the year, supporting our confidence in achieving $10 billion of Subsea orders in 2026. Turning to the Middle East. Our thoughts are first and foremost with the people who have been affected. The well-being of our employees and their families is paramount. We took immediate and comprehensive measures to ensure the safety of our teams in the region. We were able to operate safely with minimal disruption. As a reminder, only 4% of our revenue is derived from the Middle East. This is almost entirely related to work we execute through onshore activities within our Surface Technologies segment. Our offshore operations in Subsea have not been impacted. Even before the conflict, the queue of potential deepwater projects had been expanding over the last 5 years. The significant impacts to both security and energy supply resulting from the conflict are likely to have lasting impacts on the perceived risk assigned to the region. We believe this builds further momentum in the ongoing shift in capital flows toward offshore developments with the potential to accelerate opportunities in markets with extensive infrastructure, including the U.S. Gulf and the North Sea, and regions with previously discovered and well-identified resources that can add material volumes to a operator's reserve base such as West Africa. Our Subsea opportunities list highlights several of these opportunities. With our quarterly update, the list now identifies approximately $30 billion of opportunities for potential award over the next 24 months, representing the seventh consecutive quarterly increase in value. Over the last 2 years, this list has grown by more than 30% when using the midpoint of project values. While all global regions have experienced growth during this time, the most significant increases have come from Africa, Asia Pacific and the North Sea. The average project size has expanded to nearly $800 million driven by more than doubling our potential developments over $1 billion versus just 2 years ago. Additionally, this list now includes 22 distinct clients, which speaks to our expanding customer base. This trend has been supported by our unique capabilities and integrated execution as demonstrated by our proven iEPCI model. Looking ahead, we believe there will be a step-up in inbound orders in 2027 and extending through the end of the decade. Importantly, this growth will be supported by iEPCI, Subsea 2.0 and Subsea Services, much of which will be direct awarded to our company. I now want to close with a few key messages. First, we remain focused on the relentless pursuit of the reduction of cycle time. With every activity we undertake, with every change in process we pursue and with every capital investment we propose, we ask ourselves, does this shorten project cycle time? This unique mindset continues to serve as the fundamental driver to improving project economics, benefiting both our customers and TechnipFMC. Second, as we continue to drive a different paradigm around capital investment, we are delivering improved capital efficiency and higher free cash flow conversion. Importantly, we remain committed to returning at least 70% of free cash flow to shareholders through both dividends and share repurchases. Lastly, our strong commercial success and high-quality backlog built upon an expanding mix of direct awards, iEPCI, and services position us well to increase Subsea inbound revenue and EBITDA margin in 2027. TechnipFMC is in full growth mode. I will now turn the call over to Alf to discuss our financial results. Alf Melin: Thanks, Doug. Revenue in the quarter was $2.5 billion, adjusted EBITDA was $453 million when excluding a foreign exchange gain of $13 million. In Subsea, revenue of $2.2 billion increased 1% versus the fourth quarter. Results in the period benefited from higher iEPCI project activity, particularly in Brazil. Project revenue grew sequentially in Latin America, Africa and North America, partially offset by lower revenue in Asia Pacific and the North Sea. Adjusted EBITDA was $441 million, up 6% sequentially, primarily driven by the increased project activity. Adjusted EBITDA margin improved to 20%. In Surface Technologies, revenue was $284 million, a decrease of 12% from the fourth quarter. The sequential decline was primarily driven by the scheduled timing of project-related activity in the Middle East with only a minimal portion related to the regional conflict. The decline was partially offset by higher completion activity in North America. Adjusted EBITDA was $50 million, a decrease of 15% sequentially, largely due to the lower activity in the Middle East offset in part by higher completion activity in North America. Adjusted EBITDA margin was 17.4%, down 60 basis points from the fourth quarter. Turning to corporate and other items. Corporate expense was $37 million. Net interest expense was $6 million and tax expense was $96 million. Cash flow from operating activities was $332 million, with capital expenditures totaling $56 million in the quarter. This resulted in free cash flow of $277 million. We repurchased $265 million of stock in the first quarter when including $20 million of dividends, total shareholder distributions were $285 million. Cash and cash equivalents was $961 million. We ended the quarter with a net cash position of $540 million. Moving to guidance. For the second quarter, we expect Subsea revenue to increase high single digits sequentially, with adjusted EBITDA margin improving approximately 300 basis points to 23%. For Surface Technologies, we anticipate revenue to decline low single digits sequentially with an adjusted EBITDA margin of approximately 17%. And as previously indicated, we expect corporate expense to decline approximately 25% in the second quarter. This assumes the remainder of our annual guidance is evenly distributed across the remaining 3 quarters when using the midpoint of the range. In summary, I am pleased with the team's performance in the quarter. The solid financial results are tangible evidence of our continued success in driving greater operational efficiency. These results also reflect our continued success in winning high-quality backlog for future execution. The strong performance gives me confidence in our ability to meet our financial commitments for all of 2026. The Middle East remains a key driver of long-term growth for Surface Technologies, but it's also important to put our exposure into proper context. Today, Middle East revenue for the segment represents just 4% of total company revenue. And for Subsea, when we consider the remaining $5.2 billion of backlog scheduled for 2026, along with the balance of our expected services revenue. We have revenue coverage of approximately 95% when using the midpoint of guidance. So let me close on just 2 simple points. We remain very confident in our ability to exceed $2.1 billion of total company EBITDA in 2026. With each segment contributing to EBITDA in line with their full year guidance. And the operational momentum and improving commercial backdrop gives us high confidence in our ability to deliver continued growth in 2027. Operator, you may now open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of David Anderson with Barclays. John Anderson: So it's been a long time since I've heard a service company talk about being in full growth mode here. So obviously, we're looking towards '27, you're getting pretty optimistic. Just curious how much of that has to do with what's happened in the last 60 days and how this impacted the deepwater cycle? Are you expecting FIDs to kind of accelerate from here? I'm just kind of curious, your customers, are they getting more confident in long-term oil prices? Just some insight into how they're thinking about deepwater, please? Douglas Pferdehirt: Thanks for the question, David, and it gives me an opportunity to clarify. I could have made the same statement in prior quarters. Certainly, last quarter, we talked a lot about the growth of the market in terms of the Subsea opportunity list, which again grew this quarter for the seventh consecutive quarter, now achieving $30 billion, a 30% increase over the last 2 years. So we talked about -- we talked about that aspect a lot last quarter and how that was going to translate into a step-up in inbound orders for TechnipFMC from 2027 through the end of the decade. So the short answer would be we could have made the comment prior to the conflict. What is true, David, is, indeed, our customers are looking at their portfolios. We are in discussions on opportunities to accelerate both brownfield tiebacks as well as some greenfield developments. At the same time, our customers are looking at replacing their reserve base. The reservoirs offshore are prolific, they're well known, and the economics now are extremely attractive by our ability to be able to reduce cycle time and accelerate time to first oil. If you complement that with a higher commodity price, yes, clearly, those project economics look increasingly interesting to our clients. John Anderson: So Doug, Subsea 2.0 has obviously been a game changer for you. You talked about reducing the cycle time that has been critical there. Just curious how that's tying into what you're seeing in terms of Subsea margins for '27. You're guiding them higher. Can you talk about kind of what percent of that revenue you're expecting to be Subsea 2.0 within kind of the '27 number and how that's trending forward? I know we've been talking -- kind of looking historically, the last kind of year or 2, Subsea 2.0 has been something like 80% of some of your orders. Can you just sort of talk about the orders and into revenue and how that's sort of impacting your margins in the '27? Douglas Pferdehirt: Yes, David, I don't have an exact number. We haven't rolled that forward, if you will. But if I think about where we are today and where we would likely to be in 2027 in terms of the revenue being recognized from the Subsea 2.0 orders, I would put it in the neighborhood of about 50%, perhaps a bit north of 50%. What's important is what you also said, which is 80% of our new orders are coming in with Subsea 2.0, representing about 80% of our new orders. So that obviously demonstrates the glide path that we have to improve the efficiency simply by converting the higher-quality backlog as a result of our customers' acceptance and the significant impact of Subsea 2.0 and the integrated model, iEPCI, is having on shortening cycle times and improving their economics. And as I said in the prepared remarks, we're happiest when our client wins and we win. Operator: Our next question comes from the line of Scott Gruber with Citigroup. Scott Gruber: Yes. So it looks like we're probably going from a good market to potentially a great market. And so I want to dovetail off the full growth mode commentary. You guys have obviously increased your own internal capacity with Subsea 2.0. But just curious how you're thinking about preparing the organization for additional growth, especially if there are some kind of pull forward on some projects. Do you anticipate any constraints, whether that's potentially roofline or engineers or vessel capacity? Just give some color on meeting that growth and what you're doing to prepare to meet that. Douglas Pferdehirt: Sure. Scott, thank you for the question and an important question. And I think something that really differentiates our strategy and the vision that we laid out now almost 10 years ago, and I have been executing against it, both in terms of Subsea 2.0 and iEPCI, creating TechnipFMC back on the 17th of January 2017. So I guess we're approaching that 10-year anniversary. What is true, Scott, is that every single day and every single decision that we make, we ask ourselves will this -- whatever this is, a change in process, change in structure and investment, whatever it may be, will this reduce cycle time? Why is that important? Reducing cycle time allows our customers to win, while we also win. So it's a true scenario where both sides are satisfied and complementing each other. But it also means we can do more with the same. It's as simple as that. If we can reduce cycle time, I can take whatever that is, people or plant, and I can get more capacity because I'm doing things faster. So this doesn't just affect the manufacturing. This is everything we do in every part of our company, Alf with his finance organization and everyone else throughout the organization is looking at ways that we can be more efficient. That means our people, by the way, are more satisfied because we reduced some of the mundane redundant type tasks that they have to perform. They're doing more value-added work, which is much more motivating. And quite frankly, we can generate more with the same. So our ability to be able to do that, which we have much more to go. There's more runway ahead of us to be able to continue this journey that we're on is what allows us to continue to grow without being constrained or without having to have a big significant CapEx expenditure. As you may have seen, CapEx this quarter was again in line, a bit actually below the guidance level, just a bit of a seasonal effect, but also demonstrates the fact that we are able to grow this company with the infrastructure that we have in place, and we'll continue to do that by becoming more and more efficient every single day by reducing cycle time. Scott Gruber: I appreciate all that color. And then turning to your initiative to industrialize SURF. I'm curious, Doug, as you reap those benefits, which I assume includes some installation efficiency gain, how does that impact your overall kind of vessel needs and your vessel strategy? Douglas Pferdehirt: I'll give you a short answer, Scott, since I gave you a long answer to the first one. It's really exactly what I said to the first comment. So it applies as much to Subsea 2.0 going through the manufacturing plant as when we start to think about the remainder of the industrialization of the work stream of Subsea. And just to remind everybody, we started now over a decade ago back in 2014, but there's an entire village down there and really working on industrializing all of that infrastructure, and that's been what we have referred to as Subsea 2.0 thus far. When we -- post-merger, we obviously picked up the water column and products in the water column. I think about umbilical risers, flow lines, flexible pipe, et cetera. And then we also picked up installation capability. And we've begun that process, but we're only in the very early stages of the industrialization of, let's say, the remaining 2/3. So as we industrialize that, it will be the same concept. We'll do more with the same or we'll do more with less. And that's the entire strategy of the company, and we think we can be as impactful or more impactful than what we've already experienced from what we've done on the seafloor. Operator: Our next question will come from the line of Arun Jayaram with JPMorgan Securities. Arun Jayaram: Yes, Doug, I know one of the core objectives of the company is to reduce cycle times. And I was wondering maybe as a follow-up to Scott's question, if you could maybe elaborate a little bit more on your SURF 2.0 strategy? It feels like you're putting together kind of a Manhattan project type of a group at FTI to tackle this objective? And maybe give us a sense of where you're at in terms of the process? You get any pilots going on today, maybe some of the technology you're thinking about bringing to the installation part of the SURF process to reduce cycle times? Douglas Pferdehirt: Arun, I'd like to use the rest of the time on the call to talk about it, but it probably wouldn't be the right thing for me to do. And what I mean by that is we are in the concept select stage. We have a ton of really great ideas. We have a phenomenal team of individuals working on this, but I don't want to get ahead of them, and I certainly don't want to disclose anything that wouldn't be appropriate at this time. I can only repeat Arun, I am as excited and I think the impact will be as important as what we did on the sea floor. . And now having had the pleasure and the opportunity to have been involved in both of these, I can say with great confidence that the impact will be significant but I really need to be careful not to go much further than that right now, Arun. But we -- our customers and hopefully, you all have the confidence that we've demonstrated that we think differently, that we approach challenges differently and that if we bring something to the market, it will be significant and meaningful and structurally change not only our company but the industry. Arun Jayaram: Yes. Fair enough. Fair enough. My follow-up, Doug, I was wondering if you can give us a little bit of an update on the flexibles segment at FTI. One of your peers talked about their plans to maybe double some of their capacity in Brazil. I know the industry is working on some solutions to tackle CO2 corrosion for flexibles, particularly with Petrobras. But just maybe give us an update there and what kind of visibility do you have in that business and your ability to meet what looks to be a really good market for flexibles? Douglas Pferdehirt: Sure. I'm going to go a few different -- come at it from a few different angles here. Let me start by saying flexible pipe is an integral part of our iEPCI offering. So as the Subsea architects, and we're the only ones out there actually involved very, very early in the life cycle of the project. working with our clients to unlock the full economic potential of the project. Often, flexible pipe is a key contributor to the architectural design allowing us to have not only meet the functional requirements but to be able to do it in the most efficient manner. So it really is a key offering of ours. It's an area that we continue to be the market leader, both in terms of the specifications of our flexible pipe, but also in the ability to meet the market demand. So that's important to us as well. It's an area we continue to invest in, not only as a result of what we're doing with iEPCI today, but as we look towards the future together. So very exciting about that. On the stress corrosion cracking angle that you mentioned, yes, the industry has -- it's a well-known industry problem. The industry has been working on it. We have been working hand-in-hand with Petrobras for several years. We are well into the qualification phase of our definitive solution for the stress corrosion cracking challenge. And we'll be able to say more as we continue to advance through that qualification program with Petrobras. I was just in Brazil, I will tell you they are very pleased with our technical solution, which is different and unique to us. And they are also very pleased with the pace of the qualification and the success that we're having in the qualification. Finally, in terms of the global demand and the global capacity, it's not just for iEPCI. We do use flexible pipe outside of iEPCI. We obviously prioritize it within the iEPCI projects that we have, but we also have just some direct flexible contract awards. An example of that would be Petrobras in Brazil. We have always been their leading flexible pipe provider. I think you should expect that to continue to be the case. Often, we are the only ones who have the technical -- the ability to meet certain technical specifications. And in other cases, it's a more generic technical specification that others can also participate in that activity. Keep in mind when I said we're industrializing more than just the seafloor. So when you think about our approach to our capacity, that's going to be by increasing efficiency through the plant. We have multiple flexible plants, not only in Brazil, but outside of Brazil. And as we look every single day to industrialize and lean out the processes, we're finding the ability to increase the throughput quite significantly through those plants. So we are increasing capacity, but we're increasing capacity by improving efficiency, not extending roofline. Operator: Our next question will come from the line of Victoria McCulloch with RBC. Victoria McCulloch: Can we start with a quick check on Subsea Services. They were a notable contributor in 1Q order intake. Can you give us some color on how that addressable market has evolved on a quarterly basis over the last year? And how much of the $10 billion order intake do you expect to come from Subsea Services? Douglas Pferdehirt: Well, in terms of the -- how has it evolved? Victoria, it continues to grow quite significantly. I think if you look back over the last several years, we've indicated that it would be about $2 billion or about 20% of our revenue this year. It continues to be quite a significant contributor it's been growing at a pretty steady -- well, I'd say, a slightly accelerated rate. It's been in line with the growth of the overall segment. Quite frankly, that's only because of the strength of the growth of the market. I think if you look at kind of the underlying and sustainable growth rate of Subsea Services, which is what gets us most excited, it is quite significant. And you should expect that dislocation at some point in time, and it's not going to be anytime soon just because, again, the overall market is growing so significantly. But the dislocation will be that the Subsea Services growth rate will continue for an extended period of time. And that's quite important to us. As you know, this is an important contributor to the financial performance of our company. It's a differentiator. As we continue to grow and have the success that we've been having as a result of everything we've talked about earlier on this call, which has increased our position in the market, which means we have a much larger and ever-growing installed base on the sea floor. All of that needs to be maintained. All of that needs to be inspected, et cetera, and that is an OEM model where we perform all of that activity on our own infrastructure. So it's important today, and it will be even more important as we move forward. Victoria McCulloch: And just a follow-up, one for Alf. Obviously, Q1 incredibly strong free cash flow and CFFO despite working capital outflows, can you give us some insights into how you expect cash and working capital to look for the remainder of the year? Alf Melin: Sure. No, thank you. Indeed, the first quarter free cash flow was to us a very solid start. We see consistent execution in both our segments really and the strong Subsea backlog that we have continued to really fuel the free cash flow generation throughout the year. The working capital usage that you see in this period is primarily really due to the annual incentive plans that we pay once a year. And we do that in the first quarter. So that is not something that we expect to see be a headwind in working capital in the same way as we go through the year. And as you also -- as Doug already pointed out, the capital expenditures are well under control. We expect clearly to be at the guidance where we are anticipating capital expenditures to be, which is just above 3% of our revenue. We continue to see that we will convert from EBITDA at about 65% conversion from EBITDA into free cash flow. And when it comes to thinking about how it goes for the rest of the quarter, the best I can say at this point is we expect a fairly evenly distributed free cash flow across the remaining quarters of the year. Operator: Our next question comes from the line of Marc Bianchi with TD Cowen. Marc Bianchi: I wanted to ask about the Subsea orders first in the first quarter here. So maybe the headline was a bit lower than the midpoint for the year, and you talked about confidence going forward. But I'm curious about the composition of the awards in the first quarter because you didn't have anything large that you press released or large that you mentioned in the press release for the quarter. So I'm wondering, is there a message here about the recurring small award composition and kind of the breadth that maybe we could take away as we think about the go-forward order level? Douglas Pferdehirt: Sure, Marc. Fair question. As you know, and you've got the experience, there's no way that this is ever going to be linear. It always comes and goes. It can be a matter of a few days at the end of one quarter or a few days at the beginning of the other quarter. I can only strongly reiterate my confidence that we will achieve $10 billion for the full year, and nothing should be read into Q1 other than the kind of second part of your question, which was a very strong quarter given the fact that the amount of announced awards -- versus the amount of announced awards. So look, I just want to reassure everybody that the underlying business is very solid. You see the strength of having the installed base that you -- that we have. You see that show up in our Subsea Services. You see the strength of the customer relationships that we have in the direct awards as a result of that, that shows up into the large portion of unannounced awards. And look, embedded in the quarter, there was a large project that we will be announcing once the customer gives us the permission to announce that award here sometime in the near future. Marc Bianchi: Okay. That's helpful, Doug. And then on the Surface guidance, I guess just considering the commentary in the press release, how it didn't seem like there was a big effect from the conflict, and it's only 4% of revenue. I was surprised to see it down just given the strength that everybody is looking for in North America. Can you kind of unpack what's driving second quarter if there is an assumed war impact and what your sort of macro assumptions are around that? Alf Melin: Yes. This is Alf here. I'll take that one. So first of all, as I kind of mentioned in my prepared remarks, backlog scheduling in the Middle East is a big portion of the answer here. So even before the conflict, the backlog scheduling was not as high in terms of activity levels in the first half of the year. So you're just continuing to see that spillover into the second quarter as well. But the reality is that, that is still a far bigger effect on the overall than the conflict itself. So that's an important point. We continue to see strength in the back half of the year. We continue to see that our U.S. business is doing well. We are introducing technologies in our U.S. business that is driving our activities and they are creating efficiencies, both for us and our clients. And that is also supporting a more favorable margin mix. So when you look at Surface for the full year, you should probably, at this point, expect that the revenue will be slightly lower compared to full year guidance. But on the other hand, the offset is that we are seeing an opportunity for stronger margin performance. So overall, we expect that the total EBITDA dollars for Surface will be in line with whatever you see implied by the midpoint of the current guidance. And just to be overly clear, the Subsea guidance remains unchanged. And thus, what we are confident in, is what I said before. We will exceed $2.1 billion of company EBITDA. It's just that the mix a little bit on the Surface right now could be tilted a little bit towards lower revenue but higher margin. Operator: Our next question will come from the line of Caitlin Donohue with Goldman Sachs. Caitlin Donohue: You mentioned seeing an order step up in inbound into 2027, which you anticipate to drive further earnings growth. Can you walk us through where you're seeing the most inbound geographically? Particularly as we now may see a move towards more incentivized exploration, whether this is greenfield versus brownfield work? Douglas Pferdehirt: Sure, Caitlin. I'm happy to take your question. In terms of the 2027 inflection, it's really -- let me kind of talk about the big buckets that it's being driven by and then we can maybe get into the geographies. 2026 is going to be a year of a lot of smaller awards as we just saw in Q1, fewer big announced awards. That was always -- we talked about that back in 2025. We saw that kind of -- it was just a period of time. And a lot of that is a result of the contribution from some of the new and emerging markets that we've also been highlighting for quite some time. That -- and what we're seeing is that those will really be -- they'll have some impact on 2026, but the larger impact will be on 2027 through the end of the decade. So think about it as new big contributors to the offshore space in terms of capital expenditures, that's one bucket. The other bucket is this continual flow of capital from the unconventional U.S. onshore to the offshore as customers are focused on reserve replacements as customers are focused on bringing in some of these very prolific offshore reservoirs. Now that they have the economic means to be able to achieve that, not because of the increase in the current commodity prices I spoke to earlier on the call, but because of their increased confidence in our company being able to deliver an integrated 2.0 contract to them on time, on schedule or ahead of schedule, shortening cycle time, improving their economics and giving them certainty in that outcome. That's very, very important to them. And then finally, yes, we do see now with a higher commodity price potentially being around for longer than many anticipated that, that will also have a contribution -- a positive contribution to those economics. And then finally, we were really seeing a shift towards offshore gas developments. And I would say we're going to see that a more balanced approach now with more offshore oil developments as well as the continuing drive up in the offshore gas developments. So when you think about the offshore gas developments, now I'll get to the geographical part of your question, you're thinking about East Africa, you're thinking about Asia Pacific, Australia, Indonesia, you're thinking about the Eastern Mediterranean. When you think about the oil -- offshore oil developments, you're thinking about Latin America, be it Brazil, Guyana, Suriname. You're thinking about the U.S. Gulf, you're thinking about West Africa. And I think those are areas that we'll start to see a lot of increased activity from as well. And I don't want to forget my Norwegian friends. Also, when you think about the offshore gas, you should think about Norway and the significant contribution that it's making to Continental Europe gas supply by being able to accelerate projects in the Norwegian sector of the North Sea. Caitlin Donohue: That's helpful. And then just a follow-up there. For the magnitude of the step-up post 2027, I know you said FTI is in growth mode and we're going to see some of these larger projects come in towards the end of the decade. Can you just help frame the magnitude of what orders might look like over the longer term for FTI? Douglas Pferdehirt: That's a fair question, Caitlin, and I thought I filibustered enough on the prior question, I might have gotten away from it. No, I'm just teasing you, fair question. Look, if we thought it was going to go from 10% to 10.1%, we wouldn't make such a bold statement. So I would consider it a bold statement. Operator: Our next question will come from the line of Derek Podhaizer with Piper Sandler. Derek Podhaizer: So I appreciate the company's advancement in making offshore markets more short cycle than longer cycle. But given the current oil prices and macro renewed focus on energy security. Just wanted to ask about the shortest cycle barrel of the offshore markets, maybe from a regional perspective? And how FTI can support that and have exposure through that maybe whether it's brownfield tiebacks, electrification or the Subsea Services piece. So maybe, Doug, just some thoughts around the shorter-cycle barrel of offshore and your exposure into those markets? Douglas Pferdehirt: An important question, and I referred to it earlier in the conversation when we were talking about some of the recent client conversations that we're having. So as they look around their portfolio, they've always got a list of what they would call stranded reservoirs. That does not mean poor quality reservoirs. It just means the reservoirs don't have the reserves in place or the barrels in place to be able to justify their own development. So then the way that those get developed is through technology and innovation that will allow those smaller or stranded assets to be tied back to an existing infrastructure, wherever that may be floating something or a fixed-bottom something or back to the shore just depending upon which country and which we're working. So we are absolutely spending a lot of time on working on those stranded assets. It's the shortest cycle time to bringing barrels online because you're not waiting and building or having a large capital expenditure around building a host facility. In this case, the host facility would exist. The role that we're playing is one, from a technology point of view, it's Subsea 2.0 plays a big part of that because remember, in the old Subsea world or, let's say, the way that the rest of the industry is operating today, when they take an order from the moment they take that order, that order is affixed to that client and that project. It can never be used for someone else or for a different project even for the same client because it's built to a unique specification. With Subsea 2.0, when we take a 2.0 order pretty much up until the time it's delivered, we can modify that because it's just a series of features that we add or subtract onto that core product, meaning it can be shifted from one asset to another from one client to another, and we have real examples of how we've been able to do that to help our clients accelerate their developments and accelerate their production levels by doing such. And again, we always refer to the automotive industry. Think about the automotive industry. When you order a car, that is not your car. The engine has already been designed, the transmission has been designed, the frame and the chassis has been designed. It's only yours when they put everything on, when they put all the pieces together, apply the final paint color then its yours. And so it's a very similar approach, and it's really changed the game for our customers, and they're really beginning to recognize that attribute that it provides. So that helps in the -- that helps shorten the shortest cycle barrel. The other way that we do that is through our all-electric system. And the all-electric system allows us to increase the distance from those host facilities to look for these stranded reservoirs and to tie those back. And then finally, it will be the way that we do the rest of the project or the rest of the work stream, meaning the water column as well as the installation. And as we talked about earlier, that's a portion -- that's a big effort that's going on within our company today to look at how we can industrialize that. So we have the 2.0 seafloor. We have the all-electric today, and in the future, we'll have even more. So our belief that today that we can continue to reduce a significant portion of time off of an offshore development where as we've already taken anywhere from 9 to 15 months off of the cycle time of a project, we believe there's even more to come in the future. Derek Podhaizer: Got it. That's very helpful and encouraging. Maybe just switching gears a little bit. Just curious if there's any updates around some of the new technologies or R&D projects you're working on with third parties or start-up communities in the new energy sector or bringing some onshore industries to the Subsea. Just maybe some updates around there -- around that, some of the advancements you're making? Douglas Pferdehirt: Derek, that's another one I'd love to talk about, but it's probably not appropriate. But yes, please rest assured, as a company, we are looking at challenges that are occurring in the world today. We look at them from a different perspective. We look at them from what could be done. 70% of the world is covered by water. The seabed is quite attractive, at least to us, it's quite attractive. And how can we leverage that portion of the geography in a different way than people have considered using it today. I won't go much further than that, but -- so lots of kind of innovative thinking around that, in the area of new energy specifically. The work that we're doing in carbon transportation and storage continues to be very important to us. I just got back from Brazil where we were focused on our HISEP project. And Petrobras is very pleased with the progress that we're making. This will be the -- again, this is a very novel technology, the first time that CO2 will ever be separated on the seabed and reinject it, meaning it doesn't come up to the FPSO. It's never exposed to the atmosphere. So it's a significant improvement in the way that things are done today and also debottlenecks, an existing production facility for Petrobras, allowing them to produce more oil and generate, obviously, the financial benefit from that. So that's a really interesting project and it's going well. And then in the North Sea, where I'll be going in June, to participate with my peers there. And with our clients, we're looking at -- that's where we're taking CO2 that's being captured from the emitters onshore and then we're taking it 145 kilometers offshore for permanent storage offshore. Again, these are really novel technologies. That one is enabled by our all-electric system because you wouldn't be able to do that with hydraulics and certainly not be able to do with hydraulics all on the sea floor like we can with the all-electric. So yes, some really neat things, Derek. There'll be more to talk about in the future, and we look forward to the opportunity to do so when the time is appropriate. Operator: Our next question comes from the line of Samantha Hoh with HSBC. Samantha Hoh: I wanted to spend some time on Surface. I was surprised to see in your prepared remarks that you called out higher completion activity in North America. And I was just wondering if you could elaborate on that. Douglas Pferdehirt: Sure. So thank you, Samantha. Your question was on Surface and completion activity and Surface? Samantha Hoh: In North America? Douglas Pferdehirt: Yes. Okay. Sure. So we did see North America had a strong contribution. As you know, there was a an acceleration in the conversion of wells that had previously been drilled but uncompleted, to complete those wells that obviously consumed -- we provide the surface assets to be able to allow that to be accomplished. We're not seeing a big recovery in the North America business, if that's maybe what you're wanting to -- if that's where you're wanting to go. It's been a pretty steady business for us. What's most important for us in that business is how we're transforming our product offering within that business. So moving away from the commodity products where there's a significant number of competitors doing the same thing we are and really focusing on our digital offering, which we call CyberFrac, which allows us to be able to automate the entire completion well site and actually allows our customers to be able to monitor and operate the assets remotely from their own office, wherever that may be. And you would have heard about this in the past. The drillers do that for the drilling and the frac companies do that for the fracking, but we've actually put in place now, a architecture that is an open architecture, allowing us to plug in the various service providers, including ourselves, on the well site, but in a fully integrated approach allowing a single interface for our clients, and that continues to make good inroads. And that's a very different business model for us as again, it's a digital offering with very minimal capital investment. But a very important financial contribution to the segment. Samantha Hoh: And as a follow-up, I was wondering if you guys have looked into maybe expanding into Argentina or Venezuela? Douglas Pferdehirt: So we have -- certainly, we are and have worked in Argentina for quite some time, like everyone else or most everyone else, I should say. We worked in Argentina up until the sanctions and then we recognized and did the right thing and left when the sanctions were put in place. As we move forward now in Venezuela, we are looking at the opportunities as they present themselves. We are talking to our clients. Both remember, in surface, our clients are both the E&P operators, but also the service companies. So we are talking to our clients in Venezuela. And as they start to put together their plans their plans to potentially move back into Venezuela, then we will be there to support them as they need us. But we're going to allow them to really identify an environment, an investable environment. And once they achieve that, then we'll support them. And again, back to Argentina, we've been there for a long time. We continue to be there. And yes, when we have a technology offering in the U.S., we also -- Argentina is a natural extension to take those type of unconventional technologies to that market as well. Operator: Our next question will come from the line of Saurabh Pant with Bank of America. Saurabh Pant: Maybe I want to just go back to some of the line of questioning initially, right? Full growth mode, uptick in inbounds in '27 and beyond. But just from a supply chain standpoint, right, I want to go back to that. I know Subsea 2.0 makes things easier, right? But as you look at your supply chain, Doug, right, I'm thinking things like castings and forgings and your own vendor base. How are you preparing your supply chain for the growth that you see coming? And then related to that, things on the partnership side of things, right, especially on the vessel ecosystem, maybe just give us some color on how you are thinking that partnership structure you have worked to put in place. How is that looking in terms of supporting your growth outlook? Douglas Pferdehirt: Sure, Saurabh. So let's do the -- let's tackle the supply chain first. First and foremost, I want to recognize my team. They've done a tremendous job, not only dealing with the uncertainties around the tariffs, which we managed quite effectively. But now looking at potential disruptions and how we can manage that. And at the same time, we're growing the company. So yes, indeed, that means the supply chain is also growing. You said it earlier, Saurabh, the shift to a configure-to-order system or Subsea 2.0 has significantly reduced our reliance upon the supply chain, and it has significantly reduced and/or eliminated their requirement to build things for the first time on a project-by-project basis. So when we talked about in the Subsea 1.0 world or again, the way that the rest of the industry is still operating, when they get that order, they've never built it before. So everything is specific to the specifications of that project. So by definition, it's a novelty or a new product. So the same thing when they place an order with the supply chain, so in order to place that order with the supply chain, they have to do the drawings. They have to create all the building materials before they can even go to the supply chain. That typically takes 9 to 12 months of engineering. So you get an order, you spend 9 to 12 months of engineering and then you go to the supply chain and ask them to build something they've never built before. That's Subsea 1.0. In Subsea 2.0, it's all pre-engineered, pre-configured component including the components that are being manufactured by our supply chain. So at the time of the order, we place -- it flows naturally straight into the supply chain. We eliminate the 9 to 12 months of engineering, one of the key reasons we can shorten the cycle time on these projects, but also it's very important. They now are building something and they're getting quantities. They're not getting specifications to build something they haven't built before. So Alf and I were actually hosting a charity dinner a while back for some of our key suppliers that were supporting a charity that we support here at TechnipFMC. And I always give them the opportunity and ask them, what could we do better, how could we work better with your company, and across the board, and this was suppliers from all around the world, they were thanking us for the way that we operate today. And just to put that into context, we sit down with them now on an annual basis. And on an annual basis, we say we're going to need 50 of this or 500 of this or 5,000 of this, but this is a defined product that they built before. Then by giving them the quantities, they can decide to do it, divide by 12 and do it over a monthly basis. They could accelerate it and do it early and hold it on their balance sheet for us, for future consumption. But whatever is easiest for them and whatever is best for their business model and for their capacity. So it really has changed the way that things are done. We obviously retain redundancy to address challenges that occur sometimes around the world. So we have redundancy, but we have a much more streamlined supply chain I would say, a more sophisticated supply chain as a result of moving to the configure-to-order approach. And I'm sorry, Saurabh, I've already forgotten your second question. Saurabh Pant: So I was thinking on the partnership side of things, right? You addressed the supply chain side of things right, so the partnership, especially the way vessel ecosystem. Douglas Pferdehirt: No, no. Thank you for reminding me. So I don't want to start by saying the partnership approach also applies to our suppliers. So we spend a lot of time with our suppliers, like we do with our clients. We have partnership agreements like we have with our clients, we have with our suppliers. We like the way our clients treat us, and we think that's the way to treat our suppliers. So first and foremost, they are part of the partnership. Beyond that, as you indicated, we also have partners with other providers of assets for us to be able to utilize on our integrated projects. The ecosystem is strong. And I will tell you the ecosystem is growing probably since the last time we've talked about it. We've added 1 or 2 additional companies to the ecosystem. There is a queue that will -- that also want to join the ecosystem. And we are considering those as we move forward. So again, the success of the iEPCI model, the success of the direct awards to our company as other providers of assets, very interested and enticed to work with us to be able to have access to that market, which is now direct awarded to TechnipFMC. Saurabh Pant: That's fantastic color, Doug. And just a very quick follow-up, Doug. I know somebody asked this question every quarter, right? But I want to make sure we get an updated view on this, right? We're talking about growth, obviously, a lot today than we did maybe a year back. But in terms of the margin outlook, Doug, right, obviously, the 2026 outlook, we got Subsea, 21% to 22%. Maybe just help us think through the moving pieces as you pursue the growth that you see ahead, right? Where can margins go? And what are the key moving pieces that we should bear in mind? Again, Subsea 2.0 is one of that, right? But just a reminder of the key moving pieces. Douglas Pferdehirt: Sure, Saurabh. I also just gave you 2027. So I thought we were being pretty generous. Here, we are committing to not only inbound growth but revenue growth and EBITDA margin growth in 2027 for Subsea, just to remind everybody of that comment, which I think is pretty spectacular and speaks to the high quality of our backlog, our execution capability and our deep insight into the market and our customers' need because of the privileged position that they allow us to be in. Look, the underlying fundamentals, it goes back to the earlier question about Subsea 2.0 and it's ever increasing contribution to the revenue. So I indicated that it would be going to about 50% in 2027, yet inbound levels are 80%. So you know that's going to continue to go up. iEPCI, the amount of integrated work that we're doing today and inbounding today is at an all-time high. That will continue to be converted into backlog, there's less and less low-quality historical legacy backlog left. So as that continues to get worked off, that's obviously a tailwind as well. And then sure, the market and the market dynamics are also a position of strength, and we benefit from that as well. So -- but I try not to focus on that one. It's why I said it last, but we really focus on what are the things that we can do, what are the things that are within our control, so that we build the sustainable business and continue to drive the financial results even higher. So thank you. Operator: And we have reached our allotted time for questions. I will now hand the call back over to Matt for any closing comments. Matt Seinsheimer: This concludes today's conference call. A replay will be available on our website beginning at approximately 3:00 p.m. New York time today. If you have any further questions, please feel free to contact the Investor Relations team. Thank you for joining us. Regina, you may now end the call.
Operator: Good morning, and welcome to the Camping World Holdings Conference Call to discuss Financial Results for the First Quarter Ended March 31, 2026. [Operator Instructions] Joining on the call today are Matthew Wagner, Chief Executive Officer and President; Tom Kirn, Chief Financial Officer; Lindsey Christen, Chief Administrative and Legal Officer; Brett Andress, Senior Vice President and Investor Relations. I will now turn the conference call over to Lindsey Christen, Chief Administrative and Legal Officer. Please go ahead. Lindsey Christen: Thank you, and good morning, everyone. A press release covering the company's first quarter ended March 31, 2026 financial results was issued yesterday afternoon, and a copy of that press release can be found in the Investor Relations section on the company's website. Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks may include statements regarding our business plans and goals, macroeconomic and industry trends, customer trends, inventory strategy, future growth of operations and market share, capital allocation and future financial results and position. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Risk Factors section in our Form 10-K, our Form 10-Qs and other reports on file with the SEC. Any forward-looking statements represent our views only as of today, and we undertake no obligation to update them. Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as EBITDA, adjusted EBITDA and adjusted earnings per share diluted, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial statements are included in our earnings release and on our website. All comparisons of our 2026 first quarter results are made against the 2025 first quarter results, unless otherwise noted. I'll now turn the call over to Matt. Matt Wagner: Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. I'm pleased to report that despite a challenging RV industry backdrop, we delivered a first quarter that demonstrates the discipline and operating leverage we discussed on our last call. These results are a validation of the steps we believe will grow adjusted EBITDA and generate strong free cash flow for the full year. Market conditions came in softer than expected, but the underlying quality of this quarter is what I want you to take away from this call. On a year-over-year basis, we reduced SG&A by more than $29 million or 7.5% and improved our SG&A as a percentage of gross profit by 135 basis points. This is the transformation showing up in the numbers. On this call, we'll walk through the 3 priorities I laid out to start the year, growing new and used unit share, driving SG&A efficiency and accelerating Good Sam. Then I'll close with our outlook for the year. Our new unit sales outpaced the industry. According to SSI, new unit retail sales through February were tracking down in excess of 15%. We believe we outperformed the broader new RV sales market in every major category, driven largely by our exclusive brand strategy. Within the new Fifth Wheel segment, we're up nearly 10% year-to-date, driven by the introduction of private label products that hit compelling price points with unique features. On the used side, SSI data shows that the used RV industry has grown in 6 of the last 8 months through February, reinforcing our strategic focus on this end market. While we saw positive signs of growth within certain categories, our same-store used sales were down 2.6% in the quarter. We attribute the decline into January and February weather disruptions that limited our ability to aggressively move assets. More importantly, the year-over-year trajectory of our new and used volume improved as we moved through March, with new and used units in April trending to end the month slightly positive year-over-year. Moving to inventory and SG&A. Our message has been simple. Disciplined execution drives profitability and our metrics at the end of April reflect that focus. As of today, our total same-store RV unit inventory is down over 10% year-over-year, and we have purchased over 20% less units year-to-date year-over-year. Even on fewer units in inventory, our daily sales velocity for the month of April is positive versus last year. Our new model year 2025 inventory now sits at roughly 8% of total new inventory, down over 50% in units versus the same time last year. On SG&A, I'm very pleased with our progress. The 135 basis point improvement in SG&A to gross profit and the $29 million reduction reflects a fundamentally lower cost basis, not onetime savings. This includes $19 million of compensation reduction in the quarter and the consolidation of 13 store locations over the last year that sharpened the efficiency of our footprint. On top of $29 million SG&A reduction fully realized in the quarter, we also executed about $10 million of additional annualized cost rationalization, bringing our year-to-date total to nearly $35 million of annualized cost savings. Looking ahead, we see the potential for significant cost takeout opportunities from the AI initiatives we're rolling out across the enterprise, with the bulk of that opportunity sitting within our IT spend. We expect these initiatives to drive material hard dollar savings and improvements in dealership productivity and the customer experience. Longer term, we believe we are building a leaner, stronger company with greater operating leverage, and we expect that to translate into enhanced earnings and free cash flow. Good Sam also made great progress in the quarter, continuing its top line growth pace while stabilizing margins to roughly flat year-over-year. We expect to complete our Good Sam ERP overhaul in the second quarter, which will allow us to accelerate entry into adjacent marketplaces. And using AI, we have developed and deployed a custom in-house CRM solution specifically for our extended service plan business, and it's already showing early signs of productivity, conversion and revenue uplift. Good Sam remains a cornerstone of our long-term growth and the early margin stabilization we are seeing reinforces our conviction in the opportunity ahead. Less than 4 months into this year, we believe the new RV industry is likely tracking towards the lower end of our 2026 retail outlook, calling for 325,000 to 350,000 units, while the used RV industry is likely playing out towards the midpoint of our range, which is between 715,000 to 750,000 units. We believe that the momentum we have built on new market share, on inventory, on SG&A and on good Sam keeps us on track to grow adjusted EBITDA year-over-year. Today, we are reiterating our full year 2026 adjusted EBITDA guidance range of $275 million to $325 million. With that, I will turn the call over to Tom to walk you through our financial results in more detail. Thomas Kirn: Thanks, Matt. For the first quarter, we recorded revenue of $1.35 billion. New and used unit declines were partially offset by a richer mix with new vehicle average selling prices up approximately 4% year-over-year. On the new side specifically, we believe our unit volumes outpaced the industry in the quarter. As expected, vehicle gross margins were under pressure in the first quarter as we moved through assets in certain aging buckets. New vehicle gross margin declined 148 basis points to 12.2% and used vehicle gross margin declined 91 basis points to 17.7%. We expect this gross margin trend to continue through the second quarter, consistent with our commentary on last quarter's call before beginning to improve in the back half of 2026 as we expect velocity and aging improvements to take hold. New ASPs should also continue to increase at a similar rate year-over-year as we progress through the second quarter. Within Good Sam, we were pleased by the sequential improvement in gross margin from Q4, which is consistent with our expectations to yield returns on the significant operational investments we've made over the past 18 months. We believe Good Sam margins should show year-over-year improvements through the balance of the year. Our first quarter adjusted EBITDA of $28 million compares to $31.2 million in the first quarter of 2025. The decline in gross profit was largely mitigated by the $29 million SG&A reduction. We ended the quarter with $200 million of cash on the balance sheet, and our net debt leverage ratio improved to 5.6x compared to 8.1x at the end of the first quarter of 2025. Our cash flows from operating and investing activities improved markedly year-over-year as we remain focused on our inventory turn goals and CapEx restraint. We also paid down $56 million of debt in the quarter. Our capital deployment framework continues to focus on strengthening the balance sheet while retaining growth capital within the business. With that, I will turn it back to Matt. Matt Wagner: Thanks, Tom. I'll close with this. This is my first full quarter as CEO since stepping into the role at the top of the year. And while we're still in the early innings of the plan we laid out on last quarter's call, I am proud of what our team has accomplished so far. We took share, we pulled down costs, and we strengthened our balance sheet. Operator, we're now ready to take your questions. Operator: [Operator Instructions] And your first question comes from Bret Jordan from Jefferies. Patrick Buckley: This is Patrick Buckley on for Bret. On the F&I per unit, it looks like a pretty healthy step up. Can you talk a bit more about the dynamics there and what drove that and maybe the outlook moving forward? Matt Wagner: Yes, it has been a really fascinating dynamic where historically speaking, when our average sales price goes up, that F&I penetration typically goes down a little bit. And oftentimes, it's an immaterial amount, maybe 25 to 50 basis points. But we have seen some interesting dynamics recently within the F&I segment. Specifically, we've been tracking the amount of down payment that consumers are coming into the finance office with. And therefore, they also are looking to add on a number of different finance products in the back-end. More specifically, we've recognized a pattern that those consumers that are buying more expensively priced assets, oftentimes in excess of $50,000 average sale price are actually coming down with a higher down payment than we've seen historically, whereas those consumers that are buying lower-priced assets, oftentimes under, say, $25,000, they're actually coming to the finance office with a little bit lower down payment amount. In either cohort, though, we're still seeing a higher product attachment. That is all the Good Sam affinity products that we offer, be it roadside assistance, extended service plans, tire wheel protection, et cetera. So largely, our inventory strategy has been derived from these trends that we've been seeing not only over the last few months, but even leading into this year, that there's clearly this K-shaped economy that's forming here. And those customers that are oftentimes buying those higher average sale price assets do have a willingness not only with more money that they're coming to the finance office, but also to protect their asset and becoming a part of our whole Good Sam affinity network. Patrick Buckley: Got it. That's helpful. And then on the recent used value trends, a bit of a decrease in ASPs. I guess is there anything notable driving that? And a bit of a follow-up there. We have seen some headlines on negative equity value in light vehicles and cars. Are you seeing any trends like that in your customers? Matt Wagner: We've spoken extensively over our last few earnings calls about just the negative equity position that a lot of consumers have found themselves in coming out of that pandemic period in particular. We're not seeing that negative equity trend being amplified similar to what I saw in that same article you probably read within the automotive industry. Rather, we're seeing more of a corrective self-healing environment in this industry, where we've been in this environment for the last going on 5 years now, where you've seen declining demand on the new RV sales side, which I believe is a high corollary to what that negative equity position has been historically. So when I think of just that ASP coming down, it was kind of an immaterial amount. And we're keeping a watchful eye on that. But I wouldn't put too much stock in Q1, which I would oftentimes regard as a very volatile quarter, where we know about 20% of our volume in terms of new and used unit sales oftentimes comes out of Q1. Really, it's in the meat of the selling season where I think you can more effectively assess what the trends are going to be. And we're seeing it in Q2, Q3, there is a stabilization here compared to what we had projected for the year. We believe that we're still on pace for our used ASPs to land in that $31,500 range, give or take. And we believe that there should be stabilization here as we look into out years. Operator: And your next question comes from James Hardiman from Citigroup. James Hardiman: Congrats on a strong quarter given a lot of moving pieces, a lot of curveballs thrown at you guys. And I guess maybe along those lines, obviously, rough weather to start the year. And then just as the weather seems to be getting a little bit better, war started in the Middle East. So maybe walk us through some of what you saw over the course of the quarter and beyond to help us discern the weather impact from the Middle East impact and how you're thinking about that going forward? Were it not for the Middle East situation, do you think you'd be raising today? Just trying to understand sort of the moving parts there. Matt Wagner: James, thanks for the question. This really was quite a textured quarter, and I wish it was a lot smoother and a lot clear to be able to explain. But I can tell you, we entered the year firing on all cylinders. We had a great show season. And actually, our success at show seasons prevailed throughout the entirety of the quarter, which really manifested itself in, I believe, our outperformance on the new RV sales side, regardless of whatever the backdrop was that we were confronted with. But you are correct that when we had to shut down in excess of 60 of our stores for at least a day between January and February, that was clearly the biggest disruption that we saw. In our last earnings call, we spoke about we think that we missed out on about 1,500 unit sales. And coincidence or not, we were actually off on same-store unit sales about 1,700 units. So perhaps that was the biggest driving factor. And as we transition into March, in particular, that was also kind of a choppy month, where we had a couple of weeks stretch where we did very well in particular. And then we had a couple of week stretch where we were just kind of scratching our head and so why were we off a little bit? So either way, though, we saw a lot more stabilization as we started to exit March and enter into April, where things started to come into clear focus and picture as to what we believe we could experience throughout the balance of Q2 in particular. And we took a lot of thoughts in the fact that we ended March strong. We're now trending throughout April. And obviously, today, we're closing a lot of deals, and we're looking to wrap up the month of April, but we are trending to be positive on a same-store basis, new and used combined. Used obviously trending up high single digits year-over-year on a same-store basis, new about flat to slightly down, which we believe is still an outperformance of what we're seeing. More to come here, though, as this year progresses. But to start the year, we believe that we weathered a very volatile environment exceedingly well. James Hardiman: That's really helpful. And then the headline here is obviously that you guys are reiterating the $275 million to $325 million. Obviously, it's never quite that easy, but nothing changed. I think you guys called out new RV from an industry perspective, maybe at the lower end of the previous range, used in line. But maybe within the context of the full year EBITDA guidance, any other puts and takes we should be thinking about, whether it's ASPs or margin within that broader context? Matt Wagner: I think the numbers that we previously provided for our full year outlook of ASPs and margin in particular, really hold true still, where we did have a bit of an outperformance even based upon our expectation of some margin on the used side. And that's largely attributable to the fact, as I said previously, that Q1 is a volatile quarter, and it's not necessarily going to be the principal driver of the overall annualized results. But as we think through the balance of the year, we know that we can control much more of our SG&A structure. And that's where you saw as evidenced by our Q1 results that we were very focused on ensuring that we are optimizing every component of this business, and we're going to remain focused on all of the SG&A opportunities that still exist out there. We're providing updates as we complete different objectives as opposed to projecting what we think we will get done. And we'll continue to over the ensuing quarters ensure that we're hitting our goals in this guidance range with the things that we can control. Operator: And your next question comes from Joe Altobello from Raymond James. Joseph Altobello: A few questions on the inventory initiatives. You've talked about taking turns on new and used up by roughly, I think, half a turn or so by the end of this year. Is that still your target? Is the bulk of that going to be done by the end of the second quarter ahead of the model year changeover? Or do you think some of that spills over into the second half? And is the hit on that EBITDA still around $35 million? Matt Wagner: We believe that you should be looking at those turnover goals on an annualized basis, in particular, because how we calculate that for purposes of just the markets in particular, is looking at a quarterly snapshot of any inventory balances as compared to a trailing 12-month total COGS amount attributable to that inventory. So as such, the annualized turnover number takes a little bit of time to actually percolate throughout the entire system. So we will make very good progress, we believe, throughout the balance of Q2 in terms of rationalization of inventory that we'd like to continue to push through. And that's going to be aged multiyear new 2025 units, which, by the way, we reduced those 50% from the last time we even spoke with you. Never mind when you look at year-over-year. So we've made really good progress on the new side of derisking that in particular. On the used side, just as well, we didn't quite sell as much volume as we wanted to in Q1. So we know in Q2, this is our greatest opportunity where demand just seasonally adjusts and seasonally becomes a bigger opportunity for us to continue to push assets through the system. We would anticipate that our Q2 ending inventory balance on used will actually probably be close to down if we had to project out. And as we look through the balance of the year, that's where we're being very diligent about replenishment as well as ensuring that we have this nice balance of good fresh product coming in with margin augmentation while continue to push out some assets that are a little bit aged at this moment. So when we think of these actual annualized turnover goals, I look more so over the total balance of the year as opposed to trying to break it down quarter-by-quarter. Joseph Altobello: Okay. So it will be gradual. Is that kind of what you're saying? Okay. And then the second question on the Costco partnership. Curious how that's going and maybe what we could see from an EBITDA contribution. So I believe that's not in your guidance at this point. Matt Wagner: It's not. And admittedly, this is a partnership that both parties want to ensure it's executed flawlessly. So we've started out a little bit slower in that relationship than we would have preferred. We sprung it up really fast, and we've been working diligently with the Costco auto buying program to ensure that we just have the best experience for these Costco consumers. So while we were just a little bit unhappy with how certain lead flows were going, the general pricing logic, we actually took a little bit of a pause for a moment. And we've been working with them over the last 6 weeks now to actually recreate the entire online product listings pages, product detail pages. We came up with a whole new pricing algorithm. So we'll start to see the fruits of that labor, we believe, beginning in May, when that's when we'll have our first warehouse roadshow begin. And this actually coalesces very nicely with seasonally the opportunities that we see. May oftentimes is going to be the largest unit volume month for the industry and for us as a company. And June oftentimes represents the highest revenue month as a company and as an industry. So this will be the best opportunity for us to have gone through this exercise, ensure that we are flawlessly executing this and really more to come here. We're hopeful over the next 3 months when we speak with you that we'll have really good feedback to provide back. Operator: And your next question comes from Tristan Thomas-Martin from BMO Capital Markets. Tristan Thomas-Martin: So early in the year, we were hearing quite a bit about kind of like the pre-COVID cohort coming back and trading in. So I'm curious if you could maybe -- one, is that true? Can you quantify it? And maybe how did that trend over the course of the quarter? Matt Wagner: In the early phase of this year, Tristan, we've not yet seen a material increase in trade-in percentages yet. We have recognized though that those consumers that had bought in that 2018 to 2021 time period are starting to come back in. And that's just evidenced by us looking at the general average model year of assets that are coming back into inventory right now. So we do believe that there has been some self-healing of these consumers that were confronted with negative equity. But as we said in the last call, we would anticipate by the end of this year to be in the early innings of what we think will be a trade-in cycle that will continue to materialize with greater frequency and really magnitude over the ensuing 3 to 5 years, where at that point, beginning in '27, '28, the industry should start to see the benefit of a double stack effect. And what that means is, those consumers that were buying in 2020, '21, '22 that have just been sitting on the sidelines here for a little bit longer than we historically had anticipated, but they'll also be augmented by those same consumers that benefited from the deflation that existed in the RV industry in 2024. So in other words, you'll have a 2020 and the '21 cohort as well as the '24 cohort, all coming back into the marketplace all around the same time period. And this is now where we believe it's more of a theoretical debate of the industry has never quite seen this before. So how big is that order of magnitude, don't quite know yet, but we'll continue to provide you more insights as we have them readily available. Tristan Thomas-Martin: Okay. Awesome. And then just given all the talk around kind of raw material inflation, how are you thinking about model year '27 pricing, both like-for-like and then kind of your mix? Matt Wagner: So we, obviously, in 2026, have seen roughly a 5% to 7% increase compared to model year '25. We've been working diligently with our manufacturing partners to ensure that we are focused on affordability. That has been a problem that has plagued this industry off and on over the last 5 years. We've already started to receive some model year 2027 motorized units, and we're pleased to report as of this moment, we're only seeing about a 1% to 2% price increase, which we believe is roughly in line with what consumers can handle based upon inflation. And we all know, ideally, these prices be relatively stabilized as opposed to seeing any sort of inflation or deflation. Towables are starting to -- or will be hitting lock over the next, I'd say, 1.5 months to 2 months here. So we'll have a clearer view as to what those price increases could or will be. Based upon conversations, they could be anywhere from 1% to 3%. We're hopeful that there'll be different opportunities for us to work with our manufacturing partners and supplier partners just to ensure that we are keeping as many consumers in this industry and actually attracting that many more customers back into this industry. Operator: Your next question comes from Scott Stember from ROTH Capital Markets. Scott Stember: Can we talk about the products and parts and service side? I know the narrative over the last year, 1.5 years has been prioritizing used reconditioning work over some of the more like warranty and customer pay work just because of what's available from a service day perspective. Is there any change to that narrative going forward, particularly as the wear and tear cycle on these multiple millions of RVs that have been sold since the pandemic starts to kick in over the next year? Matt Wagner: So the narrative still remains relatively the same, given that our focus on used, in particular, is going to drive a lot of the service needs. And as you know, Scott, when we actually recondition that asset, that service revenue gross profit actually moves to that used asset in so much as you're actually improving the value of that asset. So that has worked against us in terms of looking at the parts, service and other category. But I can tell you in terms of our actual parts component of that segment, we've seen a nice improvement in customers coming back in and looking for those replacement components. But what we need to do is do a better job as a company is continue to ensure that those customers are not only buying that part from us, but they're also leveraging our service capacity. And we need to get a little bit better here as we move through the balance of this year, but really with a focus on the back half of this year into next year to ensure that we're growing more external service work more effectively. This entire industry has had a capacity issue, inefficient supply chain issue. And we believe we've been working on a lot of creative methodologies and tools to ensure that we do a much better job in the ensuing quarters, but more importantly, years. Scott Stember: Got it. And then last question on the balance sheet, nice improvement on the leverage ratio. It looks like cash flow in the first quarter was up nicely over last year. Can you give us some expectations where you would expect maybe free cash flow to find its way by the end of the year as well as the leverage ratio? Thomas Kirn: Sure, Scott. As we think about -- I mean, free cash flow for our company, I mean, if you take our guidance range and you back out our term loan interest and our real estate interest, maybe $10 million to $15 million of cash taxes. Our goal this year in terms of net CapEx is to be south of $100 million for the year when you back out sale leasebacks that we're executing on projects that were previously completed. So that's kind of how we're thinking about managing and tightening the CapEx line as we move through the balance of the year. Operator: And your next question comes from Andrew Didora from Bank of America. Andrew Didora: Matt, I just kind of wanted to dig in maybe a little bit more on SG&A. You clearly got off on the right foot here to start the year. The way we look at it, it has been running just over $1.5 billion for each of the past 5 years or so, I guess, when we exclude stock comp. Do you think you can flex below that? Or can you maybe give us a little bit more insight into how you think about the opportunity within that line item? Matt Wagner: I'm not going to give a specific range yet. And I'd rather we continue down the path that we're on right now, where we are very focused on implementing a variety of different processes, tools and rationalization methods to ensure that we maintain this pace that we're on today and continue to provide feedback. I could tell you as a proof point, over the last few months, we've been heavily invested in researching all different opportunities that exist with AI. We've set up a lot of different teams separately to figure out different ways to optimize different SaaS environments or software environments and also to eliminate unnecessary consulting contracts that exist out there. As just one proof point, you heard in my prepared remarks that we spoke about how we created our own bespoke CRM for just one specific business line of just our extended service plan business. And using that as just one proof point in particular, we had originally budgeted for this year $800,000 to stand up that specific environment, plus we are anticipating ongoing maintenance associated with that environment of roughly $400,000 to $500,000 a year. If we were to break that down, that would oftentimes be just a normal environment that we had a third-party tech company come in, help us out with, and every business can speak about the fact that once you bring in this environment, you'll have ongoing support and maintenance costs associated with it. We were able to stand up that entire environment with 3 individuals in particular, taking the product and technical lead, which is really just sweat equity. We were able to then turn it over to the rest of our IT organization to ensure that we are fully in compliance, fully safe and secure, and we're able to stand up our infrastructure team to actually execute all of that in 26 days. And we believe that on an ongoing basis, it will require the time of maybe 1/4 of the time of one FTE to maintain that environment. And then it just naturally gets inbuilt in our overall infrastructure and security environment as well. So when you think of just that as one specific proof point that we needed to prove to ourselves that we could start to scale up this environment faster and faster, we see a lot of opportunity, specifically within the IT spend. Andrew Didora: Got it. That's some helpful color. And maybe just for my second question, I was going to ask the CapEx question this year, but I guess kind of how should we think about that maybe over the next 3 years once you exclude any SLBs that you do? And I guess on that note, how can you improve maybe your EBITDA to free cash flow conversion over time? Matt Wagner: I think, as we look forward, I mean, for this year, obviously, I mentioned south of $100 million is the goal for this year. There are some onetime projects in there or what we believe are onetime projects in there for some new builds and some larger construction items. We haven't typically published a maintenance CapEx range in the past, but I think there is room in there to get that closer to the $75 million range from a maintenance perspective. And then as we continue to grow our footprint or see other opportunities to move facilities or if we have needs on the real estate side to move facilities, that's where you see us historically have to flex and maybe purchase some real estate. And then in a subsequent year, sell that real estate to a REIT as we kind of move in and out of facilities. So that's where historically, you've seen the number move a little bit year-to-year, and that may be the case going forward. So I don't want to peg it to an exact number, but that's sort of the range for maintenance and also what we're looking at for this year as a goal. Operator: And your next question comes from Noah Zatzkin from KeyBanc Capital Markets. Noah Zatzkin: I guess just on the kind of March and April commentary, it would appear that your comments kind of point to meaningful share gains versus at least what we're hearing from others out there in terms of how the industry kind of trended in March and April. So I guess, first, is your sense that, that's the right way to think about it? And if it is, what do you think has kind of led to the share gain acceleration? Matt Wagner: No, as you know, by the way, we'll have some more Stat Survey Information over the next week that will provide us insights into March's retail activity. And that's where we largely rely upon that as the independent third party to provide us actual insights based other than just speculative behavior within the industry or even us speculating on it. But we do believe, based upon January and February's results that we have had a significant outperformance. And I believe that's attributable to our replenishment and our inventory strategy associated with our exclusive brands. And even as we look at our specific exclusive travel trailer brands in the month of April, we're trending to be up in excess of 20% on just our exclusive travel trailer brands year-over-year, which was a relatively difficult comp for that same lineup of brands. So when I juxtapose that against traditionally OEM brands that exist out there, we're not performing quite as well with those OEM brands. So I think of how creative our team has been of not only continuing to work with manufacturers and suppliers to ensure that we have very creative floor plans, but most importantly, we're hitting the affordability curve of consumers in this industry, and we're attracting greater consumers into the industry. We believe we've been best-in-class at least our exclusive brand strategy, especially over the last 2 to 3 years. Noah Zatzkin: And maybe just one on the industry. Any sense for kind of industry inventory levels right now? Anything in terms of what you're seeing on promo from others? Just kind of a state of what you're seeing out there would be helpful. Matt Wagner: I wish we had better insights into what the actual rolling stock of inventory was in the entire industry. It's almost impossible for us to calculate. We've tried in a variety of different ways. But given the very nature that there are wholesalers that exist in the industry, and there's a lot of rental units that are sold, sometimes [ FEMA ] has a contract with different dealers and those don't necessarily get registered as cleanly. It has been really difficult for us to zero-in on what actual rolling stock inventory is. But based upon just us working with different competitors, knowing different competitors, it does appear that there is quite a promotional environment that exists out there, which is why we try to be pragmatic about our approach to inventory and to pricing for the year and be very realistic about what the margin profile could look like for the balance of the year. Operator: And your last question comes from Alice Wycklendt from Baird. Alice Wycklendt: Matt, I think you touched on it a little bit in your comments on F&I with kind of the consumer down payments. But maybe I wanted to step back big picture and hear maybe what you're seeing in the credit environment more broadly from a consumer financing perspective. Thomas Kirn: I'll handle a portion of the question, and then I'll turn it to Brett Andress as well to speak more intelligently about our relationship with the lenders that we have. But as of right now, we've not seen any sort of different behaviors in terms of like credit profile or approval rates. We have been working very effectively with our lenders to ensure that we're doing our best to maintain current rate, if not driving them down. But in terms of the overall creditworthiness of our customers, we feel really good with what we're seeing right now. Brett Andress: Yes, Alice, I would say from a consumer lending pricing standpoint over the last couple of months, we have actually seen rates start to drift down at a rather increasing rate actually over the last couple of weeks. So with all the rate vol out there, I think that has been encouraging to us as we go into the season. Hopefully, some of that vol starts to probably ease itself, and we can find some additional cuts as we go through the season, but it has been more favorable over the last couple of weeks from a pricing standpoint. Alice Wycklendt: Great. That's helpful. And then maybe just a little bit of housekeeping question. I mean your location is down 10 year-over-year, but up, I think, 3 sequentially. How should we think about your plans for the number of locations over the next 3 quarters or so? Matt Wagner: Actually, last month, we did close on an acquisition, tiny little M&A in Indiana, which fit through the very disciplined framework that we spoke about on the last call, where we were able to acquire the store for a little goodwill. It's in a very favorable market with good brands where we have low market share. And we were fortunate in so much of being able to pick this up and just fill out our map. We'll continue to be diligent about looking at different M&A opportunities, but we also want to be very disciplined about how we're approaching them as opposed to we could, in many situations, just buy brands off of dealerships that want to get out of the industry or just want to unwind whatever they're working on within their localized market. And this is frequently as we get opportunities to buy a dealership, we're able to turn that back around then and say, do we really want to acquire the fixed costs associated with that dealership? Or do we really just want the brands and consolidate the marketplace. And we've taken that latter position in quite a few environments where we were able to work with, I believe, 3 dealerships now year-to-date. We're able to acquire either all the brands or some of the brands off their lot. So what we're going to end up with for the year, tough to say. We're going to be opportunistic and continue to look through the framework of does it make sense for us from a goodwill perspective? It's going to be highly accretive. Are we able to get in there for a low rent factor if we could acquire the real estate for a reduced amount? And do we have low market share there. Operator: And there are no further questions at this time. Mr. Matthew Wagner, you may proceed. Matt Wagner: Thank you for everyone's time this morning. We're quite pleased with our results in Q1. We still know we have much more work to do, and we look forward to speaking with you all again in the next 3 months. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation, and you may now disconnect. Have a great day.
Operator: Good day, everyone, and welcome to the PBF Energy First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] Please note that this conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin. Colin Murray: Thank you, Anjali. Good morning, and welcome to today's call. With me today are Matt Lucey, our President and CEO; Mike Bukowski, our Senior Vice President and Head of Refining; Joe Marino, our CFO; and several other members of our management team. Copies of today's earnings release and our 10-Q filing, including supplemental information, are available on our website. Before getting started, I'd like to direct your attention to the safe harbor statement contained in today's press release. Statements that express the company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the safe harbor provisions under federal securities laws. Consistent with our prior periods, we'll discuss our results excluding special items, which are described in today's press release. Also included in the press release is forward-looking guidance information. For any questions on these items or other follow-up questions, please contact Investor Relations after today's call. I'll now turn the call over to Matt Lucey. Matthew Lucey: Thanks, Colin. Good morning, everyone, and thank you for joining the call. Indeed, today is a moment. With the disruption in the Middle East, the world is in greater need of the products we produce and therein lies the momentous opportunity for our company to perform and reward our shareholders for owning such critical infrastructure. Within PBF, the spotlight is squarely on Martinez. We are bringing Martinez back online and will shortly be supplying the California market with our full capabilities. This could not be coming at a better time for the West Coast and California markets. There are 3 main areas of focus in terms of the restart of Martinez, the cat feed hydrotreater, the alkylation unit and the FCC. The cat feed hydrotreater and alky are up and both are running. With the FCC, we expect to be making finished products this weekend. While the rebuild effort was completed in February, there is no question the restart took longer than expected. It was critical for us to ensure that all the work accomplished at Martinez over the last 14 months was capped off with a safe restart. Moving on to the broader environment. The events in the Middle East have caused the largest disruption ever in the oil markets and the effects are indeed dramatic and constructive for PBF. Initially, approximately 15 million barrels per day of crude and 5 million barrels per day of product were trapped inside the Straits of Hormuz. The loss of crude barrels was most acutely felt in Asia, but the shortages have cascaded to other markets. 80% of the crude flowing through the straits was destined for Asian refineries, and those refineries in turn, supplied products to many markets, including the U.S. West Coast. As refining runs in Asia have been rationing due to lack of inputs, the loss of products has affected every market. Compounding this impact, the products stranded in the Arabian Gulf have tightened markets in Europe and subsequently, the Atlantic Basin. In the near-term, the markets will continue to adjust in real time to demand signals for both crude and products. Global pricing will dictate trade patterns. Increasingly, markets are calling for both U.S. crude and U.S. products to meet demand. While the U.S. has been somewhat insulated, there are signs that demand is being impacted globally by both pricing and supply issues. It has never been more evident that U.S. refining is critical infrastructure, and this is most apparent in regions like the West Coast and the East Coast that are short refining capacity and rely on imports from unstable sources to meet demand. It will take some time for trade patterns to normalize both during and post the conflict in the Middle East. Refining fundamentals should remain strong throughout, supported by tight refining balances, coupled with low product inventories around the world. Prior to this event, refining balances looked constructive and the inevitable restocking should provide a favorable backdrop for quarters to come. PBF remains focused on controlling the aspects of our business that we can control. To be successful and enhance value for our investors, we must operate safely, reliably and responsibly, and we must do it as efficiently as possible. And with that, I'll turn the call over to Mike Bukowski. Michael A. Bukowski: Thank you, Matt. Good morning, everyone. Before updating on the progress of our refining business improvement program, I'll provide a few comments on first quarter operations and our Martinez refinery status. Outside of the West Coast, our refining system ran reasonably well. All of our refineries navigated record cold temperatures with minimal disruptions. On the West Coast, as Matt mentioned, Martinez is in the final stages of its phased restart. The process to restart it has been methodical and required many levels of safety and process checks to ensure that all equipment was correctly manufactured and installed before we introduced hydrocarbons. The cat feed hydrotreater and alkylation unit have been operating and producing finished products as well as the intermediates required for the start-up of the fluid catalytic cracking unit this weekend. The Martinez team and the supporting cash too numerous to mention worked tirelessly to get us to this point. My thanks to all involved in the project. Additionally, while Martinez operations were being restored, Torrance underwent a turnaround early in the first quarter and with that event complete has a clean runway for the remainder of 2026. I'm happy to report that we're seeing progress from our RBI program. We achieved our 2025 target of $230 million of annualized run rate savings. This goal includes approximately $160 million of OpEx reductions against our 2024 benchmark and is incorporated in our full 2026 budget. While the ongoing Martinez process is causing some noise within the first quarter results, we are very comfortable in meeting or even exceeding our stated targets. While we are improving our maintenance and operational efficiency and reducing energy consumption, our main priority will always be to the focus on safe, reliable and responsible operations across our system. With that, I'll now turn the call over to Joe Marino for our financial overview. Joseph Marino: Thanks, Mike. For the first quarter, excluding special items, we reported adjusted net loss of $0.88 per share and adjusted EBITDA of $68.7 million. Our discussion of first quarter results excludes the net effect of special items, including $11.5 million in incremental OpEx related to the Martinez refinery incident, a $106.5 million gain on insurance recoveries, a $313 million LCM inventory adjustment, a $9.4 million gain relating to PBF's 50% share of SBR's LCM adjustment for the quarter and approximately $9.4 million of charges associated with the RBI initiative, as well as other items detailed in the reconciling tables in today's press release. PBF's results reflect several unfavorable conditions that manifested in the first quarter, both operationally and commercially. Capture rates for the quarter were negatively impacted by West Coast operations, the higher flat price environment, increasing the headwind of low-value products, higher RINs expense and derivative losses recognized in the quarter. These capture headwinds more than offset benefits from improving jet and diesel spreads and certain crude dips. Operationally, our Torrance refinery was in planned turnaround during January and February, while our Martinez refinery restart was delayed. We built up inventory levels in the first quarter, primarily in anticipation of the planned restart of Martinez. This occurred as global pricing for hydrocarbons surged on the back of the conflict in the Middle East, resulting in losses in our typical hedge program. Our results for the quarter reflect an aggregate derivative loss of a little over $200 million. Approximately half of this loss related to unrealized amounts expected to be mostly offset in the second quarter as the physical barrels run through our refining system. The $106.5 million gain on insurance recoveries related to the Martinez fire is a result of the fourth unallocated payment agreed to and received in the first quarter. This brings our total insurance recoveries to $1 billion, net of our deductibles and retention, including the amounts received in 2025. Important to note, while the bulk of the spending related to Martinez is behind us, the claim is ongoing, and we expect to recover incremental funds as we continue to work with our insurance providers towards potential additional interim payment and finalization of the claim in an expeditious manner. Shifting back to our normal quarterly results discussion, also included in our results is an approximate $8 million EBITDA benefit, excluding LTM impacts related to PBF's equity investment in St. Bernard Renewables. FCR produced an average of 16,700 barrels per day of renewable diesel in the first quarter. FCR's production was as expected, but results reflect the impact of improving market condition in the renewable fuel space with the finalization of the RVO in March. With the setting of the 2026, '27 RVO, the market is now the ability to stabilize and should result in favorable margins. PBF's cash used in operations for the quarter was $324 million, which includes a working capital draw of approximately $340 million, mainly due to movements in inventory and the impact on our net payable position as a result of rapidly moving commodity prices. On our last call, we mentioned our expectations for elevated first quarter CapEx and working capital outflows, primarily related to Martinez restart and normal seasonal inventory patterns. The capital spending for the Martinez rebuild is essentially behind us, and we expect working capital to normalize as operations restart in full. Cash invested in consolidated CapEx for the quarter was $320 million, which includes refining, corporate and logistics. This amount excludes first quarter capital of approximately $189 million related to the Martinez incident. On the surface, the Q1 figure might be slightly higher than expected, and this is because it includes approximately $100 million of net carryover from 2025 that had not been cash settled at year-end. The balance is our normal quarterly incurred amount, including the turnaround at Torrance. Given that and the noise related to Martinez rebuild, it would be helpful to more broadly consider the 2025 and 2026 capital programs over a 2-year period. We ended the quarter with $542 million in cash and approximately $2.3 billion of net debt. At quarter end, our net debt to cap was 36%, and our current liquidity is approximately $2.4 billion based on current commodity prices, cash and borrowing capacity under our ABL. Our net debt increased in the first quarter due to planned capital expenditures, continued spend on the Martinez restart and working capital outflows primarily related to a build in inventory. Going forward, inventory should normalize as operations ramp up, and we should see a resulting tailwind in working capital cash flows. Additionally, with our capital spend for the Martinez rebuild predominantly behind us, we expect to further progress our Martinez insurance claim and receive additional payments. Once realized, these factors alone should principally offset the increase in net debt experienced in Q1. Maintaining our firm financial footing and a resilient balance sheet remain priorities. As we look ahead, we expect these periods of strength to focus on reducing both our gross and net debt. Operator, we completed our opening remarks, and we'd be pleased to take any questions. Operator: [Operator Instructions] The first question comes from Manav Gupta with UBS. Manav Gupta: I want to start a little bit on the global macro side. The way we are seeing things, Matt, is 2Q and 3Q are a tale of 2 halves, those who have the crude and who can run and those who don't have crude, and they may have the best kit out there, but they don't have crude. And you are in this category where you have the crude and you can run. So, can you help us understand, given relatively low U.S. nat gas price and availability of crude, does that mean that U.S. refining has an advantage over most of their global peers at this point of time? Matthew Lucey: Manav, I don't think there's any question on that. I think the outlook for the second quarter and the third quarter look extraordinary only because the world is going to be in desperate need of our products. And as you say, we're insulated from a natural gas perspective, heck we're insulated from a physical security perspective. We have the best steel globally with a very stable workforce. And indeed, we have access to crude. Obviously, the pricing on crude is determined on a global basis. But when you stack up the U.S. industry compared to the rest of the world, it stands out. And then when you look within the U.S., I think particularly PBF's coastal complexity is incredibly well positioned within that. Manav Gupta: Perfect. And a quick follow-up here and this is a question we have pretty much got all morning. What gives you the confidence that this time, Martinez will be able to restart within probably a week or so and there will not be any further delays? Matthew Lucey: I'll turn that over to Mike. Michael A. Bukowski: So, the delays that we saw over the past couple of months were primarily focused on the process to verify the equipment to make sure it was constructed, installed properly. And now we're at the point now with 2 units up in operations. We always had a phase start-up. It's always going to be the cat feed hydrotreater. It's always going to be the alkylation unit. Those 2 units started up without incident. They -- we got up safely. And we're essentially -- if you make the analogy of a football game, we're in the fourth quarter on the process on the FCC. The unit is heating up and we're a day or so away from putting feed in the unit. So, it's very close. We've got all the checks that we've done. We've had a lot of the major hurdles that you typically go through in an FCC start-up. So, that gives us the confidence. Matthew Lucey: The frustration on the duration is certainly understandable. But the alternative simply wasn't considered in terms of rushing through anything. And so, all the steps that we're taking were done in the name of caution and safety and reliability. It obviously was an extraordinarily large disruption. And as such, it took a bit longer. That being said, we're here on the precipice of this whole incident being behind us. Operator: The next question comes from Alexa Petrick with Goldman Sachs. Alexa Petrick: We wanted to ask on the East Coast dynamics. But that region looks tight from a product perspective, but there's also a lot of moving pieces around crude access, freight rates. So, can you just talk about the exposure there and how you're seeing capture rates shake out? Matthew Lucey: Yes. It was in my comments. I mean, whether you're talking about the East Coast or West Coast, you're relying on imports and so how critical our infrastructure is within those pads. It's highlighted. It gets highlighted every couple of years, whether it's through hurricanes or other events, whether when Colonial went down clearly in this event now with the global market completely disrupted. But our assets are running well. They -- like I said, they have access to crude. And so, I think we'll be rewarded handsomely for operating them reliably over the coming quarters. Tom? Tom Nimbley: Yes. I mean I would just add in terms of what we've seen, particularly over the last several reporting weeks, right, where we're seeing draws across the country. And you're at a situation also where even in the past couple of -- in the past month or so, right, where in terms of the U.S. has been exporting product, not just off of the Gulf Coast, but out of the East Coast as well. So, we're at a situation where inventories have been depleted and obviously depends upon how long the disruption in the Straits of Hormuz continues, right? But the longer it goes, obviously, we stay in a very point of friction. But on the flip side of it is that when we would look at it in terms of resolution in terms of the conflict, you then potentially also have OPEC in a fractured state with the announcement of UAE looking to depart the organization. So, I think that all sort of fits within the sort of constructive outlook and the situation where in terms of markets that are deficit products, it is going to be challenging in the short term to find that resupply from any other region, because it certainly would appear at this point that Asia is buying the minimum amount of crude that they can purchase to basically satisfy their local demand or the region's demand, and there's no expectation that they're going to be continuing to pull crude from the Atlantic Basin to then resupply just in terms of the sheer amount of time that takes and the uncertainty in terms of what could happen during that 60, 90, 120-day supply line. Matthew Lucey: And importantly, also for the East Coast and the West Coast, with the Jones Act being put on the shelf for a period of time, we're actually able to run non-traditional crudes to the East Coast. Indeed, we'll be running some WTI and some other U.S. barrels on the East Coast during the second quarter. So, we'll have access to the crude. At the end of the day, as we said in the comments and Tom highlighted, the world is going to be desperate for our finished products. Alexa Petrick: Okay. That's helpful. And then our follow-up is just on capital allocation. Any more color you could provide on the optimal capital structure with Martinez back on and elevated margins, how should we just think about that cash flow generation being used? Matthew Lucey: I'll hand it over to Joe, but just one overriding sort of 10,000-foot comment I would make, consistent with all the comments that we've made for the last number of years. When there are periods of excess cash flow generation, we will look to our balance sheet first as just the core business model of how we run our business in terms of driving to a very conservative balance sheet. Obviously, it's a cyclical business, capital-intensive business. And during periods where the cycle is against us, we have that balance sheet to lean into. But that's requisite on times where we are generating excess cash where we return the balance sheet to our expectation. Joe, any other? Joseph Marino: Yes. No, I would reiterate that we do maintain -- always look at our capital allocation framework comprised of the 3 pillars of invest in the business, invest in the balance sheet and shareholder returns. But as Matt indicated, our current market conditions persist, we'll have an opportunity here to accelerate delevering as a means of transferring value from debt to equity, which would be a priority in the near-term. We did lean into the balance sheet in the last 12, 24 months, and I think we'd be looking to get back to levels we had come into 2025. Operator: The next question comes from Joe Laetsch with Morgan Stanley. Joseph Laetsch: So, I wanted to ask on the West Coast. Can you just talk about what you're seeing from a local crude pricing and availability standpoint here? Are these barrels pricing off of ANS right now? And then is there any competition that you're seeing from Asia pulling barrels away? Matthew Lucey: I'll make a comment and hand it over to Paul. You have to appreciate our position on the West Coast. And we've talked about this a fair amount in regards to -- and we've spent a lot of time talking about products and 300,000 barrels a day of gasoline and jet that needs to be imported to meet demand. And to the degree you bring in those products, those products -- you have to be able to attract those products from the rest of the world and the logistics to get there are significant. But on the crude side, we talked about it less. We've seen an increase on California production with some production coming on over the last quarter. And importantly, PBF has its own pipeline infrastructure with our M70 pipeline delivering to Torrance. So, the crude pricing in California is particularly interesting because if you look at pricing of crude around the world, the California production coming out of Valley, some of the most attractively priced crude in the world. And we have our own proprietary line that will be bringing that is bringing it to our refinery in Torrance. So, we feel like that's going to be a real competitive advantage for us going forward. Any other comments, Paul? Paul Davis: I mean on the indigenous crude, it prices against ICE. That's the format that it trades on. It trades at a discount because of the quality. It is a very heavy sweet barrel, high TAM material, somewhat captured because it can't go offshore. So, it trades at a pretty good discount to ICE, which is obviously a pretty good discount to ANS. As far as the pull on the -- from Asia, the Asian program did pull a lot of ANS away from the West Coast in the current trade periods and the next trade period. So, it's a good supplement to some of the air grades that have been lost for those guys. So, yes, we're seeing a pretty good pull. Joseph Laetsch: Great. That's helpful. And then on the refining business improvement program, can you just talk about how that's progressing? So, I understand the $230 million was achieved in 2025. Can you just talk a bit more about the path to the $350 million by year-end '26? Matthew Lucey: Sure. I'm just happy to report we're on path. But Mike, why don't you give? Michael A. Bukowski: Sure. Yes. So, the way we structured the program is we took the savings that we -- the run rate savings that we had achieved last year. That was $230 million that included capital. So, just from an OpEx perspective, it was $160 million. We put that into our budget. And then in the first quarter, we are right on that plan right now. And you'll see as the quarters go by, an increase in savings from quarter-to-quarter as other savings initiatives are implemented as well. So that by the year-end, we would expect to achieve those savings. Operator: The next question comes from Paul Sankey with Sankey Research. Paul Sankey: Can you hear me, okay? Matthew Lucey: Hearing, Paul. Paul Sankey: Can you -- you've talked a lot around these questions. So, if I could just sort of keep digging a bit here, please. Matt, did you say -- can you just say when Martinez is going to be completely up and running all units, best guess. Did you say that's happening? And then can we talk a little bit -- you said some interesting stuff about how the crude slate is changing. For example, you mentioned the Jones Act allowing you to take WTI. I was wondering, for example, is that WTI price at Cushing? And can we dig a little bit into how your crude slate is changing given the whole new situation? And again, you've addressed this, but are there major issues where for example, jet fuel, how are you dealing with that? And is that getting exported? Can we kind of go through what the next 2 months will look like? Because I think the current market is guaranteed to be here for the next 2 months. And then if Hormuz starts opening up, I assume that all of that will reverse, but any longer-term comments would be helpful as well. Matthew Lucey: Okay. There's a lot. So, just in regards to Martinez, as we said, essentially, we expect literally over the next couple of days. And so, we'll be very, very pleased to get there. But as soon as this weekend, we should be up with sort of all our units up and running, which is good news. Again, frustrating on the duration, but very, very good news looking forward. In regards to running nontraditional crews, everything has been disrupted and the size and scale of this disruption is sort of hard to imagine. I just keep coming back to -- at the end of the day, there's a lot of interesting conversations about crude. But at the end of the day, the only thing that matters is products. The disruption to the product market is extreme, and we're best positioned to capitalize that throughout the country, but particularly our coastal markets. When you look at our based operations and sort of the daily impacts, the U.S. East Coast is probably impacted the most in terms of what crudes it's running. Paulsboro historically ran Aramco barrels, and we've been able to make adjustments there. But to a great degree, Chalmette, Toledo certainly and the West Coast is running what it traditionally ran. I don't think we're going to give you quite the detail you're looking for in terms of exactly how to pricing, but I commend you for trying. But yes, I mean, at the end of the day, like I said, I just go back to products, products, products. And to the degree that we can reliably produce them, we will be handsomely rewarded because they're in desperate need. Paul Sankey: Fair enough, Matt. It was very good say. Tom Nimbley: Paul, it's Tom. I would just jump in. I mean, I think certainly for us in terms of -- I mean your comment, maybe the next 2 weeks, 2 months or certainty, right? I mean is that I think as we look at the sort of acute problems that the market has been doing or going through, it really depends upon just really how far you are from the Straits of Hormuz, right? So, Asia felt all these pinch points soonest, then it cascaded more so into the European product markets. And then it's now filtered into the U.S. market or the Americas, and we're certainly seeing that on products and particularly in terms of what gasoline has done over the last several weeks in terms of catching up because initially, this was just a crude problem and a distillate problem and a jet problem, right? Now in terms of the balances, now it's a gasoline problem. And then therefore, also if Straits of Hormuz opens, right, then it's going to be a situation where the recovery is going to happen soonest in terms of how far are you from Straits of Hormuz, right? And obviously, the Americas are the furthest away from the Straits of Hormuz in terms of that. That's the sort of commentary relating around sort of months, quarters, et cetera, in terms of the recovery time. Paul Sankey: Yes. It's interesting that the Jones Act is helping you lack of it. Operator: The next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: I can't tell you how happy I am to hear you talk about translating value from debt to equity, but I'll take that one offline. My 2 questions is, first of all, I'd like to maybe dig in a little bit on capture rate. At the simplest level, what we're trying to -- we've all been through these kind of spikes before, maybe not quite like this. But when you see extraordinary margins, the risk, I think, is that the market takes those extraordinary margins and assumes capture rate remains the same of those margins. You guys talked about headwinds. You talked about RINs. Obviously, you talked about crude slate. I wonder if you could just dumb it down and say, well, how do you anticipate your capture rate on these extraordinary margins to trend? Will it be the same? Will it be higher? Will it be lower? That's my first one. My second one is just real simple on business interruption. And maybe it's just a balance sheet question. You haven't really given us a lot of disclosure on how much of the current balance sheet is still a net positive that will go away. In other words, when you pay out the remainder of the repairs, net it against how much you actually still get in the growth of business interruption. And then the root of my question is, you've been offline during extraordinary margins in the West Coast. You were supposed to come back up in December. Do you still get business interruption in the first quarter? I'll leave it there. Matthew Lucey: Okay. Sure. So, capture rates in extraordinary periods of time, which we clearly are in, it will be very, very difficult for you, quite frankly, for the investment community to pinpoint capture rates as you have a lot. Obviously, flat price, RINs and massive, massive basis differentials that are swinging wildly on a daily basis. Indeed, jet on the West Coast today is trading over $1 NYMEX distillate mark. So, it will be very difficult task to bring precision to capture rates in these extraordinary periods. Capture rates by them self -- by definition are rules of thumb. And in this period of time, rules of thumb don't necessarily equate perfectly. We'll try to be as helpful as we can in that regard navigating it through. But there are obviously a lots of puts and tails. But at the end of the day, I keep coming back to products, products, products. And the fiscal price for our products will be evident as we go because of how short they are at the moment. And so yes, and on top of that, the last barrel in the plant may look expensive compared to historic sort of runs. But again, the product prices are going to carry that. In regards to BI, indeed, our coverage does extend into this year and we will continue sort of to work with the insurance companies who've been very, very good partners. I've said that, I think, on every single call. And I'll turn some of the insurance stuff over to Joe. But indeed, it wasn't your question. But again, the addressing the balance sheet and transferring that wealth from leverage into equity is a core principle of how we run this business. So, let there be no confusion on that. Any other comment on the insurance side? Joseph Marino: Yes. I would just say, given the fact that the claim is ongoing and the insurance proceeds we've received to date have not been allocated. I can't really give you any more detail on the breakup between DI at this point. But we'll say that importantly, the rebuild costs are substantially behind us at this point, and we do expect further progress payments on the insurance side through the end of the claim. Douglas George Blyth Leggate: I understand there's no precision here, but nevertheless, I appreciate the color. Operator: The next question comes from Philip Jungwirth with BMO. Phillip Jungwirth: The turnaround schedule for the year originally contemplated Martinez hydrocracker in 2Q. Is this at all impacted by the later restart? And or just what's the status here? What would this turnaround entail or imply as far as crude throughput for the facility? Matthew Lucey: Yes. We've been working that, obviously. That was originally like per our last call, we were talking about that in the second quarter. We're working through that now. I would say there's a high degree or a high probability that, that turnaround that we actually move that towards the end of the third quarter. That hasn't been completely finalized yet. They have to go through a number of checks. And again, safety, reliability, responsibility, running responsibly is sort of the prerequisite for everything. And so, we're working through that. But I expect that work will be pushed out towards the end of the third quarter. Phillip Jungwirth: Okay. Great. And then can you talk a little bit about SBR and the outlook here? We don't get a ton of detail on profitability, but clearly, the margin profile for RD has improved. Any color as we head into 2Q? And then separately, just how are you viewing your RIN exposure currently net of SBR? Matthew Lucey: All right. So SBR, look, this is -- it's a happy moment. There's no doubt the reason -- one of the reasons we invested in the project in the first place. So, the prospects, the outlook for SBR is quite strong today. It's quite honestly, the strongest it's ever been since we've been up and operating. So, the first quarter had positive EBITDA, but the outlook going forward, and we just completed a catalyst change, the outlook going forward looks very, very constructive. And to some degree, it holds the story together for PBF as the hedge against RIN prices that we didn't have 3 years ago. And so, we're very pleased to have SBR in our portfolio. And indeed, I think on our next call, you'll see sort of how helpful it is. In regards to RINs, they seem to be on a one-way freight train going up. RINs are upwards of getting close to $13 a barrel. I've described the program for over a decade as being broken, which is true, maybe nothing is more true than that, but it actually very well may break literally where there's not sufficient RIN generation because, of course, high RIN prices, low RIN prices, you still blend the same amount of ethanol. There is an ethanol blend wall. So, it relies on RD production and bioproduction. And if that doesn't meet the RVO, you could get into a situation where not only is RINs dramatically in pricing the price of gasoline, where it's actually constricting supply because if you can't -- if you import, so if you go to the coast and you need to attract imports, that importer has to buy a RIN. So, the price that he's looking at deducts the RIN price. So, that sort of speaks to the requirement on the coast to be able to attract those products. But if the RIN is unavailable and he can't be compliant, the product won't come. And so, will we get there this year? I don't know. To a great degree, it will depend on bioproduction and renewable diesel production around the world, I guess, to some degree. The RVL, as I said, is the highest it's ever been and completely stupid in regards to impacting the price of gasoline. The easiest lever the administration has to lower the price of gasoline today would be to address the blend wall, and there is countless ways they could do that. But it is what it is. And as I said, we're very, very pleased to have SBR. We think it's going to be contributing nicely. Operator: The next and final question that's Jason Gabelman with TD Cowen. Jason Gabelman: You discussed the Martinez hydrocracker turnaround and potential to push that out. But can you talk more broadly about the opportunity to push out maintenance later this year into next year and just how maintenance looks over the next couple of years, given we could be in a period where margins are higher for a decent amount of time here? Matthew Lucey: Yes, higher for longer. Yes. I'll just say in the short, short term. We obviously -- just looking at the next couple of quarters, we have a very, very clean runway. And so, the opportunity is certainly extraordinary in the near term. Mike, why don't you make some comments? Michael A. Bukowski: Yes. The second and third quarter are pretty clean. We do have some things coming up in the fourth quarter. We always evaluate right around this time, actually moving some things around. There are some things that we may be able to do. There are some things that are kind of locked in. I'm not going to get into specific turnarounds and the likelihood of moving them at this point. I will say that this year was probably one of our heavier turnaround years in terms of our major turnarounds. We consider a major turnaround, whether it's a conversion unit or a crude unit combined together. So, this is one of our heavy years in recent history in terms of the scope. But the next couple of years, we tail off a bit and we're a little bit later in '27 and '28. So, specifically, I'm not going to mention any turnarounds can be moved, but we are -- we do those evaluations right around this time. Jason Gabelman: My other question is on the results for the quarter. You mentioned derivative losses impacting 1Q, I believe. You didn't quantify it. Can you talk about what that looked like for 1Q and what that maybe will look like for 2Q or how we should think about that going forward, just given in the current environment, I think some of these derivative losses could be a bit outsized. Joseph Marino: Yes. So, we recognized a little over $200 million of mark-to-market on derivative losses during the quarter. At the end of the quarter, there was about $100 million of unrealized. So, there's still some offsetting physical barrels that will flow through to offset that and likely be a benefit in Q2. And then as far as Q2 actual derivative impact will depend on where prices go from here. Matthew Lucey: The derivative program, just so everyone understands is a risk-reducing program in that we will hedge inventory that is above and beyond our normal baseline. And with the disruption we had on the West Coast at -- when we are entering the February 28 or March -- early March, we had approximately 6 million barrels above and beyond what we normally have in our portfolio. And as such, we were managing the price of that. Anecdotally, I think the company did an exceptional job of sort of navigating the unprecedented volatility that we saw in managing those barrels. But as our inventory works down, the need for that hedging exercise is eliminated. And so, I suspect by the end of the second quarter, you're not going to see similar callouts. But again, it's a situation where at the end of the first quarter, you're marking those derivatives to market even though you still have the inventory that you're then going to realize the physical side during the second quarter. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to Matt Lucey, CEO, for closing remarks. Please go ahead. Matthew Lucey: Thanks again for your time and attention this morning, and we look forward to speaking with you in July. Have a good day. Operator: Thank you. This concludes today's conference, and you may now disconnect your lines at this time. Thank you for your participation.