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Operator: Greetings, and welcome to the Empire State Realty Trust, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce Suzanne Lu, SVP, Chief Counsel, Real Estate. Thank you. You may begin. Suzanne Lu: Good afternoon. Welcome to Empire State Realty Trust, Inc. First Quarter 2026 Earnings Conference Call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at esrpreit.com. During today's call, management's prepared remarks and responses may include forward-looking statements within the meaning of applicable securities laws. These statements reflect management's current views and assumptions, and are subject to risks and uncertainties that could cause actual results to differ materially. Empire State Realty Trust, Inc. extends no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC. During today's call, we will discuss certain non-GAAP financial measures, such as FFO, modified and core FFO, NOI, same-store property cash NOI, EBITDA, and adjusted EBITDA, which we believe are meaningful to evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website. Now I will turn the call over to Anthony E. Malkin, our Chairman and Chief Executive Officer. Anthony E. Malkin: Good afternoon, everyone. Yesterday, we reported Empire State Realty Trust, Inc.'s first quarter results. We began the year with solid earnings, steady execution across our portfolio, and continued contribution from the Observatory. We acquired a high-quality retail asset on North 6th Street with recycled investment as part of our concentrated effort to reallocate our balance sheet capacity towards growth, and completed financings which address our debt maturities all the way into 2028 and maintain balance sheet flexibility. Today's environment presents a wide range of macroeconomic outcomes, some of which could adversely affect our business. That said, as we have said consistently, we do not seek to predict the weather. We have an arc. From that arc, we operate from a position of strength and with great latitude. We derive our revenue from diverse income streams and a broad tenant base. A substantial portion of our revenue is from long-term leases, and we maintain high leased percentages, all supported by our balance sheet. We navigate freely and act decisively when opportunities arise. Pages five through nine of our investor presentation available at esrtreit.com highlight our ongoing program to trade into opportunities which provide better prospects for growth at our desired capitalization and levels of risk. Cash flow growth is key to our focus. The Manhattan office leasing environment remained healthy and active for our top-of-tier product. Tenant demand is strong and diverse, availability of high-quality space remains limited, and there is no new construction at our price point. Ryan will provide highlights on occupancy, leased percentage, and what we expect to achieve by year end. Much has been written about AI as a disruptor of office demand. In New York City, our leasing pipeline remains active, tour volume is strong, and tenants across industries continue to make long-term commitments to high-quality space. Office leases executed this quarter averaged over 10.5 years in term. Our commercial portfolio is 93.2% leased. Our leasing pipeline is healthy, and we expect occupancy gains for the full year. We are delighted to have leased the first floor at our 130 Mercer Street acquisition and have a strong pipeline of leases in negotiation which will hit in February, about which Ryan will speak. We achieved our nineteenth consecutive quarter of positive mark-to-market rent spreads in our Manhattan office portfolio, which reflects sustained demand for our best-in-class buildings. We continue to see an upward trajectory in net effective rents, and our portfolio is well positioned to deliver strong operating performance. Our iconic Empire State Building Observatory deck remains a market leader and a meaningful contributor to cash flow. NOI was $10.6 million in the first quarter, our seasonally lightest quarter. Revenue per capita increased approximately 1% year over year excluding gift shop license fees. Visitation from international and budget-conscious tourists, centric pass programs, remains soft and impacted our results. Against this backdrop, we focus on our domestic and direct sales program which support higher revenue per visitor and better margin performance while we await the return of our traditional international demand. Empire State Realty Trust, Inc. has been a leader in sustainability for more than a decade. The Empire State Building was the first building in New York State to achieve LEED version 5 Platinum status. We focus on measurable business outcomes which drive energy savings, operational efficiency, and high-performance buildings for our tenants and reduce risk for our shareholders and stakeholders. Our sustainability leadership attracts tenants and is part of their satisfaction when they renew and/or expand. Our entire organization remains laser focused on the company's five priorities: lease space, sell tickets to our Empire State Building observation deck experience, manage our balance sheet, identify growth opportunities, and achieve our sustainability goals. These priorities are directly aligned with long-term shareholder value creation. Christina, Ryan, and Steve will provide more detail on our results and outlook. Christina? Christina Chiu: Thanks, Jane. I will provide an update on our Observatory business and capital markets activity, which includes a high-quality retail acquisition on North 6th Street as part of our capital recycling and $184 million of financings that result in no unaddressed debt maturities until 2028. Our iconic Empire State Building Observatory continues to be a highly differentiated component of our platform, characterized by low capital intensity, strong operating margin, and dynamic pricing capability that helps mitigate inflationary pressures over time. We recognize we are in a period of heightened uncertainty with the potential for macro risks and geopolitical tensions to weigh on economic growth and tourism. As Tony mentioned, the first quarter is historically our seasonally lightest, which makes it difficult to draw meaningful conclusions from results this early in the year. The balance of the year typically represents approximately 85% of our annual NOI, with approximately 60% coming from the second half of the year. Our focus remains on the levers within our control: run the operations well, cultivate our brand, enhance the guest experience, broaden our marketing reach, control expenses, and be transparent with the market as external factors play out. Longer term, the Observatory has proven resilient through cycles and has attractive cash flow characteristics. CapEx is low, and a high proportion of NOI flows directly to our bottom line. Shifting to our investment activity, at the end of the first quarter, we acquired 4155 North 6th Street, a newly constructed, currently vacant prime retail asset at the corner of 10th and North 6th Street in Williamsburg, for $46 million, comprising approximately 22,000 square feet. This acquisition, together with our purchase of 80–90 North 6th Street in mid-2025, completed the redeployment of investment capacity from the December 2025 disposition of Metro Center without recognition of a taxable gain. In aggregate, we exited our last suburban commercial property and reinvested in approximately 37,000 square feet of prime retail on North 6th Street: one redevelopment asset on a strategic corner anchored by a key long-term lease we executed last year and one newly developed asset ready for lease. Our North 6th Street portfolio now totals 124,000 square feet and continues to perform strongly and in line with our expectations. These transactions reflect our strategy, as outlined on pages five through nine of our investor presentation, to rotate capital into opportunities with stronger growth prospects at our desired capitalization and risk profile. We built this position over approximately 2.5 years for roughly $300 million, all without leverage, which uniquely positions us to curate tenant mix, drive leasing momentum, and enhance long-term value across our holding. We built on Empire State Realty Trust, Inc.'s core strength in urban retail and achieved meaningful scale. We now own a dominant position and control four key street-corner locations in a sought-after, supply-constrained, and otherwise fragmented ownership market with a premium mix of tenants and significant mark-to-market opportunity over time. On our balance sheet, year to date, we have executed $184 million of financing. In mid-April, we announced the issuance of $130 million of senior notes in a private placement at a rate of 5.99% which will fund in mid-July and mature in 2032. Proceeds will be used toward paydown of existing debt, including our line of credit. We also closed on a $53.5 million mortgage refinancing for 10 Union Square East. The 10-year interest-only loan carries a fixed interest rate of 5.3% and replaces a $50 million loan that matured on April 1, 2026. With these financings, we have no unaddressed debt maturity until January 2028. Our balance sheet is a key strength. From our continued proactive approach to balance sheet management, we have enhanced flexibility and durability, reduced risk, and are in a position to capitalize on attractive investment opportunities as they emerge. We maintain ample liquidity, lower leverage versus sector peers at 6.3 times net debt to adjusted EBITDA, and a well-laddered debt maturity schedule providing significant financial flexibility. Our 100% owned asset portfolio with limited secured debt also provides capital structure optionality. We continue to underwrite new investments across New York City office, retail, and multifamily, evaluate strategic capital recycle opportunities that are accretive to long-term cash flow growth, and assess opportunistic share repurchases. New York City's strength is its underlying property fundamentals, and Empire State Realty Trust, Inc. is a pure-play New York City REIT aligned with live, work, play, and visit demand drivers. We continue to look for ways to further enhance the quality of our portfolio and grow cash flows through disciplined, value-driven capital allocation. I will now turn the call over to Ryan to review our leasing activity. Ryan Kass: Thanks, Christina. Good afternoon, everyone. In the first quarter, we signed 113,000 square feet of new and renewal leases. The average lease term for office transactions during the quarter was 10 years. We currently have approximately 280,000 square feet of leases in negotiation, up from the 170,000 square feet we cited in our fourth quarter call, and tour activity continues to be robust. In today's bifurcated market of haves and have-nots, Empire State Realty Trust, Inc. firmly is in the have category. Demand continues to concentrate in high-quality, modernized, amenitized, transit-oriented buildings owned by well-capitalized landlords with proven operating platforms. Our best-in-class portfolio enables us to capture this demand as reflected in our leasing pipeline. Last quarter, we highlighted that we will see fluctuations in our lease percentage during the year due to known move-outs. We also said that due to our number of larger space availabilities—we have 29 spaces to lease today, of which 16 are full floor—our lease percentage changes will likely be lumpy. Importantly, we remain confident in our year-end occupancy guidance of 90% to 92%. We started the year at 93.6% leased. We have approximately 210,000 square feet of known vacates through the balance of the year, and our present leasing plan will more than cover those vacates, and we will end the year above the year's starting number. Our office portfolio is currently 93% leased, which marks the thirteenth consecutive quarter above 90%. As of today, approximately 15% of our available office space is held off market for consolidation into larger availabilities. The first quarter marked our nineteenth consecutive quarter of positive mark-to-market lease spreads in our Manhattan office portfolio, underscoring our sustained pricing power. We achieved mark-to-market spreads of 6.8% in Manhattan office, which demonstrates our ability to grow rents and lock in long-term cash flow. Average lease duration was 12.2 years across the commercial portfolio. Notable leases signed during the quarter include a 13-year, 60,000-square-foot new office lease with Steve Madden for the entire third and fourth floors at 501 Seventh Avenue, and a 20-year, 22,000-square-foot retail renewal lease with JPMorgan at 1 Grand Place. New York City's leasing market remains strong and provides a favorable backdrop for execution. Demand is broad-based across industries, including finance, professional services, TAMI, and consumer products. Subsequent to quarter end, in April, we signed a 10.5-year, 38,000-square-foot new office lease for the entire third floor at 130 Mercer with a financial services tenant. This brings our lease percentage from 70% at acquisition to 80%, and we have two full floors left to lease. We launched our marketing campaign in January and are encouraged by the early traction, which supports our underwriting and is ahead of completion of our planned capital improvement. Activity remains strong, supported by the scarcity of institutional-quality space in the supply-constrained submarket. We are pleased to see our business plan take hold. Lastly, our multifamily portfolio continues to deliver solid performance. Same-store NOI increased 9% year over year, and net rents increased 6%. We ended the quarter at 96.4% occupied due to the vacancies in units which rolled out of 421a at Hudson Landing during the slower winter months, and we are now over 98% leased. Thank you. I will now turn the call over to Steve. Steve? Stephen V. Horn: Thanks, Ryan. For the first quarter of 2026, we reported core FFO of $0.20 per diluted share. Same-store property cash NOI, excluding lease termination fees, increased 5.5% year over year. The increase was primarily attributed to growth in base rent and tenant reimbursement income, as well as approximately $3 million of nonrecurring items recognized in the first quarter of 2026, which predominantly consisted of lease modification revenue and insurance recoveries. These increases were partially offset by operating expense growth. Adjusted for these nonrecurring items, same-store property cash NOI increased 1.3%. Our observation deck generated approximately $10.6 million of NOI in the first quarter, which is generally our lightest quarter. Excluding the gift shop, this represents a year-over-year decline of approximately $3.5 million. As discussed last quarter, the timing of gift shop revenue will be more heavily weighted to the fourth quarter due to a COVID-era license amendment that both reduced our fixed payments and lowered the thresholds for percentage-based payments to us. This provides us with upside tied to the recovery of international visitation. Revenue per capita increased by approximately 1% year over year excluding the aforementioned gift shop revenue. Turning to funds available for distribution, core FAD for the first quarter was approximately $33 million, up significantly from approximately $1 million in the first quarter of 2025 and above the $31 million we generated in the fourth quarter of 2025, despite the first quarter being seasonally light for the observation deck. This improvement reflects our meaningful reduction in FAD CapEx, which was approximately $22 million this quarter as compared to $53 million in the first quarter of 2025. As a reminder, the elevated levels of CapEx in 2024 and early 2025 reflected spend related to a significant lease-up we executed since 2021, which drove our commercial portfolio to over 93% leased today. Lastly, our guidance for full year 2026 remains unchanged. This concludes our prepared remarks. We will now open the call for questions. Operator: We will now be conducting a question and answer session. One moment please while we poll for your questions. Our first questions come from the line of Manus Ibekwe with Evercore. Please proceed with your questions. Manus Ibekwe: Yes, great. Thanks for taking the question. Christina, maybe starting with you. If you could touch a little bit on the opportunities you see in the market for 2026 that you are currently looking at underwriting. Obviously, I understand you cannot talk about details, but would be interested to get an update with a little bit more detail on the opportunity set that you are observing right now. Anthony E. Malkin: Could you repeat that question? We did not understand. Christina Chiu: 2026. Okay. Anthony E. Malkin: Yeah. Christina Chiu: Yeah. I think one thing that we have long discussed is we have been surprised by the lack of distress. We were hoping for more of a basis reset. We do sense that more recap opportunities may come online. A lot of the extensions of loans have already taken place, and the question will be, at some point, you have to deal with the maturity wall and predominant extension. So that can be a source. And in other instances, we look for opportunities where people are either at the end of fund life, want to wrap up their investment, and we can be part of the solution. As I mentioned, we continue to actively look at office, retail, and multifamily. And we will look for situations where we can extract and add value and be able to generate good return. Manus Ibekwe: Got it. Perfect. Thank you. And maybe one follow-up question on an item that was mentioned in the prepared remarks in terms of the 15% of space that is available that is held back for further consolidation of space. I was wondering if you could clarify a little on the leasing strategy there and how we should think about timing. Ryan Kass: When we spoke previously, that number was actually higher at roughly 20%. Because of the success of the Steve Madden transaction, and also we have been able to bring the portion of the One Grand Central large-block space online, we have been able to bring that down to 15%. There are four or five large blocks and full floors that we work to create over the next weeks to months, and that space will come online as quickly as possible. Manus Ibekwe: Okay. Thank you. That is it for me. Operator: Our next questions come from the line of Blaine Matthew Heck with Wells Fargo. Please proceed with your questions. Blaine Matthew Heck: You all have done a particularly good job of leasing spec or prebuilt suites within your portfolio over the past few years. So I wanted to ask whether there was a significant difference in demand for that type of space versus full floors. It just seems as though you are leaning a little bit more towards full floors with your existing vacancy, but maybe I am reading that wrong. Ryan Kass: The prebuilt portion of our portfolio is doing extremely well. Right now, we have single-digit prebuilt available, and we are actively showing it, in offers, and continuing to negotiate on those plans. What we do is, for every space, every floor, we have a master plan for the building and the floor, and we evaluate everything on a case-by-case basis—what will yield the best ROI for the portfolio. What we have found is right now, based on the current market demands and the conditions of the spaces, it makes sense to move forward with some of the consolidations that we spoke about previously. Christina Chiu: And I think I would not read too much into the commentary. At 130 Mercer, we happen to have three full floors, one of which we executed on leasing a full floor. So we seek to optimize availability. The common link in our leasing activity is we provide top-tier space in our price point and emphasize service, quality, and the experience at this segment of the market, and we provide that whether it is full floor or in prebuilt spaces. Ryan Kass: Agreed. And when we look at it, it is a healthy mix within our current pipeline of that 280,000 square feet. The prebuilts also act as a great opportunity to build a relationship and work with our tenants long term to renew and expand them, and that is a testament to the over 3 million square feet of expansions that we have done in the portfolio over time. Blaine Matthew Heck: Got it. Thanks. That is very helpful commentary. And then second, can you just talk a little bit more about the strategic rationale of buying a vacant retail property at this point versus maybe continuing to reinvest in your existing portfolio through share buybacks? Was that just more of a function of needing to reinvest your proceeds for the 1031 exchange? Christina Chiu: Yeah, sure. As we have mentioned, in our capital allocation, buybacks are definitely a part of the consideration. Very specifically, on the last two North 6th Street acquisitions, that represented a deployment of the Metro Center assets. If you think about it, we wanted to avoid recognition of gain, which would be leakage of proceeds. We wanted to exit out of a market where, although there can be rental and tenant demand, it requires meaningful CapEx and fundamentally does not have rent growth. In contrast, North 6th Street provides a combination of both current yield as well as outlook for continued cash flow growth over time, especially as that corridor continues to strengthen amid strong underlying property fundamentals and great demographics. So for us, that was a very specific capital recycling trade. It does not mean we will no longer do share buybacks. It is something that is most beneficial for shareholders if we were to deploy in that manner. And, separately, we have great liquidity where we can also do share buybacks over time. Blaine Matthew Heck: Okay. Great. Thank you. Operator: Our next questions come from the line of Seth Eugene Bergey with Citi. Please proceed with your questions. Seth Eugene Bergey: I just wanted to go back to the Observatory. With visitation trends down about 18% for the first quarter, I understand it is a seasonally weakest quarter, but what gives you confidence to achieve the guide for the rest of the year, and any color you can add on what you are seeing in April? Anthony E. Malkin: Of course, we update by quarter, so we appreciate your question for April. What we have seen to date is, in our slowest period, an impact from factors which are, we believe, significant to the market in general. We are aware that other attractions have done poorly in the first quarter. We have folks who disclose, and we have other folks through whom we have either information sharing or access to information. As we go forward, 85% of the year is in front of us, and so that is really where we hang our hat. Let us see what happens in this quarter. If you recall last year, we did look at things after the second quarter on the basis of what was accomplished there. What we see at this point is we still have a war on. We still have reduced travel into the U.S. We still have significant disruption in delivery of things like aviation fuel and gasoline and diesel for both people to travel internationally and locally. We are keeping a close eye on things. We think that changes there could drive changes in general for the year. It is not correct for us to make a change based on 15% of the year to date. We will keep a strong weather eye. Seth Eugene Bergey: Great. And then maybe just as a follow-up on 130 Mercer, now that you have executed some additional leasing on the building, how does the project compare to your initial underwriting? Ryan Kass: Overall, the lease is supportive of our underwriting. Net effective rents are in the high 90s for the transaction that we just completed. TIs are consistent, and the free rent is a little bit better. The transaction occurred faster than we had underwritten, and it is before the start of our capital improvement program. We launched the marketing in June. We are encouraged by the early traction and, again, completing a transaction ahead of our planned capital improvements. Activity is strong. There is scarcity of institutional-quality space down there. We are a differentiator for our large floor plate, the amenities, our financial stability, and our service. So, excited. Seth Eugene Bergey: Great. Thank you. Operator: Our next questions come from the line of Dylan Robert Burzinski with Green Street. Please proceed with your questions. Dylan Robert Burzinski: Hi, guys. I joined late, so I might have missed it. But did you share the yield-on-cost estimates for the recent retail acquisition? Christina Chiu: You missed it because we did not say it. On North 6th Street, we have said for our portfolio—the other assets we acquired—we acquired at high 4s to 5%, and we expected to be around 6%. That includes lease-up of some vacancy and delivery of storefronts under development. Given this is a lease-up—newly built, newly constructed, and ready for lease—we would expect yields higher than that, and we will provide more as we continue to make more progress. This is more of a value-add as compared to other existing income properties. Dylan Robert Burzinski: And just maybe going back to you being opportunistic on acquisitions in terms of property type. As you look at the market today, are you seeing more opportunities within any given property type? I know in the past it was likely office, but given office fundamentals in New York continue to be very strong, is that changing at all? Just trying to get your sense for what you are seeing in terms of opportunities out there today. Anthony E. Malkin: What we hear more about today is different capital structures have begun to reach the end of the road. There was the wall of maturities, there were extensions—kick the can down the road—and now we hear more about situations where the capital structure is broken, people do not want to put more money in, and they look to resolution. Most of what we hear about is in office. Different situations which we have seen and on which we have passed have come back. We will keep our eyes open. Interestingly enough, there is really more debt out there than there is equity, and the debt tends to end up getting involved or needing to be involved at more of equity-type returns and equity-type risks. We do not think that really works for a lot of these assets. So again, we keep our eyes open and remain omnivorous opportunivores. Dylan Robert Burzinski: Great. Thanks for the color, Tony. Operator: We will now turn the call back over to Anthony E. Malkin, Chairman and CEO, for closing remarks. Anthony E. Malkin: Thanks, everybody, for joining us today. At Empire State Realty Trust, Inc., we remain focused on a clear and consistent set of priorities: lease our space, drive Observatory performance, maintain a strong and flexible balance sheet, reallocate capital towards growth, and maintain our leadership in sustainability. These priorities keep the organization focused and aligned as we drive the business forward. With our high-quality portfolio and strong financial foundation, we are well positioned to execute in the quarters ahead and create long-term value for our stakeholders. Again, thanks for your participation in the call today. We look forward to the chance to meet with many of you at non-deal road shows, conferences, and property tours in the months ahead. Onward and upward. Operator: Ladies and gentlemen, thank you so much. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Good day, and welcome to the Saia, Inc. 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 Matt Batteh, Saia's Executive Vice President and Chief Financial Officer. Please go ahead. Matthew Batteh: Thank you, Chad. Good morning, everyone. Welcome to Saia's First Quarter 2026 Conference Call. With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgrefe. Before we begin, you should note that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all of the statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. I will now turn the call over to Fritz for some opening comments. Frederick Holzgrefe: Good morning, and thank you for joining us to discuss Saia's first quarter results. As we moved into 2026, we remain focused on serving our customers enhancing operational efficiency and integrating our newer terminals into our national network. Q1 2026 was no different than history with weather impacting operational results. This year was pronounced as we saw weather patterns impacting our core and profitable Texas and Mid-South regions. However, much like history, we saw seasonally -- seasonality increase in March and particularly in the second half of the month as our customers began to tap our national network. Our teams, fleet and footprint are well positioned to take advantage of this opportunity to support our customers' seasonal demands. Service metrics continue to improve through the quarter. During the quarter, our team remained focused on what matters most, serving the customer. We achieved a cargo claims ratio of 0.5%, which is our sixth straight quarter of claims ratio below 0.6%, a record of consecutive quarters achieving this milestone. Customers also value our ability to reliably pick up and deliver freight in the time frames that meet their requirements and expectations. Across our KPIs, we continue to meet and exceed expectations throughout the network. Despite the dynamic environment this quarter, we improved operationally. Most notably, we saw a significant increase in miles between preventable accidents and a significant improvement in hours between lost time injuries. Miles between preventable accidents were a first quarter record, while hours between lost time injuries were at the highest first quarter level since 2020. Both metrics are a testament to our ongoing commitment to safety, training and technology. Our operational execution is driven by our continued investments in our network and optimization technology. Although we're still in the early stages of realizing the full long-term benefits of a national network, execution remains strong across the organization, improving upon trends seen in the back half of last year. Increasingly, customers value consistency and reliability and our performance in these areas is enabled by the longer-term investments that are core to our strategy. As a result, productivity continued to improve in the quarter, with making their strongest performance since the third quarter of 2024, improving more than 2.5% compared to the first quarter of 2025 and improving approximately 1% sequentially from the fourth quarter. These metrics demonstrate the impact of our ongoing investments in optimization technology. As the freight backdrop improves and we continue to build density on our national network, we anticipate additional network leverage and asset utilization. With service levels among the best in the industry and our increasing value proposition to our customers, we continue to make progress on pricing and mix management. Revenue per shipment excluding fuel ramped throughout the quarter in part due to our efforts around contractual renewals, which were 6.7% for the quarter. While there's still movement among shipments with ever-changing backdrop, our renewal rates reflect our value proposition to the customers and our ability to provide solutions that meet their needs. First quarter results were largely in line with our expectations as volumes in late March were strong, offsetting, to some extent, a weather impact to January and February. Revenue for the quarter was $806 million, a record for the first quarter and a 2.4% improvement over prior year. While trends in the first couple of months of the year can always be volatile, I was pleased to see the volume acceleration in the back half of March, resulting in a shipment increase of 1% for the quarter. As customers continue to value our expanded presence in our now national network, we saw shipment growth in both our legacy and ramping markets. Weight per shipment, while still down compared to prior year, improved sequentially each month of the quarter, a result of our targeted actions around mix management and improving shipper sentiment throughout the quarter. Now I'll provide additional detail as it relates to cost. However, it's important to note, we were negatively impacted in March by the 30% increase in diesel costs in a matter of a few days. This rapid increase in cost created a meaningful short-term impact on profitability, given the timing difference of our surcharge program, which is based on weekly national average diesel prices. I'll now turn the call over to Matt for more details from our first quarter results. Matthew Batteh: Thanks, Fritz. Revenue was a record for any first quarter, increasing by 2.4% to $806.2 million, partially as a result of an increase in fuel surcharge revenue as well as a 1% increase in shipments for workday. Revenue per shipment, excluding fuel surcharge, decreased 1.2% to $297.11 compared to $300.76 in the first quarter of 2025, largely as a result of lower weight per shipment and shorter length of haul compared to the prior year. However, I was pleased to see revenue per shipment, excluding fuel surcharge, increased throughout the quarter. Revenue per shipment, including fuel, increased 0.7% compared to the first quarter of 2025. Fuel surcharge revenue increased by 12.3% and was 16.5% of total revenue compared to 15.1% a year ago. Tonnage decreased 2.1% compared to the prior year, attributable to a 3.1% decrease in our average weight per shipment. Our average length of haul decreased 1.7% to 890 miles compared to 905 miles in the first quarter of 2025. Yield, excluding fuel, increased by 1.9%, while yield increased by 3.8%, including fuel surcharge compared to the first quarter of 2025. Shifting to the expense side for a few key items to note in the quarter. Salaries, wages and benefits increased $4 million or 1% compared to the first quarter of 2025. This increase was primarily driven by a $7.9 million increase in health insurance costs as well as a $1.4 million increase in workers' compensation costs, both of which are primarily the result of escalating cost of claims. These increases were partially offset by a $5.1 million or 1.8% decrease in salaries and wages combined compared to the first quarter of 2025, as head count at the end of the quarter was 6.3% lower than the first quarter of '25 and was 0.7% lower than the fourth quarter of 2025. Excluding linehaul drivers, head count decreased 7.9% compared to the first quarter of 2025. These reductions were a result of our continued focus on operational efficiency and network cost management. Purchase transportation expense, including both non-asset truckload volume and LTL purchased transportation miles increased by 7.5% compared to the first quarter last year, and was 8% of total revenue compared to 7.6% in the first quarter of 2025. Truck and rail PT miles combined were 13.4% of our total linehaul miles in the quarter compared to 12.4% in the prior year. The increase in purchased transportation usage was driven entirely by rail that match customer service expectations, as we leverage the most cost-effective mode. Fuel expense for the quarter increased by 3.6% compared to the prior year, while company linehaul miles decreased 4%. The increase in fuel expense was primarily the result of a 13.6% increase in national average diesel prices on a year-over-year basis, as national average price per gallon increased more than 30% from February to March. Due to the rapid rise in diesel cost in March, our costs were elevated in real time while the fuel surcharge table updates the followup week. This period of quickly rising diesel costs resulted in an approximately $3.5 million margin headwind. Claims and insurance expense increased by 6.3% year-over-year. This increase was primarily due to rising insurance premium costs in addition to inflationary costs associated with the claims expense. While claims costs continue to escalate at a rapid pace, our efforts to remain focused around safety and training, resulting in a significant decrease in preventable accidents compared to the first quarter of 2025. Depreciation expense of $62.2 million in the quarter was 5.3% higher year-over-year primarily due to ongoing investments in revenue equipment, real estate and technology. Moving to costs on a per shipment basis. Cost per shipment increased 2% compared to the first quarter of 2025, largely due to increases in self-insurance related costs. Health insurance alone accounted for more than 50% of the year-over-year cost per shipment increase due to cost inflation and claims mix trending more towards -- towards more high-cost claims. Compared to the first quarter of 2025, salaries, wages and purchase transportation combined were down 1.2% on a per shipment basis as a result of our actions around cost control and network optimization. Meanwhile, higher fuel costs contributed to the increase in cost per shipment compared to the prior year, as fuel prices surged during March due to external factors. As a reminder, while our fuel surcharge program helps mitigate rising fuel costs, our fuel surcharge table updates weekly, whereas fuel costs are incurred in real time. The impact of this timing is more pronounced in a rapidly increasing fuel environment. Total operating expenses increased by 3.1% in the quarter and with the year-over-year revenue increase of 2.4%, our operating ratio increased to 91.7% compared to 91.1% a year ago. Our tax rate for the first quarter was 23.3% compared to 24% in the first quarter last year, and our diluted earnings per share were $1.86, which is flat compared to the first quarter a year ago. Focusing on the balance sheet. We finished the quarter with $39 million of cash on hand, $12 million drawn on the revolving credit facility and $113 million in total debt outstanding. I'll now turn the call back over to Fritz for some closing comments. Frederick Holzgrefe: Thanks, Matt. While 2026 has shown some positive demand signals, the ever-changing macroeconomic environment continues to create uncertainty from a customer perspective. One constant, however, is our team's ability to adapt to change and deliver solutions for our customers. As we remain focused on serving our customers while driving efficiency across our operations, I'm increasingly excited about the opportunity ahead. Our disciplined approach to cost management is reflected in our cost structure. We remain vigilant about managing cost. We noted in Q1 that employee-related costs associated running the business continue to be inflationary. It's critically important that we invest in what we feel is the best team in the freight business. At the same time, we continue to invest in the technologies that allow us to best manage and deploy the industry-leading team. Dating back to 2017 since we began our journey to becoming a national network, we've opened 70 facilities. Throughout, we've maintained a competitive cost structure or deployment of data analytics and optimization tools that have served us well. We'll continue to invest in those capabilities and expand the use of those tools, which remains core to our strategy. Looking forward, we remain committed to executing our long-term strategy of getting closer to the customer, providing a high level of service and being appropriately compensated for the quality and service provided. As the industry is perhaps emerging from a 4-year free recession, we see size upside as significant. We've invested with keen focus on supporting success, which has required a best-in-class team, a national terminal network, a flexible modern fleet and a technology stack to bring all these elements together. Over the last 36 months, we've invested approximately $1.8 billion in our network and fleet alone, representing more than 19% of total revenue during that time. This investment is a clear signal of our commitment to customers, and we believe we're still in the early stages of fully realizing the benefits of these investments, which we expect will generate substantial long-term value for our shareholders. With that said, we're now ready to open the line for questions, operator. Operator: [Operator Instructions] And the first question will be from Jordan Alliger from Goldman Sachs. Jordan Alliger: Great. So maybe, I guess, in the context of perhaps underlying demand feeling maybe a bit better. Can you talk or give your thoughts on margin progression as we go Q1 to Q2 and perhaps some of the specific levers that underpin that, whether it be volume yield cost? Frederick Holzgrefe: Jordan, sure. So I'll go ahead and give the shipments and tonnage stats monthly just so everyone has those and then get into the margin commentary. So Obviously, January and February, we're already out there, but just to reaffirm those and reiterate January shipments per day were down 2.1%, tonnage per day was down 7%. February shipments per day up 0.3% and tonnage per day down 2.7%. March shipments per day up 4.3%, tonnage per day up 2.8%. And April to date, shipments are tracking up about 5.5%, tonnage up about 6.5%. And as we think about what the Q1 looked like, I mean, we saw some nice acceleration in the back half of March, which was good to see that didn't come to fruition last year, so it was good to see that back around this year. But strong back half of March. And obviously, you see the April-to-date number. So when we think about what margin progression looks like, if I look back in history, Q1 to Q2, typically about 250 to 300 basis points of improvement sequentially from Q1 to Q2. This year, we think with what we've got going, the momentum we see, we think we can do about 400 to 450 basis points of improvement, which would be obviously a significant step-up from where we are. Now with that, obviously, there's a lot going on in the backdrop. We're projecting, as we stand now, May and June to be seasonal. A lot of factors out there with demand and what the diesel environment looks like and everything like that. But where we sit right now, if we we see May and June come together a normal seasonality. We feel like we can hit that. And if things really get better and the environment is really improving dramatically that we can outperform that, but that's where we stand right now. Operator: And the next question will be from Ken Hoexter from Bank of America. Ken Hoexter: So if you dig into the revenue per shipment ex fuel down 1.2%, Matt, you mentioned lower weight, shorter length of haul, but but it also decreased sequentially. But then you noted an acceleration in the quarter. Maybe, I don't know if you want to do that by month over month? Or how do you see that accelerating? I don't know if you want to talk about maybe core pricing or contract pricing within that, so we can kind of understand what is really going on there? And I guess with that, the weight per shipment, you're going to lap the Southern Cal issues in April, and I don't know if you get in the truckload spillover maybe in that same thing, how does it work with weight per shipment shifting as well? Matthew Batteh: Yes, we'll unpack those pieces a bit. So if I -- obviously, from a year-over-year standpoint, the Los Angeles region headwinds that we've talked about we're still there. They have made it a touch, but that region shipments were still down about 14.5% on a year-over-year basis. That's typically our highest revenue per bill region longer length of haul. But also included in that on a year-over-year basis, we're still winning in these 1- and 2-day land markets. And that's not a bad business. But generally, it's not going as far -- the price is a little bit less compared to something that's going more on our company average length of haul. That's not a bad business. And what we're seeing is more and more opportunities with customers as we're putting dots on the map. We're getting it back with them, and they're routing as different freight that we may not have had access to before. So that's a good business for us. That mix shifts around a little bit Q4 to Q1 as you start to get it more seasonal. But I mean we're pleased to see the weight per shipment improved throughout the quarter, along with our revenue per shipment month by month. Part of that's our actions on contractual renewals. You heard for it to get the 6.7%. That was the highest number that we've seen in quite a while, and that was capped by a March number that was north of 7%. We feel good about that. But there are shippers that are still moving around. The environment is still a little bit dynamic around some of that. So we continue to manage the mix. There is nothing that's changed from our efforts and focus on pricing. But we're getting more of that in some of these shorter-haul markets. Operator: And the next question will come from Jonathan Chappell from Evercore ISI. Jonathan Chappell: I understand there's a lot going on, and we don't want to get ahead of our skis here, but those numbers that you just noted for 2Q, especially, Matt, as we think about the rest of the year, the full year OR improvement guide from February of 100 to 200 basis points with the high end assuming some volume tailwinds, with what you think you have line of sight on with 1Q being done, the acceleration of tonnage through April and that 2Q bogey you just laid out there, does the high end become the low end? Or are we still I don't know, kind of questioning the pace of demand in the back half? Frederick Holzgrefe: I think it's -- John, you bring up good points. I think I'll start with what we're hearing from customers. We -- as you might expect, we spend a fair amount of time connected to customers, we survey, we communicate, try to understand where their business is. And I think the 1 thing that I would say is that we like to hear right now are 2 things. Number one, they track and give us feedback on our performance all the time in our Net Promoter Scores and our customer set have never been higher. They continue to improve, and we're excited about that. The second part of that, which I think is more tied to your question, is their sentiment is they're getting -- it's more positive. They see a better second half. Now Matt and I are -- and I talked to you about before, we tend to be a little bit more, let's show me, right? So those are positive tones. We like that. I'd like to see it in the results. I think right now, what we're excited about was what's in front of us for Q2. And I think the ranges that we've talked about earlier in the year, the $100 million to $200 million is certainly within range, but there's still a lot to go on. And the macro is still -- diesel costs are at high levels. Overall, transportation structure costs are high. Does that have an impact on demand down the road? I don't know yet. But I do know that short term, customers think we're doing a great job. It's showing up in the April results in second half of March, like all that. The feedback from customers is great. So we feel good about what we've talked about for Q2. And I think the trends would indicate that the second half of the year could be pretty good. Operator: And the next question is from Tom Wadewitz from UBS. Thomas Wadewitz: Yes. Let's see, I wanted to see if you could talk a little bit about the, I guess, weight per shipment, what that's doing and what it kind of did in kind of March to April? I guess also if you could just kind of help us understand, you're assuming normal seasonality in May, June. What does that mean in terms of like what your year-over-year tons per day, shipments per day look like? So I think just some more about kind of both how you see shipments developing and also what doing and how much that kind of matters to how you're looking at things? Matthew Batteh: Sure, Tom. Yes. I mean, we saw weight per shipment increase throughout Q1, which was good to see. As Fritz noted in the prescripted comments, that's what we feel is partly driven by our actions around core pricing increases and how we're targeting business and mix management. We also feel like it's a little bit to do with the backdrop improving and we've seen some positive signals, customer conversations, as you talked about. But you get into some of the spring periods and that you have some rollout at times or different mix with customers, but it increased pretty steadily throughout Q1, which was good to see. As we go into April, it's up a touch. You saw that in the tonnage numbers that we've talked about from a shipments and tonnage standpoint in April. Remains to be seen what that does in the back half of the quarter. Obviously, there's a lot going on. Shippers are still trying to figure everything out. So we feel good about where the trends are now. But we've got a couple of important months to go through and what is generally the peak quarter of freight. In terms of what seasonality does, typically, you'd see a step up of 1% to 2%-or-so in the March to April time frame. Somewhere in the middle is generally where that lands. And then what you'd also see is a step up April to May and May to June as well. So typically, what you're getting through Q2, which again is the most seasonal -- most typically strong period in the quarter, you're getting step-ups throughout the quarter. So that's what we're assuming right now as we stand. And as we're talking to our customers and getting demand signals from them, that's how we're forecasting right now. Thomas Wadewitz: What about -- and Fritz, I apologize if you might have said this in your remarks, but what about the growth in the kind of new terminals versus growth in the legacy terminals? Is that kind of similar? Or are you seeing meaningfully higher shipment growth in the kind of the terminals from the last 2 years? . Matthew Batteh: I'll give the number, Tom, and then Fritz will comment on it. But we -- one of the things we were really excited about in this quarter is we saw shipment growth in both the legacy and the ramping facilities. We've seen it for a while on the ramping facilities, obviously, but this was the first time in 5-or-so quarters that we've seen it in the legacy. So that was good. But the ramping is still outperforming legacy, but those grew for the first time in a while. Frederick Holzgrefe: Yes. I think it's -- what's exciting about this is having the legacy facilities grow at the same time in the new facilities are growing at a faster rate as we'd expect. And what's fantastic about that is that customers are considering us more for their complete solution. And they said, look, you can do a great job for us in markets you've always been in and now you've got these new points. So this is kind of the plan coming together. We're kind of getting to the point where growth in a legacy market is often tied to the fact that we can provide service in a ramping market at the same time. So you're now becoming a more important part of the customer's supply chain. So the percentages matter perhaps a little bit less now because the customer is looking at us as a solution rather than kind of in the legacy market. Operator: The next question is from Scott Group from Wolfe Research. Scott Group: So the pricing renewal numbers sound good, but if I just look at like a blended average of the pricing metrics you're actually reporting in the quarter, they're basically flat. So I guess, when do you think we should start to see sort of those yields and rev per shipment numbers actually improve and get closer to some of the renewal numbers? Or do we start to see some of that in Q2? And just I don't know, any thoughts there? Matthew Batteh: Yes, I think we'll start to see some of that in the back half of Q2. Obviously, we're right now just lapping some of that big change in the Los Angeles region business from last year. And there's still volume moving around with shippers and you don't always know what you take, and they move around a bit. But as the environment hopefully continues to tighten, we should see some of that come. I think we'll get closer to that as we get into the back half of the year. But I'd also expect us to see some of that improve in the back half of this quarter as well. Frederick Holzgrefe: Yes. I think the top part of the SoCal market for us, I think we start exiting out of that kind of in May, where it's more kind of we start lapping that we're past those tough months. Scott Group: Maybe just to that point, like we've got some moving parts there are obviously, like fuel is a big factor right now on yield trends, like within that margin guide that you gave us, like any way to like sort of like bracket, what sort of the revenue assumptions are? Matthew Batteh: We don't give that level of detail, Scott. But I mean, from a volume perspective, we talked about seasonality. Fuel plays a factor in that. But as we talked about, I mean, we're paying fuel costs in real time during that run up in March, they've stabilized a little bit. I think anyone's guess is as good as ours in terms of what that market is going to do. It doesn't seem like it's changing real time right now. So I would say that it's more just about the guide that we gave is underpinned by seasonal May and June is what I would say. Frederick Holzgrefe: And we're not assuming a change in fuel. It's like whatever it is presently, we're going to -- it could go up or down, diesel can go up or down from here through the end of the quarter. Operator: The next question will come from Ravi Shanker from Morgan Stanley. Ravi Shanker: If you can just unpack what you're seeing in terms of end markets, particularly retail versus industrial? And what's the typical lag between retail kind of end markets picking up versus industrial going into a cycle? Frederick Holzgrefe: Yes. I don't necessarily have a call out for retail and industrial. What I would tell you is that what we see the feedback we're getting from customers is kind of across the board. So it's across all the markets. So there is a one that's necessarily outpacing another for us presently. The -- so that I think is overall is probably positive, maybe it's more broad-based. I think that in some of the end markets, we participate and have pretty good line of sight to markets that are attractive will be grocery here that your data center businesses, all those sorts of things, we represent pretty well in there. And I think that those -- it's pretty across the universe. I think it's pretty consistent feedback both from we're doing a good job, and they feel maybe a little bit positive about the balance of the year. Ravi Shanker: Got it. And maybe I can squeeze in a quick follow-up here. Just on the tech side, kind of you mentioned a number of new investments on productivity. Are there any kind of big tech products or packages that you're dropping in that you think should see like a step function improvement in your optimization efforts here? Frederick Holzgrefe: I don't think that there is a -- we're quite ready to talk about any step-function changes. But what we continuously have been investing in the core optimization tools that we've had that are really critical to the cost structure that we have. I mean if you consider you benchmark us against the other public national carriers, not only are we the smallest of the public national carriers, but we're also -- our cost structure is very, very competitive. And what I would say is I point that specifically to how we run our linehaul network and how we plan our city operation. Those are all large -- our models or AI -- early stage AI models that we've been working on for a number of years, and there'll be continued enhancements around that. Now certainly, from here, how we interact with customers. We can deploy AI around customer service things, around track and trace as an example. Customers really value that. It's a cost-effective way for us to provide data to customers. Those are kind of things that we've launched, but they don't necessarily change the cost structure. If you got down the road and looked at things like Vision AI or things in that area, we're investing, those are things that are potentially operationally significant. I think that the big thing for us is that I think as we continue to focus on this national network, technology deployed and where we can optimize -- continue to optimize our pricing will be the real opportunity over time. So that -- our technology investment and focus is across the board. The cost things you have to do to stay ahead of inflation. And certainly, there are opportunities to continue to improve that. But I don't know that there's a step function out there yet for that. but we'll continue to focus our investments around optimization tools. Matthew Batteh: And you see that in our numbers, Ravi. If you look at the commentary around our touch is improving best since they've been in the third quarter of '24, you see it in the per shipment cost of salaries, wages and PT, that's how we always think about it in terms of what it takes to run a network to run an operation that on a per shipment basis is down. That's all a product of optimization, technology of cost management. And keep in mind, over that period, there's 20-plus new terminals in our network. So those are by no means are mature yet or fully efficient. So it's not new for us. We're going to continue improving that. But that's been the root of where our focus has been for a long period of time. And then to Fritz's point, the opportunity around pricing for us, the customer conversations that we now have are more equal on a footprint than they've ever been. We've got a national network. We can do more for them, and we're seeing more of that in these 1- and 2-day wins, but that's just a product of us being able to say yes to more things. Operator: The next question will be from Eric Morgan from Barclays. Eric Morgan: I was wondering if you could give us some thoughts on what we're seeing in the truckload market. Just curious if any of this tightness is driving some incremental volume onto your network? And maybe I'm not sure if that's the reason -- or 1 reason for the weight per shipment upward trend. And then my follow-up, just on your answer to the 2Q touch question, you said that you usually see that improvement from April to May and May to June. Is there any way to just translate that into what it would equate to on a year-on-year basis for the quarter? Matthew Batteh: We don't give the year-over-year base, Eric, and that was in shipments that I was referring to just for clarity on shipment type. Frederick Holzgrefe: Yes. So on your market question, I think what I would say is that I think you're -- over time now, you're starting to see freight moving, it's through its more historic moats and customers in a supply chain that is seeing increasing costs, what you're seeing is it may be a flight to quality, right? You're in an environment where you need to move freight inventory through your supply chain. It's expensive. You want to make sure it's delivered on time because you can't afford in a higher cost environment. So I think you're starting to see the reliability of our network starting to shine. And I think more broadly across all modes of transport. I think as you see the truckload market tighten up a bit, you see LTL freight returning the LTL market. That's probably a help in there somewhere, but I think, specifically, as it relates to us, I think it's reflective of our performance for our customers. Operator: And the next question is from Chris Wetherbee from Wells Fargo. Unknown Analyst: I guess, I wanted to ask about sort of the density or the building density and the newer more newly open parts of the network. And I think in the past, you guys have given us sort of operating ratio for facilities that have been open a couple of years. Just maybe get a sense of how that's progressing, particularly in March and April where it seems like the volume performance is looking a little stronger. Matthew Batteh: Yes. We're pleased with this. I mean they're still above company average, right? I mean there's a group of facilities are still relatively immature. We saw them improve. If I look at just those batch facilities, compared to where they were in the prior year. So the way we're thinking about this now is the '23 and '24 openings now we're past the 22%. So we're considering those kind of just part of the whole -- but the way that we look at those, I mean, that actually facilities year-over-year, they improved margins by over 2 points on the OR side, which is good. I mean there's still in the upper 90s, and we -- they are a drag on the overall. But we're going to continue working those down. They're still relatively new, but good performance from those on a year-over-year basis. Frederick Holzgrefe: Chris, I think part of the OR guide into Q2 is reflective of growth not only in our legacy markets, which we like, but it's continued sort of leverage in the ramping new markets, which is really, really key to the whole value story here. And I think that's what we're excited about. Unknown Analyst: And then just on sort of that -- the legacy versus the new, I guess, just getting a sense of how you're feeling the demand potential improvement? I guess, I don't know if you can measure that by thinking about how much is growth in legacy versus new in terms of what's kind of core demand and maybe what Saia initiatives, i.e., you're getting the opportunity freight for existing customers in the new network or vice versa. I just want to get a sense if there's anything you can tell from that sort of broadening out of this demand dynamic? Frederick Holzgrefe: Well, I think the big thing that I would point out, right, is we've highlighted that our legacy facilities are back -- first quarter reflected the first quarter and a number of quarters, we actually saw growth in those markets. And I think what that is indicative of it, I think this is an important piece. We're now in a bigger part of the customer supply chain in these new facilities. We're doing a great job for those customers in the facilities. And now when you're in that -- a little bit of a synergy that's coming out of this, it simply says when you're a national player and you could do more for a customer, you're hacking a lot easier to do business with. So now it's like, all right, well, let's give them more freight from Dallas to Atlanta because that makes sense because I know that they can cover. When they do the pickups for everything that's going into Montana, that matters too, right? So the combination of all that, I think we're starting to see the building of value of having that footprint because you're able to solve all those upper Midwest problems or markets where we haven't covered well historically. Now you're able to do that. So now the customer can say, look, let's lean into it in businesses that we've long done business with you, but now you're moving up to the top of the stack in our supply chain. So that -- I think that's exciting for us. And that's really what I think is going to drive the growth Q2 and [Audio Gap] citing force. I don't see an impediment short of a broader economic slowdown that would say that we can't continue to drive margin performance in this business and in the long term real value-creating goals that I think that we have, which are sub-80 OR is -- that's out there for us, and I think we can get there. I don't see an impediment to that. Unknown Analyst: And then just 1 follow-up on my end. Free cash flow, no 1 touched on it yet, but it was very strong in the quarter. Could this market inflection here? Or is there some other considerations we need to be thinking about? Matthew Batteh: Well, we've long talked about our plan this year was to be free cash flow positive. Obviously, we understand our duties to the shareholder, and we've feel good about how we've returned the investments in the business, but a lot of that build-out is done now. We still have some terminal opportunities here and there. So we understand that we're stewards of the shareholders' capital, and -- but absolutely, if this market continues to tighten our plans around that could escalate further. I think there's still some of the unknown out there in this near term. But based on the indicators that we're seeing from the demand side from customer conversations, we feel like this could be a really great inflection point for us. Operator: And the next question will be from Jason Seidl with TD Cowen. Jason Seidl: This is day on for Jason Seidl. Maybe just 1 for me on circling back on pricing. So on your last call, I think you spoke to some better-than-expected capture on GI since then freight markets generally have tightened up, your core pricing is sounding robust. Have you seen any changes or improvements on the capture side there as the year has progressed? And does that telegraph anything further for momentum on core pricing as you move through those annular fees? Matthew Batteh: I would say that it's been relatively steady. No major difference there. Some of the movement we see is generally around the national accounts or the larger customers a bit more who typically are -- they're using more carriers or they've got a more sophisticated TMS, things like that. So there's always some movement with that. But I would say it's been relatively similar to what we've been seeing on the capture side. And I think a big component of that is our ability to do more for our customer. It's harder to make a change when we can do everything before. Just you're thinking about it twice when you have to make that decision now. And now that we've got 214 facilities in the national network, we feel like our value prop to our customer is better than it's ever been. So relatively in line with where it's been, but I think every time that we can say yes to a customer and do more, then we get that chance to hold on to that at a higher price. Operator: And the next question is from Richa Harnain from Deutsche Bank. Richa Talwar: It's Richa here. Yes, maybe I can revisit how you manage purchase transportation. I know you look at it holistically with size, wages and benefits and optimize that in totality. Matt, you said it a couple of times your siren benefits plus PT per shipment, was impressively down in Q1. But just as truck rates rise, do you plan to enforce more or do you think your pass-through mechanisms with purchase transportation give you enough protection? And then just to clarify, I know Fritz, we talked about like the upside scenario. It seems like the macro is providing some help right now, which is nice. But if that doesn't materialize, given all the uncertainty out there, do you still think you can improve OR by at least 50 bps this year? Or could it actually be higher than that with all the momentum and productivity initiatives that we're hearing about in earnest today? Frederick Holzgrefe: No problem. Good question. On the PT side, one of the things that when we go through our decision-making process around PT, we always focus on, all right, number one, how does that match what customers need? Like what's the service schedule? Does it meet the quality standard that we need. What we found in Q1, particularly in the second half of March, we saw opportunities to really lean into rail. And the rail -- the entire increase of our PT year-over-year, I mean there's certainly some rate underneath, but the real piece is we really leaned into using rail, which on a cost per shipment base or cost per mile basis is upwards of $0.50 cheaper than our internal model. So in that case, because we could meet the customer need, the cost decision became sort of straightforward and we made that call. Now over time, I think one of the things that's important, and I think you've got to on track with this and that is as we build density in this network and scale, the opportunity for us to run more balanced schedules across the network, which allows us to use -- potentially use a Saia driver for the linehaul move, in that case, we've got freight for them to go from if he's traveling east, when he comes back west, you'll have a full load, and that's cost optimal and that makes a lot of sense. As the maturity of the network grows, there'll be opportunities to do that. But at the same time, we're going to take advantage of when PT works for us, starting with service, then we'll get to dealing with the cost side. If the cost side is better, where it makes sense for us to better utilize our resources maybe on another part of the network. With respect to kind of the momentum we're seeing in the business, I think there is certainly in a flattish kind of softening macro environment, can we get OR improvement in the business? I think we can. I think we've got some underlying efficiency goals that we have in place that we're achieving. I think that there -- as we get new volume in those facilities that are ramping that automatically gets us a bit of a cost leverage there. So I think we're in the process right now of really shoring up what I would say is the lower end of the range, right? So if macro softens up, can we still get better? I think we can. Is it 50 bps sort of idea, is that out there in a tough flattish market, I think we can achieve that, particularly as we continue to have success with customers in those new markets. So all in, I think what's exciting about this because of where we are, we've got line of sight to things that we can improve on and are improving and optimizing as we go. Richa Talwar: Okay. And can I just ask 1 quick follow-up? The good demand that you're seeing, I think legacy facility is seeing growth after like 5 quarters. Any sense of that being pulled forward or any concern around that based on your customer feedback? Frederick Holzgrefe: I don't think so. I think that what we see is it's more of a sort of broader sort of sentiment in the marketplace. So meaning, I don't see anybody making the decision to let's move the freight quickly now before things become more inflationary. I think it jumped up. The inflationary diesel cost jumped up pretty rapidly. And as a result of that, I don't think someone could necessarily foresaw kind of those cost increases that maybe move that forward. So I conclude that I don't think that we see any real pull forward there. Operator: [Operator Instructions] The next question is from Brian Ossenbeck from JPMorgan. Brian Ossenbeck: Just wanted to ask about the capacity and, I guess, ability to make service if you do have a more significant inflection in demand and volume, I don't know if you're ramping up for that probability already? Or if you have more productivity, you think you can leverage in that scenario? So maybe you can talk through that a little bit in terms of how you were planning for it right now? And if it were to actually materialize, how you would handle that, would you maybe even trim down some of the volume coming in to your that service is met in that type of scenario? Frederick Holzgrefe: It's a good question, Brian. Thank you for that. A couple of things. We feel like we -- because of our ability to manage PT efficiently and effectively, I think that's always going to be a bit of a natural leverage for us. So if you -- if we had unexpected short-term or shorter-term volume variation, we've got that sort of safety valve that we know how to manage. So I think we can handle that in the short term. I also think that as we scale the business, we have certainly continued efficiency opportunities. So I think that that's kind of within our framework. And then I think the other thing is, quite frankly, is that these are scarce assets, meaning the -- our fleet -- we're doing a good job with the fleet, with the real estate terminal network, the technology that's all inflationary. So in an environment, as it strengthens and firms up, we're going to expect to not only provide great service to our customer, we're also going to expect that we would be compensated for that significant investment we've made. So that may help manage sort of volume inflections and changes in terms of in a stronger backdrop, we probably focus more on making sure we're compensated for all of that investment that we've made. Because when you do business with Saia, you're going to get -- you get best-in-class service. So we expect to get paid for that investment. So that probably becomes a bit more of kind of our focus in that sort of the backdrop. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Fritz Holzgrefe, Sias President and Chief Executive Officer, for closing remarks. Frederick Holzgrefe: Thank you, operator, and thanks to all that have called in. At Saia, we believe that our value proposition to the customer continues to be significant and we look forward to talking about the success we will achieve in the quarters and years to come. Thank you, everybody. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Four Corners Property Trust, Inc.'s first quarter 2026 financial results conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Patrick L. Wernig. Patrick, please go ahead. Thank you. Patrick L. Wernig: During the course of this call, we will make forward-looking statements which are based on our beliefs and assumptions. Actual results will be affected by known and unknown factors that are beyond our control or ability to predict. Our assumptions are not a guarantee of future performance, and some will prove to be incorrect. For a more detailed description of some potential risks, please refer to our SEC filings which can be found at fcpt.com. All the information presented on this call is current as of today, 04/30/2026. In addition, reconciliations to non-GAAP financial measures presented on this call, such as FFO and AFFO, can be found in the company's supplemental report. Please note that if you are a research analyst, you have been emailed a meeting ID, which is 865913566. We will repeat that at the end of our prepared remarks. That PIN will allow you to ask questions during the Q&A session. With that, I will turn the call over to William. Good morning. Following his initial remarks, Joshua will comment on our investment activity and I will discuss financial results and capital. William Howard Lenehan: Q1 marked a continuation of the momentum from 2025 and a strong start to 2026. AFFO per share grew by 3.4% versus the prior-year period, continuing our focus on steady risk-adjusted growth. During Q1, we acquired $26 million of net lease properties at a 6.8% blended cash cap rate, equivalent to a 7.3% GAAP cap rate. This is marginally lower volume versus the start of 2025, but I would emphasize we are seeing a lot of attractive opportunities and feel good about the strength of our pipeline. Seasonally, we tend to see fewer deals close in Q1 versus later in the year, and Q2 is shaping up that way so far. Over the last twelve months, we have acquired $288 million of properties. We are also excited to have closed on a new $200 million term loan with seven-year tenor earlier this month. The term loan all-in rate is 4.9%, which represents 200 basis points of spread to historical acquisition yields. We will be able to invest that money accretively. Our rent coverage in Q1 was 5.1x for the majority of our portfolio that reports this figure. This remains amongst the strongest coverage within the net lease industry. The rent coverage figure for our Garden properties specifically is 5.8x. We have been very consistent, remaining above a very lofty 5x for the past three years. As a reminder, the first tranche of lease maturities is due to send us extension notices by October. While we cannot know the outcome with certainty, barring a material change in the operating performance of lease sources, we would expect a very high renewal percentage for the spin-off portfolio in the coming years. To that end, our largest brands, Olive Garden, LongHorn, and Chili's, continue to be leaders within the net lease tenant universe. Most recently, Brinker reported Chili's same-store sales growth of 4% for the quarter ended March 2026 after a 31% increase a year ago. Olive Garden and LongHorn reported same-store sales growth of 3% and 7%, respectively, for the quarter. Remarkable results for the three brands that represent 40% to 47% of our portfolio rent combined. To bring that point home, I will call out a new slide on page seven of our investor deck that shows the strong outperformance of our publicly traded tenants versus the generic all-restaurant index. The key takeaway is portfolio construction is extremely important. By being selective with our tenant partners, we are building what we believe is a fortress portfolio brick by brick. Our lead restaurant tenants appear to be taking market share and have not shown signs of slowing down. To that end, our portfolio has avoided some of the more problematic lease sectors experiencing long-term macro headwinds. This includes theaters, pharmacies, and experiential retail more generally. We benefit from our strong portfolio construction with a low basis, fungible buildings operated by tenants and sectors that are e-commerce and recession resistant. We have had no major tenant credit issues, leading to very low bad debt expense and very little vacancy in our portfolio. On this topic, we would like to provide a brief update on our Bahama Breeze properties. As a point of clarification, we own 10 Bahama Breeze properties, which is 1.3% of our ABR. That said, Darden is planning to convert six of these locations to other brands they operate—Yard House, Olive Garden, LongHorn, Cheddar’s, etc. They would like to convert more, but they are limited by already having nearby existing locations in some cases and co-tenancy restrictions. So the remaining four properties are 50 basis points of ABR, and we already are actively negotiating letters of intent with new tenants to backfill these locations. Based on the figures we are negotiating, we expect to recover or possibly even exceed the prior rent paid by Darden, although the timing and final economics will ultimately depend on the outcome of these negotiations. It takes a few months to negotiate a lease, and we should have further updates on timing at the Q2 earnings call. But overall, we are in very good shape. Remarkably, I would like to point out that it has been less than three months since starting to announce the brand closures; for us to have potential solutions across the board for all 10 locations so quickly just highlights how our focused strategy, strong underlying real estate, and replaceable rent levels will benefit us long term. In any case, we will continue to collect rent throughout the backfill process as Darden is still obligated to make rent payments on these now for all 10 locations for at least one and a half years, and in some cases up to four. That provides us flexibility as we work through the preferred backfill tenant options. Shifting gears, we continue to diversify our portfolio. Thirty-seven percent of our rent is now from key tenants outside of the casual dining subsector, including automotive service at 13%, medical retail at 11%, and QSR restaurants at 11%. We are actively exploring new retail categories and property types as we look to expand the top of our funnel for investments. As when we developed our automotive service and medical retail property strategies, prior to investing in a new sector we evaluate the business resiliency and AI disruption risk, availability of creditworthy tenants, real estate quality, and pricing attractiveness. That said, for us, the limiting factor in these sectors’ deals is typically sellers' lofty pricing expectations. Finally, and this is a very exciting point, I would like to mention that Michael Friedland has joined our board. Michael recently retired from JPMorgan and brings 30 years of Wall Street experience in real estate finance and corporate credit to Four Corners Property Trust, Inc. We have known Michael a long time, and we are really impressed and glad he has joined our board. Welcome, Michael. Over to you, Joshua. Thanks. Joshua Zhang: I will start with a review of Q1 activity and then touch on our investment pipeline. In Q1, we acquired 10 properties with a weighted average lease term of 10 years for $26 million at a blended 6.8% cash cap rate, or a 7.3% GAAP cap rate. This represents an average basis of $2.6 million per property, extending our strategy of partnering with creditworthy operators while focusing on fungible, low-cost basis assets to help mitigate downside risk. We were really happy with the asset selection this quarter, and as William noted, Q1 is typically a lower volume period for us. And the ending volume for the period lined up well with our internal expectations. That said, Q2 is shaping up to be consistent with our typical seasonal volume ramp. Q1 acquisitions were composed of 46% restaurant, 28% auto service, and 26% medical retail properties. On the credit side, all of our properties acquired in Q1 were leased to corporate operators, the only exception being a McAlister’s Deli in Michigan, which is leased to Southern Rock, the largest McAlister’s franchisee with 178 locations across 13 states. Our team continues to partner with leading operators in each of our chosen retail subsectors. Coupled with our low-basis rent filtering, we have a proven track record of building a resilient and long-standing portfolio. In the meantime, our team continues to actively explore all avenues for investment—both large portfolios and small granular deals—in addition to assets in new subsectors, as evidenced in Q4 2025. While we are expanding the top of our investment funnel, we will continue to maintain our discipline in acquiring low-basis investments leased to best-in-class operators at pricing accretive to our cost of capital. Patrick, back to you. Patrick L. Wernig: Thanks, Joshua. I will start by talking about the state of our balance sheet and an update on our capital sourcing. Including our recently closed term loan, we funded $50 million of the new incremental $200 million term loan in April, and the balance will be used to fund acquisitions in Q2 and Q3. Term loan credit margin is 125 basis points over SOFR, for an all-in rate of approximately 4.9%. We fully hedged our current outstanding term loan balance of $640 million as of April 30 at a blended SOFR rate of 3.1%, or approximately 4% all-in, with that rate steady through November 2027. Our supplemental disclosure includes a detailed pro forma hedge schedule. We also continue to benefit from full capacity under our $350 million revolver. With respect to leverage, at the end of Q1, our net debt to adjusted EBITDAre was just 5x. It is our seventh consecutive quarter of leverage below 5.5x, and at the bottom end of our stated leverage range of 5x to 6x. Noting that our term loan closed after quarter end, but after fully funding and investing the proceeds, estimated run-rate leverage will be 5.4x. Our fixed charge coverage ratio remains a very healthy 4.8x as of quarter end. Turning to debt maturities, once factoring in the extension options for our existing term loan, we have no debt maturities until December, when just $50 million of private notes come due. We plan to address this in due course closer to the maturity date. Our staggered maturity schedule will ensure we do not face a significant maturity wall at any point thereafter. Now turning to some of our earnings highlights for Q1. Net flow per share was $0.45, representing 3.4% growth versus prior year. Cash rental income was $70 million, representing 10% growth versus prior year. Annualized cash-based rent for leases in place as of quarter end was $266 million, and our weighted average five-year annual cash rent escalator is 1.5%. Cash G&A expense was $4.9 million for the quarter, representing 7% of cash rental income, compared to 7.7% for the prior year—a 70 basis point improvement in operating leverage—and flat cash G&A compared to the prior year. This illustrates our continued efforts at achieving efficient growth and the benefits of our rising scale. Following our Q1 results, we are reaffirming our guidance range for 2026 cash G&A of $19.2 million to $19.7 million. We have also continued to make progress, with 27 of the 42 leases originally expiring in 2026 extended. Recapture rate on these locations is 6% above prior-year rent. We are currently negotiating to re-tenant two of those properties, and the remaining 13 now represent just 1% of ABR, down from 2.6% at the beginning of 2025. Our portfolio occupancy remains very strong at 99.6% today, which benefits from releasing some of our very limited number of vacant sites. We collected 99.7% of base rent in Q1 and, last quarter, did not see any material changes to our collectability or credit reserves. As an aside, during this call, we have referenced two of our new disclosure updates, which I will highlight again now. First, going forward, we plan to disclose GAAP cap rates along with the cash cap rate figure we have always provided. We have very low default rates historically, and our intention is to hold our properties long term. Therefore, the data related to those expected long-term returns is another helpful metric for our investors. Our presentation includes a new slide that has GAAP cap rates going back to 2023, showing that historically they have averaged about 70 basis points higher than our initial cash cap rates. Second, we are updating the way we show the AFFO per share growth, calculating without the impact of two-decimal rounding. Based on our share count, rounding can be impactful in this figure, particularly for quarterly comparisons. Our updated approach will allow us to quote a more accurate growth figure. We continue to aim for ways to improve transparency with the investor community and believe these changes are aligned with that focus. With that, we will turn over to questions for the Q&A session. And just a reminder, the meeting ID is 865913566 if you would like to ask a question. Thank you. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Michael Goldsmith from UBS. Michael, go ahead. Michael Goldsmith: Thank you. It is Michael Goldsmith from UBS. Thanks for taking the question. First question is, I know you do not provide discrete guidance, but maybe this $200 million term loan is shadow guidance in that you have talked about fully drawing that down in the second and the third quarter. So as we think about acquisition activity, you have got the $200 million there, consensus at $275 million in acquisitions for the year and that stepping down to $250 million next year. Just trying to get a sense of your liquidity, the acquisition market, and now you kind of have clear line of sight into acquisitions of, let us say, $200 million through the third quarter. Should you be able to exceed that and continue to acquire healthily into next year? And as a follow-up, I appreciate the new slides in the presentation—I think pages seven and eight. Can you just kind of walk through what you are trying to show here? I think you are indicating that the Four Corners Property Trust, Inc. portfolio—or the tenants that you have—are outperforming maybe the general overall restaurant industry. And then separately, your GAAP cap rates are exceeding your cash cap rates. Maybe you could just provide a little bit more detail about the point that you are trying to make with both of these. Joshua Zhang: Thanks. William Howard Lenehan: So, Michael, you know our business well. I think the answer might be hidden in your question. We are very particular about how our press releases are drafted, and I think we gave more specific timing guidance than we have in the past. I would say it is always curious that analysts seem to have declining acquisitions for us, which is unusual in the space. I do not think there are other companies where that is the case. I am not sure why. It is not what has been in the historical record. On your follow-up, great question. We had an investor show us our stock price versus some generic index—I think it might have been MSCI or Morgan Stanley—some generic restaurant index. You had to be a little cute with the start date to get it to line up, but there was a pretty high correlation. They were making the point, do we trade like a restaurant index? We think that is a silly concept on its face. But if we were going to trade like a restaurant index, at a minimum, you should weight the index by our rent and look at the stock performance of our tenants weighted by our rent. If you do that, you get the yellow line, which shows how strong Darden and Chili’s have been and that we do not have companies that have fallen into distress. Our tenant roster is really strong. On the GAAP cap rate, we have a competitor, Agree, that we admire—it is a great company. They have historically used GAAP cap rates. We have gotten questions about where our cap rates are versus theirs. There seemed to be some investor confusion that people were comparing our cash cap rates against their GAAP cap rates. Both numbers are perfectly legitimate ways of looking at it, but sometimes we felt our cash cap rates were being compared against their GAAP cap rates. So we just did the math and showed you the data so you can pick and choose the way you want to do it. I will handle the last new disclosure you did not ask about—rounding. We just thought this is a more accurate way of doing it. Not surprisingly, sometimes comparing rounded to rounded versus more closely actual to actual would have a higher growth rate some of the time and a lower growth rate some of the time. We just thought this was a better way of showing it. There seems to be a lot of focus on growth today, and we wanted to give you the most accurate number we can. If you have more questions about that—it is a pretty technical calculation—I would recommend you reach back out to Patrick after the call on the rounding issue. Michael Goldsmith: Thanks so much, guys. Good luck in the second quarter. Joshua Zhang: Appreciate it. Thanks, Michael. Operator: Your next question comes from the line of BMO Capital Markets. Please go ahead. Analyst: Hey, good morning. Thanks for taking my question. Just given your strong relationship with Yum and Brinker, are there any identifiable acquisition opportunities as Yum expands on its Taco Bell platform and Brinker expands on its Chili’s platform, just given the strength and same-store sales there—whether it is on the acquisition front or potentially a development opportunity? Thank you. And then just on the bad debt side of things, could you talk about anything that has been realized year to date and how you are thinking about bad debt for the remainder of 2026? Thank you. William Howard Lenehan: Thank you. We are always working on those. The one comment I would make is Taco Bell tends to trade for very, very tight cap rates. But we are always working on things like that. Being aligned with strong brands where we can play offense and not have to be licking the wounds of prior investment mistakes is a huge advantage. But I would say that both of the brands you mentioned trade at very, very competitive cap rates on the secondary market. On bad debt, the number is zero for the year to date. We have over 1,300 leases, so we are always monitoring something in the portfolio, but we have not had any bad debt this year and the portfolio continues to perform really strong. You probably saw Brinker’s results yesterday and recent prints by Darden as well. The brands we have aligned with are weathering any sort of macro headwinds very well. There are going to be some brands that do not, but we try to pick our horses very carefully so that we avoid that. Analyst: Alright. Thank you for the time. Appreciate it. Operator: Your next question comes from the line of Baird. Wes, please go ahead. Wesley Golladay: Thank you. Hey, good morning, everyone. Can you go back to that comment on the expirations? I think you said 42 have been renewed. I believe you said 6%. I would have thought maybe it would have been a little bit lower with the contractual rent extension. How should we think about that going forward? Okay. Thanks for that. And then when we look at the pipeline going forward, is there a bigger percentage of that in the new category that you are evaluating, or are you looking to enter those new categories a little bit more methodically? William Howard Lenehan: I would not overemphasize it. I think we had a positive quarter. Our typical rent growth is 1.5%. If you are modeling our company, I think that is a good place to go. There might be a quarter where it is better, might be a quarter where it is not as good, but 1.5% is a good place to start and finish. I would also just emphasize that Justin and his team have done a terrific job on asset management and releasing. That is a new capability for us in the last couple of years. Justin has really aggressively restructured his team and has done a terrific job. We are more on top of that as a company than we have ever been by far. On the pipeline, we are really score-focused. We are not emphasizing one category over another. We are trying to find the assets that score the best and make sure those rise to the top with appropriate pricing. We are looking at some new sectors as we talked about last quarter and leaning into building relationships, finding what tenants we want to emphasize, etc. So the aperture is bigger than it has ever been. Operator: Your next question comes from the line of Wells Fargo. John, please go ahead. John Kilichowski: Hi, good morning. Thanks for taking my question. First one for me—William, thanks for the color on Bahama Breeze. To expand on that, you mentioned the positive mark on the other assets that were not being converted. Is there going to be downtime there? Will there be rent loss before the mark, or do you think there will be no net credit loss there? And then just quarter-to-date, if we kind of run the numbers here, it looks like the average blend is about 20 bps higher than what you closed in Q1. I know that is early based on what you have released. Is there any sort of upward creeping yields that you are seeing driving that, or is that just small sample size driving that move? William Howard Lenehan: No, I do not think there will be downtime. Darden is responsible for a year and a half at the minimum, up to four years for the handful that we are converting to other tenants. To the extent that there is rent growth or capital provided, all that is baked into our comments. We feel really good about being able to release these to strong tenants, and Darden is taking a lot of them too. It is a good diversification move. I think it shines a light on the Bahama Breezes that we sold a number of years ago for really high prices—that we did a good job managing our value-at-risk with any one particular tenant. It could be a good result. On the quarter-to-date yields, small sample size. Patrick L. Wernig: I would just add to that, as William said in his comments, we are talking about four stores and 50 basis points of ABR. It is a small amount. John Kilichowski: Okay. Got it. Thank you. Operator: Your next question comes from the line of Citizens Bank. Mitch, please go ahead. Mitchell Bradley Germain: Thank you. William, you mentioned looking at a couple of new industries. I think it was capital that you allocated to a rental operator and a grocer. What sort of education do you and your team undertake in reviewing the sector? What are the attributes that made those assets or sectors interesting for you? And does that change the TAM in terms of how you allocate capital? Is that the way we should be thinking about this now? And last one for me: Are you seeing any real changes in the competitive landscape within the investment sales market? For quite some time, there was a lot of competition sitting on the sidelines, and some of that appears to be back. Is that shifting any way that you are approaching underwriting and bidding on properties? William Howard Lenehan: I think that is a good way of thinking about it. We use what we call the triple filter: Is this something that we know enough to buy? Do we have permission from our investors to buy it? And would we buy it with our own money? While those sound very high level, that is a very challenging gauntlet for an asset class to get through. I personally would not buy a pickleball facility with my own money, so that makes it pretty easy not to buy pickleball facilities. I would not buy a Carvana with my own money, so that makes it pretty easy. Do we have permission from our investors? That is a harder one. We tend to take it pretty gradually to make sure that we are bringing our investors along with us. Pretty clearly, our investors do not need Four Corners Property Trust, Inc. to buy a Class A office in New York City; they have other ways to get that exposure. The “do we know enough” is manifest in writing white papers for our board, going to conferences, meeting and talking with tenants, walking the floors. I would say, humbly, that a lot of these sectors are things that I have experience with in the past, pre–Four Corners Property Trust, Inc. When I was at Tralee/Trailion and on Gramercy’s investment committee and other things I worked on, we bought outdoor industrial storage and we bought grocery, so I have a familiarity and I am bringing the team along with me. On the competitive landscape, where we are on the onesies and twosies—we obviously look at portfolios and have closed on several in our existence—I think we are really well competitively positioned. We can build a portfolio throughout a year that we are proud of doing onesies and twosies. We have the scale to do bigger things as well. We read a lot in the news about private credit and the private credit firms creating a discount to NAV, questioning of their marks—will that cause them to pull back? I do not think we have evidence of that yet. Certainly, recently there has been a lot of corporate M&A activity. I think there is a lot of shadow corporate M&A activity. There is a lot of things to work on now. Operator: There are no further questions at this time. I will now turn the call over to William Howard Lenehan for closing remarks. William, go ahead. William Howard Lenehan: Great. Terrific, and glad to land the plane on the 30-minute mark. Ultimately, existing portfolio strength is compelling for us to focus on offense, where many of our peers are playing defense. Our $200 million term loan gives us a direct line of sight for funding between now and Q3. The attractive pricing we are seeing in the debt markets should give us even more access to low-cost funding later this year at scale. The acquisition market is stable and, with a bit larger aperture for our property types, we expect another successful year of building our portfolio brick by brick. Our team will be at ICSC the week of May 18 and NAREIT in New York the week of June 1. As many of you know, we host a cocktail party in conjunction with ICSC. We would love to meet with you in person at either of these events, so please reach out to Patrick or myself to coordinate schedules. Thank you all, and we look forward to continuing to see many of you in person this year. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Flowserve First Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brian Ezzell, VP of Investor Relations. Please go ahead, sir. Brian Ezzell: Thank you, and good morning, everyone. Welcome to Flowserve's First Quarter 2026 Business Update. I'm joined by Scott Rowe, Flowserve's President and Chief Executive Officer; and Flowserve Chief Financial Officer, Amy Schwetz. Following Scott Rowe prepared remarks, we'll open the call for questions. Turning to Slide 2. Our discussion will contain forward-looking statements that are based upon information available as of today. Actual results may differ due to risks and uncertainties. I refer to additional information, including our note on non-GAAP measures in our press release, earnings presentation and SEC filings, which are available on our website. With that, I'll turn the call over to Scott. Robert Rowe: Thank you, Brian, and good morning, everyone. I'd like to begin by thanking our associates around the world for their hard work, disciplined execution and resilience in a highly dynamic environment. Our first quarter results reflect their continued focus on execution as we delivered strong adjusted operating margin expansion of 230 basis points and adjusted earnings per share growth of 18% and including the net benefit of tariffs and other unanticipated items in the quarter that Amy will discuss in more detail. While bookings and sales were impacted by events in the Middle East, we maintain our full year adjusted EPS outlook of $4 to $4.20, which at the midpoint represents 13% growth over 2025. We continue to advance our strategy and leverage the Flowserve Business System to unlock greater potential across the company. As we announced in late March, Matt Copper, who formally led our Industrial pumps business unit has been promoted to lead the FPD division. I'm excited to have Matt in this role where he can leverage his customer relationships, knowledge of the business system and international experience to continue driving strong performance for the division. Let's turn to bookings on Slide 4. Bookings in the first quarter were $1.15 billion, down 6% from the prior year period. Our first quarter book-to-bill was 1.07x. We delivered healthy aftermarket bookings of $680 million in the quarter. As anticipated, aftermarket was down modestly on a year-over-year basis against a very strong prior year comparison that included a large nuclear order. On a sequential basis, aftermarket bookings were in line and represented the eighth consecutive quarter above $600 million. Our focus on expanding the aftermarket business continues to deliver results. as we drive higher capture rates across our installed base. Within our original equipment business, January and February started with softer-than-expected bookings largely related to our run rate MRO business and some smaller projects pushing out to later in the year. We saw these trends improve in March back to levels we anticipated, with strong commercial activity in the market. The softer start to the quarter, coupled with dynamics in the Middle East resulted in lower original equipment bookings in the quarter. I'll provide more insight on the Middle East in a moment, though it's important to note that absent the estimated $50 million headwind related to customer delays in the region, bookings for the quarter were largely in line with our expectations. Our focus on diversification within the 3D strategy has positioned Flowserve to manage through a dynamic market conditions better than ever. In the quarter, we received more than $110 million of nuclear awards including 2 projects larger than $20 million each. Nuclear and traditional power continue to represent attractive strategic growth markets for us. Turning to Slide 5. I'll provide an update on how we have been responding to the situation in the Middle East. Our #1 priority is employee safety and supporting our roughly 800 associates across manufacturing facilities and QRC locations in the region. I'm proud of the resilience and focus our teams have displayed as they continue to deliver for our customers. We are taking the necessary actions to manage through the near-term disruption, while positioning the business to respond effectively as we see incremental demand. First quarter sales and earnings were negatively impacted by disruptions in the region, largely driven by the shutdown of the logistics system and the inability to get to customer sites at the height of the conflict. Though conditions in the region remain dynamic, our ability to operate has improved under the recent ceasefire with temporary work positives implemented as needed based on safety considerations. We are proactively adapting our supply chain to address transportation delays, inflationary pressures and the potential for broader disruption. The progress we have made through the Flowserve Business System over the past several years has enabled us to operate with greater discipline, better visibility and more flexibility across our global network. We are dynamically repositioning the supply chain, leveraging our broader supply base and utilizing our regional and global footprint to respond quickly as conditions evolve. As we look forward, we have assumed that these disruptions seen in the first quarter continue for some period. Over time, we see significant opportunity to support our customers' critical infrastructure needs. We have a large installed base across the region and a legacy of strong customer relationships. We anticipate that asset restarts and rebuilding activity will begin later in the year with accelerated opportunities for additional infrastructure investment across the region. Energy security is also expected to be of increasing importance across the globe, and our teams are working diligently to assist customers as they plan for these incremental investments. Turning to Slide 6. I'll provide some perspective on the broader market outlook. Despite the disruption in the Mideast, the underlying fundamentals across our end markets remain healthy, and we continue to see meaningful growth opportunities for near and longer term. The outlook for power remains very favorable with global electricity demand continuing to support significant investment in both traditional power and nuclear generation. In general industries, ongoing developments in sectors such as mining, pharmaceuticals, food and beverage and water continue to represent a meaningful opportunity for growth. Within energy, utilization rates and maintenance activity across large process facilities have remained strong, with North American utilization increasing in March due to higher crack spreads. Our large installed base and ability to increase capture rates continues to support a constructive outlook for Flowserve, even as some larger project work has been slower to materialize given the geopolitical uncertainty. And while chemical remains our lowest growth end market, we continue to expect modest improvement over the course of the year. Looking ahead, our 12-month project funnel remains robust and expanded across all end markets, both sequentially and year-over-year. We are encouraged by bookings trends exiting the first quarter and by the awards we received in April. We have good visibility in the commercial opportunities and believe mid-single-digit bookings growth remains achievable for the full year. We also believe the current geopolitical environment could drive increased investment in energy security and diversification globally, providing another long-term tailwind for Flowserve. In addition, as one of the leading suppliers of flow control solutions in the Middle East, we expect to play an important role in reconstruction activities across industrial complexes as stability returns to the region. We are prepared to respond quickly and support our customers as these opportunities develop. Turning to Slide 7. The Flowserve business system continues to be a key driver of our performance. The progress we have made across operational excellence in 80/20 has helped us improve how we run the business, reduce complexity and driven steady, sustainable margin expansion. Operational excellence continues to strengthen our core execution capabilities and improved performance across the organization. We have improved data and material flow, optimized inventory and unlock significant cash for the business. increased supply chain reliability and enhanced delivery performance are also helping us better serve our customers. Furthermore, we continue to execute our footprint rationalization program. With further support -- which further supports our efforts to reduce fixed costs, improve operational performance and deliver further value for our customers. As we move into the third year of the 80/20 program, we continue to simplify our product offering across the business, including meaningful SKU and model reductions, we believe these actions will further sharpen our focus, improve efficiency and strengthen our operating model. While we continue to advance our commercial excellence initiatives, we have now trained hundreds of employees and provided them with the tools and processes to build greater capability and consistency across our commercial organization. which we believe is creating the foundation for long-term sustainable growth. The business system is the key to delivering on our long-term financial targets and I couldn't be more pleased with the progress that we are making and the impact it is having on growth and margin expansion. In summary, the fundamentals of our business and end markets remain robust, and I am pleased with our execution and the progress we made during the quarter. We are taking the necessary actions to successfully navigate the current environment. and we remain confident in the near- and longer-term growth opportunities we see across the business. As we move through the year, we anticipate even stronger opportunities to deliver value for our customers and our shareholders supported by our integral role in building and maintaining critical infrastructure around the world. With that, I'll turn the call over to Amy. Amy Schwetz: Thank you, Scott, and good morning, everyone. Turning to Slide 8. We delivered a solid first quarter performance in a complex operating environment. Our results demonstrate Flowserve's durable business model and the disciplined execution of our associates. We continue to make progress on our stated margin expansion objectives. Adjusted gross margin increased 370 basis points to 37.2% and marking our 13th consecutive quarter of year-over-year adjusted gross margin expansion. Adjusted operating margin was 15.1%, up 230 basis points from the prior year period. with positive incrementals on lower sales. These results drove adjusted EPS of $0.85, an 18% increase versus the first quarter of 2025. First quarter results, both reported and adjusted were impacted by 3 items not originally anticipated when we provided guidance in February. First, EPS included a $0.19 benefit from AEFA tariffs for which we have filed for refunds following the U.S. Supreme Court's decision in February. This benefit was partially offset by the $0.06 negative impact of an item arising from a taxing authority in Latin America related to prior years. In addition, we estimate that the disruption in the Middle East negatively impacted reported and adjusted EPS by approximately $0.06. Altogether, these unanticipated items resulted in a net $0.07 benefit included in the first quarter results. Turning to sales. First quarter revenue was $1.1 billion, down 7% versus the prior year period with a 360 basis point foreign currency translation benefit and a 20 basis point contribution from acquisitions. We anticipated a modest sales decline in the quarter, which was further hampered by an estimated 200 basis points from the disruption in the Middle East. Sales were also impacted by the slower start in January and February run rate bookings that Scott mentioned earlier. Aftermarket sales grew 4% in the quarter, driven by the continued momentum in capturing more business from our large installed base. The aftermarket strength was offset by an 18% decline in original equipment revenue, which was largely expected given the difficult year-over-year comparison in the first quarter as well as slower backlog conversion as nuclear becomes a larger mix of our portfolio. Turning to Slide 9. Both segments benefited from strong execution under the Flowserve business system and we continue to see tangible improvement from our 80/20 and operational excellence initiatives. In FPD, we delivered another quarter of strong margin expansion with adjusted gross margin up 300 basis points year-over-year to 37.7%, and and adjusted operating margin up 140 basis points to 19.1%. FPD bookings were $774 million, down 9% versus the prior year. Revenue was $745 million, down 5% as lower shippable original equipment backlog more than offset the 5% growth in aftermarket. FPD exited the quarter with a book-to-bill of 1.04x. In FCD, adjusted gross margin was 35.2%, and up 480 basis points year-over-year and adjusted operating margin was 15.9%, an increase of 370 basis points. FCD remains focused on margin improvement with the first quarter profitability highlighting continued progress. FCD bookings were $374 million, roughly flat with the prior year as 10% growth in aftermarket bookings was offset by declining -- by a decline in original equipment awards. FCD revenue was $328 million, down 10% versus the prior year period, with the majority driven by 80/20 activities. FCD ended the quarter with a book-to-bill of 1.4x. Turning to cash flow on Slide 10. Cash from operations was a use of $43 million in the first quarter. This result was in line with our expectations and consistent with 2025 performance and was primarily driven by temporary seasonal working capital requirements, along with modest headwinds from the Middle East. First quarter cash flow is typically our lowest quarter of the year, and we expect improvement through the balance of 2026. We remain focused on working capital management and expect full year free cash flow conversion of 90% or more of adjusted net earnings. Our balance sheet remains very healthy with net leverage of approximately 1.2x at quarter end, an improvement versus the year ago comparison, providing significant flexibility for capital allocation. In addition, in April, we amended our credit agreement, extending the maturity by 5 years and increasing revolver capacity to further enhance our financial flexibility. Turning to Slide 11. We remain confident in our ability to expand profits and create value for our shareholders in an evolving environment. Our end markets remain robust overall. And while the Middle East conflict may cause some short-term fluctuations ongoing investment in the region, along with rebuild activity creates meaningful opportunity. As it relates to our full year outlook, our guidance assumes the current Middle East situation continues. With the key assumptions, including that military operations do not materially escalate that we are able to maintain operations and that the flow of materials into our Middle East operations continues albeit with some delays, and that secondary supply chain disruptions do not materialize. We recognize the potential for a much wider range of outcomes from the conflict that could have implications on our business and our organization expects to remain nimble as we navigate the coming weeks and months. With this backdrop, we now expect organic sales to range from a 1% decline to a 2% increase, resulting in our total sales growth outlook of 3% to 6%. As a reminder, total sales growth includes approximately 300 basis points of benefit from acquisitions, including the anticipated midyear closure of the Trillium Valves acquisition. At the same time, despite a more challenging Middle East outlook, we are reaffirming our expectation for approximately 100 basis points of adjusted operating margin expansion as well as our adjusted EPS guidance of $4 to $4.20 per share for the full year. Our EPS guidance reflects the net impact of the first quarter unanticipated items that I referenced earlier, in addition, our outlook for the balance of the year also includes roughly $0.07 of expected impact from the ongoing conflict in the Middle East, contemplating modestly lower bookings, while the conflict continues and some modest delay in logistics time lines potentially offset by rebuild activity. At the midpoint, our guidance represents another year of double-digit growth versus prior year's adjusted EPS. In terms of quarterly phasing, we expect original equipment bookings to accelerate in the second half of the year, driven by increased project activity and rising nuclear investment and the potential for rebuild activity in the Middle East, and we remain confident in our ability to expand the aftermarket capture. As Scott noted, we came into the year anticipating increased Middle East project bookings in the second half of 2026. It's too early to know exactly how the conflict in the Middle East could impact these assumptions. To date, customers have indicated projects are expected to move forward, but we know some projects could slip to 2027. That said, we believe rebuild activity could provide more momentum through the balance of the year. Importantly, we view any disruption as relatively short term in nature with no anticipated impact to the underlying demand environment or the opportunity to deliver on our 2030 growth and earnings targets. Quarterly, year-over-year performance will accelerate as we move through the year, and we estimate the previously announced Trillium acquisition will close near midyear. We continue to anticipate first half revenue will be more impacted by headwinds from 80/20 and backlog composition, each of which will begin to abate in the second half. Given the headwind from the Middle East, Q2 sales are expected to be down low to mid-single digits in comparison to prior year. And second quarter earnings are expected to be similar to the first quarter. Let's turn to Slide 12 to close out the prepared remarks. We delivered strong execution in the first quarter in a dynamic operating environment. We are continuing to build on the momentum of the Flowserve business system with a growth strategy aligned to powerful global megatrends that we believe support long-term demand for our products and solutions. At the same time, we are proactively managing the situation in the Middle East while remaining focused on serving our customers and executing with discipline across the business. Looking ahead, our 2026 outlook calls for double-digit adjusted EPS growth, and we are continuing to make meaningful progress towards our 2030 financial targets. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] We'll take our first question from Mike Halloran with Baird. Michael Halloran: So a couple of ones. First, the wholesale channel versus retail channel. Maybe talk a little bit about the dynamic, a little more detail about the dynamic going on there. how you feel you're positioned? And I know you referenced potentially doing a little bit more work on that side. What does that entail? And how do you think you can make sure you're capitalizing on the ongoing trend? Robert Rowe: Yes, Mike, I think you broke up at the beginning of that question. Can you say that again? Michael Halloran: Yes. Sorry. Apologies. Apologies. Let me reframe the question. Orders mid-single digit for the year -- how do you get comfortable with that uptick in the back half of the year all else equal. Robert Rowe: That's a really good question. Michael Halloran: And more importantly, is it as simple as if you strip out first quarter, second quarter -- first 2 months of the year just strip those out, you're kind of on trend outside of Middle East, given what you saw in [indiscernible] Robert Rowe: Yes. So I can absolutely talk through that, and it's a great question. And we talked about January and February being a little bit soft on the book and ship. But I think on a very positive note, our March numbers were in line in expectations. And in the prepared remarks, I talked about that we had a nice -- we're seeing nice activity in that kind of in and out business in April. And so that gives us a lot of confidence as we kind of continue through the year here that we think we have slightly elevated bookings. And then the other aspect here that's super important is our project funnel. And in my prepared remarks, I talked about the project funnel being up year-on-year and sequentially, and that project funnels across all of our end markets. Now obviously, it is an incredibly dynamic situation. And I would say on the project timing, there is so much uncertainty in terms of what could happen here. But I would say we're seeing projects move forward. We're not seeing them get canceled. And we're -- our teams, when we talk about a bottoms-up roll-up are very confident and the customer discussions that these go forward at some point in the year. And so I would expect more of a back-half-weighted project year for us, which is what we talked about in the fourth quarter earnings call. But overall, today, we continue to feel confident in the mid-single-digit bookings growth year-over-year. Michael Halloran: So the follow-up is maybe frame that in terms of next year. Now obviously, it's still early. I'm not trying to give guidance for next year. But I think the loose question is, when you sit here today and you compare yourself to 3 months ago, 4 months ago, how do you feel about '27, '28 today relative to before? I mean it seems like you were thinking about this as maybe some incremental opportunity once the dust settles plus incremental confidence in what you're doing internally. But I'd like to understand because, obviously, they'll have to puts and takes this here, lots of moving pieces. As we get through this, how does this all bounce out. Robert Rowe: Yes, sure. It was obviously a very noisy quarter with the Middle East disruption and some of the geopolitical activities. With that said, resolution in the Middle East is important to all of my comments here. And so Amy talked about our assumption that will be impacted in Q2, but at some point, we returned to somewhat of a more normal environment. When and if that happens, then we feel really good about our continued progress toward our long-term 2030 targets that we put out at the end of Q4. And that included mid-single-digit growth and included continued margin expansion every year. And so today, despite all of the dynamics in Q1, I would say we're -- the year is shaping up to position us very nicely into 2027 and on a nice trajectory and path to achieve our 2030 goals.. Amy Schwetz: Yes. And the other thing, just to add to that, Mike, a little bit, is muted in the numbers because of original equipment in the first quarter, we saw really nice bookings growth in both segments on the aftermarket side. And are continuing to push that aftermarket business and gaining strength there only serves us as we look out into future years. Operator: We'll now take our next question from Andy Kaplowitz with Citi Unknown Analyst: This is Jose on for Andy. Maybe to start with the 10% organic revenue decline in the quarter. That was a larger drop than we were forecasting. On the slides, you mentioned that Middle East disruptions impacted Q1 sales by 2% and I think, Amy, you talked about some lower book-to-ship impacts in January, February as well as an 80/20 walkaway impacts. But it'd be helpful if you guys could walk through each of those to bridge the decline in the quarter as well as how you're thinking about those dynamics can over into Q2? Amy Schwetz: Yes. So maybe just to start, a modest decline was expected for us in the quarter. We knew that kind of coming into the year. But we were further impacted by the couple of things that you mentioned, the Middle East disruption and a softer start to our run rate MRO business that was -- that occurred in January and February, primarily in North America. And so the Middle East disruption was approximately 2% or 200 basis points year-over-year. And I'll just comment that as we look at the North American MRO run rate, we normalized in the month of March, which gives us some comfort going into the second quarter. that we're better positioned. And original equipment was also up against a pretty strong comp, particularly if you look at the large engineered-to-order projects that we had included in the first quarter of last year. So backlog conversion was lower because of the nuclear component of the business. And as a reminder, conversion of our year-end backlog was expected to be around 76%, entering the year versus historical levels in the mid- or higher due to that nuclear component. So I think we're feeling good about the way we ended the quarter and about the opportunities that are out there on the book-to-ship business, which gives us some comfort going into the second quarter. Robert Rowe: And I'll just add that the teams are incredibly focused on winning work that can ship in a relatively shorter period of time. And you know, those nuclear awards are fantastic, and we'll get great revenue and margin on those. But typically, they won't show up in the first year. And so -- the teams are really focused through the commercial excellence process of winning work that drives revenue and continues our progress towards growth. Unknown Analyst: Very helpful. I appreciate the color there. And then maybe as a follow-up, maybe we can spend a couple of minutes on FCD think if we remove the tariff recovery from the quarter, it does seem like margins were weaker year-over-year. I understand there's elements of fixed price and lower volumes in the quarter. But was there anything else in the quarter that you'd call out? Or maybe you can also give some more color on what 80/20 actions you guys are implementing and how you're expecting that to show up? For the FTD margin? Amy Schwetz: Yes. So Jose, you hit on it with respect to the volumes, which were expected to be lower in Q1 due to 80/20 impacts. And if you'll recall, started the journey on 80/20 a little bit later. And so we anticipated seeing some headwinds in the first half of the year from 80/20. Gross margins were basically flat with lower volume in the first quarter of the year, which we took as a very positive sign given the impact of the reduced volume. I think that if we look at where bookings were in the quarter, sequentially stronger than Q4. And so we feel good about that volume challenge abating as we go into the second quarter of the year and we're confident for the full year that we'll be at 100 basis points or more in terms of margin expansion at the operating margin line. So the business is fundamentally healthy. We're continuing to improve efficiency and reduce complexity and we think there's further opportunity with operational excellence and roofline consolidation. And I'll say that these actions related to operational excellence and roofline have only accelerated since the beginning of the year. Operator: we'll now take our next question from Nathan Jones with Stifel. Nathan Jones: I guess I'll start by following up on the margin side of it. It looks like if you take out the IPA recoveries, FPD down 20 basis points on a 10% revenue decline, which is really very good, I think. And the FCD margins down 110 basis points and over 10% revenue decline, which is probably also pretty good. So maybe you can talk about the impacts on margins. What was the volume impact the deleveraging that you would have got from lower volume on that versus the improvements that you've made to get to that if we exclude the IE per tariff recoveries, which are really a onetime item. Robert Rowe: Yes, I would say I'll start and Amy can jump in here. I think it will exclude tariffs. I think the Mexico tax thing because it wasn't in the years also excluded there. And if you take both of those out and but keep the Middle East disruption in there and what I'll call the things that the team is working on, right? Your FPD margins actually expand in the year versus last year to roughly kind of 70 to 100 basis points. And then as we talked about with FCD, you're a little bit lower on the decline of about 100 basis points. But if you take that to the gross margin line, like we're very confident on the 80/20 and the operational excellence coming through and continuing to drive margin expansion. And so in the organic business, we're not backing away from our ability to expand margins at that 100 basis points this year. And I'll say that's organically, excluding those kind of onetime items. And Amy hit this with the FCD side, but it's really the whole business right. We've got the operational excellence moving. We're driving great results from just a productivity standpoint and how we're running the different manufacturing sites, but it's also allowing us to move quicker to our roofline consolidation program. And so we've got several activities that happened last year and some that are in progress this year as well, and those activities continue to accelerate. And then the 80/20 program is now in the third year, and we're seeing tremendous results there. And so there's definitely tailwinds from the 80/20 program as we continue to work through that methodology and do the right things on SKU reduction, but also on the pricing side. And so we've been very selective on where do we price and making sure that we're pricing in accordance with that philosophy and driving the right things to expand margins. So I'd just say net-net, we feel we feel good about our margin progression, the continuation here as we go throughout the year. Amy Schwetz: Yes. And the only thing I'll add there, Nathan, is that FPD was more impacted by by the Middle East conflict in terms of revenues and operating income. And although the run rate business was a little bit softer to begin the year, I think that the team was anticipating the lower volume just based on the shippable backlog. And so I think had planned really well to adapt to that situation and be in a position to maintain or grow margins in the first quarter, as Scott indicated. Nathan Jones: Just to confirm, you said the tax item is actually in the segment income. Amy Schwetz: It is. Robert Rowe: It is. It's in the FPD segment. And again, kind of an out of period and something the FPD team really doesn't control. Nathan Jones: Got it. Can you talk about the potential here for improving demand in the Middle East from the reconstruction of things whenever we get around to that. And if you have any ideas or thoughts on when we might see that demand begin to impact Flowserve results? Robert Rowe: Absolutely. I can talk about the first part of the question. The second part is a little bit harder on timing. On the first part, as you know, Nathan, we have an unbelievable installed base in the Middle East. And so we've got probably more pumps than any other provider in the world that across the various countries in the region, including pumps installed in Iran. And then on the valve side, a massive presence across the facilities there. And so Inevitably, anything that you see on the news in terms of damaged equipment and assets, Flowserve has been impacted or involved in that. And so the teams are working incredibly closely with our customers. And I said in the prepared remarks, I'd say first and foremost is making sure our associates are safe, and we're keeping them out of harmed way. But the second priority is making sure that our customers can continue to operate. And we're involved in critical infrastructure that's supporting their economy and supporting commodity prices, and we're doing some things that would be a little bit different than the normal day-to-day business to make sure that we're 100% supporting that work. And so right now, it's about emergencies, it's about call-offs. It's being incredibly responsive. At some point, you move to reconstruction activities. And today, I would say the damage assessments are different depending on the level of damage we're already preparing some quotes to help customers on rebuild activities. The timing of that is just not known right now. And it depends on when they get comfortable to bring people back into the region. When do they get comfortable about bringing people on to site. And then, again, everyone is concerned about your individual safety. And so I think if the ceasefire prevails and things start to settle down, then that rebuilding activity obviously happens a little bit sooner. And then there's a third category here on just what's the future of the Middle East and the role of the different countries there providing further energy assurance around the world, but also assurance and security within their country. And so I believe that you'll see more projects ultimately come into the Middle East and -- as we talked about in the fourth quarter, we thought the Middle East bookings were going to be a very positive year for us, mostly back half weighted I still think that is the case. I think we're going to get some restoration activity, we'll get some of the work that we had planned on, I think some of that may get reprioritized. But I think net-net, Middle East is a benefit for us for the full year bookings. Operator: We'll now take our next question from Joe Giordano with TD Cowen. Joseph Giordano: Before I get into like real questions, just a quick confirmation clarification type stuff. When you say mid-single-digit bookings growth, I just want to understand, you're not adjusting for like Mid East headwinds, right? That's like inclusive of [indiscernible], we still think that. And when you talk about margins up 100 bps, that's stripping out the tariff benefit and the tax thing and not adjusting for mix, right? So that's inclusive of mine. Just want to confirm those. Robert Rowe: Correct. We'll confirm both. So the Middle East disruption would be in my comments on mid-single digit growth. So year-on-year, without all things in, we still believe that we can grow those bookings -- on the margin side, 100 basis points, excluding the one-offs of tariffs in Mexico. Joseph Giordano: Okay. Good. Starting with the January, February kind of air pocket there in the business, I'm just a little I guess surprised like when we did the fourth quarter call, that was February, and you guys definitely had a pretty positive confidence tone there. Like was that not evident at the time when we had that last call that this business in January was like way under where you're targeting? Robert Rowe: Yes. Joe, I'll start with look, we've got much better visibility in our business than ever before with the system upgrades, and we can see weekly bookings and activity and when we did the call, we basically had a month of January numbers, and we had some positive indicators that, that would start to improve, and we just didn't see that pick up in February. And so we didn't feel it was prudent to kind of sound the alarm just given one data point from the month of January. And unfortunately, it didn't pick up in February, but we did see that increase back to what I'd call our normal run rate in March, and we've confirmed that again in April. And so right now, that run rate activity looks pretty robust and kind of on our planning levels. Joseph Giordano: Okay. Fair enough. And then if I think about the second half, is there anything in the full year guide at this point kind of hedging [indiscernible] being potentially. Now we're talking about extended blockades and maybe targeted strikes again. So curious, like you have the impact in 2Q kind of message here. Is 3Q just assume that we're back at like full run rate in that region? Amy Schwetz: So I don't know that it assumes that we're back at full run rate, Joe. But I think that what it does allow for is, one, giving us more time to react to the situation and address supply chain and customer relationships and get back to the new normal. And it also allows for some opportunities that we might see around the rebuild. So at this point in time, there are a lot of different outcomes we can't predict geopolitical events. And so we felt best to go kind of quarter-by-quarter here. But I do think that we have more levers to pull from a mitigation factor in the second half of the year as we adapt to the changes. Robert Rowe: I'll just reiterate, Joe. It's a dynamic time. We get different viewpoints almost on a daily basis, and we're trying to give our best view for the back half of the year given what we know today. Operator: We will now take our next question from Deane Dray with RBC Capital Markets. Unknown Analyst: [indiscernible] on for Deane Dray. In terms of -- it's been another great quarter in terms of bookings in terms of nuclear. I was just wondering, how do you -- could you give us some more detail on your nuclear backlog at this stage? And I guess, I would assume the project funnel is also increasing in terms of nuclear opportunities. Robert Rowe: Yes. I'll let Amy talk about the backlog and kind of how that converts, and then I can talk about the funnel and the forward look. Amy Schwetz: Yes. So I would say, if you look at kind of going back to where we were at to start the year at about $2.9 billion of backlog with with 76% of that shippable over the next 12 months, it's safe to assume that the lion's share of that 24% of backlog is nuclear. And so that only grows with what we saw in the first quarter bookings at, call it, 10 -- about $110 million of nuclear backlog. Robert Rowe: Yes. And then on the forward look, we're booking roughly $100 million a quarter. A lot of that is on the back of kind of what I'll call supporting the existing assets. So rates, life extensions of those assets and really making sure that the nuclear plants will be around and productive for years to come-- As we've stated before, we've got an unbelievable installed base and entitlement in those existing assets. And so that work is relatively steady, and we're seeing more and more of these rerates and life extensions as we go forward. And then the other category is the new traditional reactors, and we still are incredibly optimistic that traditional nuclear reactors continue to move forward, both in Europe and the United States in parts of Asia and maybe a little bit slowdown in the Middle East, but ultimately will come there. And so we're incredibly well positioned with the customers to make sure that our content is on those new builds. And I'd say, certainly for the United States, there are -- there's a lot of stakeholders, and you've got the U.S. government. You've got local state governments. We've got EPCs and then we've got the utilities themselves. And so it's a little bit of a complex equation in terms of getting all of the parties to agree on some of the timing. But I would say in the last quarter, we've seen advancements in terms of those discussions, and we're getting more and more optimistic that the U.S. moves forward with a new nuclear program build-out. And then in Europe, we're actively in pursuit of several new reactors in Europe. And I'd say we're more optimistic that, that does happen within the year. there's more certainty there. And so I feel pretty comfortable that we'll get awards on new reactors in Europe as we move through 2026. And then finally, on the SMRs. We're working with a select group of SMR providers and the technology -- we continue to win awards on what I'll call it, on the prototype side and some of the engineering contract to help them with design and making sure that they've got a solution that can work for the long run. And I remain incredibly optimistic that SMRs are part of the equation in the future. I just think the timing on winning real work that can be scaled into multiple sites is still a couple of years away. Unknown Analyst: Got it. I really appreciate the color. I guess, the follow-up for me would be in terms of Trillium, you mentioned the timing closing around towards the half year. Any additional insight on synergy opportunities you're seeing? I know it's still early days of the transaction. Amy Schwetz: Yes. So early days. The teams have met a couple of times to sit down and one, just go through day 1 actions, but also think about synergies, but I think we're probably a couple of months out before we're confident talking about what those synergies will be as we move forward. But I will say, just based on those conversations and our knowledge of their product and the industries they've served. We were even more excited today than we were 2 or 3 months ago about this acquisition, and we're looking forward to welcoming them to our team. Operator: We'll take our next question from Joe Ritchie with Goldman Sachs. Joseph Ritchie: So look, I fully recognize that for refining specifically, like crack spreads are long-term positive when they start to widen. I guess just from a near-term perspective, how are you -- how is that potentially going to change your customer behavior? And I'm really thinking about your aftermarket business. Could they run their refineries a little bit longer. Does that create any type of like, I don't know, air pocket in growth in like the coming quarters? Like what are your customers saying about maintenance on their refineries today? Robert Rowe: Yes. So that's a good question. And again, a very dynamic environment. But right now, certainly, the North American refiners are doing really well. And so there's higher utilization, there's higher crack spreads driving high profitability. And so typically, when you see work like that, they don't want to do an extended turnaround. And so they want to delay their maintenance and maximize profits. And so we're seeing some turnarounds that were scheduled in the spring, get moved out into probably the fall -- and so we'll have a little bit of headwind on the turnaround season. With that said, we're seeing an increase or an uptick in what I'll call emergency or kind of call off work for a pump or a valve or a mechanical seal that's necessary to keep their operations running. And I'd say our view today is that's probably neutral as we kind of work through the year. And we'll have a better understanding here in the next month or 2 because we're really only kind of 2 months into this. But I would say that we've got great relationships with the North American refiners. We're watching this closely, and we're committed to making sure that they stay up and run at a high level. And then in Europe, you've got a similar dynamic there. I'd say they're a little bit more on the schedule-driven maintenance is happening. And so I'd say less of an impact in the European theater. Joseph Ritchie: Got it. That's super helpful, Scott. And I guess my second question is just on the organic growth ramp into the second half of the year. So I know you built a little bit of backlog in the first quarter, some of that being nuclear. But the ramp probably implies a little over $100 million in organic revenue growth in the second half of the year. And I guess I'm just -- as we sit here today, maybe some of the answer is some of the refinery business being pushed out into the second half. But how do we kind of square the ramp into the second half of the year to feel good about kind of like that mid-single-digit organic number that you have embedded in the guide. Amy Schwetz: Yes. So we still have a lot of confidence in the setup for the second half of the year. And just as a reminder, as we think about what the first half of the year, last year looked like versus the second half, we did see a more normalized level of OE equipment revenue in the second half of the year than what we saw in the first half. And so our confidence is is driven by that dynamic, but it's also supported by the funnel, our customer discussions, the run rate that we saw in March, some encouraging April awards that we've seen and a higher backlog at the end of Q1. And so -- it's going to be important that we continue to accelerate the nuclear and the broader project activity in the second half of the year without a doubt. But we think that the fundamentals are there to drive that type of revenue expansion. Operator: We'll now take our next question from Steve Volkmann with Jefferies. Unknown Analyst: Business started out the year as weak as it did. Was it sort of related to weather or specific projects? Or just maybe a little more color on that. Robert Rowe: Yes. I think, again, this is mostly a North America phenomenon. And it really depends on buying behaviors and budgets and January is always a little bit like an interesting time for us in terms of will the customers start to spend money straight out of the gate or not. And so I don't think it's highly unusual, but it lasted a little bit longer than what we were anticipating and expected. And so this is -- think of like the large installations around the U.S. and just not spending that amount of money that we were expecting in the Jan-Feb time frame. And again, we saw that start to pick up in February, and we're at a healthy level and expectations and then in April, we had -- we're continuing in April, but so far, we've seen some really good numbers with our April to date -- month to date. Unknown Analyst: Okay. All right. And then maybe switching maybe my question, but how should we think about the opportunities for SG&A leverage? Is there anything you can do to reduce SG&A, maybe specifically in FCD, but more broadly, if appropriate? Amy Schwetz: Yes. So certainly, as we took a look at volumes coming into the year, we're focused on making sure SG&A is scalable. We think that we've got the right organizational structure with that. But certainly, the start of the year has made us sharpen our pencils to make sure that we're doing all that we need to do from an SG&A perspective. I would expect sort of flat as we make our way into the second quarter of the year with volumes coming up slightly from a revenue perspective, which will improve our leverage from an SG&A perspective and continue to improve over the course of the year. Robert Rowe: I'd say, look, we're always looking at ways to drive -- we're always looking at ways to drive efficiency and cost reduction and this year is no different, and we'll continue to make sure that we're driving our SG&A as efficiently as possible as we think about what's in front of us in 2026 and beyond. Operator: We will now take our last question from Amit Mehrotra with UBS. Unknown Analyst: This is actually [indiscernible] on for Amit. Just one quick question on margins. the adjusted gross margins, how much of that maybe was benefit from the onetime versus the 80/20 just trying to kind of parse that through to. And then -- so we talk about the MRO, what about -- has any of your customers maybe changed any total shifts on maybe like new capacity and new additions like any kind of tangible examples or anything you kind of speak to. Robert Rowe: Yes. I'll hit the second part first, and Amy, you can hit the margins. And I'd say if we think about a global basis, we operate around the globe and have customers in all different parts of the region. And with the dynamics in the Middle East, we're seeing some really interesting times in terms of folks trying to think about expanding capacity or doing things a little bit differently or potentially accelerating projects, and a lot of this is around energy security and making sure that, that country has the energy that they need to move forward. And so I think, again, incredibly dynamic time, but we're seeing things that we weren't expecting in the year. And customers talking about doing things differently about increasing capacity or actual expansions and even new projects. And so again, we're early days in terms of the conflict and what that means for the rest of the world. But right now, we're pretty optimistic that we'll start to see some different types of work that we weren't expecting at the beginning of 2026. Amy Schwetz: Yes. So Zack, excluding tariffs and the tax authority item that we discussed. We -- gross margins were above 35%, so 35.1%. So expansion of about 160 basis points year-over-year. I will just say that as we look at the impacts by segment and look at the 3 big items that we talked about, EPA tariffs, the tax authority impact and the Middle East disruption. Those items pretty much offset in FPD. So the FPD margin, absent those 3 items is kind of what we reported from an FCD perspective, there was benefit from the tariff that is baked into those numbers on a net basis. Operator: It appears there are no further telephone questions. I'd like to turn the conference back to our presenters for any additional or closing comments. Robert Rowe: Thanks for your time this morning. As always, the Investor Relations team is available to discuss if you have more questions. And if not, we will look forward to speaking with you again following our second quarter. Operator: And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.
Operator: Greetings, and welcome to the UDR, Inc. First Quarter 2026 Earnings Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you. Mr. Trujillo, you may begin. Trent Trujillo: Thank you, and welcome to UDR, Inc.'s quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our refreshed website at ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. Discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. When we get to the question and answer portion, to be respectful of everyone's time and in an attempt to complete our call within one hour, we will limit questions to one per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call to address any questions that did not get answered during the Q&A session today. I will now turn the call over to UDR, Inc.'s Chairman, President and CEO, Tom Toomey. Tom Toomey: Thank you, Trent, and welcome to UDR, Inc.'s first quarter 2026 conference call. Presenting on the call with me today are Chief Operating Officer, Mike Lacey; Chief Financial Officer, Dave Bragg; and Senior Officer, Christopher Van ens will also be available during the Q&A portion of the call. To begin, 2026 is off to a solid start. Our first quarter results were in line with the expectations we provided at the beginning of the year, made possible by strong execution across operations and capital allocation. As it relates to operations, our revenue drivers all played out as anticipated and resident retention stands at an all-time high. Mike will elaborate on the strategies and tactics employed to generate these results. As it relates to capital allocation, we remain focused on taking advantage of the rare and likely fleeting opportunity to arbitrage a sizable gap in public and private market valuations. A data driven and collaborative process led us to the decision to sell four assets. Proceeds were utilized to repurchase our shares and acquire an asset we gained access to through our debt and preferred equity program. Dave will further discuss our capital allocation activities in his remarks. Staying on the topic, we continually evaluate opportunities to diversify our sources of capital. Our thoughtful and thorough research focused on investors of the future pointed to an opportunity to expand our reach to grow a segment of capital, namely high net worth investors, family office, and institutional products who collectively value frequent cash distributions. As a result, yesterday, we announced the transition to a monthly dividend. UDR, Inc. is the first residential REIT to do so. The stability and growth of the apartment industry coupled with UDR, Inc.'s operating and capital allocation acumen has led to 53 straight years of dividends totaling nearly $9 billion. We expect the relatability and transparency of the apartment industry and our robust track record to appeal to these investors who value frequent cash distributions. Stepping back, we feel good about 2026 thus far, but we have only completed the first four months of the year. Accordingly, we are maintaining our full year 2026 same store and earnings guidance, which we will reassess next quarter. From a big picture perspective, I remain optimistic about the long-term growth prospects of UDR, Inc. The fundamental outlook for the apartment industry is encouraging, with resilient demand, a shrinking future multifamily supply pipeline, and attractive relative affordability of apartments versus other forms of housing. Our culture, strategy, and proven team position UDR, Inc. well to take advantage of these fundamental strengths. Finally, I would like to take a moment to recognize Katie Katna and Diane Warfield who have decided not to seek reelection to our board. Katie and Diane have been respected voices in our boardroom and we are thankful for their stewardship and contribution to UDR, Inc. With that, I will turn the call over to Mike. Mike Lacey: Thanks, Tom. Today, I will cover our first quarter same store results and recent operating trends as well as strategic positioning. 2026 is unfolding as we anticipated and first quarter results were in line with our expectations. We leveraged real-time data to focus on total revenue and cash flow growth. In particular, we strategically started the year in a position of operating strength with occupancy of 97%, which enabled us to tactically adjust our revenue drivers to deliver year-over-year same store revenue growth of positive 90 basis points. Specific to the quarter, blended lease rate growth of 1.6%, occupancy in the mid-96% range, and mid-single-digit innovation income growth all came in as expected. Results were bolstered by resident retention that was 300 basis points higher than the prior year. This enabled us to achieve renewal rate growth of 5.2%, which was 70 basis points higher than a year ago and nearly twice as high as 2025. This strength is representative of our focus on attracting high quality residents who value the UDR, Inc. living experience. Rent-to-income levels of our new residents are stronger than the long-term average, which suggests an encouraging outlook for renewal growth going forward. Shifting to expenses, same store expense growth of 4.4% was elevated due to the impact of winter storms across our portfolio. If normalizing for the approximately $1.4 million of incremental expenses from items such as snow removal and higher utility costs, our same store expense growth would have been approximately 100 basis points better or just below the midpoint of our full year expense guidance range. As we start the second quarter, our revenue drivers are trending as anticipated. We continue to expect blended lease rate growth for the second quarter will be between 1.5%–2% with occupancy in the mid-96% range. Our regional leaders in the first quarter continue to perform well thus far in the second quarter. On the West Coast, San Francisco is a standout market with the strongest revenue growth across our portfolio, driven by blended lease rate growth of approximately 10% and occupancy in the high 97% range. The East Coast market of New York is also delivering strong revenue growth, with blended lease rate growth of approximately 7% and occupancy above 98%. Dallas continues to show the best momentum among our Sunbelt markets. Occupancy is approaching 97% and blended lease rate growth is now positive after improving by 570 basis points since the fourth quarter. In all cases, we have enhanced revenue growth due to our innovation income which includes services and amenities desired by our residents such as community-wide Wi-Fi and package lockers. A glimpse at our dashboards’ forward indicators reveal continued strength in San Francisco and New York as well as positive momentum in Philadelphia and Southern California, particularly Orange County. Our overweight exposure to these markets uniquely positions us to capture upside should these trends continue. The operations team continues to impress me with a data driven approach to set strategies while remaining agile to adjust as market conditions warrant. Two current examples are top of mind. First, having managed our lease cadence to place a higher percentage of expirations in 2026, we are well positioned for the spring and summer. Second, our customer experience project continues to result in sector-high resident retention, which is tracking ahead of plan thus far in 2026. This allows for operating expense savings due to lower turnover and higher revenue growth thanks to a blended lease rate growth more heavily weighted towards renewals, which combined results in better cash flow. We will continue to leverage real-time data as we focus on total revenue and cash flow growth. As a reminder, our full year 2026 guidance assumes first half blended lease rate growth will be the same as the second half at 1.5% to 2%. Said differently, we do not need blended lease rate growth to accelerate throughout the year in order to achieve our revenue growth guidance. To conclude, we delivered first quarter results that were largely in line with expectations and the second quarter is progressing according to plan. We continue to innovate, improve resident satisfaction, and therefore retention, which collectively improves our operating margin. I thank our teams across the country for your hard work, acting with purpose, and creating a highly valuable UDR, Inc. living experience for our residents. I will now turn over the call to Dave. Dave Bragg: Thank you, Mike. The topics I will cover today include our first quarter results and second quarter guidance, recent transactions and capital markets activity, and the balance sheet and liquidity update. To begin, first quarter FFO as adjusted per share of $0.62 achieved the midpoint of our guidance range. The $0.02 sequential FFOA per share decline versus 2025 was driven by the following items: a 3 p decrease in NOI, primarily due to higher sequential expenses attributable to both normal seasonal trends as well as the impact of unusual weather that Mike discussed. This was partially offset by a 1 p benefit from lower corporate expenses and G&A. And due to timing, capital markets and transaction activity was neutral to earnings in the quarter as the benefit from share repurchases was offset by a lower debt and preferred equity investment balance. Looking ahead, our second quarter FFOA per share guidance range is $0.62 to $0.64. The $0.63 midpoint represents an approximately 2% sequential increase that is driven by higher sequential NOI and accretion from share repurchases funded by dispositions. Next on transactions. Our capital allocation heat map continues to guide our strategy. We then apply a data driven and collaborative process to drive our execution. The key theme lately is the public versus private market, presented by an unusually wide disconnect in apartment asset pricing. This allows us to sell lower growth assets for 100¢ on the dollar on Main Street and buy back our shares which represent a superior growth portfolio for 75¢ to 80¢ on the dollar on Wall Street. Thus far in 2026, we have executed the following transactional and capital markets activity. First, we completed the sales of four apartment communities located in Baltimore, Denver, Seattle, and Tampa for gross proceeds of $362 million. Our approach to selecting assets for disposition is not centered around trimming exposure to specific markets or urban and suburban locales. Rather, we study asset level characteristics such as the outlook for rent growth per our proprietary analytical tools, CapEx requirements, and potential operational upside. This group of disposition assets screens inferior on these metrics relative to our retained portfolio. Therefore, utilizing proceeds from these asset sales is accretive on day one, but increasingly so in the future due to the expected differential in forward cash flow growth between the sold properties and our in-place portfolio. Second, we received proceeds of approximately $139 million from the successful and full repayment of two debt and preferred equity investments. Third, we repurchased $150 million of shares bringing total repurchase activity since September to $268 million. Fourth, our debt and preferred equity program allowed us to gain access to two communities in Portland, Oregon through the same partner. The first is a 232 apartment home community acquired in April. The second acquisition will follow in the coming months. The assessment of these opportunities is similar to the disposition process described earlier. Our proprietary analytics tool suggests outsized rent growth for the market and these assets in the coming years. Their CapEx needs are low, and the operating upside potential on the UDR, Inc. platform is high. Another benefit is that our exposure to the Portland market is scaled to a more efficient level. We anticipate a high-5% stabilized yield on these communities. Consistent with the expectations that we laid out on our last earnings call, the size of our debt and preferred equity portfolio has declined due to successful repayments, the opportunity to gain control of the Portland assets, and our view that share repurchases offer superior risk-adjusted returns versus new debt and preferred equity deployment. As a final note on investment activity, thanks to the excellent work of our development team, I am pleased to share that our ground-up development community in Riverside, California known as 3099 Iowa is progressing ahead of schedule. We now expect initial occupancy to occur in 2026 which is earlier than our initial expectation of 2027. The project is also coming in under original budget. Overall, our updated full year 2026 capital sources and uses guidance reflects the activity we have completed year to date. We have additional disposition assets in the market and we remain disciplined sellers. We will update you on incremental dispositions and uses of that capital as the year progresses. Finally, our investment grade balance sheet remains highly liquid and fully capable of funding our capital needs. We have more than $1 billion of liquidity. In all, it has been a highly productive start to 2026. We continue to execute on our strategic priorities with an emphasis on data driven decisions that drive long-term cash flow per share accretion. We will now open the call for questions. Operator: We will now be conducting a question and answer session. We ask that you please limit yourself to one question. If you would like to ask a question, please press star 1 on your telephone keypad. You may press star 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. Our first question is from Eric Wolf with Citibank. Please proceed with your question. Eric Wolf: Hey, thanks for taking my question. In terms of occupancy, I think you said that you expect mid-96% range in the second quarter. I guess, would you expect to drive that higher in the back half of the year? Or have you adjusted your full year occupancy targets a bit based on market conditions? Just curious what the strategy looks like for the next three to six months. Mike Lacey: Hey, Eric. It is Mike. Yes. The way we typically do it is we let occupancy come down in the second and third quarter when we have more demand, more traffic coming through the door. And so we get a bit more aggressive on our rents at that period of time. And typically, what you can expect from us, especially what you are seeing with the fourth quarter, is we drive it up a little bit higher. So if we are running, call it, 96.5% right now, we expect to continue to do that through about the July, August timeframe, and then we may inch it up just a little bit, maybe 10 or 20 bps. Nothing necessarily significant. Operator: Our next question is from Jamie Feldman with Wells Fargo. Please proceed with your question. Jamie Feldman: Great. Thank you for taking the question. I am sorry if I missed it. Did you talk about April trends so far? And if not, can you talk about your new, renewal, and blended rate growth and any markets that stand out in terms of acceleration, deceleration, or versus your expectations? Mike Lacey: Yes, Jamie, great question. There are a few of them there. So let me back up a little bit because I do think it is important to give kind of the whole picture here. As it relates to blended growth, what I would tell you is we are incredibly happy with the start to the year. We were able to push our blends about 370 basis points up from the fourth quarter to 1.6%. A very positive trend there and I am happy to report that it is the highest growth across the peer group on both a relative and an absolute basis. I will also point out, given our diversified portfolio, this is notable. Specific to April, I would tell you more importantly, the second quarter, the strength experienced during the first quarter has continued in that 1.6% range, and we are still on track with that 1.5% to 2% blend that we expect in the first half of this year. A few observations on data: I would say, number one, our coastal regions, which make up about 75% of our NOI, continue to experience the highest growth, about 3.1% blends in April, which is an acceleration from 2.8% during the first quarter. Specific to the Sunbelt, those markets experienced the greatest positive momentum from 4Q to January, but we have seen some of those markets retreat slightly over the past 30 days, going from about negative 1.5% in the first quarter to negative 2.5% in April. All in all, what I would say is we feel good about how we started the year. Our strategy and focus on total revenue and cash flow is playing out as expected. And we are really diving into the lifetime value of our resident, continuing to drive low turnover and higher renewal growth. Specific to the question that you had regarding what we are sending out and what renewals look like, I would tell you again, just to reiterate, our first quarter was almost double what we achieved in the fourth quarter at 5.2%, a very healthy number. Through July at this point, we are still sending out between 5% to 6.5% on renewals. And my expectation is we are going to sign within 100 bps of that. So all in all, we are going to continue to lean into our customer experience project, drive down turnover even further, as well as try to test the market on both new lease growth and renewal growth. Operator: Our next question is from Steve Sakwa with Evercore ISI. Please proceed with your question. Steve Sakwa: Yes, thanks. Good morning. Could you maybe just talk about the debt and preferred book and what maybe future payoffs look like? I think maybe some of these happened a little bit sooner. Just trying to think through the cadence of that and what could or may not happen over the course of 2026, 2027, 2028? Thanks. Dave Bragg: Hey, Steve. Thanks for the question. So on the DPE book, as you know, this is a business that we have been in more than a decade. It is one of several ways that we deploy capital and it was established to allow us to utilize our expertise to earn income and/or gain access to assets that we like. This quarter, we are pleased to report, including today, that there are two assets in Portland that we are excited about gaining access to. That is a market that has moved up on the leaderboard internally from a predictive analytics tool perspective. And with the loans coming due with one operator relationship in that market, we looked at these and we considered the following criteria: operational upside—and Mike and team are excited about the meat on the bone there—the rent growth outlook through our proprietary tool, and relatively low CapEx given the fact that they are new assets. This allows us to scale up in that market. As it relates to the book going forward, that is one of the ways that it is on the decline this year, which is what we expressed last quarter. We have the Portland opportunity, we have successful paybacks that we reported for the first quarter, and then lastly, the other consideration is that the market is frankly just more competitive. And we have remained disciplined in our underwriting. And when we think about the heat map and the uses of capital, we gravitate towards the stock given the fact that it is temporarily and unusually attractively valued. So, directionally, for you, if I was going to help you out with your modeling here, looking at the DPE balance in the high $300 million range at the end of the first quarter, I would point you towards $300 million or so at the end of the year. Operator: Our next question is from Jana Galan with Bank of America. Please proceed with your question. Jana Galan: Thank you, and congrats on the strong start to the year. Mike, I was wondering if you could share any trends you are seeing this spring between A versus B properties or urban versus suburban? And then maybe bigger picture, is this not the right way we should think about the portfolio given this micro-market focus and analytics that your team has developed? Mike Lacey: It is a great question. Definitely one way that we look at it. It is sometimes hard to explain just given the footprint we have. I think it is easier to talk about some of the regions and then dive into some of the markets and what we are experiencing there. So maybe to back up just a little bit, what we are seeing today—and it is not going to surprise you—is the West Coast continuing to do better than, say, the East Coast, followed by the Sunbelt. I would tell you all of them are on track, maybe a few markets doing a little bit better than we expected, as I mentioned in the prepared remarks—specifically San Francisco and New York, and Dallas for us. But as it relates to just kind of A/B, urban/suburban, it does vary by market. I would tell you for us, San Francisco is a good example where urban A is doing better because you have more supply that is impacting as you move down the peninsula. But all in all, that entire MSA is doing well. And then you have a place like Boston as an example, where we are seeing a little bit more of an impact downtown, urban A, and less of an impact at our suburban B assets. It is a little bit market-by-market specific on the A/B, urban/suburban piece of the equation. But again, we do have winners in each of our regions today, and we are off to a pretty good start. Operator: Our next question is from Adam Kramer with Morgan Stanley. Please proceed with your question. Adam Kramer: Thanks for the time, guys. I am just wondering here, recognizing the dispositions that were done so far this year, I think, assets. Just wondering—some of your peers refer to risk of shrinking the enterprise too much from dispositions. Wondering how you think about that, if that is the right framework, if it is more market specific, if there are other drivers of how you think about how many assets you can sell and in what period of time, presumably to generate proceeds to use for the buybacks that you have talked about. Dave Bragg: Adam, I will go ahead and start off with the answer here. First of all, our disposition effort is centered around the playbook that has been in place since September. This is a point in time where there is an unusually wide disconnect between public and private market valuations. I have had the opportunity to follow the space over many years and have seen this a few times before, and my experience is that they prove to be fleeting. And so we are excited about the opportunity to recognize that, sell assets, and then buy back stock in a manner that is accretive while also improving the quality of the portfolio. We can speak more about the dispositions that occurred in the quarter, but your question is more so around the go-forward. What I would tell you is that the playbook will remain the same as long as the stock is as attractively valued as it is. We have more assets on the market and we will remain disciplined sellers, and utilize proceeds where we can to continue to buy back the stock. Operator: Our next question is from Michael Goldsmith with UBS. Please proceed with your question. Analyst: Hi, thanks. This is Amy, I am with Michael. Could you quantify approximately how much impact the portfolio lease realignment strategy may have on same store revenue as we move forward? And I assume we would not see any impact on blends, but let me know if you would expect any impact there as well. Mike Lacey: Yes. I think for us, what you could see, where I would point to—and I mentioned it when I covered the April answer—the fact that we had blends of 1.6% with a diversified portfolio, which was the highest amongst the peer group, I think that points to the strength. And so when we came out of 4Q, just to back up a little bit and talk strategy, our intention was to drive occupancy in that 97% to 97.2% range with the intention of driving our rent higher. For us, I cannot speak specifically for everybody else, but every 1% of blends that we are able to achieve, that is about $7 million to the bottom line over the course of 12 months. And so we think that we have a good start on the peers in the first quarter. And our intention is to continue to find those opportunities. It is a property-by-property and sometimes unit-by-unit level basis to find those opportunities to drive our blends going forward. And so our expectations right now—we are on track, but more to come. And I think we will know a lot more when we get together at NAREIT. Operator: Our next question is from Julien Blouin with Goldman Sachs. Please proceed with your question. Julien Blouin: Thank you for taking my question. I am just wondering, is there any competitive disadvantage to you if consolidation among large peers occurs in some of your markets and, you know, just suddenly there being a player with greater scale? Does that give them a data advantage in terms of informing their decisions in those markets? Is that piece meaningful at all? And I guess separately, do you worry at all about a transaction potentially attracting, you know, regulatory or political scrutiny right now? Tom Toomey: You know, Julien, this is Toomey. I will take a couple of parts of that question and ask the group to weigh in as needed. With respect to the regulatory environment and potential transactions or M&A, I will not comment—I cannot speculate where the government is or where the government is going. And, frankly, if you can get that crystal ball, bud, we can do really well in life, but I do not have that one. With respect to the industry, I would say this: it is a very fragmented industry. There have been dominant players. I have been at it over 35 years, and there have been dominant players, and yet everyone finds their space and their way to create value. I tend to think that we have uncovered ours over the years, and it is not requiring size to grow or accrete, if you will. We have tried to look at it and say excellence is the important thing to all successful companies, and size is sometimes an advantage, sometimes not. Excellence, particularly in operations, in capital allocation, and innovation. And so I think we are focused on that path. Having large dominating companies in some other spaces has worked, but they generally ultimately relate to whether they control the customer. In the case of, if you look at Simon mall company, they have a very good stranglehold on malls across the globe and are able to influence the customer. Or Prologis, where they have been able to influence logistics across the globe. The apartment industry is awfully fragmented for that. And I do not see that as being an achievable element where any of us are going to be able to control the customer segmentation/traffic, etcetera. So I would always welcome input on how we can get better. We will keep focusing on that. But I think you have a sense of where our head is. Operator: Next question is from John Kim with BMO Capital Markets. Please proceed with your question. John Kim: I was going to ask that last question, but maybe I will tie that into something else. If you were a bigger company, would that attract a different shareholder base? And I wanted to tie it into the monthly dividend. From our perspective, it looks like a way to attract retail shareholders, maybe a bit of a gimmick. I am sure that is not the way that you look at it. So maybe if you could just comment on your decision to go the monthly dividend route. Tom Toomey: Yes, John, this is Toomey again. I will ask the team to weigh in. I am really excited about the monthly dividend. Why? Because this is a topic that came up on our radar almost two years ago when we were looking at diversifying our capital sources. And that includes diversifying our shareholder base that would end up being drawn to our stock. What it really kicked into was how much is tied up in high net worth families and family office business. And also as we started talking more and more with Wall Street and large capital allocators, they were coming together with products to bring to the market and a monthly dividend became a selling point. And so for us, we see that as kind of shareholder-of-the-future expansion opportunity. People are looking at what is the stream durability and record of your delivery of that cash flow, and monthly is winning out over quarterly, over annually. So that was an important element in the decision. And then as we got farther into the research, looking at the depth of it, what was striking to me was our track record of 53 years and nearly $9 billion in dividends paid out. So we have the record. We have the business model that furnishes that cash flow. I think everybody knows what the apartment industry is like across America and can relate to it. So it seems, heck, let us give it a try. And I am looking forward to the receptiveness of it. We think it will be very positive, and that is why we have done it. I think it is a net-net positive for us. Dave Bragg: I would just add—this is Dave. I want to add one angle here. The monthly dividend switch is part of a broader push on our behalf to appeal to retail shareholders. And what they will see from us over time is a multifaceted game plan around that with a lot of outreach, adjustments to our marketing, etcetera. And we are committed to sticking to that. So this is one maneuver that gets their attention, but you and especially those retail investors will see more from us over time. And we are optimistic. The apartment business is very relatable to that cohort. It is something that resonates with them in terms of the cash flow of the residents, through us and then out to shareholders. So we look forward to seeing this play out. John Kim: I mean, if you have a large multifamily company that is doubling in size, does that attract a different shareholder base? There are other large companies that may attract more general equity investors, and I am wondering if that is something that has entered your mindset at all. Tom Toomey: My guess is looking at it over time, certainly you get reindexed, and you get a larger aspect of that. I think that is a net positive. Do you get other investors? I think active money is still trying to beat the index, and so they are going to move their money around to where they think the greatest growth and opportunities are. It is hard to grow a battleship as much as it is a light cruiser. So I think it just plays out where there is enough capital out there. If you are doing a good job, you will find it, match it up, and you will grow your company accretively. And I think that is the critical element that we all have to continue to focus on—growing accretively is critical, not size. Operator: Our next question is from Rich Anderson with Cantor Fitzgerald. Please proceed with your question. Rich Anderson: Thanks. Good morning. By the way, the Anderson family office is thrilled with the monthly dividend. The question I have is on turnover. When I started covering the space, annual turnover was 65%–70%. You guys are at 29% as of the first quarter. Is there an efficient frontier to the point where you could just have too low of turnover and maybe people are just not moving, and that might help explain, not just for UDR, Inc., but generally, why you are having such a tough time digging out of the hole of negative new lease rate growth? I am curious if you think there is any logic behind this idea that maybe turnover has just gotten too low and you are not at the frontier from a rent growth perspective. Tom Toomey: Yes, Rich. And I am glad to hear the Rich Anderson family office is eager about UDR, Inc. Here are a couple things to think about. You are right—turnover used to be a high number, and you were looking at your business from the number of days occupied, who was paying rent, etcetera. I think with the new datasets that we are seeing, and when we start looking at our rent roll, what it turns out to be is high-quality residents over longer periods of time generate more cash flow than a high-turn, resetting-the-market approach. So if you are in the cash flow business, you actually want low turnover taking rent increases. And then you ask yourself, what is the impact on your long-term business? Well, you are going to have greater cash flow. In our business right now, 60,000 apartment homes. The truth is annually, we only need to find 20,000 residents that are new. And I know everyone is focused on new rates. The question really is what is the capture rate of your renewals and what is the durability of that cash flow? And so now we are starting to endeavor into how do we move the quality of our rent roll up because, ultimately, real estate is valued by virtue of what is the underlying quality cash flow and the lessee of that. And can we make it a better quality rental available? So I covered a lot of different points there. Maybe Mike can clean me up a little bit. Mike Lacey: Yes, a few points I would add. First and foremost, the way we think about it is 2012–2019 turnover averaged about 51%. And so we have reduced that by about 1,200 basis points. Since we started getting into the customer experience project back in 2023, we have been able to improve turnover by about 800 basis points, which turns out to be about 400 basis points better than the peer average. We have made a lot of strides. I can tell you we are still learning a ton every day. What is interesting—when we went into the year, our expectation around turnover was it was probably going to be roughly flat on a year-over-year basis. Turns out we are about 300 basis points better on a year-over-year basis. Where we have been leaning into as of late, and you can see it in our renewal growth, is where can we start pivoting and trying to drive that number as well. Happy to report that 5.2% in the first quarter is very strong. Overall, we have come a long way. We are still learning. We still think there is opportunity on this front. And to Tom’s point, there is a whole other iteration that is to come, and that is around how we think about pricing, how we think about marketing, and how we truly drive that cash flow even higher. Tom Toomey: Mike, thanks for helping me. Operator: Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question. Alexander Goldfarb: Hey, good morning out there. Tom, certainly appreciate the focus and emphasis on the dividend—it is a big part of total return. But if you think about going after the retail crowd or the high net worth crowd, a few things come to mind. One is it seems like a lot of these private REITs or other similar products have higher dividend yields; they go after maybe, I do not want to say lower quality, but, you know, more generic assets that have higher current income. The other is sales load commissions that private REITs pay. Clearly, you are not doing that. So how do you think about getting your dividend competitive—and also competing when you are not paying commission? How do you think about breaking into that high net worth and that whole distribution channel that the private REITs and those other structured products seem to enjoy for themselves? Dave Bragg: Alex, great topic, something that we have discussed internally extensively as we worked on this project, and Tom did say it is something that the team has been working on for some time and put a lot of thought into. Really, it is an opportunity for us and the broader REIT space to educate the marketplace on the virtues of REIT investing. And I thought that you covered it well, Alex. It is about the total return. The dividend yield is a part of that. Unfortunately, in some of these other products, sizable fees can eat into that. So it is an opportunity in front of us, and we already have a nice schedule of appearances and conversations set up that will put us well on our way towards executing on that. We know that there are other products out there that are marketed in certain ways, but we believe that the numbers speak for themselves, and we look forward to educating that cohort on it. Tom Toomey: Alex, this is Toomey. I would just add: you are right with respect to the fee and yield trade-off, but one aspect that REITs have is liquidity and transparency, which a lot of these other products lack. When we have talked with investors in those products, they are waiting on the appraisal, they do not know when their window can open or close. Here, you have a security that underlies it—every day you understand what it is worth. It has liquidity and size and scope, and you have transparency. Operator: Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question. Austin Wurschmidt: Mike, wanted to revisit your commentary around the Sunbelt lease rate growth moderating in April and was hoping you could provide some additional details to what is driving that softening and if you think it is something temporary or you are seeing it persist into May and June. And was it also specific to any one or two markets or broad based? Thanks. Mike Lacey: Great question, Austin. What we are experiencing right now I think is more of a blip, if you will, because we do still expect that we could see more of an inflection in the Sunbelt this year at some point. That is built into how we looked at our guidance for the year. Right now, I would tell you it is a little bit more specific to, say, Florida than it is in Texas, as well as even Nashville saw a little bit of a downtick, if you will. I think some of it has to do with market rents just not moving up as much as we would have expected over the last, call it, 30 to 45 days. And with that, you do have to negotiate a little bit more on your renewals. And so we were pretty aggressive with our renewals as you could see with what we signed. I think we had to retreat a little bit in some of those Sunbelt markets. But my expectation is we are going to continue to work through the supply down there, and we could see market rents start to move back up throughout the summer, and that could help us continue to try to drive those markets as we go forward. Operator: Our next question is from Haendel St. Juste with Mizuho Securities. Please proceed with your question. Analyst: Hi. This is Mike on with Haendel at Mizuho. Our question is, how does UDR, Inc. assess the risk to their Boston portfolio from the Massachusetts proposed statewide rent control measure on the ballot this upcoming November? And can you just remind us, is UDR, Inc. spending additional advocacy costs within the guide and what cap rate/unlevered IRR would a Boston apartment trade at today? Christopher Van ens: Sure. I can take the initial ones. I do not think we are ready to handicap the risk yet. We are still very early in the process. As you probably know, we are actively engaged with local owners’ groups, including some of our large public peers, and larger trade group partners to oppose the measure in Boston right now. With regards to how that is proceeding, we will provide updates as appropriate moving forward. There is just not really a great update to provide right now. Fundraising is happening. We have contributed—I can let Dave talk to that or I am happy to talk to the contribution part as well—that is probably in the neighborhood right now of around half a million dollars that we have given to the initiative. Most likely, we will go higher over the next couple of quarters. I will stress though that this is nothing compared to what was spent in California on the ballot initiatives. Massachusetts is obviously a much smaller market. So we feel that from a cost perspective, from a funding perspective, it will be a relatively smaller fraction than what we saw in California. As far as pricing, I can touch on that. It is hard to generalize across the market, but what I would tell you is this uncertainty has had an impact. We have seen less transaction volume, that makes it harder to decipher exactly where cap rates are, but our experience is directionally this uncertainty at this point in time has had an adverse impact on price. Tom Toomey: This is Toomey. I might add: one thing interesting because we have talked and said, is it a buying opportunity given the market is frozen? I think you have to be careful about that, but I think with our team and our insight with respect to how this is progressing, I would not take it off the map. It screens well—some of the markets in our analytics on a long-term basis—and it might be a good arbitrage window. But we will keep looking at it. Operator: If you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Alex Kim with Zelman and Associates. Please proceed with your question. Alex Kim: Hey, guys. Thanks for taking my question. Wanted to focus a little bit on San Francisco, which you have highlighted as a standout market. Given some of the growing debate around AI CapEx sustainability, tech headcount plateauing, and some federal deregulatory risk to tech market dynamics, just curious if there is a kind of read-through that you see in terms of the recent macro noise in your leasing velocity or traffic? And what is your stress case look like for the market? Mike Lacey: Sure. I will start if anybody else wants to jump in. Right now, what we are seeing is continued strength. And I think when you talk about AI and the jobs and everything that could happen there, I think you have to think of a few other points. For us in San Francisco, I am looking at—and how I think about the market—is very low supply, not only today but also into the future. So we have that backdrop. We do see the return to office that is in effect right now. We are seeing more migration, people coming closer to the work. And so places like SoMa and Downtown are definitely seeing their fair share of traffic today. And that AI growth is more specific in that Downtown/SoMa area as well. We continue to see a lot of momentum, not only on the traffic side, but on our market rents, which leads to renewal growth as well. In addition, the city is vibrant. We are seeing bars and restaurants start to open back up. We are seeing more retail return to that city. And at the end of the day, we have low rent-to-income ratios. So there are a multitude of things that are playing as a positive in San Francisco. Our expectation is we are going to continue to see strength in that market for the foreseeable future. Operator: Our next question is from Mason Gale with Baird. Please proceed with your question. Mason Gale: Thanks for taking my question. Could you talk about how you are viewing potential development opportunities today? If you would look to start development on some of your land parcels in the near term? Dave Bragg: Hey, Mason. Thanks for the question. As we noted in the opening, we are really pleased with the progress on the asset that we do have under development. As it relates to the go-forward, when we look at our land bank, we have a couple of existing sites that do fit comfortably in our strike zone, and I will describe that. First, they are adjacent to existing operating assets, so they are essentially expansions in submarkets that we know well. Second, they are stick build or podium. And third, the returns on incremental cash deployed through our land would be above 6% if activated. So, there is an opportunity to activate these and deliver into a less competitive supply environment in 2027 and 2028. If you were to see movement from us on that front, that is what would describe it. Operator: Our next question is from John Pawlowski with Green Street. Please proceed with your question. John Pawlowski: Hey. Thanks for the time. I apologize if this has been asked. I joined the call late. Dave, could you share the range of cap rates on the four dispositions in the quarter as well as the, I guess, the effective cap rate on the Portland, Oregon asset you consolidated? Dave Bragg: Hey, John. Thank you for the question. As it relates to the assets that we sold—four assets—I want to tell you a little bit about them because it puts it in perspective. Average age, 38 years. Rents below the portfolio average, but that is not highly important. What is more important is that through our lens, the outlook for rent growth is inferior to the retained portfolio, and certainly the CapEx needs are above average. So when we talk about these criteria for acquisitions and dispositions, this group of assets checks those boxes. We saw pretty deep and competitive bidding pools for these assets. Pricing came in within a few percentage points of our expectations. Market cap rate in the mid-5% range. Then as we think about Portland and the opportunity that we are excited about there, I would characterize that yield today as around a 5%. A lot of work for Mike and team to do to get in and stabilize it and work his magic from an operational perspective will get us to a stabilized yield in the high-5% range. Operator: Our next question is from Brad Heffern with RBC. Please proceed with your question. Brad Heffern: Yes. Hey, everybody. Thanks. Another on Portland. You obviously mentioned it has moved up your ranking list and you are taking on a couple assets there. At the same time, it is kind of a smaller market. It does not have a ton of exposure for the public REITs. I think part of that is just it has been a relatively challenging regulatory environment at times. I am just wondering if you can talk about maybe the positive aspects that you see and how that balances out with the negative? Christopher Van ens: Sure, Brad. Maybe I will start and then I will throw it over to Lacey if he wants to say anything as well. At a high level, Portland does look right now like one of our better markets from a demand/supply perspective. I would tell you 2026 job forecasts for the market have doubled since the beginning of the year. Wage growth acceleration is actually the best within our market footprint right now. On the supply side, similar to what Mike talked about in San Francisco, deliveries are way down. 2026 deliveries are only supposed to be about 0.7% of stock—similar in 2027. Both of those are well below what we saw in 2024 and 2025. And importantly, most of those deliveries are concentrated away from these two assets. But as you alluded to, our analytics obviously dig much deeper than the high level. For these assets, our platform likes Portland as a market; it thinks it is on the upswing as we look across our broad set of variables. More importantly for the assets themselves, it generally likes the demographics, it likes the psychographics, it likes the asset-level characteristics, the micro-location, new supply outlooks, all that kind of stuff for both of those assets. And obviously, when you combine all those things, per our analytics that should translate into outsized rent and cash flow growth moving forward—beyond or instead of what Mike can also put on top of it, and I will let him talk about some of that. Mike Lacey: Thanks, Chris. How I think about the market as well as the opportunity we see at these sites: first of all, it is a relatively small market for us. The team has always performed well here. As an example, the occupancy today is above 97%, and we are seeing blends in that 2% to 3% range. We view this opportunity as providing more scale. It does effectively double the size of the market for us. And for these properties specifically, we think we can drive that controllable operating margin between, call it, 300 to 400 bps over the next 12 to 18 months, just through staffing efficiencies, vendor consolidation, and other income opportunities. So we are looking forward to getting our hands on them. Operator: Our last question comes from Omotayo Okusanya with Deutsche Bank. Please proceed with your question. Omotayo Okusanya: Hi. Yes. Good afternoon. I just wanted to go back to the regulatory front. You did discuss Boston, but just kind of curious in terms of some of the other headlines out there: Senator Warren holding a whole bunch of the residential REITs to divulge more information about their business operation; some of the stuff President Trump is trying to do to improve housing affordability; the news from Washington, DC the other day about, you know, MA being sued to provide more insight into their rent structures and junk fees. When you think collectively from a regulatory perspective, are there any real concerns that some of that could impact how the business is run going forward, or does it feel like a lot of noise, and it should be business as usual at the end of the day? Christopher Van ens: Yes. It is honestly too early to talk about how some of those bigger picture pushes at the federal level might affect operations. I can tell you once again, the things that we are focused on right now are really tenant-friendly initiatives or policy changes. We already spoke about Massachusetts. But for us in particular, we are also looking at Salinas, California; we are looking at New York City; we are looking at, more recently, DC proper. Obviously, if any of those measures go through, they would have a tangible direct impact potentially to our assets in those areas. Once again, we formed ownership groups, we have contributed funds along with our peer partners, and we are working with larger trade groups to defeat those measures. The positive for UDR, Inc. is that we have a very in-depth governmental affairs team that monitors the federal level, the state level, and the local level, and they keep all of our capital and operations teams apprised of any changes that should occur, whether positive or negative. That is what we go off of and we are able to handicap what we think is going to happen going forward. So that is what we are looking at right now. Tom Toomey: Taylor, this is Toomey. I would just add this. I am proud of the industry pulling itself together and educating politicians on what good housing policy looks like. I think we want a thriving America, a thriving housing marketplace, and there are ways to get there without just pandering and stopping development or stopping rent growth. Capital makes better homes. And capital is not going to arrive at the space if it feels threatened. I think politicians get that, and as we have educated them more and more, we see more of how do we work together to create thriving communities. It is not being ignored. It just takes a long time to bend the curve, if you will. Operator: This now concludes our question and answer session. I would like to turn the floor back over to Tom Toomey for closing comments. Tom Toomey: First, let me thank all of you for your time, interest, and support of UDR, Inc. I thought it was a very productive call today and always welcome your insight, follow-up questions, and the team is always available for that. We look forward to seeing you at many of the upcoming industry events over the next couple months. Take care. Operator: This does conclude today’s teleconference. Please disconnect your lines and have a wonderful day.
Operator: Hello, everyone. Thank you for joining us, and welcome to the National Fuel Gas Company Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Natalie Fischer, Director of Investor Relations. Please go ahead. Natalie Fischer: Thank you, Karina, and good morning. We appreciate you joining us on today's conference call for a discussion of last evening's earnings release. With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Tim Silverstein, Treasurer and Chief Financial Officer; and Justin Loweth, President of Seneca Resources and National Fuel Midstream. At the end of today's prepared remarks, we will open the discussion to questions. The second quarter fiscal 2026 earnings release and April investor presentation have been posted on our Investor Relations website. We may refer to these materials during today's call. We'd like to remind you that today's teleconference will contain forward-looking statements. While National Fuel's expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date on which they are made, and you may refer to last evening's earnings release for a listing of certain specific risk factors. With that, I'll turn it over to Dave Bauer. David Bauer: Thank you, Natalie, and good morning, everyone. National Fuel had a solid second quarter with adjusted earnings per share of $2.71, an increase of 13% from last year. This continues our streak of double-digit EPS growth and keeps us on track to achieve our multiyear 10% plus average annual growth target. I'm also happy to report that during the quarter, we achieved additional milestones across the system that further bolster our long-term earnings outlook. Our second quarter was a prime example of the strong operational resiliency of our natural gas assets, particularly during severe weather events. In January and February, we experienced an extended cold snap across our operating footprint, where daily low temperatures in some of our regions were below freezing for 19 straight days. A big thank you to our dedicated workforce and contractors who worked through the elements to ensure that the gas continued to flow during this critical time. Overall, our systems held up extremely well with no notable issues at our Utility and Pipeline and Storage businesses. On the nonregulated side, our production and gathering facilities performed very well with limited freeze-offs. This allowed us to take advantage of some of the strong prices we saw on the coldest days. We did, however, experience some regional road closures over multiple days due to heavy snowfall. During this stretch of weather, we slowed the pace of completions and delayed the flowback of a new pad, which had a modest impact on our production for the quarter and will similarly impact full year production. On the drilling and completion side, we continue to focus on the optimization of our integrated development program. We've made substantial progress on the testing of both our Gen 4 well designs and our Upper Utica locations and are seeing continued success, which further enhances our long-term outlook. With decades of core inventory locations, a growing marketing portfolio and ongoing improvements in capital efficiency, our Integrated Upstream & Gathering business is positioned to deliver meaningful production and free cash flow growth for years to come. Justin will provide additional details later in the call. Our outlook for the regulated businesses is also strong. Starting with the Pipeline and Storage segment, we continue to develop new expansion opportunities on our Line N system, which is well positioned to support both behind-the-meter generation that's co-located with data centers and the broader need for electric generation within PJM. Last week, we executed a precedent agreement on a new expansion opportunity that we're calling the Line N system upgrade project. And this project has a dual benefit for us. First, it adds 94,000 dekatherms a day of incremental transportation capacity, all of which was subscribed under a long-term contract with an investment-grade counterparty. And second, the project allows us to modernize a key 6-mile portion of pipe, ensuring the continued reliability and integrity of that part of our system. The project has an estimated capital cost of $93 million, approximately 70% of which relates to the modernization component of the project, and it's expected to go in service in late calendar 2028. Also this quarter, construction commenced on our Shippingport Lateral and Tioga Pathway expansion projects, both of which are on track to meet their November 2026 target in-service dates. Lastly, today, Supply Corporation is filing a new rate case with FERC that seeks an approximately $95 million increase to our cost of service. In addition, our filing proposes a modernization tracker to support the ongoing investment in the safety and reliability of the system. We expect this proceeding to play out along the typical time line and hope to reach a settlement sometime this fall with new rates going into effect late in the calendar year. Collectively, between the rate case and two expansion projects, fiscal 2027 should be a period of significant growth in our Pipeline and Storage business. Moving to the Utility. Customer affordability remains top of mind, and we continue to work closely with our regulators to ensure we can continue to invest in the modernization of our system while keeping rates reasonable. Our delivery rates are the lowest in both states, and we're doing our best to keep it that way. In New York, we're in year 2 of our 3-year rate plan, which runs through the end of fiscal 2027. As we look beyond 2027, we have over a decade of remaining modernization investments at our current replacement pace. Over the coming months, we'll be proactively working on a solution to recover these important future investments. In Pennsylvania, our rate case is progressing as expected. Testimony from staff and other intervening parties was filed a few weeks ago. We'll file rebuttal testimony in May and then expect to commence settlement discussions over the summer. Given our modest rate increase request, we're optimistic we'll reach a settlement by the fall. I expect discussions will be constructive. As I said, our rates are the lowest in the state and would continue to be the lowest even if we receive the full $20 million increase we've requested. Turning to Ohio. The CenterPoint acquisition is on track for a calendar fourth quarter closing. In January, we made our HSR filing and the required waiting period has since passed, completing that regulatory process. In addition, we've given notice of the acquisition to the Public Utilities Commission of Ohio and expect an order from the commission in late spring or early summer. Tim will have more on the acquisition later in the call. Before closing, a quick word on energy policy in New York State, where we continue to see a growing recognition of the practical role natural gas must play in the state's energy future. While New York remains committed to its long-term climate objectives, recent proposals from Governor Hochul and the adoption of the state energy plan reflect a more balanced common sense approach. Policymakers are increasingly focused on maintaining reliability, protecting affordability for customers and ensuring the system can perform during peak demand periods, particularly during winter weather events. Those discussions underscore what we've long believed. The existing natural gas system remains essential to serving homes and businesses and supporting electric grid reliability and will continue to be a critical part of New York's energy mix for decades. In closing, National Fuel is well positioned to deliver steady growth in earnings and cash flow in the years ahead. We have a great set of Integrated Upstream and Gathering assets with multiple decades of high-quality development inventory. Our midstream infrastructure is strategically located to provide key support to the significant growth in natural gas-fired electric generation expected in the region. And we have a growing base of utility earnings that will be further enhanced with the completion of our pending Ohio LDC acquisition. Taken together, the National value proposition is as strong as it's ever been. With that, I'll turn the call over to Tim. Timothy Silverstein: Thanks, Dave, and good morning, everyone. National Fuel had record earnings per share in the second quarter, driven in large part by the strength of our natural gas marketing and hedging portfolio. We've intentionally positioned this portfolio to capture meaningful upside from higher winter prices, and we saw that come to fruition in late January and February. Combining this with the steady growth of our regulated businesses, National Fuel's adjusted earnings per share increased 13% for the quarter. We also generated approximately $160 million in free cash flow. This unique combination of EPS growth and significant free cash flow generation differentiates National Fuel from many of our peers. Diving a bit deeper into the results for the quarter. First, in the Integrated Upstream and Gathering segment, price realizations were up more than $0.50 per Mcf or nearly 20%. While we convert a lot of our marketing portfolio to NYMEX-linked prices, we maintain a bit more exposure in the winter months to markets that have the potential for premium prices as demand spikes. That exposure provided a great tailwind during the quarter. Pairing that with the skew towards collars in the winter months, we were able to capture a nice benefit during the extended cold snap. On the production side, results came in slightly below expectations. As Dave mentioned, the system held up well during the challenging weather. However, road closures impacted our operations, which reduced production for the quarter. Overall, this had a 5 Bcf impact in the quarter. Lastly, our per unit gathering O&M came in slightly above expectations. This was a result of a new preventative maintenance strategy we deployed on several compressors. In the normal course, we take compressors out of service to perform maintenance. However, in certain instances, it is more beneficial to swap in a new engine to minimize downtime and upgrade the technology. There is minimal cost to doing this, but the accounting rules require us to write down the remaining net book value of the unit being replaced. As a result, we recorded a larger-than-normal expense during the quarter. We now expect gathering O&M to be $0.01 higher at $0.12 per Mcf for the full year. But going the other direction, upstream LOE is expected to be $0.01 lower. On a combined basis, we don't see any impact on our cost structure. On the regulated side of the business, results were ahead of expectations as we continue to see strong execution across the board. Turning to guidance. The biggest change for the remainder of the year relates to our NYMEX price assumption, which we are now projecting to be $3 per MMBtu, down from $3.75. With the lower pricing, we are also seeing modestly tighter basis differentials over that same period, which we now project to be $0.80 below NYMEX. We are approximately 75% hedged for the rest of the year, with the bulk of that in the form of swaps and fixed price sales. This provides price certainty, which lessens the impact of the lower expected pricing on our earnings guidance, which we now project to be in the range of $7.45 to $7.75 per share. At the midpoint, this represents a 10% increase over last year. Embedded in our assumptions are a few other changes, including production guidance, which we now expect to be 425 to 440 Bcfe for the full year. This is down 3% from our prior guidance range, but at the midpoint is still expected to be up relative to last year. Longer term, our outlook for production growth remains intact. As a reminder, our guidance does not assume any price-related curtailments. Thus far since winter, we haven't curtailed any volumes. But to the extent we see material in-basin pricing declines, we may decide to do so. At the midpoint of guidance, our spot exposure is limited to approximately 30 Bcf, which minimizes the potential impact on earnings and cash flows for the year. Lastly, on our fiscal 2026 outlook, we've increased our guidance for Pipeline and Storage segment revenues. During the quarter, as colder weather settled in, we were able to take advantage of the increased demand. We also saw higher revenues tied to a tracker on electric costs, but those are fully offset in O&M. There were a couple of additional tweaks to a few guidance assumptions, all of which are highlighted in our earnings release and IR presentation. Switching to capital. Our guidance remains the same. However, we are trending towards the higher end of those ranges. In the regulated subsidiaries, we have had great success with our modernization programs and are ahead of schedule on our plans for the year. With our pending rate proceedings, we expect to obtain timely recovery for this spending. Our two pipeline expansion projects are on track as well, both from a timing and budget perspective. The bulk of construction season is still ahead of us, so things may move around a bit as we work through the rest of the fiscal year. Justin will have more on nonregulated spending in a minute. Overall, our balance sheet is in great shape. We still anticipate generating a significant amount of free cash flow, more than enough to cover our growing dividend and reduce absolute leverage before closing our Ohio LDC acquisition. We expect to end the year below 2x debt-to-EBITDA and approach 50% FFO to debt. This leaves us in a comfortable position to achieve our target of mid-2x debt-to-EBITDA after the first full year post closing. Sticking with the acquisition, things are moving along well. With the HSR process behind us, our focus is on the notice filing in Ohio. We've had several discussions with commission staff over the past few months, and we expect to complete this process well in advance of closing. Our teams are also working diligently to prepare for an efficient transition of the business, and we are confident that it will be a smooth process for customers. We are also taking the necessary steps to position ourselves to complete the remaining permanent financing prior to closing. We are working to finalize the necessary pro forma financial statements, which we anticipate wrapping up shortly. Once those are ready, we will start to evaluate the market to find the right window to raise the remaining $1 billion we need at closing. We also plan to refinance our $300 million October maturity and term out a portion of the term loan that we temporarily repaid with the proceeds from our equity issuance completed last December. All told, we expect to raise up to $1.5 billion across multiple tranches. We also recently upsized our committed credit facility, which now provides $1.3 billion of borrowing capacity to support our growing operations. This was well supported by our bank group and provides us with additional financial flexibility in the future. In conclusion, we expect 2026 to be a key inflection point for National Fuel. We are leveraging our interstate pipeline assets and commercial relationships to significantly expand the FERC-regulated businesses. We have two critical expansion projects under construction and another expansion announced yesterday. Our Ohio LDC acquisition will provide a further avenue for stable, regulated growth. Lastly, our strong balance sheet and significant free cash flow generated by our nonregulated businesses provides the foundation upon which we can deliver further growth. Combining this with our commitment to consistently return an increasing amount of cash to shareholders, National Fuel is positioned to create value for years to come. With that, I'll turn the call over to Justin. Justin Loweth: Thanks, Tim, and good morning, everyone. Our Integrated Upstream and Gathering segment had a solid second quarter, delivering record EBITDA of more than $300 million, driven by net production of 102 Bcf and higher natural gas prices during Winter Storm Fern. Through the severe weather conditions, our team and Integrated Upstream and Gathering facilities performed exceptionally well with minimal downtime due to freeze-offs. That said, the heavy snowfall and extreme cold in January and February closed roads, which slowed completions and delayed flowback on a new pad. These weather-driven factors modestly impacted production during the quarter and are expected to have a similar effect on fiscal year production as volumes shift into future periods. In addition, last fall, we turned in line a 6-well pad in Northwest Tioga and a separate fault block, which included an Upper Utica well and a Lower Utica Gen 4 test, along with 4 older design wells. The 4 wells with older style designs are underperforming our projections. This pad was strategically drilled about 18 months ago in part to hold an almost 20,000-acre parcel of land, but prior to our 3D seismic shoot and incorporation of that data into our broader subsurface model. Today, we have the benefit of an integrated subsurface model and significant other attributes across the vast majority of our core development area, which we expect will lead to superior outcomes going forward. Going the other way, the Gen 4 and Upper Utica wells on the pad are demonstrating strong productivity in line with our expectations. While the older design wells will modestly impact our production estimate for the balance of fiscal '26, the Gen 4 and Upper Utica results, along with our deep understanding of the subsurface, reinforce our confidence in this area and optimal future well design. Overall, we are reducing fiscal '26 production guidance by 3% at the midpoint to a range of 425 to 440 Bcf to account for the expected impact of these items. Despite this modest adjustment, we remain confident in durable mid-single-digit production growth over the next several years. Across our operations, we remain focused on continuous improvement and are advancing our testing program to further optimize well design and understand productivity drivers across our core area. During the quarter, our two best-performing Tioga Utica pads to date, Bauer and Taft, reached cumulative production of 130 Bcf. The 12 wells across these pads, 10 of which incorporated Gen 3 and Gen 4 designs and two of which are Upper Utica wells were turned in line in late 2024 and produced at rate-constrained levels of 25 million to 30 million per day for an extended period. We estimate they will deliver about 900 million per 1,000 foot in 18 months, among the best results in the basin. Turning to development activity during Q2. We turned in line our first Tioga co-development pad with 3 Upper and 3 Lower Utica wells, and we have another pad planned to come online toward the end of the fiscal year. On this pad, we also utilized production facilities that allowed us to flow a single Tioga Utica well rate constrained at 40 million per day, well above the 25 million to 30 million per day we held on Bauer and Taft. It's early, but this is an encouraging data point. And the team is doing a great job expanding what we believe is possible on well deliverability. Finally, at the very end of the quarter, we began flowing back our first fully bounded Lower Utica Gen 4 pad with a total of 5 wells. Expanding the capacity of our surface equipment, understanding co-development influences and building confidence in optimal well design are key components of our continuous improvement focus. Pulling it all together, these data points inform our long-term development planning, and we'll remain deliberate in testing variables and applying what we learned to further optimize the program over time. Turning to capital. We're maintaining our prior guidance of $560 million to $610 million. Our drilling team is driving efficiencies that may result in more wells being drilled this year. While this is very positive and reduces our cost per foot, it has the potential to bring forward capital. On the land side, we've been extremely active, making a number of strategic moves to further bolster our acreage position given our confidence in the Utica resource. We are also seeing emerging cost headwinds tied to the conflict in Iran, particularly higher oil and diesel prices flowing through drilling, completions and logistics, especially long-haul intensive activities. Altogether, these items have us trending towards the high end of the range. In our gathering operations, construction activities are well underway with seasonal pipeline and infrastructure construction expected to continue into the summer months. Near-term activity continues to support Seneca's production growth while advancing opportunities for incremental third-party volumes in Tioga County. We have multiple projects underway to expand pipeline and compression capacity in our core area. And throughput continues to track Seneca's production closely with third-party volumes steady and in line with our full year projections. Turning to the broader natural gas outlook. We are bullish on the long-term setup and see fundamentals supportive of higher prices over time. LNG exports are near record levels of around 20 Bcf per day with additional capacity coming online. And recent global events continue to highlight the value of reliable, low-cost U.S. natural gas. Domestically, demand is building in the Northeast and the Mid-Atlantic regions, driven by gas-fired power generation, data centers and AI-related load growth. At the same time, producer discipline is keeping supply growth in check, particularly in Appalachia, where pure curtailments are effectively limiting near-term volumes in excess of demand. Overall, we expect a more balanced market and improving long-term price realizations for high-quality Appalachian supply, especially for operators with strong market access and flexibility like Seneca. Against this backdrop, we're executing our multiyear marketing strategy to reach premium markets and added flexibility, both in-basin and out of basin. Over the next few years, we expect total firm transport capacity to grow approximately 50% to more than 1.5 Bcf per day. Just this month, we gained access to our new 50 million per day of firm transportation that reaches the Gulf Coast. During the second quarter, we added another 50 million per day of long-term firm capacity along the same route that will go in service over the next few years, doubling our Gulf Coast exposure over time on similarly attractive terms. Our inventory depth in Northeast Pennsylvania, which is arguably deeper than any peer in the region, positions us well to be a disciplined acquirer of transportation capacity as it becomes available. With increasing access to the Gulf, the soon-to-go in service Tioga Pathway project and the EGT Project Stratum, which reaches premium markets in Western Pennsylvania and Leidy Hub, we're taking strategic steps to support long-term growth through valuable pipeline capacity contracts. We see additional opportunities ahead and remain confident in our ability to deliver growth at premium price realizations over time. In closing, the underlying strength of our asset base is clear. Our testing program continues to validate acreage depth and quality and will help optimize development for years to come. We've remained disciplined on capital despite emerging headwinds and our recent marketing and midstream investments support future growth and greater access to premium markets. Overall, we remain well positioned to deliver durable production growth, increasing free cash flow and long-term value for our stakeholders. With that, I'll turn it back to the operator to open the line for questions. Natalie Fischer: We now turn the line open for questions. Operator: [Operator Instructions] Your first question comes from the line of Zach Parham with JPMorgan. Zachary Parham: First wanted to ask on curtailments. Tim, I think you mentioned in your prepared remarks that NFG didn't have any curtailments in the current guide. Another Appalachian producer talked about some curtailments in 2Q. I know you've got the large majority of your volume hedged, but can you talk about how you're thinking about curtailments? Is there a price level in the in-basin where you think about shutting in some volumes and maybe what -- where about is that price level? Timothy Silverstein: Zach. Like I said, we have approximately about 30 Bcf exposed into the spot market. And as we've said in years past, especially when we've seen lower prices, we don't specifically talk about the price level at which we curtail. I think what we've said historically is that prices north of $2, we're still flowing gas. Prices well below $1, we're definitely curtailing somewhere in there is where we typically make the decision. So we don't give that specific price. But again, we're very limited exposure and each day that passes, we're continuing to flow gas right now. Zachary Parham: Then my follow-up is maybe for Justin. You talked about flowing one of the new wells at 40 million a day versus the 25 million to 30 million that I think you flowed in some of the older wells. Can you talk about, one, your expectations on how long these wells can hold that plateau period at the higher rate? And two, how having the equipment in place to flow at a higher rate impacts both cost and potential returns from pulling forward some volumes? Justin Loweth: Yes. Sure, Zach. So a couple of things. I mean, one, in terms of the ultimate sustained period, we're going to have to do more work and look at it, but it should be relatively linear with wells that we produce at 30 million. We would expect to get some sort of cume in total drawdown over a period of time. Of course, if you're flowing at 40 million versus 25 million or 30 million, that period of time will be a little bit shorter. But it also brings forward value. And so one of the things we're really looking for and trying to optimize on, and I think this goes back to your cost question, is that we believe that we're close on a design where we'll be able to flow at those higher rates and do it at the exact same production facility cost that we have today, potentially even less as we continue to optimize and improve those designs. And what we're really balancing is that particularly if we have a pad with less overall wells, let's say, it's 4 or 5 wells on that pad, and they're very long laterals, which we've been moving towards recently, we're actually -- recently here just finished casing some wells that will be approaching 20,000-foot TLL. With wells like that, the opportunity to flow at a higher rate restricted rate, even if it's for ultimately a little shorter period can pull a lot of value forward. And so we're trying to understand kind of what that relative balance is and what the overall deliverability makes sense. But look, we're encouraged by it. We know from the wells we've drilled that there's plenty of pressure and plenty of opportunity to do more. It's just going to be this balancing act. And the other thing that we, of course, factor into all of this is our gathering infrastructure and what makes the most sense from an integrated investment and capital allocation decision. So those are the kind of guiding principles that we're looking at in it. But this was a great opportunity to just have a well where we could pretty easily and inexpensively really validate this test for ourselves, and it was successful. Operator: Your next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Timothy Rezvan: I wanted to follow up on upstream. The release highlighted the 6-well pad and in comments, it sounds like 4 wells underperformed expectations with an older completion design. I was curious if you could provide more insight on what happened. Was it simply under stimulation? Was there a downhole issue? And kind of where I'm going with this is, when do you think the team might be comfortable just using the Gen 4 design as your standard recipe going forward? Justin Loweth: Tim, thanks for your question. These wells, you said it right, it was a 6-well pad. It's kind of on the western side of our core development area. Several factors here that play into it. The first one is we have a lot of 3D seismic coverage across our acreage. This area, though, was one we had acquired in 2023, and we're in the process of capturing that 3D seismic and then ultimately processing that and integrate it into our broader subsurface model. So at the time when we were drilling these wells, we didn't have the benefit of that knowledge. Today, we have all of that, and we have tremendous understanding and visibility into this area. And so when they were drilled, which was also tied to holding a very important lease that captured about 20,000 acres of land, when they were drilled, we had a -- we were earlier in our days. We were still drilling both well design in terms of interwell spacing as well as proppant loading. We were still testing and doing our Gen 2 designs and then working towards our Gen 3 and Gen 4 designs. If I could go back in time, these would all be Gen 3, Gen 4 because the Upper Utica well in the pad and the Gen 4 design in the pad are very strong performers, right in line with our expectations. These 4 wells, though, that were older Gen 2 designs, just have underperformed. And so we've got a lot better understanding in this area. Like I said, I mean, we've got now -- we've got a lot of wells across our broader portfolio, a lot more information, a lot better understanding, and that's informing the decisions we're making today. So as part of that, the idea of going all the way to a Gen 4 design we're trending in that direction. But what I'll tell you is we are going to continue to challenge ourselves between Gen 4 and Gen 3 or any other future generation design to really optimize for the best overall return between our upstream and gathering business. And a Gen 4 design is a little bit more expensive than a Gen 3 design, and we want to see additional results from these Gen 4s that we're drilling, including I mentioned at the very end of this Q2, we brought online our first 5-well fully bounded Gen 4 design pad. We want that kind of data to really help inform us on if we're moving all the way towards the Gen 4 design or something in between that could be even better. But ultimately, we're going to be led by the economics between our Integrated Upstream and Gathering, getting the most gas for the least amount of overall capital. Timothy Rezvan: That's a great detailed answer. And as my follow-up, I was curious to learn kind of if you all could give more color on the long-term expansion opportunities for Supply Corp. You highlighted a third project with the Line N upgrade. How many projects are out there? And how do you decide which to pursue? And then on top of that, you mentioned in the slide deck, there's potentially more to do with Line N's potential incremental expansions. And can you talk more about the likelihood that you think you can capture that? David Bauer: Sure. Yes, we've had a great run of doing expansions on Line N over the years. And given its location, I think that we're going to have lots more opportunities in the future. Our current focus right now, if you will, in the Line N area is on power gen, both with behind-the-meter type projects like with our Shippingport project as well as other, call it, just power gen that would go into PJM. And there's a lot of opportunities there. The dialogues that we've had with developers has been productive. As you may know, the Shippingport project, which is initially starting at 200 million a day, could grow to as much as 800 million a day if the project developer was successful in fully building it out. So that certainly would be a big opportunity. And then other opportunities along the line are sizable as well, right? Our plants use a lot of gas. And Line N isn't the only spot that we're looking at. Our Empire line that goes from Tioga County north into New York and then ultimately connecting to Canada is another area that we could expand. I think the region is just generally short electric generation. Certainly, in PJM, we see the results of their auctions. But in New York, where there's been such underinvestment in energy infrastructure, at some point, I really believe that we're going to need more generation within the state. And as much as policymakers would like that to be wind and solar, those just don't work for baseload power. And I think we're looking at needing more baseload power and natural gas is the logical choice for that. And our pipelines, particularly the Empire is really well suited for serving that new generation. Operator: Your next question comes from the line of John Freeman with Raymond James. John Freeman: First question, Justin, you touched on some of the maybe headwinds that you're seeing on the CapEx side on the diesel prices and things like that. Could you give just any more kind of color just on a leading-edge basis outside of like diesel prices, if you're seeing anything that's either supply chain type factors as a result of what's going on and then just any potential pressure on the service cost side? Justin Loweth: Yes. Sure, John. Thanks for the question. The short answer is you're hitting at kind of the main element, which is more diesel, which obviously haul-intensive activities are going to be impacted by that and various surcharges that are baked into a lot of contracts that us as well as many other operators across the country have with their various vendors. In terms of real supply chain issues, we've actually been talking to all of our counterparties, digging into this, trying to ensure that there's no war-impacted challenges. At this point, we don't believe there are. One, we've looked kind of potentially across like, for example, charges to the extent you have more explosives that potentially could get hung up and tied into Defense Production Act or otherwise needs. And we're just not seeing it. So we think we're pretty well insulated from, I'll call it, the same shocks that a lot of people went through back coming out of COVID, where you had an inability of the supply chain to deliver what you need. It's much more about some pricing headwinds. And the reality is we don't -- it's so early in this conflict and don't have a lot of visibility when it's going to end and how that works. So we're evaluating it and working on it. And we're not seeing anything specific as it relates to drilling or completions. I would just note that those generally are longer-term contracts for us. We have a long-term frac provider. And similarly, we generally contract our rigs for 12 to 18 months at a time when we're bringing them in. John Freeman: And then, Dave, I wanted to follow up on some comments you made previously. It seems like over the last couple of quarters, increasingly, we're hearing more and more of a focus on kind of the behind-the-meter kind of projects like what you have done with Shippingport. And I'm just curious, when you look out like at the opportunity set over the next several years and we sort of think about the opportunities behind the meter versus kind of the traditional grid-based solutions, kind of how you see that mix playing out? David Bauer: I think the focus is switching more towards broader generation within PJM. I mean there still certainly is interest in behind-the-meter generation. I think that tends to go over better with the policymakers. But from a practical standpoint, having -- like I said just a minute ago, having more generation just generally in the region is going to require the build-out of new gas-fired generation, and we're going to be there to support it. Operator: [Operator Instructions] Your next question comes from the line of Neil Mehta with Goldman Sachs. Neil Mehta: Can you hear me okay? David Bauer: Yes. Neil Mehta: Sorry about that. So just your perspective on the gas macro would be terrific. I mean we've obviously seen a softening relative to where we were when we connected a couple of months ago and part of that could be the shoulder. Part of it seems like it's just production beats. I mean just your perspective on -- as you think about the balance of this year, we set up for exits in October. How do you think about the setup here? And how is that shaping the way you're approaching activity and hedging? Justin Loweth: Thanks, Neil. I mean, just big picture, nothing has really changed fundamentally about our views. Tim spoke to some of this in his remarks. We've really built the portfolio to go through periods of both high and low prices. And as you're alluding to, that's exactly what we've seen. To go from a February settle of almost 750 and then the settle we just saw here from May of 256 is pretty tremendous volatility. We hedge. We've always hedged. We're methodical about that and thoughtful about it. We use collars to capture the upside. And then we have a marketing portfolio that's designed to capture premium markets at the end, but also minimize in-basin exposure. And so Look, I think across the country, we're going to have more gas coming out of the Permian, particularly as these new pipeline projects go in service. Haynesville, a bit of a wildcard, exactly how that moves and exits through the year. But coming back closer to home for us and what really matters are the flows coming out of Appalachia and the relative demand. And I think our view is that, generally speaking, there's just a lot more discipline these days than there has been if you go back several years ago. And by discipline, what I'm referring to is just producers in Appalachia understanding that we have a specific amount of storage. We have a specific amount of demand that will fluctuate based upon winter and summer temperatures, of course. But generally, the market stays more balanced and maintains, I'll call it, reasonable differentials to NYMEX Henry Hub. And then look, longer term, Henry Hub, I'll just hit at that briefly. We're still very much in the camp that we're -- we've entered a market where, generally speaking, we're going to see Henry Hub prices between $3 and $5. And we would expect that there will be short periods of time that could be above or below that level. And that's really our fundamental view. What's great is that with those kind of prices, with the longer-term $3 to $5, we do fantastic. We generate a lot of free cash flow, a lot of earnings. And as we continue to make forward progress on our capital efficiency trends, that's just going to translate to more and more cash flow. So yes, I mean, very constructive with air pockets along the way, both highs and lows along the way. Neil Mehta: Yes, certainly volatile. I appreciate that. And then just your thoughts around maximizing Gulf Coast exposure and any firm takeaway opportunities down to premium end markets would be good. I mean we saw that you layered in a little bit more here. But how big could that opportunity set be for you guys as you look out over the next couple of years? Justin Loweth: So I mean, we've been at it now for a few years, really trying to further bolster our takeaway capacity in the form of new firm transportation. When we saw the depth and quality of this Utica resource that we have, it was clear to us we needed to protect the pathway to grow and do that through finding our way into premium markets. I spoke about some of those today. We've got the Tioga Pathway service -- coming in service later this year. We've got the EGT Project Stratum coming in, in a few years. And then what we've been able to selectively grab are these Gulf Coast new capacity contracts that you're alluding to. Getting that first 50 million, getting that first olive out of the jar took a long time. We've been working on that for 18 months. And then we were successful here this last quarter at executing a contract to pick up another 50 million. And so over time, we'll have about 100 million going there. And then a lot of our overall FT portfolio, when you think about the $1.5 billion, it gets pretty balanced. We've got a nice chunk that's going to Gulf Coast or to, I'll call it, the Mid-Atlantic markets down as far as Z4, which would be in Alabama, but also Z5 South. We've got some great capacity that gets us into kind of the New York, non-New York markets. And then we've got some access to some premium PA markets where we see continued, in particular, power gen. There's going to be a lot -- there are a lot of plants under development right now and PJM is short power, and we strongly believe that where we're moving this gas is going to be moving right to it. And then through the northern markets, whether that's Canada or Northern New York. So we really like the portfolio setup. We're going to keep chipping away. I'm confident we'll find more ways to continue to expand it. If that's Gulf Coast, awesome. If it's something else, that's great, too. And we're -- but I'm confident we'll keep chipping away. But we've made huge strides. I mean, growing our portfolio by 50% over the last few years in terms of how much capacity we'll have as we get out to 2029. Operator: There are no further questions at this time. I will now turn the call back to Natalie for closing remarks. Natalie Fischer: Thank you, Karina. We'd like to thank everyone for taking the time to be with us today. A replay of the call will be available on the website later today. Please feel free to reach out if you have any follow-up questions. Otherwise, we look forward to speaking with you again next quarter. Thank you, and have a nice day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to the First Quarter 2026 ConocoPhillips Earnings Conference Call. My name is Liz, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press 11 on your touch-tone phone. I will now turn the call over to Guy Baber, vice president, investor relations. Sir, you may begin. Guy Baber: Thank you, Liz, and welcome everyone to our first quarter 2026 earnings conference call. On the call today are several members of the ConocoPhillips leadership team, Ryan M. Lance, Andrew M. O’Brien, Nicholas G. Olds, and Kirk L. Johnson. Ryan M. Lance and Andrew M. O’Brien will kick off the call with opening remarks, after which the team will be available for your questions. For the Q&A, we will be taking one question per caller. A few quick reminders. First, along with today's release, we published supplemental financial materials and a slide presentation, which you can find on the Investor Relations website. Second, during this call, we will be making forward-looking statements based on current expectations. Actual results may differ due to factors noted in today's release and in our periodic SEC filings. We will make reference to some non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in today's release and on our website. With that, I will turn the call over to Ryan. Ryan M. Lance: Thanks, Guy, and thank you to everyone for joining our first quarter 2026 earnings conference call. As we begin, I want to start by acknowledging the ongoing conflict in the Middle East. Our thoughts are first and foremost with our employees, our partners, and the broader communities directly affected by these events. The supply curtailment and ensuing macro volatility have not only impacted energy markets, but are also being felt across the global economy. Periods of volatility in our industry are inevitable, but this conflict reinforces the importance of both U.S. and global energy security. We certainly hope for a swift and diplomatic solution that resolves the conflict, protects U.S. interests, opens commerce, and provides stability in the region. Now turning to the first quarter results, we delivered another quarter of strong financial and operational performance. We generated $2.4 billion of free cash flow and returned $2 billion of capital to our shareholders. In the Lower 48, where we have the deepest and highest-quality inventory of any operator, we continue to improve our peer-leading capital efficiency, meaningfully increasing the number of three-mile-plus laterals in our program. In Alaska, we are winding down another successful winter construction season. The Willow project is now 50% complete. Our teams have completed the project's gravel scope, an important milestone, and mobilization for summer work is underway. We also recently completed our four-well exploration program in Alaska, the first in a multiyear program to leverage existing infrastructure to unlock additional low cost of supply resource. Consistent with our track record, it is still early days, but we are excited about the opportunity and the results and more low cost of supply resources coming to the Greater Willow area. As the broader industry recognizes Alaska's unique resource potential, we believe our longstanding position, legacy infrastructure investments, and technical expertise provide us with a meaningful competitive advantage. Turning to LNG, we recently executed a third-party tolling agreement in Equatorial Guinea, extending the life of the LNG facility well into the next decade. This is a strategically located asset in a gas-rich part of the world surrounded by discovered resource, which supports its long-term potential. Additionally, the Port Arthur LNG project continues to progress very well with first LNG expected next year. Turning to the outlook, while ongoing events have significantly tightened crude oil and LNG markets, the macro environment remains volatile and pretty impossible to predict. Amid such uncertainty, it is critical our priorities remain steadfast. They are clear, consistent, and durable. They have served us well for the last decade and will continue to guide us into the future. We will continue delivering base dividend growth competitive with the top quartile of the S&P 500. We will maintain and protect our investment-grade balance sheet. Recall last year, we were one of the only companies that delivered on our shareholder return objectives and strengthened the balance sheet. We will continue returning significant CFO to shareholders right off the top. We have averaged about 45% over the past decade through the cycles. And after meeting all these priorities, we will evaluate disciplined reinvestment for growth. In terms of how these priorities are translating to our 2026 plan, our expected CFO generation is up materially given our unhedged oil and LNG torque. Shareholders will directly share in this upside with our 45% of CFO return of capital objective. We have also added a modest amount of Permian activity over the second half of the year to maintain our operational efficiency into 2027. Long term, ConocoPhillips continues to offer a compelling value proposition that is differentiated in the market. We believe we have the highest-quality asset base in our peer space. As we have said before, we are resource rich in a world that is looking increasingly resource scarce. This is a distinguishing competitive advantage. We have the deepest and most capital-efficient Lower 48 inventory in the sector, and outside the Lower 48, we have an abundance of diversified low cost of supply legacy assets. And we are uniquely investing in our portfolio to drive peer-leading free cash flow growth. We are on track to deliver our previously announced $7 billion free cash flow inflection by 2029, driven by our cost reduction efforts, LNG projects, and Willow. With that, let me turn the call over to Andy to cover our first quarter performance and updated outlook in more detail. Andrew M. O’Brien: Thanks, Ryan. Starting with our first quarter performance, we produced 2.309 million barrels of oil equivalent per day. This includes the impacts of the Middle East conflict on Qatar volumes and higher royalty rates at Surmont from higher oil prices. These impacts were partially offset by strong performance across our Lower 48 and International portfolio. In the Lower 48, we produced 1.453 million barrels of oil equivalent per day, representing 4% year-over-year growth on an underlying basis. We generated $1.89 per share in adjusted earnings and $5.4 billion of CFO. Capital expenditures were $2.9 billion. We returned $2 billion to our shareholders during the first quarter: $1 billion in ordinary dividends and $1 billion of share repurchases. We ended the quarter with cash and short-term investments of $6.7 billion as well as $1.2 billion in liquid long-term investments. Turning to our outlook, we are updating our guidance to account for the impact of recent macro events and the uncertainty surrounding the Middle East conflict. To be clear, this is not a call on when we think the conflict will resolve. We are simply trying to provide a clear and transparent framework to model and assess the underlying performance of the company. For production, the midpoint of our annual guidance is updated to 2.31 million barrels of oil equivalent per day. This reflects a 20 thousand barrel of oil equivalent per day annual impact due to Qatar being excluded from second-quarter production guidance and a 15 thousand barrel of oil equivalent per day annual royalty rate adjustment at Surmont due to higher prices. We have made no other adjustments to our annual production guidance. The midpoint of our second-quarter production guidance is 2.2 million barrels of oil equivalent per day, which reflects the full exclusion of Qatar production from guidance for the quarter, the Surmont royalty rate adjustment, and planned second-quarter maintenance. Moving to operating costs, full-year guidance of $10.2 billion is unchanged, reflecting a $400 million reduction from 2025 due to the benefits of our cost reduction and margin enhancement program. We made strong progress in the first quarter and we remain confident in realizing the full $1 billion run rate by year end. For capital spending, we are updating our guidance to a range of $12 billion to $12.5 billion versus our prior guidance of about $12 billion, representing a 2% increase at the midpoint. This increase is due to slightly more Permian activity over the second half of the year; we are adding a rig to keep pace with the completion efficiencies, and we expect higher levels of non-operated spend. These modest activity additions maintain our operational continuity into 2027. Additionally, we are incorporating a guidance range to capture the uncertainty around the macro environment as well as the Middle East conflict, specifically as it pertains to timing for NFE and NFS spending. To wrap up, we delivered strong first quarter results. We executed well financially and operationally. We continue to advance our strategy and, amid a volatile macro environment, we remain committed to clear, consistent, and durable priorities that have served us well for the last decade. As Ryan mentioned, our expected CFO is up materially from the beginning of the year. We remain unhedged in oil and LNG to ensure we capture the price upside, with 40% of our crude production linked to premium markets such as ANS and Dated Brent. And shareholders are directly participating in this upside as we remain committed to returning 45% of our CFO, consistent with our long-term track record. Looking ahead, we remain focused on executing our plan and enhancing our differentiated investment thesis: unmatched portfolio quality, including leading Lower 48 inventory depth, attractive long-cycle investment, strong return on and off capital, and driving sector-leading free cash flow growth through the end of the decade. That concludes our prepared remarks. I will now turn it over to the operator to start the Q&A. Operator: Thank you. We will now begin the question-and-answer session. In the interest of time, we ask that you limit yourself to one question. If you have a question, please press 11 on your touch-tone phone. If you wish to be removed from the queue, please press 11 again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press— Operator: Our first question comes from Scott Michael Hanold from RBC Capital Markets. Your line is now open. Scott Michael Hanold: Yes, good afternoon. Thank you. Hey, a lot happening, obviously, on the macro front. I know you all do a lot of work on the oil macro in addition to, obviously, having feelers out there. Can you give us a sense of your view of what has happened in the market, if you have any view of physical versus the financial kind of position of oil, and how you expect operators to act and react? It sounds like you are going to maintain operational efficiency, but it would be good to see if you have a view on what you are seeing and hearing from others. Ryan M. Lance: Thanks, Scott. Maybe I will let Andy talk a little bit about some of the numbers that we see out there, then I can come back and address some of your broader questions after that. Andrew M. O’Brien: Thanks, Ryan, and morning, Scott. I will start with, there are certainly a lot of moving pieces out there right now, and I will summarize our view of the world. I am not sure it is too different to others, but I think it is good to summarize it. For about two months now, we have had about 10 million barrels a day of production offline. That even factors in the redirected volumes in countries like Saudi Arabia. We have seen inventory and SPR releases that have partially backfilled some of that lost supply, and the ongoing SPR releases that have been announced will certainly help through the May–July timeframe. But I think it is really important for people to understand that the brunt of the supply shortfall is currently being absorbed by refinery run cuts and demand curtailments. Now, if you include the Persian Gulf refineries that have been damaged, the total global refinery run cuts right now probably amount to around 8 million barrels a day. As we look forward from here, we think the biggest challenge we are about to face is that the market had a bit of a grace period initially when the tankers that left the Persian Gulf in late February were still on the water. Now all of those have reached their destination, and the impacts of the lost supply are going to start to become more apparent. So we could possibly see, from here, inventory draws really start to accelerate. You have already seen that governments in over a dozen countries are implementing policies to ration or otherwise reduce demand in advance of physical shortages. Given those factors, we are downgrading our view of global oil demand to be flat year over year with probably a bit more risk to the downside if the conflict goes on. One final point I would make is, despite efforts that are ongoing to manage demand, we are going to start to see some import-dependent countries potentially start to face critical shortages as we get into the June–July timeframe. I will stop there and let Ryan add a bit more. Ryan M. Lance: Maybe, Scott, how are people acting? I think people are watching pretty closely to see what happens, maybe a little bit of short-cycle investments. I am sure that will come up in our call with the capital. We are just trying to maintain the efficiency gains that we have in the Lower 48, and we will not be drilled out of some of our OBO activity. We are trying to look longer term as well, as Andy said, assess the supply and the demand fundamentals. I think at a minimum the floor probably is going to have to raise up a little bit at least relative to where we were before the conflict started. Recall we had a mid-cycle WTI price of about $65, and we believe that floor is probably going to come up. We are trying to assess right now, given the demand dynamics and the supply dynamics, what long-term effect that is going to have on what we would call a mid-cycle equilibrium price and for how long that might persist. Recall, we were pretty constructive over the last few years before this got started. There was some uncertainty around how the physical and paper markets were reacting a little bit, and this has just accelerated a lot of that. But certainly, I think the floor probably has to come up to account for the changes that have occurred over the last couple of months. Operator: Our next question comes from Neil Singhvi Mehta from Goldman Sachs. Your line is now open. Neil Singhvi Mehta: Yes. Ryan, Andy, great comments there, and definitely, our thoughts are with your people in the region. I want to pivot over to Alaska. We went through winter construction season, and I would love a mark to market on how those plans progressed. Where do you stand in terms of Willow construction, and what are the big milestones as we continue to derisk this project and get to that free cash flow inflection? Kirk L. Johnson: Good morning, Neil. Thanks for the question. We have had a really strong showing here just in the last six months in Willow, so I will address a couple of things. We are 50% complete on the project, and achieving that requires a collection of key milestones that our teams have been able to accomplish. In this winter season in Alaska, we accomplished the entirety of our planned work scope, which admittedly was a little bit of a challenge. We had quite a few weather days, not dissimilar from our very first winter season, and despite that, the teams were able to accomplish the full winter scope. Most important to us as part of critical path was the civil work. We were able to get all of the bridges down and the entirety of the gravel scope—think roads, pads, and the airstrip. That sets us up for our ability to execute the summer work and, especially important with gravel, it allows you to dry and mature that gravel and create the compression necessary to continue the structural work that follows in the construction of future facilities and pipelines. As it relates to pipelines, important this year for us was the East–West scope, and that is important because it allows us to begin to make the connections back into the existing operations. By that I mean Western North Slope or Alpine. With those connections, within the coming week we will be bringing fuel gas in, and we will be firing up our power for Willow. We have been really successful in accomplishing the scope in Willow that we have laid out as we continue to commission the op center. With engineering largely wrapped up and complete, here in the Lower 48 on the Gulf Coast our process modules achieved a similar milestone—slightly better than 50% complete in fabrication. That is important because next summer we have plans to sealift those into Alaska, which becomes the next major milestone to get those processing modules up there. All of this in aggregate puts us in a very strong position for our early oil expectation in 2029, and all that is on track. That is important as it underpins the compelling value proposition of the $7 billion free cash flow inflection. Thinking beyond that is exploration. As you heard from Ryan, we had a strong showing here too. We speak a lot to the four wells that we had planned this year, which were successful for us, but this is the largest winter season in exploration that we have had since 2020. With that came the four wells, but we also shot seismic, and we also did quite a bit of gravel exploration and had a really high success ratio there on finding gravel for future pads. When we look at that exploration program, I am pleased to report we found hydrocarbons where we were exploring. Naturally, our subsurface teams are pouring over the results, seeking to ensure that we can characterize what we found. Commerciality typically comes with more than one season; that is why we call these exploration and appraisal wells and seasons. It will take several, but with what we found, we are really looking forward to the opportunity to keep Willow full. That underpins our objective to identify new resource and pad development opportunities to keep this infrastructure full. You have seen the track record from us in the past, and with the success we have been realizing just in the last six months, it has been a really strong showing from our Alaska team. Operator: Our next question comes from Betty Jiang from Barclays. Your line is now open. Betty Jiang: Hi. Good morning, guys. A lot of focus right now on the short-cycle response to higher oil prices and you guys being the first one out of the gate and leaning into activity in the Permian, which clearly makes sense for you given the deep inventory. Can we get a bit more color on the decision process from ConocoPhillips’ perspective to lean into Permian activity now? And alluding to your mid-cycle views earlier, what price would it take to flex activity further, and what will be the sensitivity on production outcome in 2027? Andrew M. O’Brien: Morning, Betty. Andy here. I covered in the prepared remarks that we have increased the midpoint of CapEx by $250 million, and it is important to describe why we are doing that. We keep having operational efficiency that Nick will talk to, and it is important, the way we think about steady state, that we keep that going. On the operated side, it really is just a continuation of our steady state given how efficient we are being. On the non-operated side, as I said in our prepared remarks, it is in anticipation and we are starting to see the early signs of some of our non-operated partners starting to ballot us for more wells. I would say the $250 million is more about operationally setting ourselves up and being thoughtful about our steady state and how we react to partners, versus a big macro call on price. With that, I will let Nick give a bit of the specifics on what we are doing. Nicholas G. Olds: Thanks, Andy. Good morning, Betty. As Andy mentioned, that $250 million of additional activity is concentrated in the Delaware, and that is a combination of operated and non-operated. On the operated side, we continue to drive significant efficiencies in both drilling and completions. Our completion efficiencies are slightly outpacing drilling, so we are adding another Permian rig versus prior plan to help us keep pace with our frac crews and maintain our level-loaded, steady-state operations approach that we have talked about for a number of years. The key item is that we do not want to have any frac gaps due to the efficiency improvement we are continuing to capture. If you recall, as we exited 2025, we had a 15% improvement in D&C operational efficiencies, and we continue to see those trends, with completions outpacing drilling. On the non-operated OBO side, we have started to see more well ballots from our partners, which will likely translate to a higher level of OBO spend over the second half of the year. We are not going to elect out of low cost of supply, high-return OBO projects in this price environment. We have seen it in the past. They are competitive projects, short cycle, with good returns. These additions are a modest capital add to our second-half program and will maintain our operational efficiency going into 2027. Ryan M. Lance: I would just add, Betty, these are no-brainers for us. We are not going to be drilled out of inventory by others, and we are going to keep our efficient machine running. These adds are weighted to the last half of the year, so they do not have a large impact on 2026, but they set us up for the continued growth that we are seeing in the Lower 48 in our portfolio year on year. You saw it in the first quarter; you will see it year on year, and that will continue into 2027. In the meantime, we will be assessing what we think mid-cycle price is going to do and what the new equilibrium might look like and then what that follow-on means to the cash flows that we generate as a company, the returns that we send back to our shareholder, and what we reinvest for growth and development in the company. That will be coming later this year as part of our normal processes. Operator: Our next question comes from Doug Leggate from Wolfe Research. Your line is now open. Doug Leggate: Thanks for taking my questions. Hi, everybody. I am looking at slide five, and those of us who have been around long enough, Ryan, remember what you went through in 2016 with the dividend. Now we are sitting here looking at low 70s. You are probably doing $10 billion of free cash flow according to your chart, and that has got 70% upside. My question is that you have stuck to the 45% cash flow payout. Your commitment is actually more than 30%. Clearly, there is a little bit of procyclical stuff going on with the share price. These windfalls can be capitalized in different ways, especially through your dividend policy. Can you walk us through, in these situations, why not flex down in the payout? Why not think more about the longer-term dividend, the breakeven, the balance sheet? I am curious where your head is at on buying your shares at the top of the cycle—it might not be the top, but it is certainly elevated for the time being. Ryan M. Lance: Thanks, Doug. We like to think about share repurchase as dollar-cost averaging. We tweak around the edges, which is why it was probably a little bit lower in the first quarter, but it was a good time to be buying in March and April. You will see us probably buying more in the second quarter. More fundamentally to your question, our 30% floor is set in a mid-cycle price construct that we start with for the company. We think about what mid-cycle prices are, what an equilibrium looks like. We know we are never in a perfect world, but we have to understand from a supply and demand perspective what cash flows we generate and what we can give back to the shareholder. Since we set that coming out of the downturn in 2014 and 2015, when we recast the value proposition for the company, it made sense. Actual prices have been higher than our mid-cycle call for most of that time, so we have been able to provide more than 30% back to the shareholder. Our history now, coming up on a decade through the cycles—even through the low point of the COVID pandemic in 2020 and the high point of 2022—is consistent. We think about it through-cycle. We try to set a mid-cycle price, and we are constantly trying to drive down the reinvestment rate in the company. We are trying to drive growth for as little capital as we can in the business, which is why Nick talks about what we are doing in the Lower 48 to drive efficiencies, and what Kirk is doing around the rest of the world and the opportunity we have in our legacy assets. We have been able to afford something higher than our base, and that represents the 45% commitment we have made for this year because we recognize the strength and power of the company. We do not want the dividend to get outsized as you referred to before—pre-2015, 2016—there are not many of us around anymore, Doug, maybe you and I. We want to make sure that we can sustain the dividend and grow the dividend at a competitive S&P 500 rate. Being able to continually, annually grow it is something we think is competitive with the S&P 500 top quartile; that is our commitment. At the same time, we want to make sure the dividend does not get an outsized portion of our cash flows at mid-cycle price, whatever we call mid-cycle. Typically, the dividend today is certainly affordable and growable, but it does not represent the full 45%, so we are augmenting that with share repurchases. We think that makes sense over the long haul; it reduces the absolute burden of the dividend going forward. It might have some procyclical nature to it a little bit, but we do not cling to it steadfast. We will ratchet up and down a little bit quarter to quarter to try to manage some of that, but we do want to make sure we hit the 45%, made up between the base dividend and whatever shares we are repurchasing in the market, and we try to take a pretty ratable effort to do that. Operator: Our next question comes from Francis Lloyd Byrne from Jefferies. Your line is now open. Francis Lloyd Byrne: Hey. Good morning, Ryan and team. Can we talk about OpEx a little? It continues to stand out. If you could just comment on the trajectory from here, and then is there anything other than maybe conservatism that keeps you from bringing the full-year guide down? Andrew M. O’Brien: Morning, Lloyd. We set our budget at $10.2 billion, which was $400 million lower than last year. As you point out, our 1Q results were very strong. We are really pleased with them. It is being driven by taking costs out faster than we originally premised from our cost reduction, both on the labor side and non-labor side with our lease operating costs. Q1 reinforces that we are very confident we will hit that $1 billion in run-rate savings by year end. To the heart of your question on guidance, it is only the first quarter. We are very pleased with how things have gone, but we would like a little more time before we revisit whether we would want to reduce guidance. Operator: Our next question comes from Devin McDermott from Morgan Stanley. Your line is now open. Devin McDermott: I wanted to ask on the LNG portfolio outside of the Middle East for a little bit of additional detail on the EG agreement you signed. More broadly, you have this big commercial portfolio of LNG offtake contracts, including 5 million tons off of Port Arthur. Can you give an update on where you stand in marketing and placing those commercial LNG volumes? I would imagine they have gotten more valuable with everything going on in the market right now. Andrew M. O’Brien: I can start with the second half of your question and then, specifically to Equatorial Guinea, I will let Kirk jump in. On our LNG strategy, we could not be more pleased with the progress we are making commercially. Even pre–Middle East events, we had a contrarian view versus consensus where we thought the market was more in balance versus a thesis of a bit of a glut. That is obviously gone now. Everyone is seeing the tightening market. We have a first-mover advantage; we have already put 10 million tons in place. Just like our E&P portfolio, low cost of supply—in LNG, low liquefaction costs—are important. We have that. We have already placed the first 5 million tons predominantly to Europe and a bit into Asia on Phase 1. As you can imagine, conversations about placing the rest are intensifying right now; interest in those volumes is high. This has reinforced the global security elements and the importance of having positions on the Gulf Coast and the value of that—right in line with our strategy. We would also be remiss not to mention the rest of our resource LNG business outside of commercial with APLNG and others, where those projects are priced off long-term contracts linked to Brent for the most part. They are also doing well in this environment. The LNG strategy is all proving out very nicely for us. Specific to Equatorial Guinea, I will let Kirk jump in. Kirk L. Johnson: Good morning, Devin. The EG LNG asset came to us through the Marathon acquisition with a strong reputation of performance. The question for us was longevity. The more we have come to understand the performance and capability of the asset and organization, we have been quite pleased. As described in the release, we struck a tolling agreement with a third party at EGLNG. Stepping back, our Equatorial Guinea asset includes the upstream Alba unit with offshore production facilities and, on Bioko Island near Malabo, our equity position in EGLNG. Our ability through EGLNG to strike this agreement allows us to further extend the life of EGLNG, run the facility at strong utilization, and push the life of that asset well into the 2030s. That gives us time, and you have seen press from us around HOAs we have been striking with the ministry in Equatorial Guinea looking at discovered resource. There are known gas opportunities in and around the island in Equatorial Guinea waters that we can begin pursuing to bring those to commercial opportunity and utilize the available capacity long term at EGLNG. It is an interesting asset—sales at EGLNG consist of both a long-term SPA as well as spot—and it is well positioned to take cargoes both north into Europe or around the Horn into Asia. We are pleased with how this asset is continuing to prove itself out. Operator: Our next question comes from Arun Jayaram from JPMorgan. Your line is now open. Arun Jayaram: Thanks for taking my question. I had a quick follow-up on LNG. Could you comment on how some of the Middle East disruptions are impacting your view of the LNG macro picture? And could you give us an update on the NFE and NFS projects given some of the disruptions in that part of the world? Andrew M. O’Brien: I can start with the macro and then Kirk can go into the specifics on NFE and NFS. From a macro perspective, for the two months that we have basically had Qatar production shut in terms of not going through the Strait, that is roughly 20% of global LNG not flowing. To put that into context, that equates to something like 200 cargoes that have not sailed—200 cargoes not delivered. Our view is that we have already seen a structural change where there will be LNG shortages for quite some time. Prices are likely to be quite constructive for a period as people bid up price to manage demand and supply. Qatar has publicly said there is damage to Ras Laffan that will take some time to get capacity back to market. Our in-house view is that we have essentially seen a structural change in LNG with all that has happened, and it will take a long time to get anything back close to where we used to be. I will let Kirk talk specifically about our position in NFE and NFS. Ryan M. Lance: I would add, Arun, we are watching gas inventories in Europe. Today they are well below where they should be given the build they should be experiencing. We are really concerned depending on when winter comes across Northern Europe and how hard that winter comes—will the gas be there? The inventories at this moment would put a blinky light on some of that going forward. Maybe Kirk can talk specifically about Qatar. Kirk L. Johnson: A few quick clarifying comments on how this is affecting us. Our single producing asset there in Qatar is QG3, and as a run rate that was roughly 80 thousand barrels of oil equivalent per day last year—roughly 3% of our total company production and similar on total CFO. The remainder of our global portfolio has been largely unaffected—really unaffected—by these recent events. It has been quite contained to this single asset. As you would expect, QatarEnergy executed a very controlled ramp down and ultimately largely a shutdown across most of their trains at Ras Laffan for both security and process integrity reasons, but also because with the Strait closed, there is limited capacity, if any, to lift cargoes. As QE disclosed, two trains were struck—those were not ours—and that took just under 12 mtpa off the market. QatarEnergy has been explicit that they expect that to impact the global market for upwards of three to five years. While it is easy to conflate the construction of NFE and NFS with operations, they are quite separate. We are pleased to see that, despite the conflict, construction on NFE and NFS has been progressing. Naturally, there have been some impacts and interruptions, but very different than operations. QE has disclosed that they expect delays; it is a bit premature to provide firm guidance on how that will manifest, but we expect the delay to be on the order of months. You will recall QE guided to second half of this year for startup, and it could be possible that extends into the early part of next year. We chose to remove Qatar from 2Q production guidance for clarity. We will be watching closely both construction and our own production there; it remains very conflict dependent. Hopefully that is helpful. Operator: Our next question comes from Bob Brackett from Bernstein Research. Your line is now open. Bob Brackett: Good afternoon. Apologies for a bit of an educational question, but there are a couple topics I am working on educating folks on and you may help. One is price realization 101, especially as it pertains to timing given the very sharp moves in crude price we have seen. The second would be a bit of 101 around the engineering of shut-ins—you have a 2020 track record of understanding that—shut-ins and the potential long-term impacts to production. I would appreciate that. Andrew M. O’Brien: Okay, Bob. I will start with the first part on pricing. From ConocoPhillips’ perspective, when you think about our portfolio, about 40% of our crude volume is linked to either Alaska or international price markers, conveniently split pretty equally between the two. International crude oil volumes are mainly linked to Dated Brent pricing. Everyone is now talking about Dated and ICE like we have not in a long time, and you are seeing how Dated Brent has been trading at a premium to ICE—the more physical to the paper. On ANS, for us, ANS is effectively priced off ICE Brent. So we have a fifty-fifty split between ANS-linked ICE Brent and international linked to Dated Brent—lots of Brent leverage. Specifically to your question around timing, you do see a bit of a lag in when you see cash versus earnings. You see it flow through earnings first, with a lag in timing of when the cash actually comes in, and that varies market to market for us. You start to see the cash more meaningfully come in about a month or so later. Hopefully that helps explain our exposure and the importance of whether we are on Dated versus ICE. I will take the opportunity to mention another point that sometimes gets lost. We also have a large Lower 48 component priced off WTI. We were really pleased with realizations on our WTI—about a 98% realization this quarter. That might get lost when you look at our total company realization when it all gets mixed together, because when you mix it all together you had three or four things happening: the WTI-to-Brent diff expanded to about $9 a barrel, and you have the timing of sales in places like Norway. It is a complicated set of moving parts, and there will be timing between cash and earnings that will take a month or two to line back up. Ryan M. Lance: On your second part, Bob, I assume you are talking about subsurface impacts to shut-ins. We do not have direct experience with a lot of the Middle Eastern assets like Saudi and UAE, but they are probably similar to what we have on the North Slope—very large, productive, high-porosity, high-permeability assets. We would not expect a whole lot of problem with them coming back; there will be a ramp-up period, but they should come back to pretty much full capacity, minus any surface constraints or issues created as a result of above-ground damage. In some of these, you have to ask if they are keeping the waterflood going while shutting in. If that is the case, they are probably building pressure and you probably get some flush production. Very high-level answer to your question, but I would not expect huge supply impact or subsurface damage as they bring these fields back on. Operator: Our next question comes from Josh Silverstein from UBS. Your line is now open. Josh Silverstein: Hi. Thanks, everyone. I wanted to get an M&A update from you, maybe more from a divestiture angle. You are very resource rich, as you mentioned, and you have an ongoing divestiture program. Are you seeing strengthening valuations for these non-core assets given the higher pricing? Does it make you want to be more aggressive in selling assets into this market? And maybe just an update on how you are thinking about the Port Arthur Phase 1 equity stake on the lead investor front. Andrew M. O’Brien: Morning. It is worth putting our announced $5 billion divestiture program in context. $3 billion is already behind us, so there is about $2 billion to go. I would put this very much in the “business as usual” category for us. We do have a data room open in the Permian right now with a couple of packages in there. Importantly, it is not one big thing; it is a collection of assets within the basin. These are assets we would consider non-core within the Permian—probably something we would not get to in 10 to 15 years given the depth of our inventory. Of course, we are seeing a lot of interest. Our track record will show we are not going to be schedule-driven. We will not sell anything without getting full value. We will go through a process and, if we get offers for full value for non-core assets that we are not going to develop for a while, we will certainly take a look, but it is very much around the edges and the usual portfolio cleanup work we always do. On Port Arthur Phase 1, we are in a perfect situation—we certainly do not need to sell anything. That asset is being derisked every day as it comes closer to first production, and we will have that asset online in 2027. Everything that has happened in the Middle East has reemphasized the importance of having these secure assets in our portfolio. Maybe a day will come in the future where we get an offer that fits an infrastructure-type investment, but we are under no need to sell that asset, and I cannot see why we would contemplate that while it is still under construction. We would rather get it online; maybe in the future it is non-core, but there is nothing there that we are not happy with. Operator: Our next question comes from Phillip Youngworth from BMO Capital Markets. Your line is now open. Phillip Youngworth: Thanks. Your Montney position has a lot of resource, and you have had better results than some of the offset operators up there. What is the appetite or value-creation opportunity to add to this liquids-rich position where others might not have the same technical understanding or operational capabilities? Separately, could Canada fit into the LNG offtake strategy if you were to target the high end of 10 to 15 mtpa? Kirk L. Johnson: Morning, Phillip. We continue to see strong performance from our Montney asset. We have been progressing this in a very disciplined and deliberate manner, and while we are out of the appraisal phase, we are admittedly still in early development—actively optimizing our plans and incorporating learnings that are unique to the basin as well as optimizations we can reap from our mature, distinguished position in the Lower 48. We have been running roughly one rig and expect to continue at a similar pace because, as we have experienced in the Lower 48, pairing strong drilling and completions crews yields strong performance across both. We like the performance because of the strong liquids—we are roughly 50% liquids with streams between NGLs, condensate, and crude—and we can take advantage within each of those liquids markets. It is a very competitive resource. Because we have a strong position and good performance, we are watching opportunities and the landscape. As it relates to M&A or BD, we will be smart; if we see an opportunity with a lot of synergies, we would naturally entertain that. On the gas side, because we are so dominant in liquids, gas is not a major driver for us, and we are naturally hedged to some degree because we use fuel gas and gas directly associated with Surmont and our oil sands operations. We are encouraged to hear plans for the next phase of LNG offtake coming out of Canada. We would like to see Canada bring more scope and scale at a better pace. Our growth plans are dependent on offtake; to get very aggressive in the Montney, with our own development plans or via acquisition, we will need to see a call on those barrels and that gas, and more offtake coming out of BC. This is something for us to watch carefully, and we would like to see more progress by those maturing those projects. Andrew M. O’Brien: Very directly from a commercial LNG perspective, we would be happy to have a bit more offtake on the West Coast. Just like our E&P portfolio, cost of supply—here, liquefaction fees—drives everything. If there are competitive liquefaction fees from expansions or new projects in Canada, we would certainly want to take a look, just like we look at offtake from many other locations. Having some West Coast offtake would not be a bad thing in our portfolio. Operator: Our next question comes from Analyst from Citi. Your line is now open. Analyst: Thank you very much. I wonder if I can get you to talk about the attractiveness of incremental capital in the Delaware versus refrac opportunities in the Eagle Ford. How would you compare and contrast those? Nicholas G. Olds: If you look at the Delaware and Eagle Ford, they are quite different. On refracs in the Eagle Ford, we typically do 50 or 60 in a year. You can execute one for about 60% of a development well’s cost and get roughly a 60% uplift on that original completion on your EUR. In that case, you are looking at mid-$30 cost of supply—upper $30s for refracs. In the Delaware, which is some of our lower cost of supply, you are executing currently in the low to mid-$30s. Overall, Delaware will have a stronger return than a refrac, but they are very close—we are talking probably $2 to $5 difference in cost of supply. Both are very competitive in the portfolio. Operator: Our last question comes from Kevin McCurdy from Pickering Energy Partners. Your line is now open. Kevin McCurdy: Hey. Good morning. Looking at the updated capital program this year, you addressed the Permian activity earlier, but on slide five of your deck you show some potential variance regarding the macro Middle East uncertainty. Can you expand on that a little bit? Would this just be deferred Middle East spending? Are there any other considerations represented in that chart? Andrew M. O’Brien: Predominantly, as Kirk and I covered earlier, it is really a range of uncertainty on what happens with NFE and NFS capital during the year. Nick and Ryan also covered we do not know exactly what will happen on the non-operated side in the Lower 48, but we are not going to put ourselves in a situation where, if we get balloted, we will not participate in low cost of supply projects. I would take it as general uncertainty in a very uncertain world right now. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Welcome to Allstate's First Quarter Earnings Investor Call. [Operator Instructions] As a reminder, please be aware this call is being recorded. And now I'd like to introduce your host for today's call, Allister Gobin, Head of Investor Relations. Please go ahead, sir. Allister Gobin: Good morning, everyone. Welcome to Allstate's First Quarter 2026 Earnings Call. Yesterday, following close of the market, we issued our news release and investor supplement and posted related materials on our website in at allstateInvestors.com. Today, our management team will discuss how Allstate is creating shareholder value. Then we'll open up the line for your questions. As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which reconciliations are provided in the news release and investor supplement. We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2025 10-K and other public filings for more information on potential risks. Let's start with 3 of our recent advertisements and then Tom will begin. [Presentation] Thomas Wilson: [Audio Gap] Reinforces a simple message, check all state first. And the third, which debuted this week is our newest campaign, if it's important to you, it's important Allstate, which demonstrates our commitment our pure for customers and the breadth of our offering. These same themes apply to investors. You can avoid Mayhem by investing in Allstate, which has proven has a proven ability to generate consistent results. If you should call Allstate first, if you're investing in protection companies, we are affordable, particularly at this PE ratio. If it's important to shareholders, it's important to Allstate. We're going to touch on these same themes this morning. So let's review first quarter results starting on Slide 2. I'll say we had excellent operating results in the first quarter. As you know, our strategy has 2 components that are shown on the left. Increase personal property-liability market share and expand protection provided to customers. On the right, our performance highlights for the first quarter. An important part of today's conversation is that Allstate competes using a broad set of tools, not just lowering price. This enables us to maintain attractive margins while accelerating growth. We also broadened protection offerings for customers, investment income increased and shareholders higher dividends and accelerated share repurchases. The financial results are shown on Slide 3. Total revenues increased to $16.9 billion, up 3% for the first quarter of 2025. Investment income increased nearly 10% to $938 million. The property-liability recorded combined ratio was 82% and the underlying combined ratio is 80.3%, a 2.8 point improvement from the prior year. Total policies in force increased by 2.5% and property-liability policies in force increased by 2.3%. Net income was $2.4 billion, and adjusted net income was $2.8 billion or $10.65 per diluted share. Net income return on equity was 48.4% over the last 12 months. Slide 4 provides a construct to answer the question, how are you generate attractive returns by growing if that includes more affordable price. The answer is that while prices are extremely important, transformative growth has created a broad set of competitive levers to enable us to grow, as you can see on the left. More affordable prices are supported by lower expenses and effective claims processes. We also use sophisticated analytics, new products, expanded benefits and bundled offerings to better serve customers. Compelling marketing and broad distribution increase new business, which fuels growth. This flywheel results in market share increases. Some examples are shown on the right. Affordable prices and lower expenses are enhanced with sophisticated pricing plans and better customer experiences. New products and benefits create value for customers. The Allstate brand affordable, simple and connected products for both auto and home insurance are now available in 45 and 36 states, respectively. And Custom 360 auto and homeowners insurance products for independent agents are now available in 40 states. We also routinely expand or improved benefits. For example, we recently added free identity protection, so customers think beyond price, and we execute the strategy of broadening protection. Allstate agents bundle auto and homeowners insurance at high rates, making it easier for customers and lowering acquisition costs per policy. Marketing acquisition economics have improved this year. We distribute the Allstate agents, independent agents, company call centers and over the web, which provides the right level of service for customers at the best value. In the first quarter, all distribution channels had increase in the new business and the total was a record which increased growth. Mario will now cover how this translates into market share growth while earning attractive returns. Jesse will then review more specifics on the Property-Liability business and John is going to cover protection services investments in capital. Mario Rizzo: Thanks, Tom. Let's start with the market share growth on Slide 5. Starting on the left, Whole State increased auto insurance market share in 29 states in 2025 that comprise 57% of countrywide premiums. Looking down below in the 29 states where share increased policies in force increased by 4.3% over the prior year and outpaced vehicle registration growth in those states. That means we increased our share of insurable vehicles in those states. Which we view as a better indicator of sustainable share growth than the traditional premium-based market share metric. In the remainder of the country, policies in force decreased by 0.5% versus an increase in vehicle registration of 0.6%. The decline is heavily impacted by 2 large states where we have intentionally been reducing share because of profitability challenges. If you look at which companies this growth comes from by dividing the market into the top 5 market share leaders and the rest of the market, slightly more comes from the medium-sized and smaller carriers. The broad set of competitive tools that Tom referenced also drives growth in homeowners insurance. Homeowners insurance market share grew at 83% of the U.S. market. [Audio Gap] This was in 41 stage, which had policy in force growth of 4.1% in 2025 over the prior year. We have a broad competitive advantage over the companies we compete with in the homeowners insurance market as demonstrated by our ability to profitably gain share. Moving to Slide 6. Allstate's business model enables us to consistently generate strong returns. On the chart, the blue bars represent the auto insurance underlying combined ratio, which averaged 94 -- 95% and 94% over the last 5 and 10 years, consistent with our mid-90s target. There was obviously an increase in the combined ratio in 2022 post-pandemic, which required significant price increases as shown by the light blue line in the middle of this chart. Since then, we have returned to levels at or below our mid-90s target and with more modest price increases needed to generate and sustain attractive returns. In the first quarter of 2026, rate changes were implemented in 39 states, which included a mix of both rate increases and decreases. These changes had a net overall neutral implemented rate impact across the book. Improving affordability will increase policy in force growth and raised shareholder value as long as the combined ratio continues to perform at or better than target levels. Let me note that these are underlying combined ratios that were reported for these years. And as Jesse will cover in a few minutes, favorable subsequent reserve development shows that results for several of these years are actually better than what is shown on the chart. Moving to Slide 7. You can see a similar story in the homeowners insurance business, which also generates strong returns. Homeowners insurance over the last 5 and 10 years had a recorded combined ratio of 93.5 and 92, respectively. And has generated underwriting income of $3.9 billion and $7.9 billion in those same periods. In the first quarter, the combined ratio was 83.5 and at average premiums increased 5.7% compared to the prior year quarter, keeping pace with loss costs. As you saw this quarter, we also posted the disclosure related to the placement of our comprehensive nationwide reinsurance program, which enhances the risk and return profile in the homeowners business by reducing capital requirements associated with catastrophe loss tail risk and dampening earnings volatility. The homeowners insurance business remains a competitive advantage and growth opportunity for Allstate. Now let me turn it over to Jesse. Jesse Merten: All right. Thanks, Mario. Let's look at the property liability results in total on Slide 8. Auto insurance policy growth of 2.6% and homeowners insurance policy growth of 2.5% and drove an increase of 2.3% in total policies in force in written premiums. Earned premiums increased by 5.5%. The Property-Liability combined ratio was 82.0 as both auto and homeowners insurance profitability was better than our targeted levels. This result was due to strong underlying performance as well as lower catastrophes and favorable prior year reserve releases. Excluding the benefit of reserve changes and lower catastrophes, the auto insurance underlying combined ratio was 89.5, which is 1.7 points better than prior year. Property liability underwriting income was $2.7 billion in the first quarter. Now turning to Slide 9. As Mario referenced in his comments, auto insurance profitability improved faster than original estimates in 2023 and 2024. The top of the stack bar is the underlying combined ratio as originally reported. The green bars represent the impact of subsequent prior year reserve adjustments. The light bars represent the adjusted underlying combined ratio, including the subsequent changes in our estimates of loss costs. As you can see, prior year losses developed more favorably than originally estimated. Reserving is as an iterative process with strong governance and oversight. We use consistent practices, multiple analytical methods and include external reviews by independent actuaries to ensure reserve adequacy. As more claims settle, however, estimates each year are revised to reflect actual loss experience. In recent quarters, actual loss experience has outperformed initial expectations. This results in the release of reserves from prior years. The auto combined ratio in 2023 is now estimated at 95.4, and 2024 is estimated at 90.0. Auto insurance profitability improved faster than originally estimated. Slide 10 highlights how we expect to continually improve our strong performance and enhance competitive position. Transformative growth builds a comprehensive competitive model. This included new software and adapted legacy systems to build a connected technology ecosystem. The system enables the use of artificial intelligence to improve customer experience and lower costs. We're leveraging this technology platform in building Allstate's Large Language Intelligent Ecosystem, which we call ALLIE, to harness the power of a genic AI. With that, I'll turn it over to John. John Dugenske: Thanks, Jesse. Good morning, everyone. Moving to Slide 11, the Protection Services business grew to grow -- continue to grow profitably. This segment is comprised of 5 businesses shown on the left. Detection plans, dealer services, roadside, Arity and identity protection. The largest business in this segment is Allstate Protection Plans, which grew revenue 13.5% versus the prior year quarter. This business provides protection for mobile phones, consumer electronics, major appliances and furniture. Protection plans generated $41 million in adjusted net income for the first quarter, down slightly due to higher claims costs. Arity is a global intelligence business. The higher loss this quarter reflects restructuring charge related to a reduced employee count. In total, Protection Service businesses increased revenue 7.2% and from the first quarter of 2025 and generated $47 million in adjusted net income. Let's turn to Slide 12 to discuss the investment portfolio. Investment income of $938 million increased $84 million or 9.8% compared to the prior year quarter. As shown on the chart on the left, net investment income has grown as the portfolio grew. Since the first quarter of 2024, portfolio book value has increased 24% or approximately $17 billion. The increase reflects higher average investment balances from a 15% increase in earned premiums strong underwriting income and improved fixed income yields. The table on the right side highlights the strength and consistencies of returns across asset classes. Over the last 12 months, the portfolio generated a 4.2% return. Fixed income results over the last 5 years are top quartile. Returns in our performance-based portfolio have been below longer-term historic averages over the last 1 and 3 years at 7.6% and 5.9%, respectively, but remain above industry benchmarks. These results underscore the effectiveness of our active investment management approach. As a result, we increased the capital allocated to the investment portfolio in the first quarter, some of which is carried at the holding company. Let's move to Slide 13 to show that proactive capital management creates shareholder value. Allstate deploys capital in multiple ways, which are shown on the left axis, organic growth, enhancing existing businesses, growth acquisitions and cash provided to shareholders. Using capital for organic growth leverages Allstate's capabilities and market presence with well-understood and attractive risk and return opportunities. This is why we're focusing on increasing market share in the property liability business. In addition, increasing market share should raise valuation multiples. Over the last 3 years, $3 billion of economic capital was utilized to support premium growth. As we just discussed, Allstate also deploys capital to support the investment portfolio to generate attractive risk-adjusted returns. Capital is also used to strengthen existing businesses such as investments we made in our technology ecosystem or enhancing our independent agent business through the acquisition of National General. SquareTrade was a growth acquisition that leveraged the Allstate brand and capabilities. It also expanded protection offerings to execute the second part of our strategy and brought strong retail distribution partnerships. Since it was acquired, revenues have increased eightfold, and the business generated $175 million of adjusted net income over the last 12 months. Allstate also has a long track record of returning capital to shareholders. In the first quarter, $881 million is returned to shareholders, repurchases and dividends. We completed the former $1.5 billion share repurchase program and launched a new $4 billion share repurchase program, accelerating the pace of repurchases. $3.6 billion remains on the current share repurchase authorization, which represents approximately 40% of holding company assets as of March 31 and 7% of outstanding shares. It's an interesting observation, if you bought all of Allstate 10 years ago, you would have received 99% of the purchase price back in cash and would have a company that generated $12 billion in net income over the last 12 months. Wrapping up on Slide 14. In summary, Allstate's broad set of competitive levers delivered strong results in the first quarter. Now let's move to questions. Operator: Certainly. And our first question for today comes from the line of Mike Zaremski from BMO. Your question. Francis Matten: This is Jack on for Mike. Just first one on the pricing outlook. Given how strong reported loss ratios are across your portfolio. I'm wondering how you're thinking about the opportunity to lean in more aggressively on pricing this year? And does that chunks differ materially across auto, homeowners and bundled customers? Thomas Wilson: I would go back to the slide we talked about in terms of growing. We have a wide range of ways in which we grow price is certainly important, but it's not the only one. And I know there's a question for menu. So let me maybe let's spend a minute to -- because it's what you described, we do it obviously by product. We do it by state. We do it by coverage. It's highly complicated. If we think bundled customers, lower acreage costs we give them a discount if they bundle. So yes, we do all that. But let me go up. So price is obviously important, and it's a key driver of profitability. As a result, we've built a system of, call it, operational levers, organizational accountability and sophisticated analytics. And our goal, of course, is to earn attractive margins and grow. And there's always a plan on prices that looks forward 6 to 12 months. We're going to talk about what that plan is here because it's competitive, and it changes all the time. And -- but it's based on what operational levers we think we can pull. So Jesse will describe the system for you and give you a couple of examples of how it works. The conclusion, however, is that the system works. It works for auto and it works for homeowners, and you can see that on Slide 6 and 7. our auto combined ratio was 94 to 95 over the last 5 and 10 years. Homeowners insurance ratio of 92 to 93.5 over the last 5 and 10 years. So the system itself works while price is important in just 1 component. Jesse, why don't you talk about how it works here and then give a couple of examples. Jesse Merten: Got it. So we think about the system like a cube that has 3 elements. And Tom alluded to the 3 elements. The operational levers, if advanced analytics and then organizational roles and responsibilities. And it's a bit like a Rubik's cube where it gives us multiple ways to both identify and address profit and growth opportunities that we have. What I'll do quickly is go through each component, and I'll give a couple of examples of what's going on, a couple of state examples about how the system works. So if you start with the operational element of our cube, we kind of covered this on Slide 4, Tom went through it. You have new products, broad distribution marketing effectively, we employ these operational levers at the state individual market and product level. It's very granular. If I move to the advanced analytics element, we have a highly sophisticated rating plans that have billions of price points per state. We analyze data by submarket within each state and by product, by coverage by risk segment. And we link that between the signals that we're seeing in current claims trends to price at a very granular level. So we're bringing, again, this interconnected system together. These marketing analytics that are terrific, they enable us to price lead purchases in real time, determine effectiveness of programs by media channel and message. And then the claims team is using a massive amount of data to assess the effectiveness of controlling severity and executing the claims function. Centralized. We have a centralized reserving team, of course, and we've talked about that. That's separate from our actuarial pricing team that gives us another set of eyes on loss costs and loss cost trends. The point of all this is that we have a lot of people looking at profitability and growth from a number of different perspectives to the advanced analytic lens. The final element, as Tom mentioned, was organizational roles and accountability. We have a matrix organization structure that enables us to bring all of our expertise to bear to decide how to pull various levers in this system. That includes price changes in total or by territory or by coverage, or customer risk segment and includes adjusting underwriting guidelines. Another dimension to that would be marketing investment. We can look at the price number of sales leads to purchase by market. and then determine distribution priorities alongside those other decisions. So the system that's working together again like a Rubik's Cube to drive profitable growth. The team in this -- the overall team, as we look at it, includes state managers that are responsible for profitability by product line, territory and coverage. We have a chief actuary who have oversized analytics, pricing trends across the country and by state and has a research and development function. We have go-to-market teams that are out there each day, bringing all of their expertise and all of this expertise together to manage growth and profitability by local market. And then we have distribution leads for Allstate agents, independent agents in our direct operations who can assess and evaluate performance on a real-time basis. They can expand or shrink distribution and set priorities and compensation to make sure, again, that we're optimizing across the system. So the 3 elements work together in a continuous planning cycle is the way that I think of it. We create a forward-looking plan looks at expected rate changes for the next 6 to 12 months by state by line, by company, as Tom referenced. It factors in things like likely regulatory timing and what the response will be, and we build up a countrywide matrix then of underlying profitability and growth that we can evaluate the forward-looking trajectory. In line to execution of all of the operational levers with the goal of earning attractive returns and growing in 2027 and 2028. The sort of make what is -- what turning the dimensions of this Rubik's Cube look like come live, I thought I would talk about a couple of examples. So in states where we have share that we would say is below our national average, and our underlying combined ratio is better than target, they were running at 88 underlying combined ratio. State managers will identify an opportunity to lower rates with an eye towards staying within those targeted ranges in coming quarters and in coming years. It's a forward-looking view so that we change rates in a sustainable way. They then work within the system that I referenced to utilize the broad set of tools that we discussed in our prepared remarks, to drive profitable growth by market. So that's optimizing distribution and is working with the marketing team to make sure that where we have opportunity to grow, we're leaning into that. On the other hand, so the other state example would be a state where our underlying combined ratio is above target or on a trajectory to go above our target. And we began taking modest rate increases to get ahead of the trend. And if needed, we'll restrict new business through underwriting guidelines and other operational levers again that we have to make sure that we manage profitability in that state. In states where we don't have ASC. Now we do have ASC in 40 plus states at this point. We'll limit new business until that product is available because we want the most contemporary and most accurately priced product in market. So we'll make sure that ASC gets approved and then relook at growth on a forward-looking basis. So we get the best product in market and again, look across the system to make sure that we're appropriately adjusting for a state that is not meeting our targeted returns. To make a couple of examples come alive, I thought I would just end with the system at work. You saw in the supplement that we changed auto rates in 39 locations and that netted to effectively no change in rate. If you scale that back, there were 23 states where we lowered rates. There are 16 states of increased rates. And because of our rating sophistication and segmentation, 10 of those states, we did both. So we had an increase in a decrease. So this is more than just a high-level analysis, it shows the depth and the breadth of what we're doing to pull the operational levers and all the levers that in the Rubik's Cube to optimize and deliver profitable growth. Francis Matten: That's helpful perspective. And maybe just a follow-up on California, where they recently comatose reforms to the intervener process. I guess wondering is does also do that change along with other recent game changer longer term, especially on the homeowner side, where I think historically, you've been reluctant to grow market share? Thomas Wilson: We believe that California still has a significant number of changes to make for the homeowners market will be accurately priced with easing availability for our consumers. Operator: And our next question comes from the line of Josh Shanker from Bank of America. Joshua Shanker: So in the first quarter, you had about $840 million of net favorable prior year development in the auto line. Obviously, I would imagine the majority of that comes from last year, which tells me you made a lot more money in auto last year than the combined ratio indicates. But it also arguably suggests that year-over-year, the margins are deteriorating. I mean they will. They're incredible right now. They have to deteriorate at some point. I'm wondering if you can talk about the trajectory of what you think is happening right now to help us better understand that. Thomas Wilson: Josh, if you go to Slide 9. You can see how we spread that. So actually, most of the change as it relates to the combined ratio came in 2023 and 2024, very little in 2025. And that's in part because '25 hasn't completely developed. Like we make these changes. We obviously do an estimate we started settling claims as we settle claims, we figured out what we're having to pay people figure out how severe they are. And then we adjust our estimates. So we obviously overshot the mark in 2023 and 2024. We have not concluded that for 2025, where you take our reserves properly stated. I'd also point out, we really didn't overshoot the mark much in 2023. So it happened to be those really concentrated in those 2 years. Going forward, we feel good about profitability. We've been able to earn better than industry average combined ratios in auto insurance for a long time, and we expect to continue to do that. will it -- will we still be at 89. I think when you look at the math on it, to the extent we can drive growth and give up some margin that works to improve the shareholders' valuation multiples. That said, like we're okay earn what we have right now. Like we think we're competitive in the market, but we think we can grow faster. Joshua Shanker: Obviously, 2023 was a very strange year. But is there something in your process that says that you want to be more conservative on the most recent accident years that the confidence interval on your reserving is more conservative for the most recent year in that programmatically. If you're doing things correctly, you would have this type of reserve release action going forward in '27 as we look back to '25. Thomas Wilson: No. We apply the same statistical standards to every year. I would say one of the things we're hopeful about is with advanced computing power that we can increasingly get more specific on what's in the reserves. Of course, the reserves are like you have a bunch of losses in a year, then you have to -- you say, well, how much do we pay out? And then you're kind of doing it and the residual value basis. What we paid out determines what we have left for all the claims that we still have yet to settle. We think with advanced analytics, we may be able to get another angle just looking at all the individual cases, which is really complicated. You got 900-page medical files, you get like lots of stuff to turn and figure out what that claim will settle in. But -- so it's the same process, same standards, and I would say, always getting better as we go forward. Of course, what you never really know is what's going to happen with legal trends or anything else. Operator: Our next question comes from the line of Alex Scott from Barclays. Taylor Scott: First one, I wanted to ask you about just prioritization of the holdco cash, which has grown to a pretty significant amount at this point. how would you think about prioritizing that? Are there different verticals within services that you'd look to expand or other things beyond obviously the larger buyback that you've been doing? Thomas Wilson: That's an important question, Alex. Let me try to build up a little -- start a little bit above where John went and then talk about some specifics underneath that. John, feel free to jump in here. So, the first thing I can is you can get a great return on what you got. And we had a 44% adjusted net income return on capital. So all of our capital, there's no hiring stuff off, no separate closed books or anything like that. We've got a 44%. That's a good thing. And when you look at the S&P 500, it's probably half of that. I don't know what it is this quarter, but typically, it's in the low 20s. And so we feel good about that return. Particularly when you're buying it at this kind of PE. Then you say, okay, well, what else can we do and John went through the order organic growth, you're just leveraging our existing capabilities, great scale to it, just put more volume through the system. Obviously, that's something we're focused on. But you got to make money at. You don't want to end up losing money or give yourself a short-term sugar high of growth and a long-term hangover called low profitability. So we manage that, as Jesse talked about, very aggressive in the Property-Liability business. We also think there's plenty of ways we can expand and leverage our existing capabilities. Whether that John talked about expanding our property-liability businesses or our investment using our investment capabilities, which we put a little more money into earlier this year because we think we're good at it, and the results show we're good at it, and we thought we saw some opportunities in the marketplace. And from an enterprise risk and return perspective, we had room to do that. So we look at it in total, we manage capital. And then there's a variety of other ways we can do it. In general, we look at it and say, we have to be a better owner of a business. Like why would our ownership make this business better. And that's where you look to grow stuff when you look at -- when we bought SquareTrade, putting our brand on it and that kind of retail distribution. We really ran the table on that business. I feel really good about it. Those don't come along that often. But you're always looking for ways in which you can enhance your capabilities. John, anything you would add to that? John Dugenske: I think you covered most of it, Tom, maybe just a couple of things to point out that it really is a system decision. We're looking both outside of the firm in opportunities, but then also in the firm, what's the best trade-off of how that mix comes together. I would point out that sometimes it's harder to see some of the investments that we're making such in technology or even in the investment portfolio, those can be fairly consumptive in terms of capital. it might be more difficult for you to actually see that versus a transaction? And then I guess I'd end up on the fact that I know some of you picked up on it and it's in the queue, but we actually accelerated our share repurchase program throughout the quarter. And that wasn't just a onetime thing. We continue to accelerate it. So one way to look at repurchases is what the quantum is, but also the pace matters, too. Taylor Scott: Got it. All very helpful. Second question, I actually want to circle back on artificial intelligence, specifically and I know you guys have had a strategy over time to improve the expense ratio, so you could get even more competitive in the market and spur some growth. Could you talk about how I expand on that, what you're planning to do? And sort of how you see yourself positioned relative to some of your peers, one of which I think has begun to roll it out more aggressively and reduce their workforce more. Thomas Wilson: Let me start with a competitive position and then come back up to how we're doing our focus on both expenses, aka, generative and effectiveness called the agentic AI. I think it's really hard to tell where everybody is. Everybody is out doing something. We don't talk about everything we're doing because we don't want everybody know we're doing and we'll let them see in the marketplace. The -- but -- so I think it's hard. So what I can say is that the -- from our standpoint, our capabilities continue to grow exponentially. The opportunities we see continue to get bigger. And we're figuring out how to address and deal with some of the implementation and deployment issues because it's not simple. I can't tell you that it's all in market today. It's -- stuff is complicated. But if you can pull it off, it works really well. The easiest way thing to do is generative AI, which is, I think last time I called it the you might remember [ Ken ] sneakers. It's they run faster, jump higher strategy. It's good. It cuts out expenses, you can cut out call center people. Well, that's good. We're working on that. We do a bunch of it does millions of e-mails for us, people want to spend time doing it. It's all really good. I think the real benefit from this will come from a agentic AI, where agents are talking to agents and making decisions in subsecond real-time response rate that people then can't compete with you. We're building that. It's really complicated building an ecosystem. You got to get the right governance around it, you got to make sure you set up whatever metrics you've given, it will go get. So you have to make sure measurement science is really important. So we're working hard on that. We're excited about it. We think it offers potential to really build off of what we did in transform to growth. We don't have the issue that some companies do. I don't know what our competitors' issues over, but I know other companies that I'm not talking to, have some issues in accessing legacy technology. We don't have that for many of our systems. We do for some, but not many of them, which gives us an ability to accelerate the agentic or ALLIE work. Operator: And our next question comes from the line of Yaron Kinar from Mizuho. Yaron Kinar: My first question is on the homeowners book. Why was the expense ratio up year-over-year? And would you still expect improvement for the full year. Thomas Wilson: We reallocate expenses from time to time. There's slightly higher commissions related with bundling on that. So while it looks expensive, it's good lifetime value. So let me put it that way because we had the same question. I like it a like where this point go? And so it relates to how we're driving value. And we try to do it, so it's accurately flex what each product gets and not just spread those costs by commission. We love the homeowners business. We think it's great. We think it's an underappreciated growth asset, not just given the market share numbers that Mario talked about. But if we just think about severe weather, and you're looking for trends. People need more for their homes, the worse the weather it gets. And so -- and we're really good at that business. So we like that business. I think it has great potential. Yaron Kinar: And just to clarify here. So the reallocation of expenses, is that something that's going to flow through throughout the year? Or do you still expect to see year-over-year improvement. Thomas Wilson: We don't forecast expenses. But it takes sense we're spending the money to increase bundling. We like that, yes. And so it would be higher, but we're still learning a great return. So I wouldn't -- homeowners is a little less price sensitive than auto insurance would be the other point I would just add to you as you're thinking this one through. Yaron Kinar: All right. And then my second question, I realize it may still be relatively early, but so we've had the closure in the rate of use for 2 months now. Do you expect gasoline prices and supply chain disruptions related to the closure to impact frequency and/or severity in both auto and home. Thomas Wilson: We don't know would be the answer. When you look at -- I can give you some facts around it. About 1/3 of driving is discretionary. About 1/3 is for like going to work and about 1/3 is for like doing stuff, you got to do both the grocery store so if that. So you're basically talking about 1/3 of things people decide they want to go on a shorter vacation or whatever. That obviously takes some time to factor in. Gas prices are $5 or $6, people don't go as far. Maybe they share their card on writing to work. maybe they don't go to the grocery store as often. And so there's various things that higher gas prices do result in fewer miles driven, which then lowers frequency. But it's not a straight line. You can't just say Strait of Hormuz is here. Gas prices -- it's $110 a barrel for oil. Therefore, we're going to have a 0.5 point change in frequency. You just don't know. And there's a million different variables to that. What we do know is we pay attention to frequency. We keep track of free, we do our claims. We do clean counts impact our reserving and we get claim counts every day. So to the extent they're changing, we're already looking at it. But then you have to decide how long will it be there. And even when you have higher prices, you might get a temporary drift down, drop down and then it goes back up. And then we track 50 million cars every day, every 15 seconds. So we know who's driving when. Yaron Kinar: That's on the frequency side. And what about the severity side? Thomas Wilson: Severity, again, in general, higher petroleum prices roll through everything from plastic parts on cars to shingles. And so it has an upward impact on it. What happens to our cost. We don't see anything right now in severity, increasing severity of parts and some of that. And then it's a competitive market, so you just see what happens. So we're not concerned about the price of oil and its impact right now on our profitability. Operator: And our next question comes from the line of Paul Newsome from Piper Sandler. Jon Paul Newsome: Good morning. Thanks for the call. Maybe a revisit to the competitive environment a little bit and talking about some of the states that have been not as attractive. Any thoughts about those states turning or some of the other states that were in between turning to a more positive environment? Or is there any color you could get, I think, would be helpful and interesting. Thomas Wilson: Paul, just to read that question about the regulatory and operating environment, I think, rather than competitive is the way I'm hearing the question, but let me make sure I get it right before I answer. Jon Paul Newsome: Well, I guess it's either one, right? If it's regulatory, then that's the thing to focus on is it's competitive, and that's another thing. But I guess investors to hear more of the competitive piece than regulatory piece of... Thomas Wilson: Yes, I'll go to both of them. Let's start with regulatory. Obviously, there were 3 large states we called out last year that we struggled to find a way in which we could earn an adequate return for our shareholders, give customers a good price and grow. And so we didn't. And some of those are getting better. I'm really excited about what might happen in New York with Governor Hochul doing it will be a blow for freedom or insurance consumers to take the cost out of unnecessary, what I call, fender bender litigation, that could be a huge benefit because New Yorkers pay a lot for insurance because there's a lot of these benefits being served on. Certainly, when people get hurt, their car gets wrecked, their bodies get bent up and stuff they should be totally in favor of that. And that's what we do, that's what we'd like to do. Sometimes, the system gets a little out of whack. it needs to be course corrected. So we're thrilled about what they're planning to do or hoping to do in New York. And if that happens, that would open a giant growth market for us. We have a big share in New York, particularly in the 7 boroughs. We've been really strong there for a long time. We have a great agency force. It's got tight media markets. So our direct operations work really well there. We have good independent agent relationships. That would be a great place for us, and we hope that they can do that because it will be good for our customers and consumers in general. The -- if I just go to up to the competitive environment, it continues to be highly competitive in auto insurance, as Mario talked about. The top 5 continue to battle it out. You see some of the -- they're not small, but they're not in the top 5. Some of the independent agent carriers have had volumes go down, particularly a couple of big independent agent commercially focused companies have lost some share there. So we feel good about our competition in auto insurance against the top 5 where we're really starting to pick up some momentum against competition is in the homeowners business. Mario talked about at 81% of the country. And some of those top 5 either don't really sell their own product and have underwriting margin to work on in that space or haven't had as good a result as they would like. And so they're being less aggressive in that space. So we think there's great potential to grow in the homeowners business given that competitive set. Anything Mario or anybody would add to that?. Mario Rizzo: No, I think you nailed it, Tom. The only thing I'd say is we -- it's a highly competitive market, as Tom said, when you look at our results, and we continue to generate new business at historically high levels it's across distribution channels. We're leveraging all the capabilities Tom talked about early on, and we're competing effectively both in the auto and the homeowner space. And we like our chances to be able to continue to do that going forward. Jon Paul Newsome: That's great. As a second question, maybe turning to the Home business. I cover a lot of little companies that are talking about this is moving margin to more excess and surplus lines for homeowners trends. Any thoughts about that trend, if you think it's just kind of a temporary thing? Or it's a part of what matters for you imagine, given your very middle of the road new product for home insurance. It's not a huge piece, but just curious. Thomas Wilson: Not a huge piece of excess and surplus lines for us or for... Jon Paul Newsome: Yes. I would imagine it's pretty small for new folks. Thomas Wilson: Yes. We have an excess and surplus lines business it's north light. It's grown reasonably well. Just to help educate everybody else who's not -- it was indeed, Paul -- excess surplus lines are where there's not enough availability in the market and the customer goes out to like 2 or 3 companies can't get an offer. And so then somebody can offer them an excess and surplus lines company, which is, I'm going to call it lightly regulated as it relates to price as opposed to tightly regulated in homeowners. We have that -- we have a company that does that. We prefer to do it in the regular lines. And if we can't sell it in the regular lines, we don't necessarily use our excess and surplus lines if it -- because we don't -- it's because we don't like the market. Occasionally, that we might use excess and surplus lines for a really well-priced risk. But in general, if we don't like the state for homeowners, we probably don't like it for excess and surplus lines either. We do want it so that we can be available for customers they have it. And then on top of that, we're probably the biggest broker of homeowners insurance in the country because we serve our Allstate Asian customers well. When we can't offer a product in Florida or California, something like that, we have arrangements with other companies that we can sell their product for it. And that's -- that's kind of number with a B on it in terms of how much product we sell there right. Operator: And our next question comes from the line of Tracy Benguigui from Wolfe Research. Tracy Benguigui: You started earnings call by giving a demo on your ad campaign. How should we think about ad spend budget this year versus last? And any expense ratio impacts and PIF growth prospects as a result. Thomas Wilson: We're obviously -- it's a highly competitive market. We've dialed up advertising significantly over the last 4 years. We dialed that up with increased sophistication. So there's upper and lower funnel upper funnel being the stuff you saw lower funnel being very specific. We've find first shopping for insurance, and we like give her an ad at the moment on your addressable TV or on the web or something like that. So there's upper and lower funnel. We've increased our lower funnel advertising this year, which is better. It's easier to do metrics on it, like run ad on the super volume who's watching it do they buy anything from it was not as easy to find out whether that's economic as -- so we've shifted more to a lower funnel. But we spend relative to where our economics we have economic measures. But we don't spend all the way up like -- recently, we were looking at should we spend more. And sometimes, you just want to make sure the system works really hard. So you don't want to advertising to be the only thing you do to drive growth because you end up in a system period where we spend more, progressive spends more. So leads go up in costs, so we spend more. So they spend more. So you have to be careful you don't feed a beast, you don't want to feed. So we're highly precise, I guess, I would say, and disciplined about it. That then when we think we can advertise and if we think we can spend more money and grow more and get a great combined ratio, we will. And right now, we like our economics. So our economics are better this year than they were last year. Some of that is just getting better at executing Isn't that the market's really changed some has gotten better at close rates. Tracy Benguigui: Excellent. Shifting gears, can we talk about asset allocation. You doubled your equity holdings since September. So it's about 12% of your total portfolio. What is that relative to your equities asset allocation target? Thomas Wilson: I'll let John answer that. It is also part of what he does besides our Chief Financial Officer. We tried to make sure everybody don't release 2.5 jobs. And -- but I would just say we see probably wouldn't want to say to self that were really good investments. We manage it around. We're proactive. We think about it from an enterprise standpoint. You can see the numbers on the chart. And so we have good confidence that we can generate good returns on capital, and you see it flow through our P&L, particularly this quarter. John Dugenske: Yes. It's thanks for the question, Tracy. The way I think about it, if I take a step back and really go back to the presentation, think about how we think about capital allocation in general, we have a lot of different things we can do. We think about the overall enterprise context as we do it. And we also think about what's going on in the market environment at any part in time. You've seen us in our portfolio, change our allocation probably more than most of our peers, whether that's equity or whether that's fixed income, changing our exposure to rate via duration and the rest. Because we're active -- I don't know that I could point you to a specific asset allocation target. There's a range that's defined by past behaviors. It probably gives you a pretty good idea of what we're likely to operate within. When we do put more money to work, particularly in equities, we try and take a mid- to longer-range view on it. We are economic investors, we're not just trying to manage to a yield target at any point in time. We think by delivering economic value that does accrue to increase net investment over time. And it's a more cerebral way of going about it. But we're not necessarily trying to measure that quarter-by-quarter and we're taking a longer look. The amount that we put to work recently has that in mind. If you look back, say, 6 months ago, the environment was a little less certain. We had a number of things going on. We have a little bit more clarity and felt good about putting money to work. And we'll see how it turns out in the coming quarters and years. Tracy Benguigui: Okay. So it sounds like your approach is more dynamic than static. So could we foreseeably see that percentage growing if you like, that asset. John Dugenske: I would say that. It's dynamic, but it's well governed. And you could probably gauge most of the range of our future activities by the way that we've conducted ourselves in the past. Yes. So we're not likely to have an 80% equity allocation. Operator: And our next question comes from the line of Pablo Singzon from JPMorgan. Pablo Singzon: Just one for me. I wanted to shift to AI again, but this time as it relates to your distribution strategy and how you reach customers. I presume it helps direct distribution, but how do you think it affects your agents, whether captive or independent, there's an argument that it makes them productive, but do you think Issues away from them? Thomas Wilson: Sorry, what makes the agents more productive at? Pablo Singzon: Just the use of AI Yes, that's sort of like the targeting... Thomas Wilson: The 2 probably most talked about letters in these days. So AI can help them in a whole bunch of ways. First, it can help us have a better product. and better pricing and deliver better service for people. That's in general, just -- it will help us be a better company. Secondly, as it relates to their specific work, we think it will remove a lot of service work out of agents offices. So things they had to do before they won't have to do any more. So we're actively working to get that work out of their offices. Secondly, it will help them be smarter and on behalf of agents who provide more advice and do less individual work. Let's say we were going to do an insurance review view. An agent might have to go pull your record, see what you've got, see what your kids are with, both advanced computing, what you want to call it, machine-based learning, AI, whatever, we can help them do their work ahead of time, so they're really delivering the work, and it's like they have an analyst working for them to help them. The other thing that AI can do is really in the moment. And so we have in market today, something called customer engagement side kick that helps you really do a better job of engaging with customers. Because you might have a few doing 50 calls a day or something like that, it's always good to have somebody, "Hey, this is what I'm kind of hearing maybe you should go here. Here's the tonality we're talking about." So we think it will help them do a much better job for those people who want somebody in between them. The AI can also just sell directly. And we're live in the market doing that right now on a particular product. It's more of a learning, but it's doing it in 3 states. It's closing policies. And so we're just seeing what we learn from that. So it all -- you just have to be there to meet the customers. And so I think that will help those agents who have good relationship with people improve their relationships. It will help other agents build more relationships. And then those people who just don't feel like dealing with it and we would just soon deal with the computer, we'll be there for them too. Is that last question Okay. So thank you all for -- we obviously had a great quarter. We had strong earnings increased growth with transformative growth. We think it's showing up. We went through the market share gains. So we look forward to your engagement with Allstate, and we'll be working to create more shareholder value. Thank you. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good morning, and welcome to the CNH 2026 First Quarter Results Conference Call. [Operator Instructions] I will now hand the call over to Jason Omerza, Vice President of Investor Relations. Please go ahead. Jason Omerza: Thank you, Warren, and good morning, everyone. We would like to welcome you to CNH's first quarter earnings call for the period ending March 31, 2026. This slide webcast is copyrighted by CNH and any recording, transmission or other use of any portion of it without the written consent of CNH is strictly prohibited. Hosting today's call are CNH CEO, Gerrit Marx; and CFO, Jim Nickolas. They will reference the material available for download from our website. Please note that any forward-looking statements that we make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report on Form 10-K as well as other periodic reports and filings with the U.S. Securities and Exchange Commission. Our presentation includes certain non-GAAP financial measures. Additional information, including reconciliations to the most directly comparable U.S. GAAP financial measures is included in the presentation material. I will now turn the call over to Gerrit. Gerrit Marx: Thank you, Jason, and welcome to everyone joining the meeting. We are calling from Sioux Falls, South Dakota, where we just hosted our Board meeting. Sioux Falls is one of our CNH tech hubs, which we acquired through Raven. In Sioux Falls, we have about 300 colleagues who jointly with other sites, not only code and validate our on and offboard software, but also design the architecture of the next evolution of our digital machine hardware. I'm very proud of the advancements that we will be launching over the next couple of years. First quarter results were as expected and guided. Given that Q1 seasonally our lowest quarter, we are at historically low industry demand in North America, and farmers in Brazil have ongoing financial challenges. During the quarter, additional complications emerged, including changing tariff rules and an escalated conflict in the Middle East. I'm very proud of the way the CNH team responded to all the challenges we faced, those we knew about going in and those that emerged during the quarter. We are now passing through what we expect to be the lowest period of the current ag industry cycle, supported by some replacement demand. As we have said before, we also expect Q1 2026 to be the lowest quarter of the year, during which we diligently continued the disciplined management of all levers in our control. Despite the challenging quarter, we have many things to proudly share here. We kept production levels low in order to manage and contain channel inventory. Ag dealer inventory levels remained unchanged since the beginning of the year by design. Normally, dealers build inventory in Q1 in preparation for Q2, but the flat levels are in line with our overall plan to have the dealers reduce their inventories by about $500 million this year. We have been quite disciplined to produce and ship only presold orders or fast-moving stock orders. The net of price and product cost was positive in agriculture as we focus on our operational efficiencies and quality improvements. And we do expect that some of price and product cost to be positive in agriculture for the full year as well. We are making solid progress on our efforts to take cost out and improve our overall product quality, countering the negative impact from tariffs and global supply chain disruptions. We also continue with a raving support our dealer and service network optimization with several new consolidations completed and our tech assist tool rolled out at about 70% of our dealer locations. As a reminder, our AI tech assist delivers near instant diagnostic support while our visual parts search enables rapid and accurate parts identification. These capabilities enhance decision quality and deepen the value we deliver to customers and dealers, and there is much more to come, powered by the rapidly evolving power of artificial intelligence from generative to agentic capabilities. We, along with other industry participants have had productive discussions with members of the U.S. administration on how we can support farmers and builders during these times. We are optimistic about how some developments such as the recently announced increase in renewable fuel standards will help farmers through increased crop prices and demand. There's a new equilibrium of supply and demand of agriculture commodities emerging in all major regions, as upcoming elections, trade deals, including and excluding the U.S. and rerouting of food and nonfood supply chains are settled over the next couple of years. So while market conditions are very dynamic, we are focused on solutions today and in the future that support our farmers and builders and that will deliver returns to our shareholders. Turning to the results, which reflect the expected and guided market headwinds and our decision to keep production very low. Consolidated revenues were $3.8 billion, flat year-over-year, including about 4% positive currency impacts. Our Ag segment sales were up 1% with EMEA up 20%. North America down 3%, and South America, down 28%. With farm incomes depressed and macroeconomic uncertainty, we saw continued softness in equipment demand. Industrial adjusted EBIT was a loss of $45 million, driven primarily by tariffs and high SG&A and R&D expenses, only partially offset by positive pricing and cost savings actions. For the quarter, adjusted net income was $21 million, with adjusted EPS at $0.01. Free cash flow from Industrial Activities was a $569 million outflow in line with Q1 2025 and consistent with the working capital seasonality of the first quarter, where we usually build up some company inventory in preparation for Q2 sales. We remain more committed than ever to strengthen the company and prioritizing long-term value creation. Our company strategy is centered around 5 key strategic pillars: expanding product leadership, advancing our iron and tech integration, driving commercial excellence, operational excellence and quality as a mindset. These pillars remain front and center to ensure we stay aligned with our long-term strategic objectives and our team remains focused and united in our shared purpose to serve and advance those who feed and build the world we all live in. From all the great steps forward we took in the last quarter, I would like to focus today on our operational excellence and specifically our manufacturing plant efficiencies. We use a wide range of tools and latest technologies to unlock cost efficiencies at our manufacturing plants. Last year, we conducted about 1,400 projects, which led to $45 million in savings as we reported to you already last quarter. Individually, these projects may seem modest, but the results are profound when we add them all up. In addition, many of the projects include quality improvements to the product shipped out from our factories. An example of one of those projects was a fiber laser installed last year at our Fargo, North Dakota plant where we make our 4-wheel drive tractors. This machine is used to cut sheet steel and replace an old plasma punch machine. The new process is 52% faster than before, while also reducing other consumables such as oil and lubricants, minimizing secondary operations and my favorite, improving quality. More efficient operations paired with better quality are a win for both CNH and our customers. With that, I will now turn the call over to Jim to take us through the details of our financials and guidance. James A. Nickolas: Thank you, Gerrit. Agriculture Q1 net sales were about $2.6 billion up 1% year-over-year, including 4% positive currency translation. Sales volumes were lower in North and South America and favorable pricing came mainly from North America. Sales volumes and pricing were up in EMEA, mostly in Europe for both tractors and combines, fueled by moderately favorable industry demand and some market share gain. Gross margin was 19.1% from 20% a year ago. Agriculture adjusted EBIT margin was 1% from 5.4% in Q1 2025. The positive pricing and the cost saving contribution only partially offset negative original mix and tariff impacts. The higher year-over-year R&D and SG&A expenses were consistent with our indications with both affected by lower variable compensation in 2025 and labor inflation in 2026. Construction net sales in the quarter were lower 3% year-over-year to $574 million, as higher sales in EMEA were more than offset by lower sales in North and South America. We were initially expecting sales to be a bit higher in North America but we held back sales while working out a supplier quality issue to protect the customer. That issue is now resolved and those sales will be made up in Q2. Q1 gross margin was 11.8% from 14.9% a year ago, largely due to tariff impacts. Construction SG&A was unfavorable due to trade show marketing costs, lower variable compensation in 2025 and labor inflation in 2026. Q1 adjusted EBIT margin was negative 4.9%. In Financial Services, segment net income in the quarter was $74 million, down versus 2025, mainly due to higher risk costs in Brazil. Retail originations in the first quarter were $2.2 billion, and the managed portfolio ended the quarter at $28 billion. Sequential delinquency rates increased slightly to 3.5%, primarily driven by persistent economic difficulties in South America. Our capital allocation priorities remain the same, reinvesting in our business while maintaining a healthy balance sheet and then returning cash to shareholders. During the first 3 months of 2026, we repurchased $26 billion worth of CNH stock at average price of about $10.70 per share. Before we dive into our guidance, let's take a look at the expected tariff impact on our margins, as we had a meaningful change recently in the way they will be applied to our products. First, we need to acknowledge that we did enjoy a brief period of release with naive tariffs were replaced by Section 122 tariffs at 10%, that lasted for about 1.5 months. Just something to keep in mind when we eventually think about run rates in 2027. At the beginning of April, there was a change in the way Section 232 tariffs on steel and aluminum are applied. At a very simple level, it means we went from paying 50% on the value of only the metal to now paying anywhere from 0% to 50% on the total value of the component or machine, depending on what it is. For whole machine imports, we are now paying 25% on the total value of the unit, which overall is higher than what we paid before. However, for some component imports, the tariffs can actually be lower. In our Agriculture business, the impact of this change is net neutral for calendar year 2026. So we still forecast the tariff cost impact to be about 210 to 220 basis points of impact on ag margins or no change from our view last quarter. For construction, we're not expecting to get as much of that component benefit as in ag. And so now we expect about a 600 basis point impact on our construction margins compared to our original expectations of roughly 500 points. It's important to note that Section 301 investigations are ongoing for products coming from China, the EU, India and Mexico. We have not included any factors for that in this forecast, but we will provide an update if there are material changes. Let's first look together at our agriculture industry outlook for 2026. We have slightly improved our outlook for small tractors and combines in North America. In EMEA, we have lowered the tractor outlook, but we are more optimistic for combines. And in South America, we have lowered the outlook for combines. Market risk in South America is elevated due to tighter credit and delays in government-backed financing in Brazil. As a result, we are watching the situation there closely. In total, we still see the industry at about 80% of mid-cycle. When we balance all those changes, along with our unchanged assumptions for favorable currency translation of 2% and positive pricing of 1.5% to 2%, we are comfortable reaffirming our net sales guidance of flat, down 5%. As mentioned earlier, our tariff assumptions for agriculture are net unchanged. While we are seeing increased freight and transportation costs, we are optimistic that our ongoing cost reduction programs and updated geographic mix will be able to offset those impacts. As a result, we are reaffirming our EBIT margin guidance of 4.5% to 5.5%. In construction, we have fine-tuned our industry forecasts across the regions based on Q1 trends and market conditions. And overall, we are slightly lower than our previous expectations. However, we still forecast our own net sales to be about flat year-over-year, including about 1% of favorable currency translation and 2% of pricing. EBIT margin is forecasted to be between 1% and 2% as we focus on cost reductions to offset the increased impact of the tariffs discussed earlier. Putting all those elements together, then we reaffirm our forecast for 2026 industrial net sales to be flat to down 4% year-over-year and industrial EBIT margin to be between 2.5% and 3.5%. Industrial free cash flow is still forecasted to be between $150 million and $350 million. Adjusted EPS is reaffirmed at between $0.35 and $0.45, assuming an average share count of about $1.25 billion. To help you with remodeling, I'll provide some additional considerations for our second quarter. Our order books are full for the second quarter, and we're expecting agriculture net sales to be about flat on a year-over-year basis. We're keeping a close eye on conditions in South America as conditions for farmers there remain very difficult. Construction net sales will be higher in the mid-teens, and that includes some of those sales originally expected in Q1. The construction increase is most pronounced in North America. Transportation costs and the tariff payments are another watch point. The team has done a great job working through these rapid changes and will continue to be vigilant. I'll note, too, that grain prices ticked up a little along with oil prices, they remain below what many consider breakeven levels for farmers, which continue to be -- which continue to challenge their economics. Although both agriculture and construction Q2 EBIT margins are forecasted to follow into the full year guidance ranges. Taken together with the lower Q1, this implies that we expect margins in the second half of the year to be sequentially better than the first half, as is typical. Furthermore, we also expect that both the ag and construction margins will be better on a year-over-year basis in the second half of the year. Financial Services net income in Q2 will be lower year-over-year by $20 million to $25 million. With that, I will turn it back to Gerrit. Gerrit Marx: Thank you, Jim. Let me finish up with some thoughts about the rest of the year. Against the backdrop of heightened global uncertainty, we remain focused on our purpose to serve and advance the world's farmers and builders. That means closely monitoring developments while continuing to deliver for our dealers and end customers through disciplined production planning and a clear path to lean channel inventories by year-end. We continue working on our iron and our tech developments and product launches and delivering on our long-term margin improvement efforts. We continue to work with our dealer partners on finding the right network configuration in each of the markets that we serve. In another step to support our dealers and farmers, we have recently entered into a strategic relationship with [ Abilene ] Machine through a minority equity stake. The relationship will allow CNH to offer our dealer network a comprehensive aftermarket parts portfolio with upcoming access to the Abilene Machine portfolio of all makes parts. This further enables our aim to provide our dealers and customers good, better and the best options to service their equipment fleets regardless of age or brand affinity. In North America and Europe, the average age of ag equipment in the field has been trending older. This should build up a modest demand for new machines in the coming quarters. Significant equipment demand increases usually only happen when there is a good increase in commodity prices that support farm incomes. As Jim mentioned, farmers in South America are a little more cautious and will probably continue to be so at least through the end of the year, and so we will be as well. Selling a machine is one thing, collecting its monthly installments is another, and we have been thoughtfully managing that jointly with our network partners during this difficult period. As we expect to evolve from the industry trough, we look forward to capitalizing on all the improvements that we have made during -- serving and advancing those who feed and build the world, always breaking new ground. This concludes our prepared remarks, and we can now start the Q&A session. Operator: [Operator Instructions] We will take our first question from the line of Tim Thein with Raymond James. Timothy Thein: I just had -- my question on ag. The -- as we look at the production slots for the coming quarters, can you maybe give some context there in terms of, a, I'm curious if you've seen -- has there been any significant changes in terms of the actual build rates implied within -- maybe by region or if there's been any changes there? And then just any comments in terms of kind of regional order commentary. I mean you stressed the softness and the concern around South America. Maybe a little bit more context of what you're seeing within that order board maybe in your largest region in North America? Gerrit Marx: Thank you, Tim. So as Jim alluded to, we are fully booked in Q2, and we have a pretty healthy coverage already for Q3, while being very disciplined in actually loading orders to production because, as I said, we focus on real dealer, let's say, customer orders and orders from dealers referring to machines that have a very high probability to liquidate in due course as we continue to manage our general inventory. Usually, when we see the market picking up again, which we do not yet see at this point. We would obviously load production more with what we call company orders, where we hold inventory on our side to quickly react to a changing market environment. So when we talk about already a Q2 fully booked into Q3 in a good shape, this happens on the basis of a very disciplined order loading to the factories. As per the regional differences, we're pretty happy with the way how things go in Europe. The team makes great progress in building the foundation for gaining share as we do. And we are accelerating our dealer multi-brand consolidation across the region. And you will hear us talk about that almost, I think, probably every quarter from now on. But definitely, for the full year 2026, and obviously, this dealer network consolidation is going to drive as well order momentum in the region as we not only break new ground, but they actually gain ground. Similarly, for the United States, where the market is going backwards as we projected and guided to, we see on the low levels, very good momentum with our dealers when it comes to interacting with our customers. So that is also in a good place. And the region where we have extra efforts and extra attention is, as you also picked up is Latin America, particularly Brazil, although Argentina is not that different in its current dynamics where the farmers are still in a wait-and-see situation in light of upcoming elections in Brazil. And still, the consequences of trade deals still need to show in actual trades of commodities and pricing of those commodities. So I think in Latin America, we apply extra discipline to the taking of orders, making sure that we preserve margins despite a significant price pressure in the market given that all the industry participants had expected a better evolution of market demand, which isn't the case. And so extra discipline is required for LatAm in the order take and that is also seen in our Q3 order take. But overall, we are in a good shape going through Q2 as we look at Q3. James A. Nickolas: If I could add to that, in the Latin America, Brazil, in particular, given the tight conditions, we, along others have tightened underwriting standards, and I think that's also acting industry demand. So it's not a CNH concern. It's an industry-wide country-wide concern. Gerrit Marx: Yes. And maybe last commentary on Asia Pacific, although small, but growing quite a bit. Our teams in India have hit new record highs in terms of production market share, and we really, really built momentum there with our newly launched compact factor lineup, and the to be launched, new utility-light small tractor lineup, not only for India, but for the export, which will mean a step change in small and compact machines that we will ship around the world from India, while we see stable and good progress in China and a rather flattish development in Australia and New Zealand, where the market is basically running on replacement demand only at this point in time. Operator: Our next question comes from the line of Angel Castillo with Morgan Stanley. Unknown Analyst: This is Esther on for Angel Castillo. Just on tariffs and the broader trade backdrop, can you just give us a little bit more color on how you're sizing the impact you're seeing today versus the original tariff impact guide? And how much of that do you think is being offset by pricing versus operational actions? So just like more color on like kind of how you see that dynamic through the year? James A. Nickolas: Sure. Yes. Esther. It's Jim. The -- as we indicated, the ag business, really no net change versus prior guidance. So you think about full year 210 to 220 basis points of a drag versus if there weren't tariffs. So call it, full year cost of $120 million on the ag business. Now that's -- and that's in line with where we were last quarter. There were some puts and takes. [indiscernible] lower gave us some relief, offset by higher impact, higher cost from Section 232 changes. And so that's really a broad for the ag business. On the construction business, it's a bit of a headwind moving from 500 basis points of a headwind to 600 basis points of headwind, again, as opposed to no tariffs. So that's really where it ends up. So we took our lumps, I would say, when they were first launched at Liberation Day. And then since then, the changes thus far have been relatively minor for us overall. The one area that we haven't quantified and are waiting to see where it lands are the Section 301 tariffs, which are sort of related to investigations. The U.S. government is conducting with various counterparties in the trade, EU, India, Brazil, et cetera. So that one is unknown at this point, but I think that covers the landscape of tariffs. Operator: Our next question comes from the line of Kristen Owen with Oppenheimer & Co. Kristen Owen: I wanted to talk through how you're thinking about back half scenarios, just given the consents of now we're looking at higher fertilizer prices, higher transportation cost, some of these acute challenges that you've called out in Brazil versus maybe a little bit stronger forward commodity curve, how that's influencing the range of scenarios that we could see in the back half of the year? James A. Nickolas: Yes. Kristen, the -- again, the range of probable outcomes is pretty wide still in keeping with the last year or so of macroeconomic uncertainty. The fertilizer impact higher cost. So that's less of a concern for 2026 for most of the world. I mean it's a concern, but it's not -- it shouldn't impact us too much this year, second half aside from Brazil, Brazil is where it's going to have more of an impact given their multiple harvests and planting seasons. So there's a little bit of risk, I think, in Brazil from the higher fertilizer costs on top of the credit conditions we mentioned earlier. Transportation costs are growing in most places. We are viewing this as something we can offset today. It's sort of the higher cost due to the Iran conflict persist throughout the year, which we're not forecasting, but if they were to persist throughout the year, the gross net increase in cost could be up around $70 million, that $70 million is gross. It assumes no countermeasures from us in terms of transportation surcharges or lower discounting, we would take action at some point if this elevated cost environment persists on the revenue side. We don't think that's needed just yet, but we're monitoring it very, very closely. So at the back half, we think we've got things balanced out given our levers. But right now, the unknown is the higher elevated transportation cost, that's the primary factor, logistics from shipping and trucking from the higher diesel and fuel costs. So that's the one we're watching closely. And if it persists for a longer period of time, we'll need to make some counter measures to happen on the revenue side. Operator: Our next question comes from the line of Jamie Cook with Truist Securities. Jamie Cook: I guess just 2 questions. I guess, encouraging to see we kept guidance the same and everything seems on track. Obviously, lots of positives and negatives out there. But Gerrit, if you could just comment on, one, understanding it's early on about how you're thinking about the setup for 2027, I guess, for ag in particular, where you would be most constructive or more worried, I guess, Brazil would probably be that area. And then from just a company-specific perspective, with a lot of the company-specific initiatives, streamlining of cost structure, supply chain, all those quality, all those things assuming a flat market in 2027, how do we think about earnings for CNH or potential positives that CNH could realize even in a flat market? Gerrit Marx: Jamie, well, look, we're getting ready for whatever comes our way in 2027. We do see -- as I mentioned, momentum in Europe. We expect the U.S., the North American market to see the trough this year. And in South America, despite the very low levels where we are traveling and we are still probably in Brazil itself looking for the grounding in this trough. We will enter 2027 with a far greater level of certainty around certain factors. Elections in Brazil and South America will be behind us. We'll have the midterms behind us. We will have clarity around all the tariff items that Jim mentioned, most notably the 301. We will see how the administration positions themselves in various different trade deals around the world. And we will see, and that is what I understood from my interactions in Washington is we will see a greater level of detail in the particular bilateral trade deals that are still ongoing and with a particular focus on commodity trade and commodity flows out from the U.S. This will give us a good footing there. I mean in the end, the aging machine park, every acre around the world has been planted and harvested this year, and the same is going to happen next year. And this puts the hours on all machines and everybody's machines that it takes in order to do the job. So despite markets going slow, the machines are aging at fairly the same pace. And as we enter into 2027 and looking at the average age of the machine parts, we do expect some support from replacement demand across the world, obviously, and then also with a greater level of certainty around those bilateral trade deals and maybe with some support of commodity price momentum for 2027. However, we do not back a market bounce in our own actions. What we do is we remain very disciplined on cost. We are making good progress, great progress actually in taking cost out of our supply chain and procurement area. We have even slightly overdelivered our own internal expectations as it came to quality costs last year, and we will continue to do so over the course of this year. We are looking at structural costs. We do have identified pockets of AI deployment, which in first and foremost, will help us to drive productivity in our own operations, such as software coding. I mean we are here in Sioux Falls, and this is one of the sites where we do code our software. And I've seen great examples now of actually a pretty impressive acceleration from the AI advancements over the last 6 months, what can be done in this area. And all of these elements will help us to go faster with tech while reducing our cost base in relative terms and against the backdrop of global and heightened global certainty with those points that are causing right now the uncertainty among our farmers, particularly. So this is something that we stay focused on. And I feel pretty good about the progress we are making against all the commitments we put out there. And then we'll see when the market comes back. This is overall still see and wait where we don't wait, actually, we act. So it's a see and act phase for us, improving things. And 2027 will be probably a better year than 2026. James A. Nickolas: If I could just add one, we're also underproducing versus retail in 2026. So assuming we -- by about 4%. So assuming we produce at retail levels next year, that should be a natural tailwind revenues or profits. Operator: Our next question comes from the line of Kyle Menges with Citigroup. Kyle Menges: I was hoping if you could talk about just any changes you're seeing in industry competition, specifically pricing across any of the major regions as well as just how you think your inventory position is versus the industry? And then just a quick tariff question. You mentioned could be a 0% to 50% tariff would just be helpful to hear examples of cases where it would be 0 versus 50% now? Gerrit Marx: Thanks, Kyle. I will defer the tariff point to Jim. We do see a continued positive price cost development for us, which I don't know what the others are doing, but we do see that building on top of advancing technologies and product launches as well that we have throughout 2026 and the beginning of 2027. We have launched our new short rebase or standard rebased tractor in Europe, also on top of the range, long wheelbase tractor hitting first time ever segment CNH has never played in, which is a sector of 350 to 450 horsepower in the European style designed tractor that is sold around the world. And with these launches, and actually, we are sold out on those with the production slot we have allocated. We also sold out on our next-gen combines this year. We see great momentum in our product, great demand. And with that demand and obviously, further launches of our also offboard systems, connecting the onboard. We have a good base to advance our farmers and with that also have a good net price realization over the next couple of quarters as we also go into 2027. So for the full year, we expect a positive price cost here. On the inventory side, I alluded to a $500 million further reduction of our global channel inventory. This is -- dealer inventory. This is something we will very closely monitor because if there are swings in markets that we see coming maybe more positive on the other way, more negative developments, we will adjust those in inventory targets and destocking activities accordingly. For now, we feel pretty good where we are. We get very good feedback from our dealers. We have cleared aged inventories. We have cleared stock that was hard to sell. And now we are approaching the levels that we want to see with our dealers also to lighten up the financial burden on floor planning, and their overall exposure to that. So that is on a good track. We delivered what we said we will. And I'm quite curious to see what happens in the next quarters, carefully reading commodity prices, carefully reading the demand in every region of the world. And I think, overall, in a good shape on our track in 2026, which is the trough year most notably, probably in like 20 or 30 years of ag. We have never been that low in terms of unit sales in our industry and we are holding up not only, but we are actually building further strength as we go into the future years. So that feels overall quite good. Jim, on tariffs. James A. Nickolas: Yes. Kyle, it kind of depends on the HTS codes, the harmonized tariff schedules. There's a bunch of those. And I don't have the details to discuss this in particular, but we can take that probably offline at some point. . Operator: Our next question comes from the line of David Raso with Evercore ISI. David Raso: Two questions. One, can you give us an update on where you stand strategically with the construction business? And second, the production below retail of 4%. Can you give us a little color, be it geographic or large versus small tractors, combines just that combination that gets you to the down -- or sorry, below 4% retail globally? Gerrit Marx: David, I'll take the first, and Jim takes the second question. As I mentioned during the last quarterly earnings call and the full year 2025 financials, we have restarted our discussions with several partners for our construction business. These discussions advance a pace. We don't rush anything. There are very good conversations that we have that will build a stronger CE lineup for the construction business, and that will also further enhance the construction machines that we expect to get shipped under the New Holland construction brand back to our ag dealers. So progress is made as we speak. We don't rush things. We take the time it takes, and we will update you when we have made a conclusion not saying when that will be the case. But in -- I think over the course of the remainder of 2026 or first half of 2027, we should be clear on the path forward for our construction business, which is a very, very relevant piece as a product for our dealers, but not necessarily has to be in our ownership in order to deliver product and service to those through build and farm the world. So that is what I can tell you. So time wise, we are pretty much a pace of what we said last time over the course of '26 and '27, we'll come back with the progress on that one. But I'm pretty confident that we are moving towards a solution here. James A. Nickolas: Yes. And [indiscernible] question, the underproduction is a rough, but more underproduction happening in combines, less underproduction in tractors, although both are underproduced in 2026. And by geography, I would say balanced, but probably a little bit more under production occurring in Brazil this year for the -- there we talked earlier about the challenges there. Operator: Our next question comes from the line of Joel Jackson with BMO Capital Markets. Unknown Analyst: It's Evan on for Joel Jackson. I just wanted to circle back on the credit dynamic. You pointed out for Q2, Q3 considerations of higher risk reserves, just wonder to see if you can give any extra color on that. Is that all Brazil? Are you seeing delinquencies currently higher bad debt? James A. Nickolas: Yes. It's slightly up in more mature markets, but nothing notable. The real increases are Brazil, primarily and secondarily, Argentina, but to a lesser degree. And in Brazil, May is a big payment month. And so every year in May, we see an uptick in delinquencies, that's typical seasonality. I would expect to see it again this year. And it remains elevated. It's something that bears watching. We're actively managing it. It is not getting worse, but it's not getting better at the same time, so it bears customer-by-customer discussions trying to make sure that they stay current. So I would expect an uptick in delinquencies in Q2 of this year, like we always see. And I'd say, again, it's mostly focused in Latin America is the issue. Operator: Our next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: Question regarding South America, I see you tweaked lower your expectation for combines. But stepping back, should we view this year's decline in South America more like a temporary blip that reverses next year? Or are you seeing indications that this could be a weak market for a couple of more years before demand starts moving up again? Gerrit Marx: Look Tami, the -- I mean Brazil, if you look back the last 40 years, Brazil, had always a very quick ramp to a peak year, and then it dropped quite sharply and it stayed there for a few years and then before it came back. I think the overall cycle dynamics in Brazil are very familiar to us. And the shape of the curve is this year no different than any other cycle before. What is a little different this time is that a few things come together, and like tariffs and the global trade and the new position of China when it comes to purchase global commodities and North and South American frictions. And I think that causes a little deeper and a little longer trough in this cycle than in prior cycles. And I think that is what we experienced right now in '26, which could drag into '27 as well. However, looking at the acreage in South America and knowing that we have 2.5 harvests in South America on many acres down there given the climate conditions that points at our machines aging 2.5x faster when it comes to ours on the machine than in other geographies that have only 1 harvest more or less 2.5x the ours. They planned and they plan differently. So maybe it's rather 2x the aging speed. But that will point at a replacement plan across large ag equipment that becomes quite relevant as we enter into '27 and '28. So I think replacement will provide a floor. And while we go a little deep now and a little longer and in prior troughs, we would expect now that 2027 gives us some footing and with the new elected President in Brazil, whoever that will be certainty will in any case, add to more confidence when it comes to farming and purchase of machines. What that means the numbers we will need to see. But I think the floor will be reached over the course of this year as per our expectations. Operator: Our next question comes from the line of Daniela Costa with Goldman Sachs. Daniela Costa: I just wanted to follow up on Construction Equipment. You talked about the net pricing expectations for ag. And if you could elaborate sort of similar comments for construction equipment, do you think that can turn net positive at some point in the year? And then also on Construction Equipment, 2Q, given the volumes you guide for mid-teens, should we expected already to start breaking even in 2Q? . James A. Nickolas: Daniela, it's Jim. So for the full year, we are not forecasting positive net pricing on the construction business because of the tariffs. Price loss balance to be net negative. Positive pricing, but then the product costs because of tariffs will grow at a higher rate. So net the product price and product cost net negative for the year. There'll be positive EBIT for the year, for the full year is still profitable, but the price cost is a negative equation for us this year. As it relates to Q2, construction business, yes, we do believe it will be above breakeven in Q2. Again, they're going to -- they were penalized from the quality hole, the quality stock at the Wichita plant in Q1, and then that will be made up those sales will be realized in Q2. So a bit of a negative in Q1, bit of a positive in Q2, full year but of a wash. Operator: Our next question comes from the line of Ted Jackson with Northland. Edward Jackson: My question would be just kind of on sort of U.S. legislation and regulation. And I was just curious if you could give some kind of update and thoughts that you all have with regards to the farm bill, which is locked up inside of Congress and then also the efforts to push to EPA -- by the EPA to push for ethanol E15 full year. I mean if the farm bill gets locked up and those come out and we go through another year with it being funded down the road, does that change anything for you? And on the EPA side, on the EBIT team side, maybe just kind of some thoughts in terms of what you think it is in terms of the likelihood of that. Gerrit Marx: Ted, look, the farm bill is -- has been long awaited and is still locked up and it is going to be helpful regardless. It is not going to suddenly boost in itself, it is not going to boost major equipment demands because our farmers, they need to see an operating profit on their bottom line, excluding subsidies and other money that is handed to them. Only if it's structurally positive, which is driven by commodity prices and input costs, only if that turns positive for them, this is the key enabler for equipment purchases because that means that the business is returning back to a healthy and sustainable operation allowing them to upgrade their fleets and advance new tech. So farm bill is very, very helpful, and it's very needed. It is not going to be that one thing that is driving equipment demand from 1 day to another. When it comes to the regulation and legislations, I mean making E15 fuel, I mean, today, it was a temporary E10 -- and then -- sorry, temporary E15 now making it permanent. That has quite some positive impact on corn. I mean, we did some math here back of the envelope. And if everybody, which is not possible. But if everybody was shifting towards a consumption in the United States from E10 to E15, that amount of corn needed to produce that fuel. If I just focus on corn, there are obviously other ways to produce that ethanol content. But that amount of corn is more or less equivalent probably to about the same acreage that is planted today with soybeans, earmarked for China. So I mean, there is a kind of a wash, however, not to be neglected that the marginality of soybeans for farmer is a significant higher than the marginality of corn. So while E15 will drive for corn, and we will see also other sources benefiting from that, and it will help stock levels to deplete a bit. It is overall a less profitable commodity than soybeans. So I think there is is good momentum. It's helpful. It adds. It is not a big ticket item that will turn things around, but it helps to build confidence. When it comes to EPA and emission standards, I mean, staying very, very focused on sustainability and low emissions, which we have already across the board with our machines. I think what EPA is targeting at is make it simpler and make it less disruptive if things happen in the field or reality strikes that suddenly, I don't know, you're running out of the additives and then the engine DD rates. So these things shouldn't happen, so it makes things simpler for our farmers in the field. I think that is also very beneficial the operation makes it simpler. It does not take significant cost out of the machines though. If you imagine you were to roll back an emission standard for the United States, where we are running on, let's say, Tier 5, if you were to skip that or roll back. I mean the rest of the world will still move into higher level emission standards. And if I think if -- in North America, let's say, United States, if the emission standard would start to deviate from the rest of the world, I think that creates more complexity for us because we then need to build machines for a market with a specific, let's say, less sophisticated emission standard. And while the rest of the world is still on a higher level emission standard that might mean we can maybe reduce a few components from the machine because it's a less refined emission standard, but it does not lower the overall cost for us in producing because the rest of the world will not follow. So I think EPA's advancements are helpful to simplify and to make farmers life more focused on what they actually should do rather than be worried about their engines to be rail -- derate. But I think overall, as a cost reduction action, this has limitations when it comes to the machines themselves. Overall, all of it is helpful what it will take, needless to say and you all know that is better commodity prices and managed input costs so that a healthy operating margin emerges with the farmers, and they see the profitability or the overall farm health, which is not only the soil health, but also the economic health of the farm being sustainably advanced in the future, and it's very much driven by a few factors that are not yet clear, i.e., global trade commodity prices, and we'll see how the harvest will go this year. Operator: Our final question comes from the line of Judah Arnovitz with UBS. Unknown Analyst: Actually, 2 quick questions on price cost. In Ag, do you expect positive price cost each quarter for the rest of the year? And then just on the transportation costs, you mentioned if the conflict persists, what's your confidence in your ability to pass these costs on to customers in both ag and construction and then relative to the $70 million growth impact that you mentioned. What is that number year-to-date? James A. Nickolas: Yes. Okay. So price cost for ag per quarter, yes, that just remained positive. So it's good news. On the construction side, we talked about that's not going to happen for the year given the tariff burden. And then I think your second question was the ability to pass on higher costs, logistics, et cetera. I think there will be a bit of a lag effect. And -- but you think that's certainly the ag business certainly has shown its ability to get pricing over time. I think that will continue. So I'd say, a high degree of confidence getting that pricing back. It may not be in the same quarter. Again, there may be a bit of a lag, but a high degree of confidence in getting that back. On the construction business, less confident. It's a much more competitive fragmented market and not all players are impacted equally with these costs. So that's called medium level of confidence on the construction side. Year-to-date, I would say relatively small impact from elevated costs from the Iran conflict, et cetera, relatively small up till now. That's more in the windshield, not the review mirror. Again, we don't think it will be -- it will come to that. That number I gave you $70 million is only if it persists sort of through the end of the year, and we don't think this is going to last at the end of the year. Operator: That concludes today's conference call. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Southside Bancshares, Inc. First Quarter 2026 Earnings Call. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Lindsey Bailes, Senior Vice President, Investor Relations. Lindsey, please go ahead. Lindsey Bailes: Thank you, Rebecca. Good morning, everyone, and welcome to Southside Bancshares, Inc. First Quarter 2026 Earnings Call. A transcript of today's call will be posted on southside.com under 10-K. Joining me today are President and CEO, Keith Donahoe; CFO, Julie N. Shamburger; and Chief Treasury Officer, Sunny Davis. Keith will start us off with his comments on the quarter, then Julie will give an overview of our financial results, and Sunny will end with comments on securities and funding. We will have a Q&A session following Sunny's remarks. I will now turn the call over to Keith. Keith Donahoe: Thank you, Lindsey, and welcome to today's call. We are pleased to report solid financial results for the first quarter of 2026. Highlights include strong linked-quarter loan growth of 2.7%, increased earnings per share of $0.78, improved annualized return on average assets of 1.10%, and an annualized return on average tangible common equity of 14.39%. Lower funding costs resulted in a $441,000 linked-quarter increase in net interest income and an improved NIM of 3.01%. Our funding costs benefited from the February 15 redemption of $93 million of subordinated debt which had an interest rate of 7.51%. Second quarter funding costs will also benefit from this redemption. First quarter loan growth was driven by strong new loan production combined with lower than expected payoffs. Although we experienced strong first quarter loan growth, we continue to target mid-single-digits for 2026 loan growth due to an expected return to elevated payoffs for the remainder of the year. New loan production of approximately $431 million compared to $327 million in the prior quarter. Of the new loan production, approximately $240 million funded during the quarter with the unfunded portion of this quarter's production expected to fund over the next six to nine quarters. Excluding regular amortization and line of credit activity, first quarter payoffs totaled approximately $113 million and represent the lowest payoff amount during the past four quarters. The single largest payoff during the quarter was the $27.5 million multifamily loan previously included in our nonperforming asset category. In mid-February, the borrower successfully refinanced the loan balance with a life insurance company. Additional payoffs during the quarter included an office building, several small retail centers, an industrial warehouse, a skilled nursing facility, and several commercial land loans. Our loan pipeline today totals approximately $1.3 billion, down from a mid-quarter peak of about $2 billion. Despite the reduction, our won-but-not-closed category remains healthy at just over $331 million. The pipeline remains well balanced with approximately 44% term loans and 56% construction and/or commercial lines of credit. This is relatively unchanged from the fourth quarter mix. C&I-related opportunities represent approximately 24% of today's total pipeline, up slightly from year-end’s total of 20%. During the quarter, we migrated four multifamily loans and one office loan to substandard. The two multifamily loans originated as construction loans and are currently experiencing slower lease-up and lower rents than originally underwritten. The remaining two multifamily projects originated as term loans and have experienced a decline in occupancy and reduced rental rates. All four credits are supported by experienced real estate borrowers, including equity partners providing financial support. Over the next six to twelve months, we expect successful resolutions either through open market sales or refinances. Despite this substandard increase, credit quality remained strong. During the first quarter, nonperforming assets totaled $9.7 million, a decrease of $28.5 million from December 2025; the reduction was primarily related to the previously mentioned $27.5 million multifamily loan which paid off in February. As a percentage of total assets, nonperforming assets remain low at 0.11%. Other first quarter activities included replacing our Woodlands loan production office with a full-service branch, and a new branch in our fast-growing home market of Tyler. Additionally, we are particularly excited to report the hiring of a 30-year wealth management veteran charged with building out our wealth management team and expanding our platform throughout the Dallas–Fort Worth market. When considering our net income, earnings per share, expanded footprint, and a key hire in our wealth management group, we had an excellent quarter. Overall, the markets we serve remain healthy, and the Texas economy is anticipated to grow at a faster pace than the overall projected U.S. growth rate. With that, I will now turn the call over to Julie. Julie N. Shamburger: Thank you, Keith. Good morning, everyone, and welcome to our first quarter earnings call. We are pleased to report a solid start to 2026. For the first quarter, we reported net income of $23.3 million, an increase of $2.3 million or 10.8%. Diluted earnings per share were $0.78 for the first quarter, an increase of $0.08 per share linked-quarter or 11.4%. As of March 31, loans were $4.95 billion, a linked-quarter increase of $128.2 million or 2.7%. The linked-quarter increase was driven by increases of $93.2 million in construction loans, $40.6 million in commercial real estate loans, and $12.2 million in the commercial portfolio, partially offset by decreases of $9.6 million in municipal loans and $7.1 million in one-to-four family residential loans. The average rate of loans funded during the first quarter was approximately 6.3%. As of March 31, our loans with oil and gas industry exposure were $72.1 million or 1.5% of total loans, a slight increase compared to $71 million linked-quarter. Nonperforming assets decreased to 0.11% of total assets at quarter end, a result of the payoff of the $27.5 million commercial real estate loan restructured in 2025, and to a lesser extent, a decrease in our nonaccrual loans. Our allowance for credit losses increased to $49 million for the linked-quarter from $48.3 million on December 31. Linked-quarter, our allowance for loan losses as a percentage of total loans decreased one basis point to 0.93% at March 31. The securities portfolio increased $164.3 million or 6.1% to $2.87 billion on March 31 when compared to $2.7 billion at year-end. The increase was driven by purchases of $313.5 million in mortgage-backed securities during the first quarter. As of March 31, we had a net unrealized loss in the AFS securities portfolio of $16.3 million, an increase of $15.5 million compared to $767,000 last quarter. There were no transfers of AFS securities during the first quarter. On March 31, the unrealized gain on the fair value hedges on municipal and mortgage-backed securities was approximately $1.95 million compared to $788,000 linked-quarter. As of March 31, the duration of the total securities portfolio was 7.4 years compared to 7.6 at December 31, and the duration on the AFS portfolio was 4.7 compared to 4.8 years on December 31. At quarter end, our mix of loans and securities was 63%/37%, respectively, a slight shift compared to 64%/36%, respectively, at year-end. Deposits increased slightly by $9.3 million or 0.1% on a linked-quarter basis. Brokered deposits increased $110.7 million, however, partially offset by a decrease of $82 million in retail deposits and $19.4 million in public fund deposits. We redeemed our $93 million of subordinated notes due in 2030 during February. At the time of the redemption, the notes had an interest rate of 7.51%, and we recorded a loss of $791,000 on the redemption of the notes. We expect to see further savings in our funding costs during the second quarter as a result of the redemption. Our capital ratios remained strong with all capital ratios well above the threshold for well-capitalized. Liquidity resources remained solid with $2.68 billion in liquidity lines available as of March 31. We did not repurchase any common stock during the first quarter, and we have approximately 762,000 shares remaining that are authorized for repurchase. Our tax-equivalent net interest margin was 3.01%, an increase of three basis points on a linked-quarter basis, up from 2.98% for 2025 Q4. Our tax-equivalent net interest spread for the same period was 2.38%, an increase of seven basis points from 2.31%. The increase in the net interest margin and net interest income is primarily due to lower funding cost. For the three months ended March 31, we had an increase in net interest income of $441,000 or 0.8% compared to the linked quarter. Noninterest income, excluding the net loss on sale of AFS securities, decreased $303,000 or 2.3% for the linked quarter due to a decrease in deposit services income and a decrease in BOLI income, partially offset by an increase in other noninterest income. Other noninterest income increased primarily due to an increase in swap fee income. Noninterest expense was $40.6 million for the first quarter, an increase of $3.1 million or 8.3% compared to the linked quarter. The increase was largely driven by an increase in salaries and employee benefits, the loss on the redemption of sub debt, software and data processing, and other noninterest expense. Salary and employee benefits increased due to normal salary and employment tax increases at the beginning of the new year, additional stock compensation, and a one-time retirement expense related to a new split-dollar agreement of approximately $420,000. Other noninterest expense increased primarily due to an increase in non-service cost of retirement expense and a nonrecurring credit received in the fourth quarter. I mentioned during the last call that our budget indicated an increase of approximately 7%. Absent the loss on redemption and the one-time retirement expense of $420,000, the linked-quarter increase would have been a little over 5%. Our fully taxable equivalent efficiency ratio increased to 54.98% as of March 31, from 52.28% as of December 31, primarily due to the increase in noninterest expense. For 2026, we anticipate noninterest expense of approximately $40.5 million for the remaining quarters. We recorded income tax expense of $5 million compared to $3.8 million in the prior quarter, an increase of $1.25 million. Our effective tax rate was 17.8% for the first quarter, an increase compared to 15.3% last quarter, and we are currently estimating an annual effective tax rate of 17.8% for 2026. At this time, I will turn the call over to Sunny. Thank you. Sunny Davis: Thank you, Julie. The MBS purchases in the first quarter have coupons ranging from 4.5% to 5.5%, a duration of seven years, and a yield of 5.24%. Approximately one-third of the purchases occurred late in the quarter and were essentially pre-purchases of April and May cash flows due to an opportunity in the market. These were purchased at discounts, which will act as a hedge to the earlier purchases should prepay speeds increase. This one-third, or approximately $106.6 million at a rate of 5.44%, was not reflected in the yield of the securities portfolio in the first quarter. We expect to reinvest future cash flows from the securities portfolio into AFS MBS and maintain the balance of securities at approximately $2.7 billion to $2.8 billion. If presented with an opportunity similar to the one in March, we may pre-purchase again. The principal cash flows we received during the quarter were $127 million, or an average of $42.3 million per month, which includes $20 million from the maturity of two MBS balloons held in HTM. I anticipate a pickup in prepays in the second quarter due to a higher MBS balance, lower mortgage rates through early March, and lower spreads. The spot rate on our CDs was 3.74% at quarter end compared to the average rate of 3.79% for the first quarter. CDs totaling $568 million with an average rate of 3.83% will reprice this quarter. We expect to retain most of these deposits and estimate an interest savings of roughly 10 basis points. Additionally, $1.06 billion with an average rate of 3.79% will reprice by year end. As Julie mentioned in her comments, our public funds decreased. There was some seasonality to this decrease. In Texas, various public fund entities collect ad valorem taxes in the fourth quarter through January of the following year, then disburse some of those funds prior to the end of the first quarter. There were also construction draws from bond funds we hold for a couple of public funds as well as February debt service payments. I expect public funds in the second quarter to increase from the March 31 balance. Many of our public fund non-maturity accounts have floating rates that adjust as frequently as weekly. We have certain non-maturity deposit accounts with exception pricing, and the last adjustment made to the exception priced accounts was 12/11/2025, following the FOMC's 25 basis point Fed funds reduction on December 10. The beta was 69% on the exception priced accounts, and the beta on all noninterest-bearing, non-maturity deposit accounts net brokered and public funds was approximately 25%. I estimate using the same beta if there is a short-term rate cut in 2026. We have seen a higher cost on recently acquired deposit accounts versus existing account balances. In the first quarter, new deposit accounts, excluding brokered and public funds, had an average rate of 2.37% versus existing accounts averaging 1.58%. However, the rate on the new accounts in March showed a downward trend to 2.06%. Reciprocal deposits were $363 million at quarter end, a decrease of $13.9 million linked-quarter, primarily due to a reduction in one relationship. Many of these accounts are included in the exception pricing. 84% of reciprocal deposits are commercial, and 16% are consumer. Our wholesale funding increased $370.5 million linked-quarter to $1.4 billion due primarily to fund the $128.2 million increase in loans and the $164.3 million increase in securities. The increase in wholesale funding includes increases in FHLB advances of $104.8 million, $110.7 million in brokered deposits, and $155 million in Fed discount window borrowings. We utilize a mix of wholesale funding sources and navigate between them based on rate and term offered and the current ALCO strategy. We have increased our collateral at the discount window and will continue to utilize this source of short-term funding due to rate and prepayability. During the first quarter, $245 million of cash flow swaps at a rate of 2.7% matured. It was, however, necessary to retain the funding, and the rate on the new borrowings is approximately 3.75%. We have another $25 million in cash flow swaps maturing in November at a current rate of 4.62%. After this maturity and some amortization related to past unwinds is fully expensed in October, the rate on our cash flow swaps will drop to approximately 3.53%, assuming SOFR is unchanged. We unwound $155 million in municipal loan swaps during the quarter, creating a small gain that will be accreted over the life of the previously hedged items. This slightly improves our interest rate risk position in rates-down scenarios. We no longer have any municipal loan swaps. We have a notional of $258.1 million in fair value hedges on municipal and MBS securities. Approximately 38% of our loans have fixed rates and 62% have a floating rate, and approximately 81% of the floating rate loans have floors. We have $344.2 million in fixed rate loans that mature or reprice in the next twelve months. Approximately $209 million of these loans have rates at or below 4%. Approximately $44 million of the loans with rates at or below 4% reprice or mature in the second quarter. We estimate a lift in the NIM as these loans reprice throughout 2026 and during 2027. Our budget included two short-term rate cuts of 25 basis points—one in June and another in September. Should rates remain at quarter-end levels through year end, we expect a positive impact on the NIM versus budget as we are asset sensitive. Thank you for joining us today. This concludes our comments. We will now open the line for your questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from Brett Rabatin from Stonex Group. Please go ahead. Brett Rabatin: Hey, good morning, everyone. Wanted to start on the loan growth outlook and the mid-single-digit guide. Solid production in the quarter and lower payoffs aided the first quarter. I think I heard the number of $113 million for payoffs, but that number is expected to go higher. Can you give us any color around what you are expecting for payoffs in 2Q or 3Q? And then on production pace, do you expect that to continue at the current level from 1Q? Keith Donahoe: Yes. I will start with the production side. We anticipate continuing to produce new loans at a similar rate. We have talked about it internally. We are seeing good activity. The pipeline is down a little bit, but I think that has more to do with the loan officers being hunkered down closing new transactions in the first quarter. They are coming up for air and will rebuild that pipeline. We were fortunate we did not see as many payoffs in the first quarter, but we do know we have a number of real estate assets that are individually rather large that are going through the normal cycle. We were predominantly a construction lender for a long time, and those have a finite life—they build, lease up, and then move into either a sale in the open market or refinance with other lenders on a permanent basis. We know we have some of that coming. It is too early to call a change in our loan growth at this point because we do know we have a number of projects that our team has to get refinanced or sold. Brett Rabatin: Okay. Great. Appreciate all the color. Operator: Your next question comes from Steven Scouten with Piper Sandler. Please go ahead. Analyst: Thanks, appreciate it. Sticking on that NIM conversation, can you quantify what the expected benefit is in the second quarter on a basis point level from the sub debt? And then what you think you could see from just asset repricing and the CD benefits? Julie N. Shamburger: On the sub debt, for the three-month quarter it was in the 7.41% range. In the second quarter, the average balance will be about $147 million, and the effective rate will be just over 7% with the amortization of the discount. I have not calculated the precise basis point impact yet, but that 7.41% you see for the first quarter will come down into the low 7s on roughly a $147 million average balance. Analyst: Okay, that is really helpful. Thank you. And then on the expense front, I think you said $40.5 million per quarter, which probably still keeps you in that 7% range. Would you expect that would allow you to deliver year-over-year operating leverage at this point in time? Is that at least the minimum goal as you think about the progress for the year? Julie N. Shamburger: Yes. I believe we are going to be at the 7%, hopefully under, but I do not expect us to go over that 7%. A couple of the larger items were front-loaded into the first quarter by the nature of timing. The $40.5 million may be a little heavy for the second quarter, but on average that is probably where we will end up. I am still expecting the 7% annually. Analyst: And from an operating leverage perspective—thinking about the efficiency ratio and how that all comes together—would you expect that on a year-over-year basis to decline for the full year of 2026? Julie N. Shamburger: I expect some improvement in the efficiency ratio in the second quarter for sure. The $791,000 loss on redemption was excluded in the calculation of the efficiency ratio, as we have always excluded a one-time loss on redemption. But, for example, the $420,000 that I mentioned was not excluded—appropriately not—and that will not occur again in the second, third, and fourth quarters. So I expect an improvement in the efficiency ratio for the second quarter. Analyst: Okay. Thanks for the color. Julie N. Shamburger: Appreciate it. Operator: Your next question comes from Michael Rose with Raymond James. Please go ahead. Michael Edward Rose: Hey, good morning, everyone. Thanks for taking my questions. From a capital standpoint, ratios are still really good. I noticed you did not buy back any stock in the quarter. I assume some of that was related to the redemption of the sub debt and some of the other actions in terms of buying securities. Any outlook for what we might expect for repurchases as we move forward? Keith Donahoe: Yes, we will continue to be opportunistic in that regard. Our stock is doing pretty well right now. Historically, when we have repurchased shares, it is usually when we are seeing some downward pressure. From a capital deployment standpoint, there is a close first and second opportunity—M&A is definitely part of our strategy, and stock buyback is a close second. We are also organically growing, so we are being judicious and will continue to deploy capital where we think we are going to get the fairest return. Michael Edward Rose: Helpful. Maybe switching gears to fees—nice step-up this quarter, still some good momentum in the trust business, which I know you have invested in. Any updated expectations from last quarter? And was there anything in the other expense line, because that was up both year-over-year and sequentially? Keith Donahoe: On the trust side, we are really excited that we were able to pick up an individual in the Fort Worth market who has a tremendous amount of experience and a network that I think we will benefit from. I cannot guarantee we will see that lift this year, but it would not surprise me to get a little lift through the rest of the year. She is just getting her feet underneath her, but I am excited and look forward to strong growth in the Fort Worth market. I think we also picked up some fees from swap income. Julie N. Shamburger: Our trust fees and our brokerage services were both up slightly from the fourth quarter but significantly over 2025. You mentioned year-over-year—those two categories had a really nice increase year-over-year, as well as the swap fee income, as I mentioned earlier. Keith Donahoe: That is intentional. We have made an intentional approach to continue to generate swap income—granted, that is somewhat market driven—but every relationship manager, with the appropriate customer, is talking to them about swaps. Julie N. Shamburger: As Sunny mentioned, I think 38% is— Keith Donahoe: —what our loan book is that is fixed on our balance sheet. That is a significant decline over the last two years, and that was intentional because we wanted to get to a point that we could manage our NIM a little bit better. You have two sides of the equation working at the same time from a funding cost and from a lending perspective, but we are becoming more disciplined in that. Michael Edward Rose: Alright, very helpful. I will step back. Thanks for taking my questions. Operator: Your next question comes from Woody Lay with KBW. Please go ahead. Wood Lay: Hey, thanks for taking my questions. Wanted to start on credit. It was great to see NPAs improve quarter-over-quarter with that restructured loan paying off. You mentioned a couple downgrades in the multifamily book. Given some of the moving pieces, what is your perspective on the local multifamily market and how it is performing? Is it certain markets showing weakness, or individual projects? Keith Donahoe: To give you a little color, the four multifamily projects that we downgraded—two are in the Houston market, one is in Dallas–Fort Worth, and one is in Austin. We are not unique—any Texas-based lender doing multifamily construction and term loans has seen weakness. I am not concerned about these. They average about $33 million each. We have new appraisals on three of the four assets, and we are sub-60% loan-to-value on those. The real issue is supply. Across the state’s metro markets, there has been a ton of supply. We continue to see concessions offered on rental rates. The good news is, in several markets we believe vacancy has peaked, so it is a matter of time for these assets to stabilize. We expect one of these will get refinanced by a debt fund before the end of the second quarter—there is a written term sheet. Another borrower is running a sale process now; they started early enough that if they do not get a number they like, they will still have the ability to refinance before maturity. Demand is still there. Each project continues to lease up month-to-month. In three of these projects, if you just let the concessions burn, they are in a more traditional 1.10x to 1.20x DSCR. Given the borrowers and their equity partners—folks with long track records—we are not overly concerned. Wood Lay: Each. Wood Lay: That is really helpful. As you mentioned, oversupply is not new. How has that impacted the loan pipeline and new multifamily projects? Is there less these days, or has underwriting shifted? Keith Donahoe: We have not modified our underwriting standards, but it has made it more difficult to originate new multifamily projects. I anticipate that to change some toward the end of the year, but right now the vast majority of new opportunities we are seeing are in retail and industrial warehouse. There is a lot of opportunity there, and those underwrite easier in today’s market. Retail across Texas is incredibly strong, driven by continued population in-migration and historically limited new retail development across the state. Wood Lay: Got it. Appreciate you taking my questions. Keith Donahoe: Thank you. Operator: The next question comes from Matt Olney with Stephens. Please go ahead. Matthew Covington Olney: Good morning. Most of my questions have been addressed. I want to go back to deposit growth. You mentioned some seasonal headwinds for deposit growth in the first quarter. What about the remainder of the year? Do you expect deposit growth to match the loan growth in that mid-single-digit range? Any more color there? Julie N. Shamburger: I do expect a little bit of deposit growth but believe we are going to be funding at least half of the loan growth with wholesale. Matthew Covington Olney: Is that a full-year comment, or more near term? What is the timing? Julie N. Shamburger: We are over budget right now with wholesale because loan growth has exceeded expectations. I expect deposits to pick up in Q2. We will have some more seasonality in Q2 with one particular customer. We are targeting to meet our budgeted deposit growth, and we are looking closer at our strategy to ensure that happens. Keith Donahoe: We are spending a lot of time on deposit strategy and growth. It is key to what we do, and we are getting everybody focused on it. Matthew Covington Olney: Appreciate that. On the net interest margin this past quarter, the loan yields looked exceptionally strong. I know you have some nice loan repricing tailwinds. Anything else unusual on that loan yield number this quarter? Keith Donahoe: No. We are still seeing fierce competition on quality real estate assets. What helped us in the first quarter was a number of closings in areas where we tend to see a little higher spread—some in our homebuilding book and some in lot development. Both categories tend to get a little better spread. I cannot tell you that will continue all year, but one of our specialties is homebuilding activity, and it has been good for us. We bank some of the premier builders in the state. Generally, you get better pricing there. Lot development is similar, though we are being very selective adding new lot developers because it is very submarket specific today, especially in Dallas–Fort Worth. There are still strong pockets, but five miles down the road you might not want to touch a project. These are developers with deep equity and a lot of experience. Matthew Covington Olney: Thanks for that. Lastly on credit, I think you addressed multifamily, but we also got that paydown of the $27 million restructured credit from previous quarters. Any more color on the resolution? Keith Donahoe: Especially given we migrated four other multifamily projects, that one was in the nonperforming asset category, but we felt pretty good about it given the project dynamics. It was refinanced by a life company, and they actually added an additional $1 million in loan proceeds as an earn-out. That gives you some indication of the type of projects we typically finance. Even though it was in the NPA bucket, we were never overly concerned. We obviously watched it closely. I think you can expect similar results from the other four we downgraded—we are not overly concerned with them either. Matthew Covington Olney: That is helpful. Thanks for all the color. Operator: The next question comes from Brett Rabatin with Stonex Group. Please go ahead. Brett Rabatin: A follow-up on the Texas markets. There have been a couple of deals in the market the past few quarters. Are you able to take advantage of the disruption from some of those transactions? How do you view disruption in the Texas markets? And might M&A be a strategy from here—are you actively looking for other partners? Any thoughts on your growth plans in the Texas markets? Keith Donahoe: In general, there has been disruption in the market, from both a customer standpoint and an employee base. We have been having conversations with prospective employees from larger banks that could be beneficial to us as we cross the $10 billion mark. We will be opportunistic. In addition, one of the C&I customers we picked up in the first quarter came out of a displacement related to an acquisition by an out-of-state organization. The customer had a strong desire to bank with a Texas-based bank. We had been calling on them, and it made for a fairly easy transition. So we are seeing opportunities from both employee and customer standpoints. Brett Rabatin: And any thoughts on M&A—your appetite, and what you are seeing? Keith Donahoe: We are continuing to talk. We are open to acquisitions, and that has always been our strategy. Today there is a higher probability of something occurring because of the market dynamics. That will continue to be part of our strategy. Brett Rabatin: Great. Appreciate the color. Operator: There are no further questions at this time. I will now turn the call back to Keith Donahoe, President and CEO, for closing remarks. Keith Donahoe: Thank you everyone for joining us today. We appreciate your interest in Southside Bancshares, Inc. We are optimistic about 2026 and look forward to reporting second quarter earnings during our next call in July. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Altria Group 2026 First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir. Mac Livingston: Thanks, [ Alani ]. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's 2026 first quarter business results. Earlier today, we issued a press release providing our results. The release, presentation and quarterly metrics are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2025. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statements section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We will report our financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to nicotine consumers or consumers within a specific nicotine category or segment refer to existing adult nicotine consumers 21 years of age or older. With that, I'll turn the call over to Billy. William Gifford: Thanks, Mac. Good morning, and thank you for joining us. We delivered a strong start to the year, growing adjusted diluted EPS by 7.3% in the first quarter. Our highly cash-generative businesses supported significant returns to shareholders through dividends and share repurchases, while we continue to invest in support of our vision. Our smokeable products segment generated strong income growth. Marlboro strengthened its position in the premium segment and PM USA continued to execute its total portfolio strategy with discipline. In the oral tobacco products segment, on! performed well in a highly competitive marketplace and Helix expanded on! PLUS nationwide. My remarks this morning will focus on first quarter performance from on! and an update on the state of the e-vapor category. I'll then turn it over to Sal, who will provide further detail on our business results and financial outlook. Let's begin with on! and the nicotine pouch category. Over the past 6 months, oral nicotine pouches drove the estimated 9.5% increase in total oral tobacco industry volume. In the first quarter, the nicotine pouch category grew 9.1 share points and now represents more than 58% of total oral tobacco. Against this backdrop, Helix delivered solid results in a highly competitive environment. Reported shipment volume for the total on! portfolio grew nearly 18% and to over 46 million cans in the first quarter, reflecting continued demand for on! Classic and the pipeline shipments for the on! PLUS national expansion. At retail, on! and on! PLUS together represented 7.8% of the total oral tobacco category, down 0.8 share points year-over-year and up 0.2 share points sequentially. We began shipping on! PLUS nationwide in March. And at the end of the first quarter, it was available in approximately 100,000 stores, representing 85% of nicotine pouch category volume. On1 PLUS is the first and only product authorized under the FDA's pilot program, I think that streamlining PMTA reviews for certain oral nicotine pouches. The brand is currently available in 3 flavors across 2 nicotine strengths and features our proprietary NICOSILK technology. To support the on! PLUS expansion, Helix recently launched a new retail trade program to strengthen execution across the full on! portfolio. The program is focused on increasing visibility and securing incremental fixture space to support on! PLUS today and future innovations over time. Today, the Helix trade program has secured premium retail positioning in contracted stores, representing approximately 90% of Helix volume. Additionally, on! PLUS is prominently featured across key retail touch points with coordinated signage from curb to counter. On! PLUS is supported by marketing that highlights the product experience, including visuals that showcase the pouch itself, communicate comfort and reinforce its positioning as the softest pouch on the planet. These materials are designed to give nicotine consumers a clear understanding of how the pouch looks, feels and fits. This messaging is complemented by initiatives such as in-person events, brand partnerships, paid social media and streaming audio that aim to increase awareness, drive trial and further strengthen on! brand equity. Importantly, these efforts are grounded in responsibility with safeguards to limit reach to underage audiences and with a strong focus on regulatory compliance. Through these actions, we believe we can position on! PLUS as a differentiated offering for adult nicotine consumers and responsibly grow the brand over the long term. On the regulatory front, the FDA is reviewing applications for on! PLUS Mint, Wintergreen and Tobacco and 12-milligram strengths under its pilot program. And we have submitted applications for 6 additional varieties across 3 nicotine strengths. We believe the science and evidence supporting all of these applications is compelling and provides a basis for FDA authorization within the 180-day statutory time line. Let's now turn the e-vapor category. While illicit flavored disposable products remain prevalent, after several years of rapid growth, we began to see signs of moderation in the back half of 2025. We believe increased enforcement activity and supply-related marketplace disruption have slowed demand for these products, and those dynamics continued into the first quarter. At the end of March, we estimate there were approximately 20.5 million adult vapors in line with the year ago period. Over the same time frame, the estimated number of disposable e-vapor consumers declined modestly. Taken together, we believe these developments suggest early indications that the category's prior growth trajectory driven largely by illicit flavored disposable products may be evolving. From an enforcement perspective, we continue to see signs of a commitment from enforcement agencies and incremental progress. During the quarter, federal agencies worked alongside local law enforcement to combat illicit products, including a large-scale enforcement action in Northern Virginia supported by the Drug Enforcement Administration. In addition, in states where product directories are in place and properly enforced, we are seeing evidence that these frameworks are helping to reduce the presence of illicit products in tracked channels. In our view, consumer demand for e-vapor products demonstrates the potential for the category's role in tobacco harm reduction in the U.S. However, progress continues to be constrained by the limited number of FDA-authorized products. We see a clear pathway to restoring order and advancing harm reduction, anchored in a more efficient and predictable authorization process that supports reasonable responsible innovation and establishes a compliant legal marketplace of e-vapor products. When combined with sustained enforcement, we believe this would allow compliant manufacturers to provide adult nicotine consumers with authorized high-quality products that are appropriate for the protection of public health. Overall, we delivered a strong start to the year. Our results this quarter reflected disciplined execution across our businesses, continued smoke-free progress amid a dynamic regulatory and competitive environment and our commitment to returning substantial capital to shareholders. Lastly, as you know, this will be my final earnings call as CEO. It has been a privilege to lead this company alongside so many talented colleagues and friends. And I'm proud of the progress we've made together. I've also thoroughly enjoyed engaging with the investment community along the way, and I thank you for your trust and support. As I step away, I do so with full confidence in our leadership team and the strategy in place going forward. I'll now turn it over to Sal to provide additional details on our business and financial results. Salvatore Mancuso: Thanks, Billy. The smokeable products segment delivered strong financial performance in the first quarter, reflecting the continued resilience of our smokeable business. Segment adjusted OCI grew by 6.3% with adjusted OCI margins expanding to 65.1% and an increase of 0.7 percentage points. This performance was supported by solid net price realization of 6.3%. Additionally, we saw the decline in our smokeable volumes continue to moderate. In the first quarter, reported domestic cigarette volumes declined by 2.4%. When adjusted for trade inventory movements, we estimate domestic cigarette shipment volumes declined by 4%. At the industry level, when adjusted for trade inventory movements, we estimate domestic cigarette industry volumes declined by 5%, marking the fourth consecutive quarter of sequential year-over-year moderation. This trend was driven primarily by reduced cross-category movement between cigarettes and illicit flavored disposable e-vapor products for consumers, the macroeconomic environment remains challenging. Elevated everyday expenses and higher gas prices later in the quarter continued to weigh on discretionary income among more price-sensitive at the old smokers. Although higher-than-normal tax refunds provided some short-term relief, these pressures were primarily -- were the primary driver of year-over-year discount segment retail share growth of 2.4 share points. This trade down dynamic impacted Marlboro's overall retail share. which declined 1.4 share points versus the year ago period and 0.1 share point sequentially. However, in the highly profitable premium segment where smoker purchasing behavior reflects higher levels of brand loyalty, Marlboro will continue to demonstrate its competitive strength. In the first quarter, Marlboro expanded its share of the premium segment to 59.5%, up 0.1 share point versus the prior year and 0.2 share points sequentially. A expanding its long-standing leadership position. Basic continued to capture share in the discount segment, reflecting PM USA's data-driven total portfolio approach to meeting a broad set of consumer needs. Basics retail share grew 0.5 share points sequentially and 2.4 share points year-over-year. Total PM USA retail share grew 0.1 share point sequentially and 0.4 share points versus a year ago, demonstrating the strong execution of PM USA's total portfolio approach. In cigars, reported shipment volume was down slightly by 0.2%. The Middleton continued to outperform the large industry behind the strength of Black & Mild. Let's turn now to the oral tobacco products segment. which delivered over $400 million in total adjusted OCI in the first quarter. Adjusted OCI margins remained strong at 67.4% and down 1.8 percentage points from a year ago and were impacted by Helix marketing investments for in-person events and digital advertising as well as product mix between traditional MST and nicotine pouches. Total segment reported shipment volume decreased 3.1% as growth in on was more than offset by lower MST volumes. When adjusted for trade inventory movements, we estimate that first quarter Oral Tobacco Products segment volumes declined by approximately 8.5%. Year-over-year trade inventory comparisons were impacted primarily by on plus pipeline volume in the first quarter and elevated competitor volume in 2025. Oral Tobacco Products segment retail share declined by 5.5 percentage points. Overall, we remain encouraged by the performance of our oral tobacco businesses. as Copenhagen continued to lead in MST and Helix expanded its portfolio in the growing nicotine pouch category. Turning to our investment in ABI -- we recorded $160 million in adjusted equity earnings in the quarter, up 9.6% versus the prior year. We continue to view our ABI stake as a financial investment and our goal remains to maximize the long-term value of the investment for our shareholders. We remain committed to returning significant value to shareholders and maintaining a strong balance sheet. In the first quarter, we paid approximately $1.8 billion in dividends and repurchased 4.5 million shares for $280 million. At the end of the quarter, we had $72 million remaining under our current share repurchase program, which expires at the end of the year. In addition, our balance sheet remains strong. We retired just over $1 billion of debt that matured in February and our total debt-to-EBITDA ratio as of March 31 and was 1.9x, in line with our target. Finally, on guidance. We reaffirm our expectation to deliver 2026 full year adjusted diluted EPS and in a range of $5.56 to $5.72, representing a growth rate of 2.5% to 5.5% and from a base of $5.42 in 2025. As a result of the strong first quarter performance, we now expect 2026 adjusted diluted EPS growth to be more balanced between the first half and the second half of the year. Our reaffirmed guidance range now contemplates the impact of moderated labor industry growth on combustible and e-vapor product volumes and increased macroeconomic uncertainty facing adult nicotine consumers. Before we wrap up, I'd like to thank Billy for his leadership over his decades of service to Altria. I have enjoyed the privilege of working closely with Billy for many years, and he has positioned us well to succeed in the future. We are committed to building upon the strong foundation he's fostered and accelerating progress toward our vision. With that, Bill and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Operator, let's open the question-and-answer period. Operator: [Operator Instructions] Our first question comes from Faham Baig with UBS. Mirza Faham Baig: Brilliant. I have 2, please. The first one, I guess, is on your performance. At the full year stage, you spoke about a second half weighted performance this year, but Q1 came in seemingly stronger than expected. What were the areas that surprised you positively relative to the guidance in February. And I guess given the stronger-than-expected quarter, why have you chosen not to raise or narrow the guidance for the full year? So that's the first question. And the second question is on cigarette volumes. Clearly, over the last 6 months, there has been an improvement in volumes. But it seems to be entirely driven by the deep discount segment. So I guess what are the key drivers that are helping this particular segment? And why may not be sort of supporting the premium segment too? Salvatore Mancuso: Yes. So thank you for the questions. So look, we do a terrific job of forecasting the year I would say, though, is the first quarter played out, what you saw was stronger volume performance, and that's primarily driven in the smokeable category by a moderation of the cross-category movement that I talked about in my opening remarks. So as the year plays out, we see growth being more balanced between the first half and the in the second half of the year. So that was the primary driver that we're seeing. We thought it was prudent to reaffirm guidance. We're a quarter into the year. Obviously, the macroeconomic environment remains challenging and uncertain. Gas prices have increased at the end of the quarter significantly. There's been some maybe short-term offsets to that as we've seen tax refunds higher than we have seen in the -- in past years, and that may be somewhat short term if you think about it. So we'll see how the rest of the year plays out. Obviously, if there's any updates as the year progresses to our guidance, we would communicate that. But we feel really good about our ability to reaffirm guidance for the year. As far as cigarette volumes go, again, I mentioned the cross-category moderation that we've seen played out, but the consumer does remain under pressure, and that's been a driver of the growth in the discount category. We are really happy with PM USA's total portfolio strategy, which allows Basic to capture share of that discount category. So we feel really good about PM USA's performance for the quarter and very pleased with Marlboro's performance where it grew its share of premium sequentially and year-over-year. Operator: Our next question comes from Matt Smith with Stifel. Matthew Smith: And Billy, first off, I just want to wish you well in your retirement in the upcoming weeks here. Just wanted to dig into smokeable OCI a bit. The performance was quite strong in the quarter. And on a per pack basis, operating costs were below the level from the second half of last year. I think less volume deleverage was likely a benefit. But can you provide some more color on the other factors in smokable seems like double the duty drawback grew in size? And did you see that drop through profit more efficiently in the quarter? . Salvatore Mancuso: Yes. So as you stated, we had really strong first quarter performance from our smokeable segment. So just a great job by PM USA and John Middleton in that segment. As far as spending goes, as we've stated earlier, we do have some investments in our import export business. which are more weighted to the first half. So I wouldn't overread a particular quarter, but the per pack controllable costs, obviously, were -- they did receive a benefit from the higher volume as well as the export volume that we've broken out for you in our financial statements. So -- but I would say the overall OCI was driven primarily through pricing and the stronger cigarette volume performance that you saw play out through the year. And again, that's primarily driven by the moderation of the cross-category movement between vapor and the cigarette category. Matthew Smith: And as a follow-up to the full year guidance question, there's a lot of reinvestment this year, whether it's behind on us or the carryover from basic repositioning and some other upcoming activities in smokeable. If you continue to see resiliency in the consumer, how do you balance the earnings growth potential against leaning more heavily into reinvestment this year given some of the flexibility you have. William Gifford: Yes. I think you have to think about it in totality, Matt. When you think about investment, we don't feel like we're under-investing in any of our growing categories. And so we'll continue to invest appropriately with those I think from the strength of the consumer, it's the wild card with the economic outlook, the way it is with higher gas prices and stuff. And as Sal mentioned, there were certainly offsets. We'll see as those offsets play out throughout the year. and how gas prices continue to trend and we'll make any changes when it's appropriate. Operator: Our next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead. Bonnie Herzog: All right. And congratulations again, Billy and Sal, and Billy, I also wish you all the best in your retirement, and it's really been great working with you. I -- some of you guys can hear me. I have a question on the double Okay, good. I have a question on the double duty drawback. I guess I was hoping for some more color on the expected phasing of the benefits you now expect this year? I believe you did start to import in the quarter, and I do see the stepped-up benefit in Q1 versus Q4. And -- so just curious, should we expect a steady increase in the benefit each quarter as the year progresses? And then did this activity play a role in any way in your updated guidance phasing to be more evenly split between 1H and 2H. I guess I'm just trying to think if there was any type of pull forward in the quarter that we should be aware of? Salvatore Mancuso: Bonnie, thank you for the question. You will see increases in the export volume and the benefit of the duty drawback as the year progresses. So you are right in your assumption. I would tell you that the more balanced growth -- diluted EPS growth first half to second half is more driven by the fact that you've seen this moderation in cross-category movement and the benefit of the volume in the smokeable segment. And then, of course, we're paying close attention to the economic conditions that our consumers are facing -- they are under significant economic pressure, again, from the cumulative impact of inflation, rising costs of everyday items, including gas. So we'll pay close attention to that. But I would say that's the main driver of the balance between first half and second half. William Gifford: Yes. Thanks for the kind words, Bonnie. The only thing I would add is I think it's important to Think about the 2 drivers that are driving that interaction between smokeable and e-vapor. If you think about the 2 drivers, 1 is certainly enforcement. So as the product is not available for the consumer, they go back to their total considerations make tisions. But it's also -- and you heard in my remarks, saturation of the marketplace with e-vapor products and a slowdown in that transition over. And so it's hard to predict exactly when that saturation point is going to hit, and we think we're starting to see signs that we hit that. That's why we've been after and really pushing the FDA to think of not only enforcement but authorization, and we think they can achieve much faster authorization by publishing product. Bonnie Herzog: Okay. That's helpful. And then just 1 other question, if I may, on Marlboro. You're rolling out cabo cuts soon. So maybe hoping for a little color on the rollout and maybe expected state allegations. And then could you provide a little color on how you're going to manage Kiboycut relative to say Marlboro Black in terms of pricing? And ultimately, I guess, how we should think about the contribution to profitability, how you're going to manage versus Marble Black, et cetera. Salvatore Mancuso: Sure, Bonnie. Yes, Cow Boyd Cut, we will expand distribution later in the year, specifically later in the second quarter. You should think of a cowboy cut a couple of ways. One is it's a tool within our RGM toolbox. It provides price-sensitive Marlboro consumers with an option, and we believe that's important. So you should expect it to be competitively priced. But of course, with RGM, you may see different price points depending on what where you're going. And also Cowboy Cut allows us to build on Marlboro's heritage during a time when the country celebrating its 250th anniversary. So it's also a benefit to Marvell's overall equity strength that you see in the marketplace. So we're really excited about. It's a terrific product, and you will see broader distribution as the quarter plays out. Operator: Next question comes from Andrei Andon with Jefferies. Andrei Andon-Ionita: Three for me, please. Number one, could you please tell us a bit more about the factors that drove the improvement for Marlboro within the premium combustible segment? And then 2 questions on oral nicotine purchase, please. I know it's early days for on! PLUS. There's been a shipment benefit -- shipment benefit for Q1 volumes. But is there any color you could give us around the consumer, the early consumer offtake for the new product for on! PLUS? And perhaps, finally, just a clarification, the 6 new flavors that you've submitted applications for with the FDA? Are they also part of the Fast Track nicotine pouch pilot program? William Gifford: Yes. I'll try to unpack those 3 questions, if I miss any, please follow up. I think when you think about the Marlboro brand within the premium segment, I think there are really 2 factors there. Marlboro still the aspirational brand in the cigarette category. And so with the tools that we have in data analytics with revenue growth management, it allows us to, on a store-by-store basis, make it very competitive, but remain very profitable. And I think that's what's really driving the Marlboro growth in premium. I think when you think about oral nicotine pouches, early on, it is very, very early. You remember that we went national towards the end of March. And so we're excited about that. But we know that flavors are going to play an important role in the future of the nicotine pouch category, and that ties into your third question about flavors. And they are not part of the pilot program at this point. But this is why we believe that it's very easy for the FDA to go through the authorization process. The science is the same in those pouches as what they've already authorized. It's from moving a grass, which stands for in the FDA lingo, generally recognized as safe. So you're removing 1 grass flavor and putting in a new grass flavor. And so they've already reviewed the science on everything else related to the product. Their only focus would really be the flavors. And that's why we believe that it can be achieved within the 180-day statutory requirement. Operator: Our next question is from Eric Serotta with Morgan Stanley. Eric Serotta: Great. Can you give us a little bit of color of how you're thinking about the potential macro impact from the low end -- from the low-end consumer. Since the conflict began, we're now, call it, 8 weeks or so into it, a lot of noise with weak consumer confidence overall, but higher tax refunds -- what are you seeing? And I guess, in past times of sharp spikes in gas prices, what has sort of been the typical lag based on your research for an impact on your takeaway? And then second question, you certainly see understandably more favorable about the e-vapor elicit vapor enforcement. How is that impacting your thinking about your broader e-vapor strategy -- for the past year or so, you seem to be working behind the scenes on resolving the IP issues, but sort of not going to rush to get into -- get back on to a market that was clearly had its challenges. Is that evolving with the improved enforcement that you're an improved performance of the market that you're talking about? William Gifford: Yes. I'll let Sal kick us off with the macroeconomic and then I'll take e-vapor. Salvatore Mancuso: Sure. Eric, I think you framed a macroeconomic situation quite well in your question, right? So later in the quarter, you did see a significant increase in gas prices. And obviously, that has an impact on discretionary spending that the consumer does have and been under pressure for quite a while, just as everyday items continue to be at elevated prices. But there are some shorter-term tailwinds, I guess, you would call it, related to some of the higher levels of tax refunds that we are seeing based on the data coming out of the IRS. So obviously, we have to pay close attention to that. You are seeing a growth in the discount category within the cigarette business or cigarette segment. and that is driven by the macroeconomic difficulties that the consumer is facing. And you've seen us using the RGM, the revenue growth management, data analytics and tool set that we do have. And that's why you see basic in heavily discounted stores where we can capture consumer purchases that may have gone to other discount brands and we can capture those purchases in basic. And then we talked earlier about Cowoboy cut being a competitively priced product that will engage with Marlboro that are under economic pressure. So we believe we have the tools to manage through this situation. But obviously, we're going to pay close attention to the consumers' economic condition as the year progresses. William Gifford: And I think related to e-vapor, while we were just as excited as you are, some of the green shoots you're seeing in enforcement, I think it's important to can still look at the context, the e-vapor category in total. So it's very large, but it's still, call it, approximately 70% of the volume is illicit flavor disposables. And so it's still upside down in the marketplace. Now we're excited. We're making significant progress on the ITC issue that you described related to the patent infringements. We feel good about that. We're excited to be able to bring that product back to the marketplace at the appropriate time, but we'll still do it in a disciplined fashion while the marketplace is still upside down. And that's, again, going back to our earlier point, it's why we are really pushing the FDA. They think about both enforcement, but authorizations so that we can keep those consumers in the e-vapor category with products that are authorized. Operator: [Operator Instructions] Our next question comes from Damian McNeela of Deutsche Bank. Damian McNeela: Just 1 question for me. I think in your prepared remarks, you mentioned that on! PLUS was getting allocated additional shelf space in the 100,000 or so stores that it's got listings in. Can you just sort of give an indication of where that shelf space is coming from? Is it -- are you winning it back off of the nicotine pouch brands? Or is it coming from traditional oil tobacco products, please? William Gifford: Yes, it's a good question. We feel very excited about what our sales force was able to achieve. You can think of that category primarily as its own category within the retail space. And so that is achieving that outlook within the nicotine pouch space. Operator: Our next question comes from Callum Elliott of Bernstein. . Callum Elliott: Hopefully, you can hear me and just adding my congratulations on the World as a retirement believe best of luck with the endeavors? So my first question is on your nicotine pouch strategy. One of your tobacco peers has been rolling out a nicotine pouch product under a legacy world tobacco brand -- so my question is, do you have any thoughts about maybe trying to do the same thing with Copenhagen or Skol? Or do you think that your initiatives with on are sufficient to get the sort of the consumer response that you're hoping for? Then my second question is about ASIC and its interaction with Marlboro. I think the data you showed shows discount share gain of 240 basis points year-on-year in Q1 and basic is also going 340 basis points. So it seems like all of the discount sector share gain is coming from basic -- and as we all know, we sort of annualize the repositioning quite soon. So should we be expecting that discount share gains slow as a whole as basic starts to slow and maybe Marlboro can start doing a bit better. Would you expect other discount brands to start doing better once basically annualizes the launch? William Gifford: Yes. I'll take the first question and then pass it on to Sal for the basic question. In the nicotine oral category, USSTC was the only smokeless company to have signed a master settlement agreement. So that prevents us from using those tobacco brands in a product that does not contain tobacco. So we feel very good about on! and on! PLUS and the way it's positioned from an equity standpoint. We feel like we can compete very well in the nicotine pouch space. Salvatore Mancuso: And Callum,we're very pleased with basics performance. Remember, basics, promotions were in limited retail distribution. And it's really being driven, that distribution is being driven by the data analytics that we have so that basic is being promoted in stores that over-index discount. And that allows PMUSA to capture consumer purchases that would have otherwise gone to other discount brands and not having an overnet impact on Marlboro. So that's why we believe you're seeing Marlboro continue to grow share in the premium category and performed quite well there. Basic is able to capture the discount share that it's been able to capture. So we feel really good with the strategy. It's really driven by data analytics and it allows us to use the revenue growth management tools across the PM USA's portfolio. Callum Elliott: Maybe I can just ask a follow-up, if that's okay, Sal the sort of stronger-than-expected performance in Q1. Does that give you the possibly to sort of further extend distribution for basic beyond the sort of the plateau that we seem to have originally found given that you seem to have this sort of increased flexibility now within the 2026 guidance? Or is that not something that we should be expecting? Salvatore Mancuso: Well, I don't think the strong performance is what drives that. It really is the data. And if there's opportunistic retail locations to promote basic and limit the impact on Marlboro, then that decision, but it's not driven by the financial performance necessarily. It's being driven by the data analytics Sure. Operator: Our next question comes from Dave with Richmond Times Dispatch. Unknown Analyst: I was hoping you could talk a little bit more about the enforcement for the disposable vapes. You probably know that here in Virginia, the legislature has passed the new permitting and enforcement legislation for vape shops. And I'm wondering if this is something that brings enforcement to a new front? Is it something that might be significant in terms of other states being interested in this kind of thing. Have you been monitoring that? William Gifford: We have been. I think when you think about it, all the efforts that we try to get both at the state level and the federal level, or exactly what you're after is making sure that the consumer in the vape category has authorized products that the FDA, an independent party has looked at what's in them and what comes from them. And so that's what we're driving. I think when you look across the U.S., you see a number of tools available at the state level. You've mentioned the permitting in Virginia. Other states have directories. It all is driven by how well they enforce it. Where we see enforcement take place, we see that the consumer goes back to their total consideration set. So we've seen some go to nicotine pounds. We've seen some come back in cigarettes. And then we've seen in some states where I'll call it a gray area where their vape products that have applications in front of the FDA and are awaiting a decision. So they're able to stay in the marketplace. So Again, that's why we've been really pushing the FDA to think about both enforcement but also making authorization more readily available. Unknown Analyst: Could the Virginia legislation be a model for other states? William Gifford: We've seen that across states. Some states have used model legislation that drives more, if you will, enforcement and have only authorized products in the marketplace, but it's really driven by how well it's enforced. Operator: There appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any closing remarks. Mac Livingston: Thanks, everybody, for joining today's call. Please reach out to Investor Relations if you have further questions. Have a great day. Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.
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 first quarter 2026 CVR Energy, Inc. 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, please press star then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. We ask that you please limit your questions to one and one follow-up. I would now like to turn the conference over to Richard Roberts, Vice President of FP&A and Investor Relations. Please go ahead. Richard Roberts: Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy, Inc. first quarter 2026 earnings call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; Mike Wright, our Chief Operating Officer; Travis Katz, our Chief Commercial Officer; and other members of management. Before discussing our first quarter 2026 results, let me remind you that this conference call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our first quarter 2026 earnings release that we filed with the SEC and our Form 10-Q for the period, and will be discussed during the call. That said, I will turn the call over to Mark. Mark Pytosh: Thank you, Richard. Good afternoon, everyone, and thank you for joining our earnings call. In the first quarter, our operations performed well with crude utilization of 97% and ammonia plant utilization of 103%. Major geopolitical events drove volatility in energy and fertilizer markets, which have set up attractive market opportunities for the balance of 2026. Given the disruptions in global supply chains with loss of production and lack of product movement for refined products and fertilizer, CVR Energy, Inc. is well positioned to improve our margin capture for the balance of the year. We are pleased to announce the first quarter 2026 dividend of $0.10 per share, and we believe our prospects should allow for a balance of debt reduction and capital returns to shareholders as we move forward. Now let me turn the call over to Dane to discuss our financial highlights. Dane Neumann: Thank you, Mark, and good afternoon, everyone. For the first quarter of 2026, our consolidated net loss was $160 million, losses per share were $1.91, and EBITDA was a loss of $52 million. First quarter results include unrealized derivative losses of $158 million, which primarily relate to NYMEX gasoline and diesel crack spread swaps entered into during the quarter against expected future production at a crack spread value of $447 million through 2027, which I will discuss further in our Petroleum segment results. In addition, our results include an unfavorable change in our RFS liability of $51 million and favorable inventory valuation impacts of $120 million. Excluding the above-mentioned items, adjusted EBITDA for the quarter was $37 million and adjusted losses per share were $1.24. Adjusted EBITDA in the Petroleum segment was a loss of $50 million for the first quarter compared to a loss of $30 million for the first quarter of 2025. Increased RINs expenses, higher operating costs, and realized derivative losses drove the majority of the decrease from the prior-year period. Combined total throughput for the first quarter of 2026 was approximately 214,000 barrels per day. Crude utilization for the quarter was approximately 97% of nameplate capacity, and light product yield was 93% on total throughput volumes. Benchmark cracks for the first quarter of 2026 increased from the prior-year period, with the Group 3 2-1-1 averaging $21.58 per barrel compared to $17.65 per barrel in the first quarter of 2025. Our first quarter realized margin, adjusted for unrealized derivative losses, the change in our RFS liability, and inventory valuation, was $4.72 per barrel, representing a 22% capture rate on the Group 3 2-1-1 benchmark. Prices increased significantly from the first quarter 2025 levels, more than doubling to almost $9.50 per barrel for the first quarter of 2026. Net RINs expense for the quarter, excluding the change in RFS liability, was $143 million, or $7.37 per barrel, which negatively impacted our capture rate for the quarter by approximately 34%. EPA has repeatedly stated that the cost of RINs is ultimately passed through to consumers at the pump. The decision to establish the highest RVO in history through the recent Set 2 rule has driven RIN prices significantly higher, which has in turn raised the price of gasoline. This is in direct conflict with the administration's stated goal of lowering fuel cost for American consumers. RIN prices have increased more than 75% since the beginning of the year, in addition to the 18% increase in the RVO, currently adding $0.25 to $0.30 to every gallon of fuel purchased in America. If the administration is serious about lowering fuel prices, it should start with the RFS. The estimated accrued RFS obligation on the balance sheet was $204 million at March 31, 2026, representing 113 million RINs marked to market at an average price of $1.80. As EPA has not yet ruled on our pending 2025 petition, we will continue to recognize 100% of Wynnewood Refining Company's RIN obligation in our financials, which for the first quarter of 2026 was approximately $52 million. If Wynnewood Refining Company received the 100% SRE we believe it is entitled to, our consolidated capture rate for the quarter would have improved by approximately 12%. Once again, EPA has missed the deadline on ruling on Wynnewood Refining Company's 2025 SRE petition. Does the EPA ever meet a deadline? Our first quarter 2026 results include a total derivative loss of $182 million. As previously discussed, $158 million of this loss was the unrealized mark-to-market change in all of our open crack spread swap positions as of March 31, 2026, and our physical positions intended to offset are expected to be sold as the swap contracts expire through 2027. Given this disconnect, we do not view the impact of the unrealized loss as a detriment to the current period and, as we have done in the past, we adjust the amount out for our adjusted EBITDA figures. As we progress through the year, if these positions remain negative, we would anticipate these derivative losses to be more than offset by any gains on physical production as we realize increased crack spreads on the remainder of our unhedged production. As of March 31, 2026, our total open crack swap positions included 9.9 million barrels of diesel and 2.4 million barrels of gasoline. Of this total, approximately 2.9 million barrels of diesel swaps are in 2027, with the remainder in 2026. This represents roughly 15% of our expected gasoline and diesel production volumes for 2026 and 4% for 2027. Since the end of the quarter, prompt NYMEX crack spreads have declined and we have seen Group 3 strengthen relative to the onset of the war. We will continue to actively monitor these positions and plan to be opportunistic managing our exposure going forward, which could include closing out these positions or adding other positions depending on market conditions. Direct operating expenses in the Petroleum segment were $6.10 per barrel for the first quarter, compared to $8.58 per barrel in the first quarter of 2025. The decrease in direct operating expenses per barrel was primarily due to increased throughput volumes, as the Coffeyville refinery was undergoing a turnaround in the first quarter of 2025. Adjusted EBITDA in the Fertilizer segment was $78 million for the first quarter, compared to $53 million for the prior-year period. Ammonia utilization rate was 103%, with both plants running well and experiencing minimal downtime during the quarter. The board of directors of CVR Partners’ general partner declared a distribution of $4.00 per common unit for the first quarter of 2026. As CVR Energy, Inc. owns approximately 37% of CVR Partners' common units, we will receive a proportionate cash distribution of approximately $16 million. Cash flow from operations for the first quarter of 2026 was $64 million and free cash flow was $21 million, of which approximately $63 million was generated by the Fertilizer segment. Significant uses of cash in the quarter included $47 million of capital spending, $40 million of cash interest, $15 million for the costs associated with the debt refinancing, and $3 million paid for the noncontrolling interest portion of the CVR Partners fourth quarter 2025 distribution. Total consolidated capital spending on an accrual basis was $44 million, which included $29 million in the Petroleum segment and $14 million in the Fertilizer segment. For the full year 2026, we estimate total consolidated capital spending to be approximately $200 million to $240 million. Turning to the balance sheet, we ended the quarter with a consolidated cash balance of $512 million, which includes $128 million of cash in the Fertilizer segment. Total liquidity as of March 31, 2026, excluding CVR Partners, was approximately $923 million, which was comprised primarily of $384 million of cash and availability under the ABL facility of $539 million. We remain committed to our deleveraging goal and plan to continue working towards a gross leverage target of $1 billion, excluding debt at CVR Partners. Looking ahead to the second quarter of 2026 for our Petroleum segment, we estimate total throughputs to be approximately 200,000 to 215,000 barrels per day, direct operating expenses to range between $110 million and $120 million, and total capital spending to be between $35 million and $40 million. For the Fertilizer segment, we estimate our ammonia utilization rate to be between 95% and 100%, direct operating expenses excluding inventory and turnaround impacts to be between $57 million and $62 million, and total capital spending to be between $28 million and $32 million. With that, Mark, I will turn it back over to you. Mark Pytosh: Thank you, Dane. In summary, despite a slow start to the year in the refining segment, market fundamentals have changed quickly over the past few months, and we believe the outlook is constructive for both of our businesses. Two areas of the economy that are among the most impacted by the ongoing conflict in the Middle East are energy and fertilizers. Starting with the refining segment, global inventories of crude oil and refined products tightened considerably over the past few months with the effective closure of the Strait of Hormuz. While the extent of the damage to refining capacity is still unclear at this point, the larger impact to global refined product markets has been availability of crude oil supplies and the need to curtail refinery runs as a result. Fortunately, the U.S. refining fleet has largely been unimpacted so far, although refined product inventories in the U.S. have also been declining partly due to increased product exports. Gasoline and diesel inventories in the Mid-Continent were elevated at the beginning of the year, driven by higher-than-average refinery utilization levels that weighed on crack spreads, particularly gasoline cracks. This has changed significantly over the past month with gasoline inventories declining by 17% and diesel inventories declining 20% compared to the beginning of the year. Demand trends have improved as well for both gasoline and distillate in the Mid-Continent. On a days-of-supply basis, gasoline supply is sitting at the low end of the five-year range, while distillate supply is below the five-year average. This improvement in Mid-Continent supply and demand fundamentals over the first quarter has tightened refined product basis in the Mid-Continent relative to other regions of the country. Accessing higher-demand regions outside the Mid-Continent and Gulf Coast remains one of our key strategic initiatives as we work to improve margin capture in the refining segment. We have stepped up these efforts and recently began utilizing the rail loading facility at Wynnewood that was repurposed after the reversion of the renewable diesel unit. We remain optimistic that basis has room to improve further over the intermediate term, with the new product pipeline from Kansas and Denver scheduled to come online later this year. Other pipelines under development over the next few years, including the Western Gateway Pipeline, should offer additional outlets from the Mid-Continent to the Gulf Coast as well. In the Fertilizer segment, the spring planting season is underway, and it is going well so far this year. The USDA is currently estimating approximately 95 million acres of corn will be planted in 2026. While this is a decline from the record levels of 2025, 95 million acres is well above the average level of corn plantings over the last five years. Nitrogen fertilizer inventory levels at the beginning of the year were tight across the industry after the large planting seasons in the U.S. and Brazil in 2025 and the ongoing conflicts in Russia and Ukraine. The recent events in the Middle East have caused fertilizer markets to tighten even further. Roughly 30% of nitrogen fertilizer production typically transits through the Strait of Hormuz, and multiple nitrogen fertilizer production facilities across the Middle East have been damaged or curtailed production over the past few months due to limited natural gas supplies. While it remains unclear how long these issues in the Middle East will persist, we will continue to focus on safely and reliably running our plants at high utilization levels to meet the needs of our customers during this challenging time in our industry. Looking at quarter-to-date pricing metrics for the second quarter of 2026, Group 2-1-1 cracks have averaged $38.36 per barrel, with the Brent–WTI spread at $3.81 per barrel and the WCS differential at $15.46 per barrel under WTI. Prompt fertilizer prices are $950 per ton for ammonia and $525 per ton for UAN. In closing, I would like to thank our employees for their excellent execution, safely achieving 97% crude utilization and 103% ammonia utilization for the first quarter. Strong operating performance along with the improvements in crack spreads and the progress we have made so far in reducing debt have enabled us to announce a dividend of $0.10 per share for the first quarter of 2026. We intend to continue our deleveraging strategy as we look to return to $1 billion of gross debt on the balance sheet. In addition, we will continue to work to improve margin capture in our base business while we seek opportunities to add scale and geographic diversity to our portfolio. With that, operator, we are ready to take questions. Operator: We will now begin the question-and-answer session. To ask a question, press star then the number 1 on your telephone keypad. We ask that you please limit your questions to one and one follow-up and then reenter the queue for any additional questions you may have. Our first question will come from the line of Matthew Blair with TPH. Please go ahead. Matthew Blair: Great. Thank you, and good afternoon. Hoping to talk a little bit about your increase in exposure to WCS at Hardisty. I think your disclosures show roughly an 8% crude slate exposure to WCS in Q1 versus basically zero in Q4. Why are you making that change, and what advantages does that offer to CVR Energy, Inc. here? Mark Pytosh: Matthew, good afternoon. When the actions were taken in Venezuela in early January, we saw almost an immediate change in the values for Western Canadian, and the differential backed up by about $3 per barrel. When we looked at it and ran our models, we saw that had more value than our other alternatives, and so we have been running a lot more Western Canadian, around 18,000 barrels a day. We will continue to do that if the differential holds in there. They have been good so far, and we are almost four months into it, so good value in that crude. Matthew Blair: Sounds good. And then could I just confirm a few things on your derivative exposure? So for the first quarter, was the realized impact that rolled through your numbers approximately a headwind of about $37 million, or about $2 per barrel? I am getting that based on your total impact of $195 million plus the $158 million of unrealized. And then secondly, for the second quarter, if there was a mark-to-market today, do you have an approximate impact that these derivatives would have in Q2? Thank you. Dane Neumann: Yeah, Matt, good afternoon. Just to summarize on the first quarter, we did, as you saw in our 10-K, have some crack swap positions on. The realized loss on those was about $25 million, really due to positions that were put on lower in January and February, and then with March, they got exacerbated. The remainder of the loss is really associated with inventory hedging as prices ran up on crude, particularly in the month of March. As it relates to the second quarter, we will not give any specifics, but we did provide the notional amounts of our hedges and the approximately $4.47 representing the amount of volume at a strike price—you can calculate an average from that. I will remind you that we put on those positions early at the outset of the conflict, and the market was pretty heavily backwardated at that time, so I would not assume that average applies over the entire strip. Operator: Our next question comes from the line of Manav Gupta with UBS. Please go ahead. Manav Gupta: I just want to understand if you could talk a little bit about the macro in the Mid-Continent—what you are seeing in terms of supply, demand, cracks—and how long you expect some of these cracks to remain elevated even if the Strait of Hormuz opens? There are a few out there saying it could take two months for flows to normalize, and many people globally do not have crude, so cracks could remain elevated. From your perspective, where you are sitting, can you talk a little bit about the refining macro? Mark Pytosh: Sure. Thank you, Manav. What we experienced—and this is typical for the Mid-Continent—was a lag. When the conflict broke out, the coastal markets adjusted faster than our market did. Over the course of March, we started to close the gap between the Mid-Continent and the Gulf Coast in particular—our closest market—but also the other Western markets. Our basis has really gotten closer to normal between where we are and those markets, so our cracks have elevated faster than the others. We have been able to move product into other markets, and those other markets are drawing out of the Mid-Continent. We have had a big drop in inventory for the last three weeks, and our market has adjusted now to the conflict. We agree with you that this is likely to go on longer than a quick snapback. Our market is already set up with the other markets, and I think we will benefit without the spread in basis, which took us three or four weeks to fall into place. We are enjoying a lot better cracks in April. The markets have settled in, they are drawing out of the Mid-Continent at this point, and we expect that to continue as long as this conflict is in place. Manav Gupta: Perfect. My quick follow-up here is I think I know the answer, but I just want to make sure: the dividend that has been reinstated—that is not a variable dividend, right? That is your path to a normal dividend, which will be there and maybe grow from here. Is that the right way to think about it? Mark Pytosh: That is correct. It is not a variable dividend. Our fertilizer business is variable. This is not meant to be a variable dividend. Operator: As a reminder, to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Alexa Petrich with Goldman Sachs. Please go ahead. Alexa Petrich: Good morning, team, and thank you for taking our question. We just wanted to ask a follow-up on the hedges announced during the quarter. Can you talk a little bit about what drove the decision to add those hedges? Is there any strategy there that we should expect to continue, or any color on that would be helpful? Dane Neumann: Thanks, Alexa. Historically, we have put hedges on when we have seen market levels above mid-cycle. We have done that over the past couple of years as some downside protection. As the war broke out and we saw things elevate quickly, not knowing if the market was going to correct itself quickly or not, we wanted to get in the market and capture some of those higher values. As we see this dragging on longer, going a little slower might have been better, but we are where we are. As we said in the prepared remarks, we are going to continue to monitor. We do not like to hedge over roughly 30% of our production just to make sure that we are covered between our two refineries. Travis Katz: And that is on gasoline or diesel independently. We have a pretty healthy book on right now that we will continue to monitor and, if anything, look to try to lock in any basis positions as we see improvement from there. Alexa Petrich: Okay. That is helpful. And then our follow-up is just on capital allocation priorities. You have outlined that $1 billion gross leverage target. We have now got the dividend. Can you talk about how you are balancing the two? And you have also previously discussed potentially having interest for M&A. Any color on those pieces would be helpful. Mark Pytosh: Sure. I will separate the two. On capital allocation, with the change in the market dynamics and opportunities there, we feel like we can continue on the path we have been on from deleveraging while also paying dividends going forward. With what we see for economics for the rest of the year, we feel like we can do both. That is why we were comfortable bringing the dividend back this quarter—we feel like we can achieve what we want to achieve and also return some capital to our shareholders. On M&A, that continues to be a priority for us. I would say the last couple of months have been a period where everyone is focused on all the volatility, so that has not been our highest priority in the last two months. As things settle down, we will be back looking for opportunities and engaging in discussions. Volatility management is our number one priority right now—managing the base business and positioning the company to do well in a very volatile market, but with much more attractive economics than we had two months ago. Alexa Petrich: Okay. That is helpful. I will turn it over. Thank you. Mark Pytosh: Sure. Thank you. Operator: This concludes our question-and-answer session. I will hand the call back over for closing comments. Mark Pytosh: Thanks, everybody. We appreciate you joining our call today, and we look forward to discussing our second quarter results in late July. Thank you very much, and have a good day. Operator: That concludes our call today. Thank you all for joining. You may now disconnect.
Greg MacLeod: Good afternoon. Operator: My name is Christine, and I will be your conference operator today. At this time, I would like to welcome everyone to The Southern Company First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Greg MacLeod, Director of Investor Relations. Please go ahead, sir. Greg MacLeod: Thank you, Christine. Good afternoon, and welcome to The Southern Company First Quarter 2026 Earnings Call. Joining me today are Christopher C. Womack, Chairman, President, and Chief Executive Officer of The Southern Company, and David P. Poroch, Chief Financial Officer. Let me remind you that we will make forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K, Form 10-Q, and subsequent securities filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measures are included in the financial information we released this morning, as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I will turn the call over to Christopher C. Womack. Christopher C. Womack: Thank you, Greg. Good afternoon, and thank you for joining us today. As you can see from the materials that we released this morning, we reported adjusted earnings results for the first quarter above our estimate, with year-over-year growth reflected across all our major businesses. That performance reflects premium execution and the strength of our strategy to serve the phenomenal growth we are seeing across the Southeast with reliable and affordable energy while delivering durable long-term value for shareholders. We continue to see extraordinary growth and economic development opportunities as our service territories attract investment, people, and jobs at a pace few regions can match. As we previously highlighted, a substantial portion of this growth is driven by projected demand from large load customers. The demand for power across our electric service territories has culminated in 23 gigawatts of contracted or late-stage load. In just the last two months, we have signed contracts for another 1.9 gigawatts of customer load with high credit quality hyperscalers, bringing our fully contracted large load agreements to more than 11 gigawatts across our electric subsidiaries. These bilaterally negotiated agreements are structured so that customers driving incremental demand cover the full share of the cost to serve them, helping to assure this growth benefits all customers. We continue to execute on our plans to serve growth, and our straightforward approach protects existing customers. We invest in line with demand to serve growth that enables us to deliver regular, predictable, sustainable results while providing meaningful benefits to the customers and communities we are privileged to serve. The Southern Company continues to be uniquely positioned to do this because of our scale, our experience, and our expertise, all supported by a constructive, long-standing regulatory framework. At The Southern Company, we are capitalizing on transformative growth opportunities while delivering energy reliability and rate stability as energy demands grow. With base rates held stable in Alabama and Georgia until at least 2010 and 2029, along with the recent filing to lower rates in Georgia associated with the recovery of fuel and storm cost, we are demonstrating the value of this approach. Rate stability for our customers is a purposeful objective supported by our constructive, orderly planning and procurement processes, cost management, and thoughtful finance. This same built-for-purpose approach also creates the potential for additional capital investment to serve incremental growth opportunities under established regulatory processes. We have routinely demonstrated, as growth opportunities present themselves, that The Southern Company has the ability to convert these opportunities into value through enhanced operations and grid-improving infrastructure investments for the benefit of customers and investors alike. The construction of many of these investments is well underway. In the last two months, Georgia Power achieved commercial operations for two battery energy storage systems providing nearly 200 megawatts of capacity, representing an important step forward in advancing reliable, sustainable energy solutions across the state. These projects are the first of several resources included within our 10 gigawatt portfolio of approved new generation resources that are in development to power the extraordinary productive growth in our region, including multiple battery systems and natural gas combustion turbines that are projected to be online later in 2026 and 2027. Before I turn the call over to David for our financial update, I would like to highlight the recently announced historic $26.5 billion in loan agreements with the Department of Energy that will benefit customers across Alabama and Georgia for decades. We expect these loans to translate into meaningful long-term customer savings while reducing pressure on our capital market needs. Over the approximately 30-year term of the DOE loans, this lower-cost financing is projected to generate cumulative savings of $7 billion for customers. David, I will now turn the call over to you for a financial update. David P. Poroch: Thanks, Chris, and good afternoon, everyone. For the first quarter of 2026, our adjusted EPS was $1.32 per share, 9¢ higher than 2025 and 12¢ above our estimate. The primary drivers of our performance for the quarter compared to last year were meaningful customer growth and increased usage, including from data centers, at our state-regulated electric utilities. Additionally, increased revenues in our gas utilities and higher energy-related revenues at our unregulated businesses, including Southern Power, were positive drivers in the first quarter. This was partially offset by higher financing costs and milder weather year over year compared to 2025. A complete reconciliation of year-over-year earnings is included in the materials we released this morning. Our adjusted EPS estimate for the second quarter is $1 per share. Turning now to retail electricity sales. First quarter weather-normal retail electricity sales to all classes were 2.3% higher than 2025. This represents the highest total retail sales growth that we have seen in the first quarter in recent history. In fact, sales to all three customer classes were up year over year, including residential, where we saw 46,000 new customers added to our system as positive trends in net migration continue. The commercial class grew 4.5% in the first quarter when adjusted for weather, bolstered by ongoing growth in data centers. Data center usage saw material expansion in the quarter, up 42% year over year, primarily due to accelerating usage ramps at large load facilities. Our industrial sales grew 1.5%, with particular strength in several segments, including robust activity at multiple steel manufacturers in Alabama. More broadly, the Southeast continues to stand out as one of the most attractive economic regions in the country, driven by a diverse mix of advanced manufacturing, technology, and other energy-intensive industries. In the first quarter alone, there were economic development announcements for over $7 billion of capital investment and the creation of nearly 4,000 permanent jobs in our region, including a global biopharmaceutical manufacturing project north of Atlanta bringing $2 billion of investment and over 300 jobs to Georgia. The sustained higher-quality growth reinforces why demand in this region of the country remains strong and visible, underscoring the region’s tremendous opportunity for future growth. Outside the Southeast, we continue to see momentum in our gas utilities, including a recently announced Hyundai investment in Illinois that is expected to bring 2,500 jobs and $500 million of investment to the Nicor Gas service territory. Looking ahead, the interest from large load customers in our electric service territories, which includes data centers and large manufacturers, remains strong, with a prospective pipeline of well over 75 gigawatts. We continue to make incredible progress advancing projects through stages in our large load process to finality with executed contracts. As Chris mentioned, over the past two months Georgia Power signed two projects representing 1.9 gigawatts, pushing the cumulative amount of contracted large loads to over 11 gigawatts across Alabama, Georgia, and Mississippi. These bilaterally negotiated contracts, with pricing and terms designed to both protect and benefit existing customers, also support our long-term financial outlook. We continue to see incredible momentum and tangible interest for power from large load customers and are in active late-stage discussions for another 12 gigawatts of contracted load through the mid-2030s, an increase of 2 gigawatts from what we shared last quarter. Importantly, roughly 6 gigawatts, or half of these late-stage gigawatts, are expected to be finalized with executed contracts in the near term. In a little over two months, we have seen projects representing 12 gigawatts advance into the next stage in our large load process. The demonstrated progress we are making in attracting and signing new agreements with large load customers is exciting and continues to drive projected growth in our risk-adjusted load forecast, which ultimately helps inform future generation needs and generation request for proposals, or RFPs, across our service territory. For example, Georgia Power recently initiated the regulatory process for an all-source RFP to procure 2 to 6 gigawatts of new dispatchable generation resources, including from thermal generation, battery energy storage, and renewables, that are projected to be in service in 2032 to 2033. Generation procurement through RFPs delivers substantial value to customers and is a testament to the transparent and orderly processes in our vertically integrated state-regulated markets with long-range integrated resource planning. To the extent that company-owned resources are selected through Alabama Power’s and Georgia Power’s active RFP processes and ultimately authorized by their respective PSC, these generation investments would represent incremental investment above our current base capital plan. Turning to Southern Power, we are moving forward to add 400 megawatts of additional capacity through natural gas turbine upgrades in multiple existing facilities in Alabama and Georgia, with commercial operation projected between 2029 and 2031. This incremental investment is projected to add approximately $700 million to our capital plan over the next several years. We continue to evaluate other growth investment opportunities at Southern Power, including an additional 300 megawatts of natural gas uprates, as well as other new generation opportunities in both the Southeast and other markets to meet future demand. Before I turn the call back over to Chris, I would like to provide an update on our financing activities through the first quarter. We continue to proactively address equity needs that support our strong credit quality and path towards 17% FFO to debt by 2029. Over the last quarter, we sourced an incremental $500 million of equity through our at-the-market, or ATM, program with forward contracts that settle at our discretion by 2028. Combined with the significant amount of equity previously sourced, and including the incremental $700 million of Southern Power projected capital expenditures I mentioned earlier, we project a remaining need for equity or equity equivalents of $1.8 billion through 2030 in support of our capital plan and long-term credit objectives. We are well positioned to continue financing our remaining equity needs in a credit-supportive and shareholder-focused fashion. I will now turn the call back over to Chris. Christopher C. Womack: Thank you, David. Last week, The Southern Company Board of Directors approved an increase of 8¢ per share in our annual common dividend, raising the annualized rate to $3.04 per share. This action marks our 25th consecutive annual increase, and this will now be 79 consecutive years dating back to 1948 that The Southern Company has paid a dividend that is equal to or greater than the previous year. Increasing the dividend 25 years in a row represents a historic milestone for the company and underscores our focus on premium risk-adjusted total shareholder return and our goal of delivering regular, predictable, and sustainable value for our shareholders. We are incredibly proud of our strong dividend track record, which continues to be an integral part of The Southern Company’s long-term value proposition. As we conclude our discussion today, our first quarter results reinforce a simple point: Our company is delivering. We are off to a strong start in 2026, and that momentum gives us confidence as we continue executing on our long-term goals. We are capturing growth, protecting customers, and creating long-term value, and we are doing it in a disciplined, predictable way. With that foundation, we have a bright future ahead. Thank you for joining us this afternoon and for your continued interest in The Southern Company. Operator, we are now ready to take questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment while we poll for questions. Thank you. Our first question comes from the line of Shahriar Pourreza with Wells Fargo. Shahriar Pourreza: Hey, guys. Hey, Chris. How are you doing? Christopher C. Womack: Alright. Not too bad. I hope you are doing well. Shahriar Pourreza: Good. Doing well. Good. On new nuclear, there seems to be a consortium that has formed with utilities and hyperscalers, maybe with some backstop by the U.S. government around new AP1000s. It seems like there could be some views that hyperscalers would be willing to take on some of the cost inflation risk above budgeted amounts. One of your peers highlighted that they would not be surprised if the first deal was announced this year. Can you comment on your view? Is The Southern Company interested? Are you in the consortium? Just some thoughts on new nuclear in light of the learning curves of Unit 3 versus Unit 4. Thanks. Christopher C. Womack: Yes, sure. A very good question. At the outset, I am very excited to see all the actions that the administration has taken to support the build and construction of new nuclear. I have said it many times: With the growth that we see in this country, it is going to be important that we make available new nuclear in this country to help support and meet this demand. The administration, I think, has taken some wonderful steps on the regulatory front. All the conversations that DOE is leading and having today about long lead times for supply chains—these issues are matters that we clearly have to address and get our arms around. All of these things can help mitigate risk associated with new construction. As you know, I have said before, The Southern Company is not at a place to make a commitment about building a new unit. We are going to continue to share the experiences that we gained from Vogtle Units 3 and 4 here in this country and other places with other companies that are interested in moving forward. But I am very thrilled and excited about the conversations and the commitments and the actions that are being taken, particularly around doing more around AP1000s with a group of companies. I am glad to see this action and work being taken. Once again, to be clear, we are not at a place for The Southern Company, in terms of making that kind of decision, but it is really exciting and very positive to see the work that is being led to support the development of new nuclear construction. Shahriar Pourreza: Got it. Perfect. Thank you for that. And then on Southern Power, there are a lot of opportunities there with existing tolling agreements that are going to start to roll off. Have those renegotiation conversations started? And are there any conversations being had with potential hyperscalers with those assets? There seems to be more and more interest on the gas side. How are you thinking about that process? Christopher C. Womack: Sure. I would say the answer is yes and yes. We are in the midst of some recontracting opportunities, and we have talked about where we are and what we see into the 2030s, so that work is underway. At the same time, with all the activity in the marketplace across the country, we see there could be opportunities for Southern Power. They are having those conversations to see what is possible and what is doable. They bring good construction support and good work that they have experienced across this company with creditworthy counterparties. To your question, the answers are yes and yes. We are doing both. Shahriar Pourreza: Perfect. And I would assume this is all upside to your 7% to 8%—you are not embedding any assumption around this. Christopher C. Womack: As we think about upside, we think about strength and durability—how do we add length to our growth trajectory that we have laid out—and things like Southern Power and additional large load projects that we are working on could support some additional capital investments, but they also bring greater durability to our plan. That is how we see these upside opportunities. Operator: Our next question comes from the line of Nicholas Joseph Campanella with Barclays. Please proceed with your question. Christopher C. Womack: Nick, how are you doing? Nicholas Joseph Campanella: Hey. Good afternoon. Good to hear from you. Thank you. You kind of answered it—what you have announced here, the incremental progress you see strengthens and lengthens the durability of the 7% to 8% CAGR. My question is more on the load side and how you think that is affecting the regulatory strategy. When I take a step back, you committed to these stay-outs late last year, and since then you have been making notable progress both on load visibility and usage ramps. How is that creating or changing your philosophy around regulatory strategy—when you would actually go in and file again after these next stay-outs? Are you ahead of plan on the load, and can that crystallize a further stay-out for customers? Christopher C. Womack: Nick, let me start, and then see what David wants to add. The focus for us is more about rate stability. As we have structured these contracts with large loads—to make sure they pay their full share, with collateral, cancellation fees, minimum bills, and all the terms we are contracting—that gives us protection and supports our ability to make sure we are protecting existing customers. That gives us the opportunity for rate stability and freezes in Georgia through 2028 and in Alabama through 2029. All of that supports the regulatory strategy, but more importantly, it supports our commitment to rate stability and making sure that all of our customers benefit from this growth. David, anything you want to add? David P. Poroch: Yes, Chris. Nick, thanks. Great question. When we took this opportunity, we saw the road shaping up. These contracts were coming to fruition. The conversations we were having with these large load opportunities—momentum was building. We saw the opportunity to provide long-term stability for our customers, and it has paid off quite well. These ramps are going exactly as we had thought. The opportunities with the DOE are further enhancing affordability and stability. Everything is working out very well with this opportunity and enhancing the benefits for customers. Christopher C. Womack: Nick, did I get your question? Nicholas Joseph Campanella: Yes, I appreciate it. When you made that commitment, are you in line with the plan on your load visibility or ahead of the plan? How would you characterize that? Christopher C. Womack: We are in line, and we are focused on getting to the top of the range and delivering what we say we are going to deliver. That is one thing you can count on us to do. We are delivering on what we said we were going to do. As we look at this great start to the year, we are excited about where we are here in 2026, and as we look long term, we feel very confident about the plan we have laid out. Nicholas Joseph Campanella: My only follow-up: As we think about wrapping in additional capital, you have given that sensitivity for incremental equity, but what are your thoughts on portfolio rotation at this time? David P. Poroch: It is something we talk about regularly. We are always looking around. We are blessed to have the cards we have been dealt and we love the portfolio. But if there is an opportunity where there is a better owner of something, we are open to that. If there is an opportunity for us to buy something, we are open to that as well. It has to be under the right circumstances, and we are always looking. Operator: Our next question comes from the line of Julien Patrick Dumoulin-Smith with Jefferies. Please proceed with your question. Julien Patrick Dumoulin-Smith: Thank you very much. You have $8.85 billion of cumulative bill credits you have been talking about. Is there a chance that that number gets revised higher as you see this contracted large load number head higher? That was a snapshot at a point in time. I imagine you could eventually be in a better position there. I think that is partially what Nick was getting after. Christopher C. Womack: Julian, we do not get ahead of our regulators, first of all. But clearly, as we continue to deliver these contracts in terms of how they are structured, and as we have signaled—Georgia Power is in the middle of storm recovery proceedings along with fuel recovery processes—those proceedings can provide benefits and lower bills for customers. That is a major focus of ours. As we think about rate stability, signing these large load contracts, focusing on growth, and managing this company, we are doing all we can to maintain rate stability and find opportunities to put downward pressure on rates for our customers. That is a key focus of ours. Julien Patrick Dumoulin-Smith: Quickly here, because you are showing continued quarter-over-quarter success at the corporate level on finalizing contracts, as you show in the funnel chart in your slide deck. But if I look at the 4Q 2025 Georgia Power large load economic development report, it shows some degree of softening in contracted commitments. Is there something about Georgia versus your other states, like Alabama, where other states are accelerating to offset Georgia? There is a timing element here. I want to make sure I am understanding the core message. Christopher C. Womack: I think it is more about timing, but we are also seeing this activity migrate to the west, with increasing activity in Alabama. Yes, there is some churn in Georgia, but the fire is still very hot in Georgia. We are also witnessing greater activity in Alabama and Mississippi as well. You can also look at the pipeline number—still 75 gigawatts—that reflects all the activity we see. The churn is more speculative, but you will continue to see more hyperscale activity across the territory. David P. Poroch: Julian, one thing to think about as well are the rules under which we are negotiating these contracts in Georgia and the need for these potential customers to demonstrate their commitment by posting collateral. That is really shaking a lot of the potentials out that are more speculative in nature and leaving Georgia Power to work with a high-quality portfolio of potential customers with which we are choosing to contract. What you are seeing is a refinement of that, not a degradation. I would characterize it as a strengthening of that portfolio, if anything. Christopher C. Womack: Very strong in Georgia. Julien Patrick Dumoulin-Smith: A 100%. Got it. Thank you very much. Operator: Our next question comes from the line of Carly S. Davenport with Goldman Sachs. Please proceed with your question. Carly S. Davenport: Hey, thanks so much for taking my questions. One follow-up on the upgrade opportunities at Southern Power on the gas fleet. You announced some of those today, and it seems like there is another 300 megawatts on the table. Any sense you could give us on timing in evaluating that opportunity? Is that the extent of the upgrade opportunity you see on the gas fleet at Southern Power? David P. Poroch: From an upgrade perspective, that really covers the whole fleet if we work through the rest of those opportunities. In terms of timing, we are working through that—it could be over the course of the next year or so. We set out a plan to explore opportunities to uprate each one of the existing generation facilities within Southern Power. Christopher C. Womack: And, Carly, that construction is scheduled to begin this year in 2026, so this is very immediate work that will be done. Carly S. Davenport: Got it. Thank you. Then on Georgia, there are two seats up on the PSC for election this year. Could you provide your latest thoughts on the setup in terms of the focus areas of the candidates you have heard thus far, and any views on the latest temperature in Georgia around affordability and development? Christopher C. Womack: As you know, the primary election is in May. If there are runoffs, they will be June 16. There is a lot of conversation—everyone is on the campaign trail—about data centers, large load customers, and things like rate stability. All those issues are being debated on the campaign trail, and we will see how that plays out in terms of results. The Southern Company has been around for over 100 years, and we have seen a lot of twists and turns politically. With the experience we have had and the ability to navigate whichever way the politics go, we have a tremendous history of being able to work with both parties or whoever is in office. We feel comfortable and confident that because of the work we do across our communities, and our employees live and work there, and the commitments we have to the state, we will continue to have a constructive regulatory environment no matter how these elections turn out. Carly S. Davenport: Very clear. Thank you so much. Operator: Our next question comes from the line of Stephen D’Ambrisi with RBC. Please proceed with your question. Stephen D’Ambrisi: Thanks very much for taking my question. There seems to be a significant acceleration in the pace of how you are moving these large loads into late stage and finalizing. You added 2 gigawatts and expanded finalizing and late stage to 12. How does that interplay with the 2 to 6 gigawatts, or the sizing of the RFP that you are currently working on? I want to level set to understand what adding 2 gigawatts to the contracted pipeline means, how much of the new RFP that uses, and what any incremental signings mean for subsequent RFPs. Christopher C. Womack: It speaks to updates in the load forecast as a result of the demands we are seeing from large loads, and we should not take for granted the other large manufacturing opportunities we see across the state. There is a lot of investment, people, jobs, capital, and interest in our states, and what you see in that RFP is a reflection of that increase in the load forecast. I would also highlight our vertically integrated structure, with orderly processes and certainty with these bilateral negotiations—understanding what these customers need and our ability to respond and align with their needs is really paying off and delivering. That is what you see through this RFP and in the pipeline funnel we speak to. We are also seeing “repeat buyers”—they find success and say, “You can deliver. Let us come back and get a little bit more.” It gives us reason to be bullish about the robust activity and demand we see in our territory. Stephen D’Ambrisi: A couple of your other questions were about accelerating the loads and what it means for affordability. Can you talk about the fact that you are pricing these so minimum bills cover the incremental cost to serve? To the extent the ramps exceed minimum bills and come close to what is projected by hyperscalers, what does that mean for customer rates, and what is the timeline to discuss that with regulators? Christopher C. Womack: Let me start, and then David can add. There has been language about “incremental,” but for us you should think more about “full”—making sure they cover their full share. As a result, that provides benefits to existing customers and allows us to consider maintaining rate stability and freezes and putting downward pressure on existing customers’ rates. By negotiating with these customers to make sure they are covering their full cost, growth provides an opportunity to provide benefits to existing customers. Growth is a wonderful value and contributor to what we are delivering to all of our customers, particularly existing customers. David P. Poroch: A differentiating factor in our contracts is the minimum bill established within the contract, designed to recover all of the costs introduced into the system, like Chris said. We are not held captive to a variable pricing methodology to recover those costs. It is embedded within the minimum bill—think of it as basically writing a call option to the network. We recover our costs through that minimum bill, not through variable pricing and making sure the customer achieves their ramp rates. It is a very thoughtful design, a differentiating factor around the country, and it is helping protect our customers and provide stability and downward pressure on rates going forward. Operator: Our next question comes from the line of Nicholas Amicucci with ISI. Please proceed with your question. Nicholas Amicucci: Thanks, everybody. David, I wanted to hone in on the attractiveness and ability for you to leverage the notion of virtual power plants and your fully integrated asset base, and the attractiveness of that to expedite the time-to-power mechanism. Christopher C. Womack: What is your question? Nicholas Amicucci: If you could comment on that and frame it. Is that part of the appetite and attraction for you to be able to expedite the process to time to power through those mechanisms? David P. Poroch: Great observation. You used the term “vertically integrated,” and that really does help us in marketing these contracts and conversations. The counterparty knows exactly where their generation will come from, where transmission infrastructure will come from, and where distribution infrastructure will come from. We have been very transparent to make sure customers understand the cost makeup, how it will happen, and when it will happen, and we have been able to deliver on that. I point you back to the vertically integrated model and the transparent, structured regulatory processes we go through to establish approval for the capital we deploy and the resources we bring to serve these contracts. Nicholas Amicucci: That is helpful. Given the incremental growth going forward and supply chain availability and turbine availability, you have somewhat front-run higher prices. As we think about it, it seems like you can ring-fence a lot of the costs, but contemplating the generation source and assets going forward—how are you thinking about cost, mitigating pricing increases on natural gas or something else, and getting that into rate base? Christopher C. Womack: Size and scale are benefits we bring to this period of time—having relationships and having worked with OEMs and turbine suppliers for years. We are in line; we have our positions. We are having ongoing conversations with suppliers to make sure they understand what our needs are and we understand where they are, ensuring the partnership is valuable for both parties in terms of delivery and pricing. In this marketplace, scale matters. Relationships matter. Having history and experience brings value, and we are bringing all of those characteristics to bear as we operate in this transformative period. Operator: Our next question comes from the line of Andrew Marc Weisel with Scotiabank. Please proceed with your question. Andrew Marc Weisel: Good afternoon. My first question is about the Georgia RFP. What would be the timing of when the process is completed and when you would have visibility into the company-owned resources, and therefore when we might see the CapEx update? You said it could be substantial incremental investment. Related, you said the in-service dates would be 2032 to 2033. Could there be appetite for something sooner if demand materializes earlier, or is the process specific to that timing? Christopher C. Womack: You are going to have to hold your breath until the end of the year before we get through that process. It is kind of a year-long process, and we are not going to get ahead of our regulators and the overall process. David P. Poroch: We will go through the selection process through the rest of this year, and that will lead to a certification process that will take us pretty much through 2027. To the extent that we work through that process and any of our proposals are selected, that would lead toward initiating spend probably in 2028, with deliveries in 2032–2033. We have talked about this in the past—it is probably a decent rule of thumb that maybe a gigawatt of company-owned resources might be $2-plus billion of incremental CapEx in the latter part of the planning horizon and into the next decade. Christopher C. Womack: And as you know, we are building some 10 gigawatts now that gets us through the end of this decade, and then the RFP that was certified at the end of last year gets us into the early 2030s. Once again, I point to our very orderly planning processes across our company. Andrew Marc Weisel: To clarify on the equity outlook: First, the $26.5 billion of DOE loan guarantees—am I right that that would reduce traditional debt dollar for dollar without impacting the equity? And then it looks like an incremental $300 million of equity relates to the $700 million from the Southern Power gas upgrade. What would be the timing of that? I think the upgrades are for 2029 to 2031—should I think of the equity being in the later years of the plan? And if you move forward with the additional 300 megawatts, would that require additional equity, or is that included? David P. Poroch: The DOE loans definitely help our capital markets needs—pretty much takes care of us for at least the foreseeable future. Great pricing, helps with liquidity, and it is for Georgia and Alabama, recall. On the Southern Power upgrades, yes, we are continuing along with that sort of 40% equity proportion as we grow those capital opportunities. That $700 million is incremental—that is what we talked about now. Keeping us in line with that 17% FFO to debt, as we explore other opportunities beyond the $700 million we talked about today, would likely carry about a 40% ongoing equity proportion. We will explore whatever opportunities are available at the time and take advantage of market circumstances. It is a good rule of thumb to continue to expect about 40% of incremental capital to be funded through equity. Operator: Our next question comes from the line of Analyst with Truist. Please proceed with your question. Analyst: Thanks for the time. Recognizing the progress on the Southern Power upgrades and the 300 megawatts to go, I am curious about the overall development arc given that progress. Is it tracking the expectations you laid out on the 4Q update, and how do you think about the timing for more visibility into brownfield and greenfield development there? Christopher C. Womack: It is tracking as we expected. The interest is very strong on both the opportunities we have in negotiation with existing customers and, clearly, from a brownfield standpoint we are in early-stage considerations. Later in the year, we will be in a better position to give you more of an update on where that stands. As we said earlier, we are executing on what we have highlighted and moving through the plan in an orderly way. We will keep you posted as results come and as projects bear fruition. Operator: Our next question comes from the line of David Arcaro with Morgan Stanley. Please proceed with your question. David Arcaro: Thank you so much. Wondering if you could speak to the supply chain and where you stand currently in terms of access to some of the tight areas like turbines and labor—what you are seeing there? Christopher C. Womack: In this current market, it is not anything you can take for granted. The headline would be we are very well positioned, but we cannot sleep on it. Whether it is turbines, transformers, wire, cable—you name it—our supply chain organization continues to be very aggressive and focused. As we look at RFPs, we do have the turbines identified to support those RFPs. You mentioned labor—we have had a long history of working with labor. We have an incredible relationship with the building trades and other labor organizations. We continue to update them on our construction schedules and the skills that will be needed, and those relationships will bear fruit for us. You should expect tightness in the labor market. During Vogtle construction, at peak we had about 10,000 laborers on site, and all we went through further enhanced our relationship with labor. Those relationships will pay off for us in a constrained environment. It is about coordination and our experience. I feel good about where we are, but we have to keep working it. David Arcaro: Appreciate that. When would new generation be needed as you sign more large load contracts? How do we think about the next round of an all-source RFP? Is there a certain level of gigawatts that would trigger another round, or is it more a matter of time? Christopher C. Womack: We are in the midst now of building 10 gigawatts that will support activities and demands through the end of the decade. The RFP that was certified in Georgia at the end of last year would take us through the early stages of the 2030s. This new RFP looks more at the 2032–2033 time frame—somewhere between another 2 to 6 gigawatts. We are lining up well in terms of matching up with the needs we are seeing across the economy and market. Alabama is also active from an RFP standpoint. We feel good about how we are matching demand and the load forecast between now and the mid-2030s. Operator: Our next question comes from the line of Paul Fremont with Ladenburg Thalmann. Please proceed with your question. Paul Fremont: Thank you very much, and a really strong result for the quarter. I wanted to pursue Southern Power. Can you give us a sense of how much of that capacity is currently contracted today? Christopher C. Womack: We have set numbers up in the mid-90s in terms of what is contracted. Many of those contracts go through the mid-2030s, but we have signaled there may be some early review of some of those contracts and early negotiations in terms of potential recontracting. Then there will be the opportunity to have new conversations about some of that capacity being made available. That puts us in a strong position as we see pricing opportunities. Southern Power is in a strong position, recognizing the demand in the marketplace and what they are seeing around pricing. Paul Fremont: On the 400 megawatts, should I assume that you have already contracted for that capacity, or is it likely that when it is built, you will contract for it? David P. Poroch: The 400 megawatts of uprates we announced are in ongoing conversations—fairly late stage. We will be wrapping those up in the relatively near future, but those conversations are well in hand. Paul Fremont: So likely, by the time it is built, it will be contracted? David P. Poroch: That is clearly our expectation. Paul Fremont: I would assume then that part of the decision on the additional 300 megawatts would be assessed based on your ability to potentially contract that additional amount as well. Christopher C. Womack: Yes, and think about it consistent with the way we have run Southern Power over the years. We are always looking at high credit quality counterparties—typically load-serving entities, other investor-owned utilities, EMCs, munis. We definitely do not “build it and see who shows up.” Paul Fremont: The price per kW seems pretty close to what it would cost to build at least a new CT, if not all that far off from a new CCGT. In terms of your consideration of new build, would that also likely revolve around your ability to contract the plant before completion? David P. Poroch: For sure. New build or upgrades—same operating philosophy. Long-term strategy, creditworthy counterparties. It fits the business model we have held to for years and will continue to execute. Christopher C. Womack: And we have said before, we do not take merchant risk. We are not in the merchant business. Paul Fremont: And most likely in your service territory the party you are contracting with is another utility, like a co-op or something like that. David P. Poroch: That is typically the case. Paul Fremont: Great. Thank you very much. Operator: That will conclude today’s question-and-answer session. Are there any closing remarks? Christopher C. Womack: No. Again, let me thank you for joining us. We are excited about the growth we are experiencing and the operations of our company. I will end where I started: We believe we have a bright future ahead. Thank you for joining us today on this first quarter earnings call. Everybody, stay safe. Have a good day. Operator: Thank you, sir. Ladies and gentlemen, this concludes The Southern Company First Quarter 2026 Earnings Call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Acadian Asset Management Earnings Conference Call and Webcast for the first quarter 2026. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. To be added to the queue, please press the star followed by one at any time during the call. If you need to reach an operator, please press the star followed by zero. Please note that this call is being recorded today, Thursday, 04/30/2026 at 11:00 AM Eastern Time. I would now like to turn the meeting over to Melody Huang, SVP, Director of Finance and Investor Relations. Please go ahead, Melody. Melody Huang: Good morning, and welcome to Acadian Asset Management. This conference call is to discuss our results for the first quarter ended 03/31/2026. Before we begin the presentation, please note that we may make forward-looking statements about our business and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding these risks and uncertainties appears in our SEC filings, including the Form 8-Ks filed today containing the earnings release and our 2025 Form 10-Ks. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update them based on new information or future events. We may also reference certain non-GAAP financial measures. Information about any non-GAAP measures referenced, including a reconciliation of those measures to GAAP measures, can be found on our website, along with the slides that we will use as part of today’s discussion. Finally, nothing here shall be deemed to be an offer or solicitation to buy any investment products. Kelly Ann Young, our President and Chief Executive Officer, will lead the call. And now I am pleased to turn the call over to Kelly. Kelly Ann Young: Thanks, Melody. Good morning, everyone, and thanks for joining us today. I am thrilled to share our exceptional Q1 2026 results with you. Our assets under management and profitability continue to reach new heights, with strong recent growth underscoring sustained momentum in our business and disciplined execution of our strategic plan. We started 2026 by delivering outstanding results across all metrics. Our U.S. GAAP net income attributable to controlling interest was up 21% and EPS was up 26% compared to the prior year, driven by increased management fees and partially offset by non-cash expenses representing changes in the value of Acadian LLC equity and profit interest. ENI was up 85% to $37.6 million, driven by revenue growth, and our ENI diluted EPS of $1.05 was up 94%. Our adjusted EBITDA was up 76%, driven by increases in management fees. We realized £21.4 billion of positive net flows in Q1 2026, 12% of beginning AUM, a new quarterly record, driven by enhanced extensions and global equity strategies. And finally, AUM grew 61% from 2025 to $195.7 billion as of 03/31/2026, marking another record high for Acadian Asset Management. Turning to Slide 3, Acadian Asset Management’s investment performance track record remains strong. Five major implementations comprise the majority of our assets. As of 03/31/2026, Global Equity, Emerging Markets Equity, Non-U.S. Equity, Small Cap Equity, and Enhanced Equity have 100% of assets outperforming benchmarks across three-, five-, and ten-year periods with only one exception. In 2026, U.S. equities declined more than non-U.S. equities while the dollar strengthened. Despite the market uncertainty, our disciplined systematic approach has stayed the course and generated consistent alpha for our clients. Acadian Asset Management’s short-term performance track record continued to improve in Q1 2026 after a challenged 2025. We remain confident that we are well positioned given our 40 years of experience through various market cycles and macro forces. Slide 4 details how our investment process has generated meaningful long-term alpha for our clients. Our revenue-weighted five-year annualized return in excess of benchmark was +4.1% as of the end of Q1 2026 on a consolidated firmwide basis. Our asset-weighted five-year annualized return in excess of benchmark was +3.4% as of the end of Q1. By revenue weight, 96% of Acadian Asset Management strategies outperformed their respective benchmarks across three-, five-, and ten-year periods as of 03/31/2026. And by asset weight, 92% of Acadian Asset Management strategies outperformed their respective benchmarks across three-, five-, and ten-year periods. The next slide highlights our sustained momentum in net flows. We realized positive net flows of $21.4 billion in 2026, representing 12% of beginning AUM, achieving a new quarterly record high. Gross inflows included a significant enhanced mandate from a premier U.K. wealth manager. This mandate expanded our non-U.S.-domiciled client base, as well as our presence in the wealth channel. Excluding this large enhanced mandate, the remainder of the net inflows were again diverse across products and client types, with extensions and global equity also generating strong NCCF. We have now generated nine consecutive quarters of positive net flows. We continue to focus on renewing our pipeline, which remains very healthy and active with the funding of a number of significant client wins in 2026. I am now going to turn it over to our CFO, Scott Hynes, to provide you with more detail on our financial performance this quarter and an update on capital allocation. Scott Hynes: Thanks, Kelly. Turning to Slide 7, our key GAAP and ENI performance metrics are summarized here on a quarterly basis. As previously noted, we manage the business using ENI metrics, which better reflect our underlying operating performance. You can find complete GAAP-to-ENI reconciliations in the appendix. Let me now turn to our core business results. Starting on Slide 8, total ENI revenue of $165 million increased 40% from Q1 2025, primarily due to recurring management fee growth and an increase in performance fees. Q1 2026 management fees of $159 million increased 41% from Q1 2025, reflecting a 57% increase in average AUM driven by strong positive NCCF and market appreciation over the last 12 months. Stepping back, with average AUM of $190 billion in the first quarter, we have materially expanded our recurring management fee base and significantly strengthened Acadian Asset Management’s earnings power. Moving to Slide 9, in Q1 2026, ENI operating expenses increased 13%, primarily driven by higher sales-based compensation and portfolio-related costs due to AUM growth as well as general and administrative costs, including continued investment in IT and infrastructure. Our ENI operating margin expanded 978 basis points to 38.1% from 28.3% in Q1 2025, driven by an increase in ENI management fees, while our operating expense ratio fell 10 percentage points year over year to 38.4%, reflecting the impact of improved operating leverage. Q1 2026 variable compensation increased 35% year on year, primarily driven by higher profit before variable compensation. Our Q1 2026 variable compensation ratio decreased to 39.4% from 47.6% in Q1 2025. Assuming revenue mix and levels similar to Q1 2026, contractual allocations would imply a full-year 2026 variable compensation ratio of approximately 40% to 43%. Turning to Slide 10 on capital resources and our strong balance sheet, as of 03/31/2026, we had $129 million of cash and $97 million of seed investments on the balance sheet, with a $200 million balance on our term loan credit facility and an $85 million balance on our revolving credit facility. Note, the revolver balance reflects first-quarter seasonal needs and is expected to be fully paid down by year end. Our Q1 2026 gross debt to adjusted EBITDA ratio was 1.3x, and our net debt to adjusted EBITDA ratio was 0.7x. Note that while both these measures are slightly higher quarter on quarter, reflecting our typical first-quarter revolver draw, they are down over 0.5 turn year on year, driven by lower gross debt and higher adjusted EBITDA. Moving to Slide 11, we have a track record of creating significant value through share buybacks in recent years. Outstanding diluted shares have decreased 58% from 86 million in 4Q 2019 to 35.8 million shares in Q1 2026. Over the same period, $1.4 billion in excess capital were returned to stockholders through share buybacks and dividends. During Q1 2026, we repurchased just under 100 thousand shares, or $4.7 million of stock, at a volume-weighted average price of $49.77. Acadian Asset Management’s board has declared an interim dividend of $0.10 per share to be paid on 06/26/2026, to shareholders of record as of the close of business on 06/12/2026. Going forward, we expect to continue generating strong free cash flow and returning excess capital to shareholders through dividends and share repurchases over time. We look forward to discussing our broader capital allocation framework in more detail at our upcoming investor forum. I will now turn the call back over to Kelly. Kelly Ann Young: Before moving to Q&A, let me recap some key points on Slide 12. Acadian Asset Management is competitively positioned as the only pure-play, publicly traded systematic manager with a 40-year track record and competitive edge in systematic investing. Our investment performance track record remains strong this quarter, with more than 96% of strategies by revenue outperforming over three-, five-, and ten-year periods. Business momentum continued apace in 2026, with record net inflows of $21.4 billion for Q1 2026, 12% of beginning AUM, reflecting nine consecutive quarters of positive net flows and reaching AUM of $195.7 billion, up 61% from Q1 2025, the highest in the firm’s history. Q1 2026 financial results included record management fees of $159 million, up 41% from Q1 2025, ENI EPS of $1.05, up 94% from Q1 2025, and operating margin expansion to 38.1%, up nearly 10 percentage points from 28.3% in Q1 2025. Finally, capital management remained a focus in the quarter as we strengthened our balance sheet with conservative leverage ratios, continued to invest in organic growth, and returned excess capital to shareholders. We are pleased with our first-quarter results, we remain focused on disciplined execution, and we look forward to discussing our strategic priorities more at our first Acadian Asset Management Investor Forum on 05/19/2026. This concludes my prepared remarks. Operator: We will now open the call for questions. At this time, those with questions should lift their phone receiver and press star followed by the number one on their telephone keypad. To cancel a question, please press star one again. Please hold for a brief moment while we compile the Q&A roster. Your first question comes from the line of Kenneth S. Lee with RBC Capital Markets. Your line is open. Please go ahead. Kenneth S. Lee: Hey, good morning, and thanks for taking my question. Just one on the institutional pipeline. Wondering if you could provide a little bit more color in terms of what you are seeing within there, what is the composition of strategies between Enhanced, and it looks as if you are getting some traction on the extension side there as well. Thanks. Kelly Ann Young: Hi, Ken. Nice to speak to you again. The pipeline looks very healthy across a number of different strategies and client domiciles. As you will see, the Enhanced story continued to dominate Q1 of this year, but once we pull out that very large win from St. James’s Place, which was about $16 billion, it is an incredibly positive quarter with north of $4 billion in net flows over and above that. That was very granular this quarter. About half of that remaining $4 billion was coming from our extension strategies. We have certainly seen a pickup in momentum and interest in extensions, and that forms a very solid part of the pipeline. As I say, this quarter’s dominant theme continues to show up very healthily in our pipeline, but it is granular. Global, Emerging Markets, International equities—all of those are very broad core strategies that Acadian Asset Management is well known for, and our flagship strategies are continuing to see a lot of interest and momentum. So the pipeline continues to be diversified. The team continues to do a great job in replenishing it despite that very large NCCF number for Q1. Again, it is very robust as we go into the second part of 2026. Kenneth S. Lee: Right, and just one follow-up, if I may. Average fee rates did not change much quarter to quarter, despite the sizable mandate inclusion there. Wondering whether there is a little bit of timing in terms of impact—whether we should see some impact on average fee rate going forward, given the mix shift there? Scott Hynes: Yes. Hey, Ken, it is Scott. Thanks for joining us. I think the short answer to your question is yes, a little bit. Again, as Kelly suggested, we are very proud of the large win from St. James’s this quarter. It did fund later in the quarter, so for all intents and purposes, we have not yet realized the full run-rate impact of that. As you know, the fee rate is subject to a whole bunch of things out of our control. It is an output of market conditions and where client demand comes in next quarter, and, as Kelly already said, we have things—particularly when we think about extensions or the like—that can go above the current 34-basis-point fee rate generally. But all else equal, if nothing else should change, I do think we are staring at a little bit of headwind in the next quarter as we realize the full run-rate impact of this continued mix shift to Enhanced. Kenneth S. Lee: Got it. Got it. And one final one for me. Seed capital investments—any particular outlook in terms of whether you could see that increasing over the near term? Just a little bit more color around that. Kelly Ann Young: Sure. Yes. Again, we appreciate that the board and others have been very supportive with a very active seed program, as you know, Ken. The majority of our seed has been deployed into our systematic credit strategies, and we remain very excited about the trajectory there and the performance track record that the team is building. As you know, we have three launched today. Each of those are a little short of their three-year track record. We will hit three years in November for U.S. High Yield, closely followed by the remaining two strategies early next year. I think we will look to have that seed remain in place for some time, although we are building momentum in the pipeline there for systematic credit, and we are very excited to hit three-year anniversaries considering where performance is trending. Beyond that, we have had an active seed program. We are looking at some other new strategies, ensuring that we have vehicles in place that meet the needs of our more diversified client base today, whether that be in the institutional or wealth space. I do not think that the overall needs are going to increase significantly from here—perhaps on the margins—but underneath that number, there has been an active recycling program as we have launched extensions, our dynamics extension strategies, and as we see those gain traction with clients, we are able to redeploy that capital to other new areas of growth. Scott Hynes: I would just add, Ken, onto that—Kelly hit the recycling. We feel like we are very well positioned in this regard. It is obviously very important to the business, and as Kelly suggests, as the team continues to innovate and we as a finance team think about supporting them—with just under $130 million of balance sheet cash today and this dynamic where we have been able to often recycle what we have already put in—again, we feel like we are really well positioned to support the business as it continues to innovate and meet client demand. Kenneth S. Lee: Great. Very helpful there. Thank you. Operator: Your next question comes from the line of John Joseph Dunn with Evercore. Your line is open. Please go ahead. John Joseph Dunn: Thank you. I wanted to ask about renewed demand for particular non-U.S. exposure, but also the Managed Vol strategy, which I think could benefit from the current environment. Kelly Ann Young: Hi, John. Nice to speak to you again. Yes, non-U.S. has certainly been a feature that I know we have talked about on these calls over the last 12 or 15 months or so. We are continuing to see a lot of interest in international strategies broadly. As you know, Acadian Asset Management has a very strong, compelling track record there dating back many decades, and we continue to see a lot of momentum there, particularly from U.S.-based clients. Managed Vol was a slight headwind in Q1, but we have certainly seen outflows there taper off quite dramatically versus two to three years ago. These types of strategies, when we have seen what has been a challenging macro backdrop in Q1 with the tensions and conflict in the Middle East, are where strategies like Managed Vol come into their own. We have a number of longstanding clients in those strategies who have seen the real value of them at inflection points like that. Q1 was not an asset-gathering quarter for Managed Vol, but only a very slight headwind. Those outflows have certainly tapered off, and I think it is at the forefront of clients’ minds, with the current environment we are in, where Managed Vol may play a role in their strategic asset allocation. John Joseph Dunn: Got it. And then maybe if you could opine on the dynamics and potential for systematic taking share potentially from private strategies and then also from the passive side? Kelly Ann Young: Sure. We see this in the industry numbers, and we see it anecdotally as we talk to clients every day. Systematic is clearly a winner in the active equity space. When we talk about private investments—particularly private credit—we are excited about what we have built on the systematic credit side. We do think there are opportunities there as investors continue to evaluate their private credit investments. There is a place for something more like public systematic credit. As we build that track record and story—we think it is compelling—the transparency and liquidity will be compelling to investors on that side. Scott Hynes: John, I would add that we are looking at an investor forum that we are excited about on 05/19/2026. As Kelly suggests, this all adds up as we think about our addressable market. We have been spending a lot of time as a management team thinking about it. It is rather large, it is diversified, and we look forward to talking about it in a more granular way on 05/19/2026. John Joseph Dunn: Thank you. Operator: Your next question comes from the line of Michael J. Cyprys with Morgan Stanley. Your line is open. Please go ahead. Michael J. Cyprys: Hi, good morning. Thanks for taking the question. More of a big-picture question with all the advances in data science and AI models entering the generative era. How do you see that impacting the competitive landscape versus thematic investing? What are the risks, if any, of these quickly advancing models that could democratize access to folks creating systematic strategies and emerging new competitors? How do you see that evolving? Kelly Ann Young: Michael, thanks for the question. We do not view AI as a strategic threat to the business model today. Systematic investment has relied on data, technology, and increasingly sophisticated research tools throughout our history and throughout the time of this industry. We view AI very much as an extension of that evolution rather than a disruption to it. From our side, machine learning and AI have been within Acadian Asset Management’s DNA for many years, and we are using AI to enhance our research development and our operating workflows. It is key that you keep human judgment and your investment discipline and risk controls at the center of that process. Firms that adopt these tools effectively are going to strengthen their competitive position. We are at the forefront of that and intend to remain on the right side of that equation. Michael J. Cyprys: Could you elaborate on how you are using the newer generative AI tools as well as agentic AI tools across the firm today, and how you are thinking about the opportunities? Kelly Ann Young: The landscape is changing very quickly. We think there are huge opportunities. While AI is not new to us, the current generation of tools is allowing us to apply it more broadly across the firm. Investments today are focused on a couple of key areas: improving productivity through enterprise AI tools and enhancing software development through AI-assisted coding, and building selected AI-enabled services to support our research. We have people with many years of experience in computer science and machine learning, and we are encouraging people to experiment across different software and platforms while building a strong foundation, sharing guardrails, and ensuring security. Michael J. Cyprys: Great. And then just a final question on capital allocation. Could you unpack how you are thinking about the dividend tiers—any particular growth rate or payout ratio that you are targeting—and then more broadly on buybacks and other uses, how you are approaching that given the significant free cash flow generation of the business? Scott Hynes: As you suggest, the free cash flow—which, for all intents and purposes, the ENI that we disclose is a good proxy for—is very strong. We think we are very well positioned. We remain dynamic. As I have suggested before, we have a capital management framework. It starts with organic investments—seed capital and the like are at the top of the list. I would also include as we expand further down the list organic investments in things like AI. Then we get to a dividend, and then a return of excess capital via buybacks. I have used the word “athletic”; that continues to be the case. We look at it every quarter, and as we think about organic needs and balancing those with returning excess capital, that is how we make the decision. Everything has an IRR frame; we pencil out returns on any of the investments we are making, and that informs us. This quarter, we landed where we landed. I would not say we manage to a payout ratio—it is much more dynamic than that. I know that is not an easy answer for modeling purposes, but it is dynamic each quarter given the priorities. On the dividend, as you know, we recently moved from $0.01 to $0.10. We are proud of that. That is reflective of the new size that we have realized, the confidence we have in that larger recurring management fee base, and enhanced profitability. I would not think about us continuing to revisit the dividend every quarter. We are sensitive to it; we monitor it, but it is not something I would think of as us revisiting in a meaningful way every quarter. If we get to a different place—another step up in profitability—we would revisit that. There is no philosophy change here: when we think of a return of excess capital, I would continue to think the direction of travel will be more geared toward share repurchases versus a dividend. But these things evolve. Hopefully that helps. Operator: This concludes our question-and-answer session. I would like to turn the conference call back over to Kelly Ann Young. Please go ahead. Kelly Ann Young: Thank you everyone for joining us today, and we look forward to seeing many of you at our investor forum in Boston on 05/19/2026. Have a great day.
Operator: Ladies and gentlemen, this is the operator. Today’s conference will begin shortly. Thank you for holding. Good day, everyone. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT, Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to withdraw your question, press 1 again. I would now like to turn the call over to Lukas Michael Hartwich, EVP Finance. Please go ahead, Mr. Hartwich. Lukas Michael Hartwich: Thank you, and good morning. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations, including our earnings guidance for 2026, our expectations regarding our tenants and operators, and our expectations regarding our acquisition, disposition, and investment plan. These forward-looking statements are based on management’s current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended 12/31/2025, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the investor section of our website at sabrahealth.com. Our Form 10-Q, earnings release, and supplement can also be accessed in the investor section of our website. I will now turn the call over to Richard K. Matros, President, CEO, and Chair of Sabra Health Care REIT, Inc. Richard K. Matros: Thanks, Lukas, and thanks everybody for joining us today. Starting with our deal flow, our deal flow continues to be robust. We fully expect to materially exceed February total investments. We have already closed or been awarded $400 million year to date. In addition to opportunities we see in SHOP, we are also seeing some skilled, but the ones that are appealing are off-market deals, both acquisitions and development, brought to us by existing operators. Our skilled nursing rent coverages continue to grow, as did our senior housing triple-net and behavioral, all of which hit new highs in coverage. Our occupancy growth continued in our skilled and senior housing triple-net portfolios. Our top 10 coverage is stronger than it has ever been. Our SHOP margins continue to grow, and our consolidated, unconsolidated, and same-store portfolios continue to perform. Our year-over-year same-store SHOP NOI growth came in higher than the two previous quarters. SHOP occupancy dipped slightly overall, but it was all in Canada, which had very strong year-over-year growth and currently sits at 93.4%, so almost effectively full, and there will probably be ups and downs a little bit with that portfolio. The U.S. portfolio was up 10 basis points sequentially. For the first time in the company’s history, our private pay concentration is now 50% of the portfolio. Our leverage ticked up slightly, but it is still on current target. The regulatory environment is stable. The Medicare market basket proposal is within our expectations. We expect Medicaid rates to be within expectations as well. We have a number of AI initiatives that will streamline and enhance the effectiveness of Sabra Health Care REIT, Inc.’s corporate functions. Our intent is to be an AI-enabled REIT. This, of course, is in addition to the numerous clinical pilots we have ongoing primarily in our SHOP portfolio that have been really exciting to watch evolve. We are affirming guidance, but we will be revisiting guidance in Q2 given all the current trends. And with that, I will turn the call over to Darrin. Darrin Smith: Thank you, Rick. Sabra Health Care REIT, Inc.’s managed senior housing portfolio had another great quarter with continued growth. The total managed senior housing portfolio, including non-stabilized communities and joint venture assets at share, had sequential revenue growth of 7.2% and cash NOI growth of 9.5% with margin expansion of 60 basis points. These statistics demonstrate sequential improvement in operating results that reflect the continued growth and strong performance in Sabra Health Care REIT, Inc.’s senior housing portfolio. During the first quarter, Sabra Health Care REIT, Inc. invested $102 million, adding three properties to Sabra Health Care REIT, Inc.’s managed senior housing portfolio, one skilled nursing community, and a preferred equity investment in a senior housing development. Subsequent to quarter end, Sabra Health Care REIT, Inc. invested an additional $14.1 million, adding two properties to Sabra Health Care REIT, Inc.’s managed senior housing portfolio and the redevelopment of a senior housing community, bringing total year-to-date investments to roughly $206 million with an estimated initial cash yield of 8%. Additionally, Sabra Health Care REIT, Inc. has another $107 million of additional awarded managed senior housing and $94 million of awarded skilled nursing investments, most of which should close in the second quarter. In addition to the over $400 million in closed and awarded investments, Sabra Health Care REIT, Inc. has an additional $690 million of managed senior housing investments that we are actively pursuing. On a year-over-year basis, Sabra Health Care REIT, Inc. added 21 assets to our managed senior housing portfolio, a nearly 25% increase by number of assets and 62% increase in total managed senior housing NOI. Deal flow shows no signs of slowing, and Sabra Health Care REIT, Inc. remains competitive on new investments. As our investment pipeline continues to be extremely active, particularly in managed senior housing, we have remained focused on ensuring the foundation underneath is built to accommodate that growth. Over the past several quarters, we have been advancing automation, data, and AI-enabled initiatives to support faster, more consistent decision making, deeper operating insights across the portfolio for us and our operators, and, importantly, meaningfully increase the scalability of our platform. This is a continuation of how we have evolved the platform over the decade, and we view it as an accelerator of portfolio and earnings growth as well as long-term value creation. Moving on to the same-store portfolio, Sabra Health Care REIT, Inc.’s same-store managed senior housing portfolio, including joint venture assets at share, continued its strong performance in the first quarter. The key numbers are: revenue for the quarter grew 7.9% year over year, with our Canadian communities growing revenue by 9.6% in the same period. First-quarter occupancy in our same-store portfolio was up 280 basis points to 88.4% year over year. Notably, our domestic portfolio occupancy increased 280 basis points to 85.6% during that period, while our Canadian portfolio grew 270 basis points to 93.4% in the same period, marking the eighth consecutive quarter where occupancy was over 90%. RevPAR in the first quarter continued to rise with an increase of 4.6% year over year, with our Canadian portfolio increasing 6.5% in the same period. While RevPAR and occupancy continue to grow, expense per occupied room increased only 1.8% for the same period, providing for cash NOI growth of 14.4% on a year-over-year basis. With over $400 million in closed and awarded investments to date, a very robust pipeline, and industry tailwinds at our backs, we should continue to see solid growth in our portfolio. Our net-leased senior housing portfolio continues to do well with continued strong rent coverage. I will now turn the call over to Michael Lourenco Costa, Chief Financial Officer of Sabra Health Care REIT, Inc. Michael Lourenco Costa: Thanks, Darrin. For the first quarter of 2026, we recognized normalized FFO per share of $0.38 and normalized AFFO per share of $0.39, which represents a 9% to 5% increase respectively over the same periods in 2025. In absolute dollars, normalized FFO and normalized AFFO totaled $96.1 million and $100.6 million this quarter, respectively. Cash NOI from our triple-net portfolio increased $2.2 million from last quarter, primarily due to annual rent escalators and increased collections from certain cash-basis tenants. Cash NOI from our managed senior housing portfolio totaled $39 million for the quarter, compared to $35.6 million last quarter. This $3.4 million increase was primarily the result of recent investment activity together with sequential growth in our same-store portfolio. Interest and other income was $10 million for the quarter, compared to $10.6 million last quarter. This decrease was primarily due to paydowns received during the quarter and lower interest income on our cash balances. Cash interest expense was $26 million, compared to $26.6 million last quarter. Normalized cash G&A was $11 million this quarter, compared to $10.6 million last quarter. This increase was primarily related to hosting our 2026 operator conference last month. Subsequent to quarter end, we completed the disposition of three skilled nursing facilities in Maryland leased to CommuniCare for gross proceeds of $79.4 million, equating to a 6.8% lease yield. These facilities were classified as held for sale as of 03/31/2026. As noted in our earnings release, we have reaffirmed our previously issued 2026 earnings guidance, and the results for this quarter are in line with our assumptions underlying that guidance. Now briefly turning to the balance sheet, our net debt to adjusted EBITDA ratio was 5.04x as of 03/31/2026, and continues to be in line with our targeted leverage. As we have stated previously, while we are comfortable with our leverage level, we will continue to assess opportunities to reduce leverage over time where doing so supports our continued focus on strong year-over-year earnings growth. As of 03/31/2026, the cost of our permanent debt was 3.92%, and the weighted average remaining term on our debt was approximately four years, with the next material maturity being in 2028. Additionally, we have no floating-rate debt exposure in our permanent capital stack, with the only floating-rate debt being borrowings under our revolving credit facility. As Darrin noted, our pipeline of investment opportunities has remained extremely active, and that has coincided with continual improvements in the cost of our equity capital. Accordingly, we have been actively utilizing the forward feature under our ATM to lock in this attractive cost of capital to fund our investment pipeline. During the quarter, we issued $128 million on a forward basis at an average price of $20.19 per share after commissions, and in total, we have $451 million outstanding under forward contracts at an average price of $19.03 per share after commissions. We expect to use a portion of the proceeds from the outstanding forward contracts, together with the proceeds from the CommuniCare asset sales, to close on the investments we have been awarded on a leverage-neutral basis while still retaining meaningful dry powder to fund additional investments. As of 03/31/2026, we are in compliance with all of our debt covenants and have ample liquidity of approximately $1.2 billion, consisting of unrestricted cash and cash equivalents of $117 million, available borrowings under our revolving credit facility of $645 million, and the $451 million outstanding under forward sales agreements under our ATM program. As of 03/31/2026, we also had $353 million available under the ATM program. Finally, on 04/29/2026, Sabra Health Care REIT, Inc.’s board of directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on 05/29/2026 to common stockholders of record as of the close of business on 05/15/2026. The dividend is adequately covered and represents a payout of 77% of our first-quarter normalized AFFO per share. We will now open the call for questions. Operator: Simply press star 1 again. Your first question comes from the line of William John Kilichowski from Wells Fargo. Your line is open. William John Kilichowski: Hi. Thanks for taking my question. Rick, really appreciate the opening remarks. It sounds like it was a great quarter all around on the SHOP side. You got the acquisitions done. Looking at the guide being held still here, what is the reason for the conservatism there? I understand that is typical in Q1 for you. But it sounds like things are working, and I understand future acquisitions are not considered. What would it take at this point to get to the lower or midpoint? Richard K. Matros: Yes, we are typically conservative this early in the year. But all the trends are obviously going in the right direction. You see the yields that we are investing in, so that looks good for us as well. So it is really just as simple as that. We will reevaluate earnings guidance for the second quarter. William John Kilichowski: Okay. And then on the opening remarks, you have the $200 million awarded. If you could talk to maybe a cadence of that closing and then beyond that, the $690 million. If you think about deals historically that have been in that level of the funnel, what has been your historical rate of execution on those deals? Just trying to distill what might be the final number that you execute on. Richard K. Matros: I will make one comment then hand it over to Darrin. The $200 million, from our perspective, will close. I do not have any doubt or concern about the $200 million. Darrin? Darrin Smith: With respect to the $690 million, these are investment opportunities that we are actively pursuing, including opportunities where we have submitted an initial LOI and are moving forward in the process. As far as the probability of success, it is hard to tell because it is a bit of a competitive environment, but we would expect to close on a fair number of that investment opportunity. Richard K. Matros: The volume is so high, John, there really has not been a precedent for this in terms of trying to be a little bit more predictive about what percentage of deals we will close on. But it will be a good enough percentage that, as I said in my opening remarks, we will exceed pretty materially how much we did last year. William John Kilichowski: Very helpful. Thanks, Rick. Richard K. Matros: Yes. Operator: Your next question comes from the line of Farrell Granath from Bank of America. Your line is open. Farrell Granath: Thank you so much. I first wanted to ask about your pipeline also. What percentage of that are you sourcing off market or just through your relationships, and what percentage is through marketed deals? Richard K. Matros: I do not have the exact percentages, but on the skilled nursing side, it is 100% off market through existing relationships. On the senior side, maybe say 20%. We do have existing relationships that bring us off-market deals, but the bulk of the pipeline that we have is marketed. And I also just want to note on the CommuniCare sale, that is not indicative of us aggressively looking to sell skilled assets. This is a very unique situation where CommuniCare approached us wanting to exit Maryland, which is not an easy state. We actually had other buildings in Maryland that we exited several years ago. There are a lot of markets in Maryland that are over-bedded, so we were happy to work with CommuniCare on that. And CommuniCare is also one of our operators that we are doing some of these off-market things with. Farrell Granath: Okay. Thank you. And also wanted to touch on the expense per occupied room growth that you highlighted, the 1.8%. Is that being driven just based on the operating leverage where you are in your occupancy? Or were there other puts and takes that are going into that number? Richard K. Matros: It is the operating leverage. So we would expect it to continue at levels that low for the foreseeable future. Farrell Granath: Great. Operator: Your next question comes from the line of Austin Todd Wurschmidt from KeyBanc. Your line is open. Austin Todd Wurschmidt: Great. Thanks. Just within the SHOP portfolio, just wondering how you are feeling about the exit velocity and kind of leading indicators from March looking into April and May. I think you surpassed the one-year anniversary this month since transitioning the communities away from Holiday. What is the latest update and trajectory of that portfolio? Richard K. Matros: Yes, it is definitely getting better. We are not disclosing the numbers on that, but it is progressing. You probably noted there was a slight change in same store, and that is just a function of having had these new operators in that portfolio for a year now. We determined that a few of those assets are assets that we no longer want to retain in the portfolio. Austin Todd Wurschmidt: Yes, that is helpful. And how deep is the set for SHOP investments in that 8% yield range? And can you provide some characteristics around the size and vintage of the facilities that you acquired in the first quarter as well as what is in that awarded pipeline? Darrin Smith: There is definitely some cap rate pressure. Most of what we see on the market and the opportunities right now are in the low 7% range. What we closed on is IL, AL, and memory care, although it is more heavily weighted to AL and memory care. On vintage, these are roughly 14 years old on average. With respect to the $690 million that I mentioned, that has an average age of eight years, and also low 7% for those that are more stable. But we are also looking at some slight value-add opportunities where there is lower occupancy but a clear line of sight to stabilization. Some of those we are looking at will have initial yields in the 6s but should provide more meaningful IRRs with the upside opportunity. Richard K. Matros: And as you know, we focus on secondary markets, so we are not seeing the same level of cap rate compression in the secondary markets as you all see in the primary markets. Austin Todd Wurschmidt: Very helpful. Thanks for the time. Operator: Your next question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is open. Juan Sanabria: Hi. Good morning. Just hoping you could talk a little bit more about those SHOP assets that you transitioned last year that you are now looking to sell. If you can comment on the book value or the expected proceeds, and if you had not excluded those from the same-store pool, do you know what SHOP same-store NOI would have been for the quarter on a year-over-year basis? Richard K. Matros: We are just selling those right now, so we do not know what the outcome is going to be. We are not disclosing any of that information at this point. A couple of quarters ago, when we talked about the transition of that portfolio, we did say that we would be evaluating the viability of retaining all these assets going forward. That is just a normal process. But we are not breaking out all these different portfolios in terms of the individual growth of SHOP NOI in these portfolios. Juan Sanabria: And to just to confirm, these were old original Holiday assets. Is that fair? Richard K. Matros: Yes, they are. Juan Sanabria: Okay, great. Richard K. Matros: It is three assets that we are selling, and we brought another Holiday asset into same store that had stabilized. Juan Sanabria: Great. And just to switch gears, appreciate that. Thanks, Rick. Just on the behavioral, could you give an update on Landmark that was in the press and any updated thoughts on how we should be thinking about the RCA loan? Richard K. Matros: Sure. And we always reserve the RCA question for you, Juan, just so you know. Juan Sanabria: Special. Richard K. Matros: On Landmark, we have been working with them. They are in the court system for an exit with those facilities, and we were able to help bring somebody in to buy a bunch of the assets. The Landmark team is buying some of the assets themselves. We were able to get a price that was actually pretty attractive from our perspective. Outside of that group of Landmark assets, we have three others that we are in the process of selling as well. So we will have some more proceeds to add to the ones that you saw in the article. We hope to make an announcement on that before our second quarter call. And if that is the case, we will do so. As I mentioned on the last call, Deerfield—this is their biggest investment—they really believe in the portfolio, and our talks are very constructive. Michael Lourenco Costa: And on NOI or rent collected related to Landmark, there is somewhere around, like, $1.5 million that we collected in the first quarter, and we would expect that same run rate through whenever these assets ultimately transact. Juan Sanabria: Thank you. Operator: Your next question comes from the line of Seth Eugene Bergey from Citi. Your line is open. Seth Eugene Bergey: Hi, thanks for taking my question. You mentioned in the prepared remarks some AI initiatives. Could you expand on some of those and how you are using AI within the platform? And maybe talk about what differentiates the Sabra Health Care REIT, Inc. platform from an AI perspective versus some of the peers that are also competing in the SHOP and skilled business? And then maybe just a little bit on the deal flow and the opportunity set—what is the mix between SHOP and skilled of the opportunity set, and are there any particular geographies you are looking at? Darrin Smith: I will take that one, Seth. At a corporate level, as I mentioned, we have been leaning into automation and AI over the last several quarters. Primarily at the core level, it has been to speed up back-office workflows and data processing, primarily in our SHOP portfolio. At the same time, we are advancing initiatives that will further reduce manual processes and accelerate analysis. Not the sexiest thing in the world, but it is very impactful, particularly as it improves how we interact with our operators and what kind of value we can give back to our operators in the form of data and insights. It could have some really meaningful benefits, not only to us, but to our operators as well. And then, as Rick mentioned, we have pilots going on at the facility level. In addition to several prop-tech solutions that have already been deployed, there are a whole bunch of other solutions like medical records and fall detection that are leveraging AI to make operations more efficient and, more importantly, improve resident care. On the opportunity set, nothing has really changed. It is still, I would say, 95%+ SHOP in the opportunity set. The skilled nursing investments and opportunities that we have announced were all done off market with direct relationships. We still do not see that much volume in the skilled space, and when you do, it is very heavily competitive, and the private groups tend to be able to pay up a little bit more. Richard K. Matros: Remember the private buyers that we are all up against are buying OpCo and PropCo, and they also are feeding ancillary businesses. So as a buyer of real estate, we just cannot compete with that. And there is not enough volume out there for everybody to go around on skilled as there is on SHOP—or there was on skilled if you go back to prior to the pandemic when there was enough for everybody to go around. At this point, we do not see that changing at least for a while. A lot of it is a function of operators who do not have to sell but got really slammed during the pandemic and had pretty huge losses. Now you have had a couple of years of some really good performance, and that performance will continue to improve. So I think for a lot of the operators out there that do not have to sell that normally would put their assets on the market, they are just recouping, and they are probably enjoying some really nice cash flow that was not the case a few years ago. Maybe we will see that change later on in the year going into 2027, but it is a little hard to tell. On the SHOP side, as far as the markets are concerned, we are still looking at secondary markets as the focus here. And as far as the volume is concerned, it is showing no signs of slowing whatsoever. In fact, it actually feels like it is picking up speed. And we are geographically agnostic in terms of what states we will be in for either class. Seth Eugene Bergey: Great. Thanks. Operator: Your next question comes from the line of Michael Lee Stroyeck from Green Street. Your line is open. Michael Lee Stroyeck: Thanks, and good morning. Maybe following up on that question and just going back to the strong pricing on the CommuniCare sale, and your comments on not being able to compete as well in the SNF transaction market, what sort of yields or multiples are you seeing there on those marketed SNF deals? And how different is that versus the typical 9% to 10% lease yields we see in SNFs? Richard K. Matros: There is not a lot of data out on that. The problem is they are all private deals. I do not really have a good answer for that. Darrin, I do not know if you have seen anything. Darrin Smith: No. I mean, it is definitely a couple hundred basis points inside of what the standard skilled nursing transaction would typically run at. Michael Lee Stroyeck: Got it. Okay. And then going back to the behavioral health discussion, one of your peers had talked about labor being a challenge within that business. Are you experiencing a meaningfully tougher labor backdrop within behavioral health versus other areas of the portfolio? Richard K. Matros: No, not at all. I am a little bit surprised to hear that. We have not seen that at all in our portfolio. Michael Lee Stroyeck: Understood. Thanks for the time. Operator: Your next question comes from the line of Alec Gregory Feygin from Baird. Your line is open. Alec Gregory Feygin: Can you comment on how the opportunity set of funding for development and redevelopment projects has trended? Do you expect this to be a bigger part of your investment activity going forward? And are these development opportunities also in secondary or tertiary markets? Darrin Smith: As far as developments, we still see a fair amount of development opportunities that come in. I would say of those development opportunities, maybe 10% pencil. When I say pencil, we are looking for a stabilized return on cost on the development to be 200 to 250 basis points wider than the current market cap rate equivalent. Maybe only 10% of those meet that. I do expect that it is going to pick up, but not meaningfully for some period of time. The one private equity development that we announced is in Indiana, and the other is actually a redevelopment of a former SNF property that was shut down, and we are redeveloping that into a senior housing property in Kentucky. Alec Gregory Feygin: Got it. Thanks for the time. Operator: Your next question comes from the line of Vikram L. Malhotra from Mizuho Securities. Your line is open. Vikram L. Malhotra: I want to go back to the question on the guide. The cadence of FFO or AFFO—if you take your quarterly number and multiply it by four, you are very easily in the range. So I am wondering if there are one-time items, maybe this loan that you have got baked in, any other asset transition or sale. What should we infer is a pretty steady number? If you can give us any more color on other puts and takes for the year that we should be modeling? Michael Lourenco Costa: As you rightly pointed out, if you take our first-quarter results and annualize them, they are right at—or if you do it on actual dollars and run the math out, you are probably just slightly below—where our midpoint is. So there is that data point. The other data point is we guided towards low- to mid-teens same-store NOI growth in our SHOP portfolio, and we came in at 14%, right in the middle of that range. As we have talked about many times before, the biggest driver of where we end up landing from an earnings perspective, especially relative to our guidance range, is going to be dictated by our SHOP NOI growth. Given that our current quarter earnings are right at the midpoint or even slightly below the midpoint, and given that our SHOP growth is right where we guided for the full year, and we reaffirmed our guidance—let us not lose sight of that—we still feel as we sit here today, two months after we put our initial guidance out, that reaffirming what we put out previously still makes sense. As Rick mentioned, we have historically taken the approach that in Q1 we are not going to generally revisit guidance unless there is some material change one way or another. There has not been, and we are going to reevaluate it in Q2 as we have a better line of sight into what the SHOP growth is going to look like for the year and as our investment pipeline takes greater form. Richard K. Matros: And we totally get the questions, particularly since some of our peers raised guidance in some form or fashion over this past week. We totally get it, but we like the trends we are seeing, as I said earlier. We like the volume that we are seeing, and we like the yields we are getting things done in. So we will see how it goes. Vikram L. Malhotra: Okay. And then, I am not reading into the CommuniCare pricing, but in general, there seems to be downward pressure on cap rates for SNFs, given the hope to improve the operations. Is there an opportunity for you, given your desire for SHOP, to do a bigger portfolio sale in SNFs—$500 million, $1 billion—and recycle that into SHOP? Richard K. Matros: I am not sure there is downward pressure on cap rates because of the private buyers. The REITs are pretty disciplined about holding firm on the cap rates that we have historically acquired SNFs at. We like the fact that we have a very strong triple-net skilled nursing portfolio. We are at all-time highs on rent coverage. We are at all-time highs on margins. Occupancy continues to grow, so there is still upside there. It is a base that we have that everybody can depend on. And then the SHOP side, which gets bigger and bigger for us, obviously provides more outsized earnings growth. So we like having that balance. Our portfolio today is better balanced than it has ever been. For us to pass the 50% mark on private pay revenues is a material change. We started out as a 96% skilled REIT. We have evolved quite a bit, but we are not going to sell portfolios that we think are really good just to shift the percentages of SHOP. We have plenty of access to capital and plenty of liquidity available to invest in all the SHOP opportunities that we have ahead of us. Vikram L. Malhotra: Okay. And then if I can just clarify, Rick, I think you said the Canadian portfolio is 93%. You think it is essentially full. But in this environment, a lot of folks are talking about 95%+. Is 93% the peak for the Canadian portfolio in absolute? Richard K. Matros: No, not necessarily. I just think when you start to get to the mid-90s, you will have some ups and downs. We have a facility up there that is 100% almost all the time. That is unusual, but it happens. We had a 270-basis-point year-over-year growth in that Canadian portfolio, so we expect occupancy to continue to trend up there. But it is not going to be at the same velocity as if it was still 85% or 86%. Vikram L. Malhotra: Okay. Thank you. Richard K. Matros: Yep. Operator: Your next question comes from the line of Richard Anderson from Cantor Fitzgerald. Your line is open. Richard Anderson: Thanks. Good morning. On CommuniCare, you are selling or sold—Omega is selling, I think, to CommuniCare, if that is—correct me if I am wrong about that. And if I am— Richard K. Matros: No, that is not right. Richard Anderson: Okay. In their case, I believe that is the case. But both are Maryland. I am just curious, is there any dotted line between what Omega is doing and what you are doing that you could share on CommuniCare, and if there is some sort of trend that we can draw from both of those transactions? Richard K. Matros: I do not really think so. They were hoping to get cooperation from both us and Omega. They just really want to exit a state that was a really, really tough state for them and thought it would strengthen their portfolio overall. We are seeing that as a result. When they first called us, it resonated with us because, as I said earlier, we shed facilities in Maryland several years ago. It is tough there. I do not think there is any trend here. CommuniCare still wants to grow. As I said earlier, we are seeing some growth with them. Omega may or may not be as well. But no dotted lines or anything like that, other than we think the Omega team is a great team. Richard Anderson: Fair enough. Rick, no guidance update, which is fine with me, but also no change to your target SHOP. I think it was 40% as of last quarter. Let us say you bite into this $690 million to a certain degree between now and three months from now. Are you closing in on 40%, and might we have an update on a new target for SHOP this time in three months? Richard K. Matros: If we say we are to do $1 billion this year, we definitely are going to be in pretty good shape in terms of the 40%. But then we will just set a higher target. As I said earlier, we are not going to shed any sort of major skilled portfolios. There is always some stuff that you sell, so between some of that—which is probably incremental on the margin—and almost all of our investment activity being on SHOP, you are just going to continue to see skilled being a smaller percentage of the portfolio and SHOP continuing to grow. We do not have any guardrails about how much we want to do in SHOP. We have been doing SHOP for over ten years, and with all the improvements we are making in the existing platform, with our AI initiatives, our platform is going to be more scalable than it has ever been. We will be able to continue to grow our SHOP exposure, and the amount of G&A we will have to add as a result of that will be lower than it normally would have been in the absence of the AI initiatives. Richard Anderson: Okay, great. And last for me—more of a theoretical big-picture question. A lot of your peers are taking a SHOP-on goal, working in individual silos. You guys have been doing it for a while, so not a conversation about Sabra Health Care REIT, Inc. in particular. What do you think about the potential that there will be some sort of combination activity to attack the SHOP opportunity? It seems like it makes sense. It is a business that requires scale. Richard K. Matros: Are you talking about M&A activity with the REITs? Richard Anderson: Yes. Richard K. Matros: Look, we all know there are too many of us. Now with everybody jumping on the SHOP bandwagon—it is like a new form of breakfast cereal or something that everybody likes better now—the only concern I have: there is a lot of mutual respect in our space. All of our teams, we all know each other really well. We hang together when we have the opportunity. There is plenty to go around. I just hope people are prudent in making sure they have the infrastructure in place to support the operators and to assess the quality of deals that are being looked at. This is much, much different than a triple-net business. For us, we have been able to be successful not just because we have been doing it for a long time, but as most others know, our entire asset management team are operators. So the transition for them to work from triple net to SHOP really was not that difficult. You get a little bit concerned about missteps with everybody jumping into it. Hopefully that will not be the case. As far as M&A activity, you are right—there should be some M&A activity, but it seems like that is hard to make happen in REIT world. Richard Anderson: Fair enough. Okay. Thanks very much. Operator: Your next question comes from the line of Michael Goldsmith from UBS. Your line is open. Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. Maybe first, can you comment on the Medicare rate proposal for 2027 of [inaudible]. Maybe we can get your high-level outlook on Medicare and Medicaid and just the overall health of reimbursement. Richard K. Matros: Sure. I will give myself a little credit because I did predict that the Medicare market basket would have a two handle, and I predict that the Medicaid rate increases in the aggregate will have the three handle. It really did meet our expectations. Coming off of the pandemic and the extraordinarily high inflation that we saw during the pandemic, everything is normalizing, and we should expect to see rates, both on the Medicaid and the Medicare side, revert back to the historical norm before the pandemic. That is what we are seeing. I think Medicare and Medicaid rates peaked in 2024. They were still really healthy last year, but we did see them come down quite a bit last year. It is all formulaic, so it is pretty normal stuff. While you cannot predict the exact number, the trend is pretty apparent. Michael Goldsmith: Got it. Thanks for that. And then doing a little math, which can always be a little bit of a dangerous thing, from your occupancy and unit numbers in the supplement, we estimate your non-same-store SHOP occupancy is in the high 70s percent. Could you add a little color on the types of SHOP assets you have been accumulating over the past year? It looks like these have been unstabilized with occupancy upside, and if you could talk about what markets the assets are in and the unit mix, that would be helpful. And when do you expect some of these AI initiatives to translate to measurable financial outcomes like lower G&A or higher margins or better asset-level decision making? Darrin Smith: For the entire senior housing managed portfolio for the quarter ended, occupancy for the entire portfolio is 85.6%. As far as the assets we have been acquiring, we have been acquiring assets in the upper 80s to low 90s percent occupancy. I am not sure where you are getting the 70% math, but we can follow up offline. From a G&A perspective, I would not expect there to be a ton of G&A savings. What is going to be more impactful from a G&A standpoint is it will slow down the ramp of G&A as we grow. That is the right way to look at it, and that will be incremental and ongoing as we speak. We are in the middle of a lot of these initiatives, and as they continue to be implemented, we are going to see real benefits to how we operate and how we scale as a company. Additionally, as we continue to roll out this information to our operators and give them better insights into their own businesses and help them operate their facilities better, we firmly believe there is going to be a tangible improvement in their performance. When and how quickly is hard to tell at this point. Richard K. Matros: It is also going to make it easier for us to absorb the increased level of volume on investments that we are seeing. We do have some 90-day milestones in place, so we will start to see some benefits in the near term with the initiatives that we have. Michael Goldsmith: Thank you very much. Good luck in the second quarter. Richard K. Matros: Thank you. Operator: Your next question comes from the line of Omotayo Tejumade Okusanya from Deutsche Bank. Your line is open. Omotayo, your line is open. Omotayo Tejumade Okusanya: Good morning out there. I wanted to continue along the lines of the Medicare/Medicaid questions and, Rick, get your thoughts around CMS’s increased focus on value-based care programs on the Medicare Advantage side. What are you hearing from your operators about how it is impacting referral rates from hospitals or how they may be changing their business and how they are responding? Richard K. Matros: Thanks, Tayo. We are not seeing that much impact yet, but we are really bullish on value-based care. We are working with our operators. Some of our operators are already pursuing it and have agreements in place. There are different levels that you can do with the insurers. You can have arrangements with ACOs. There are a lot of different levels of arrangements that you can have with value-based care that have different levels of risk, starting with upside but no downside. As they get better and better, they will take on some downside risk, but they will have more upside. We think it is a really big deal. It is great for the space because we know our operators can take care of patients that are being cared for in much higher-cost settings like LTACHs or rehab hospitals with really good outcomes. Last month, we had our operators conference and value-based care was a central topic. There was a lot of excitement from our operators. There are also similar opportunities for senior living as well—it is not just skilled. There may be more there for skilled, but there are opportunities with insurers and ACOs, particularly on the senior housing side as well. One of our board members, Lynne Katzmann, who runs the senior living company Juniper, is probably front and center—further ahead—on those kinds of initiatives with AI and memory care than anybody else in the space. Her expertise has been great as well. We are really excited about that. Omotayo Tejumade Okusanya: Gotcha. How do we juxtapose that versus comments coming out during this earnings season when some of the hospital names are saying it is helping them reduce referrals to skilled nursing and things of that nature? Richard K. Matros: I think it is a function of whether you are going to embrace what is inevitable and make sure you have the clinical products in place to take advantage of that. Then you will have increased referrals. If you have operators that are more passive, it is not going to go your way, because as more time goes by, insurers and ACOs are going to have more opportunities to divert patients to operators that are really embracing these opportunities. Analyst: Makes sense. Omotayo Tejumade Okusanya: Thank you very much. Richard K. Matros: Yes. Operator: Again, if you would like to ask a question—your next question comes from the line of Austin Todd Wurschmidt from KeyBanc. Your line is open. Austin Todd Wurschmidt: Great. Thanks for taking the follow-up. I want to go back to make sure I understand some of the components of guidance. The $1.5 million of income received from Landmark in the first quarter—was that contemplated in initial guidance, or is that a source of upside when you reevaluate guidance in the coming quarters? And is it appropriate to annualize the first-quarter number given your plan to sell those assets? Michael Lourenco Costa: To answer your first question, the $1.5 million was included in our original guidance. In terms of annualizing that, it is something that is going to go away at some point this year. Probably, I would say, end of the second quarter is when we would realistically think that would go away, but it could slip as well. It is not something we expect to have in there for the entire 12 months, if that is what you are asking. Austin Todd Wurschmidt: No, that is helpful. Thank you. Operator: And that concludes our question and answer session. I will now turn the call back over to Richard K. Matros for closing remarks. Richard K. Matros: Thanks everybody for your time today and continuing support. We look forward to seeing a lot of you at the Wells conference and at NAREIT in June. Thanks very much. Have a great day. And for any moms that are on the call, happy Mother’s Day. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, everyone. This is Kate, and I will be your conference coordinator today. Welcome to Roblox Corporation Q1 2026 Earnings Conference Call. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star and then the number one on your telephone keypad. We ask that you please limit yourself to one question and rejoin the queue if needed. Now I will turn the call over to Jamie Morris, Roblox Corporation's Head of Investor Relations. Jamie Morris: Good afternoon, everyone. Thank you for joining us to discuss our Q1 2026 results. With me today are Roblox Corporation's Co-Founder and CEO, David Baszucki, and our Chief Financial Officer, Naveen K. Chopra. Before we begin, I would like to remind you that our commentary today may include forward-looking statements which are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in our forward-looking statements. A description of these risks, uncertainties, and assumptions is included in our SEC filings, including in our most recent reports on Form 10-Ks and Form 10-Q. You should not rely on our forward-looking statements as predictions of future events, and we disclaim any obligation to update these statements except as required by law. During this call, we will also discuss certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics can be found in our shareholder letter and supplemental slides, which are available on our Investor Relations website. With that, I will turn the call over to David Baszucki. David Baszucki: Thank you. Good afternoon, and thank you for joining us today. We continue to make progress towards our target of capturing 10% of the global gaming content market on our platform and an even greater share of the U.S. market. In Q1, we had revenue of $1.4 billion, which grew 39% year over year; bookings of $1.7 billion, which grew 43% year over year; and I will note that is roughly twice what we have shared with investors as our long-term growth trajectory. We generated $629 million in operating cash flow and $596 million in free cash flow, up 4,240% year over year, respectively. Monthly unique payers increased to 31 million, up 52% compared to a year ago, and we had strong payer growth in international markets with continued solid growth in the U.S. and Canada, up 19% year over year on a larger payer base. We also saw year-over-year user and engagement growth: DAUs of 132 million, up 35% year over year, and DAUs outside of the U.S. and Canada grew 40%. DAUs in the U.S. and Canada grew 17%; DAUs in Japan grew 96% year over year in Q1; and DAUs in India grew 84%. Hours of engagement were at 31 billion, up 43% year over year. Outside of the U.S. and Canada, hours grew 50%. Hours in the U.S. and Canada grew 21%. Hours in Japan grew 101% year over year in Q1, and hours in India grew 91% year over year. For our 18 and up numbers, as of Q1, over-18 users represent 26% of DAUs who have age checked. In the U.S., DAUs and hours for the 18 and up cohort grew over 40%; within that, our 18 through 34 cohort grew over 50%, faster than any other age cohort. Additionally, in the U.S., the over-18 users spend 50% higher than our under-18 users. As we expected, DAU growth, while very healthy at 35%, has declined from the roughly 70% growth rates we saw in the past two quarters. User acquisition and engagement were also impacted by our global rollout of age checks to access chat in January. At Roblox Corporation, we are committed to setting the global standard for healthy, safe, and age-appropriate digital engagement, and we are building a platform for all ages as part of the core vision to connect a billion users with optimism and civility. As part of this commitment, in Q1 we became the first large online gaming platform to introduce age checks to access chat on a global basis, and we are the first large platform with a major announcement in our plans to introduce age-based accounts, which leverage our age-check technology, and we expect this to roll out globally in June. Because we have globally introduced AgeCheck, we have been able to introduce kids accounts within our core app. These proactive measures are setting a new industry benchmark, and we have been incorporating input from policymakers and regulators around the world. Note that not all of our users have age checked, even as the percentages continue to grow. In the United States, we are at 65% age checked. In Australia, where we started a bit earlier, we are at 70% age checked. This is in addition to our robust text filtering technology that we are continuously improving, and also our open-source voice safety tech. We are now better able to understand the impact in the short term of age checking. For communication engagement, we have had a follow-on reduction in the percent of users communicating on our platform, because people who have not age checked are not allowed to communicate. In addition, along with age checking, we have now banded communication so we no longer allow adults to communicate with users 16 and under, even with our existing industry-leading filters and with no image sharing. We believe this reduction in comms does affect both people who have age checked as well as those who have not, because those who have age checked do have fewer people to communicate with. Also, as we push towards 10% of gaming, we believe our discovery algorithms should be focused primarily on driving incremental long-term platform retention over short-term monetization, especially to grow our 18 and up user base. We are implementing this transition now. As we continue to adjust to local customs and regulations, we do foresee some restrictions of content to both non–age-checked users relative to their age range and also as part of region-specific content guidelines. We believe, as a result of age check, reduced communication, and discovery that we have weighted more towards monetization, we have seen a reduction in app store ratings, and we believe this may be contributing to a reduction in organic sign-ups that typically flow from app stores. We believe the strategic upside of everything we are doing is significant and the right thing to do for the long-term health of the platform. Kids accounts and select accounts offer the long-term opportunity of increasing safety and civility, which in turn drives organic engagement growth, in line with our mission to connect a billion users with optimism and civility. We are unique among large platforms in our focus on the safety of users who are under 13, especially given the reality that a large number of young people under the age of 13 have access to phones and to other large platforms, and these platforms typically are not designing safety systems for those under 13. However, as a result of this, we do expect to see continued short-term bookings headwinds, and this will lead to a revision in our full-year guidance. Naveen will discuss more in his remarks. Now to address the short-term friction, we are taking a number of steps across several key areas. Age checking is our vision of the future, and we believe this tech will continue to scale across the industry. We expect to see continued adoption by other companies in the gaming, social networking, social media, and AI chatbot spaces. Through Q1, 51% of global Roblox Corporation DAUs have age checked. As we work to set the global standard in safety, full adoption of age check will take time. We expect our new age-based account framework to drive an increase in age check penetration rates, and we are focusing on additional means to drive our percent of users that have age checked to a level that long term we hope to bring above 90%, which will unlock our ability to significantly improve our native communication features. Communication engagement is fundamental to our user engagement and retention, and following the global rollout of age check to access chat, we see new opportunities to enhance communication features and boost engagement through our higher-confidence user age data. Over the next few months, we are rolling out several enhancements designed to increase communication adoption and improve the chat experience on Roblox. This includes global chat, which allows players across multiple servers in the same game to communicate in a single shared room, which we believe will increase in-experience chat density, and we are integrating party chat directly into the in-experience chat window, which we believe will remove the need for users to leave an experience to coordinate with friends. We plan to expand party chat between trusted friends—when appropriate age and necessary parental consent is granted—to include voice and avatar video, and we are not sharing a ship date for this. We have also planned a system for preset messages that will enable all users to easily coordinate gameplay. Collectively, these investments, paired with our incentives for age check, will be engineered to drive on-platform communication beyond our pre-check levels and deepen user connection. We continue to evolve our discovery system. Last year, we enhanced the discovery of long-tail content and improved content diversity. We are now focusing on high-quality games with deeper long-term engagement, and we are currently experimenting with enhanced discovery algorithms designed to optimize for 28-day retention and beyond. Some of our creators have already taken notice, as I tweeted this week, and we are implementing changes to level the playing field for high-quality, long-term experiences. We continue to see an acceleration of AI toolchain use by our top creators. Nearly half of the top 1 thousand creators on Roblox now leverage either Roblox Assistant—our own AI entry point—or MCP (model context protocol) to compress dev timelines. In addition to our own Assistant AI, our creators are using tools like Quod Code, Cursor, Codex, and other third-party tools tightly with Roblox Studio. These technologies are being used to support creators on everything ranging from light assistance to fully vibe-coded content. We ultimately believe gaming is a much more complex space than the coding space, and we are driving to achieve iterative Wiggins-loop-style programming because games are not just based on code, but 3D assets, NPC AI, core gaming loops, and live ops, among others. We want to get to the point where devs can have Roblox Studio working overnight on their game and come back in the morning and see those improvements. We want to do for game creation what tools like Codex, Cursor, and Quod Code are doing for coding—radically accelerating speed—and we believe we are uniquely poised to innovate and solve this given the integrated architecture we have from our cloud to our engine to our developer tools to our native AI. In April, we called that the month that Roblox Studio went agentic. Creators can now engage in focused conversations with our Assistant about the design, implementation, and test plan of new features. Assistant executes a plan, launches a suite of building agents to test, and delivers new features with minimal creator engagement. On the 3D side, to complement coding, we are introducing new mesh and procedural model generation capabilities to allow creators to build richer worlds, and we have introduced an NPC testing agent that can navigate complex 3D worlds and execute gameplay actions as part of game development. The vision for NPCs at Roblox goes beyond NPCs you might interact with in-game or NPCs used for safety; a key part of that vision is testing. We believe NPC testing agents can be part of a foundational model that we are building to help creators iterate quickly on their games using NPCs in addition to humans for testing. All of this is to enable small teams to produce super high-quality content very quickly. We believe AI will fundamentally accelerate gaming, and we are in a unique position to lead in this transformation. Yesterday, we shared on our blog our vision for the future of integrated AI and gaming and the creation of photorealistic multiplayer gaming and creation that is easy for anyone to participate in. This is our most ambitious technical innovation to date. We call it the Roblox Reality Project. This patent-pending architecture integrates hyperscale multiplayer simulation with our current Roblox cloud engine, photorealistic rendering, and persistent world state into a hybrid, unified architecture built on our global edge cloud and infrastructure. The goal of Roblox Reality is to enable creators to construct interactive environments that are high fidelity and drive this new technical frontier—the introduction of the first easy-to-use multiplayer photorealistic platform that we are uniquely poised to build. More details are on the blog post if you want to read up on it. In general, on the AI side, to wrap up, we have over 400 models running over 1.5 million inferences per second on-prem and on our cloud. This powers, in addition to creation and Roblox Reality, everything from discovery recommendations to communication safety, marketplace recommendations, and 3D generation. We are now investing in four in-house proprietary models for 3D generation, NPC behavior, our newly shared video super upsampler initiative, and coding assistance and generation. Finally, we have announced several initiatives on our novel games initiative. As we shared, there is a very large opportunity for us in the over-18 cohort. Over 18 represents 20% of the DAUs who have age checked, and once again, in the U.S., DAUs and hours within our 18 through 34 cohort grew over 50% year over year. Today, we announced an increase in the DevEx rate for age-checked 18 and up users in the U.S. Starting on June 8, creator earnings for in-experience spend generated by age-checked 18 and up users in the U.S. will increase to 37.8% from 26.6%. What makes this possible is age check. Games that do this must meet our definition of novel games, which means they will utilize our R15 avatar framework. We are also now working with several well-known game studios to bring reimagined versions of their beloved mobile games to Roblox, with more details on this in the coming months. We have announced an internal jump-start and incubator program to support existing creators with novel game creation. The initial response to this has been strong, and with our existing creators, with our white-glove service, we have roughly 100 novel games being onboarded into the program. In Q1 we delivered a large number of technical milestones designed to enhance realism and expand creator capabilities, in parallel with the longer-term Roblox Reality project. These support high-quality, immersive experiences that scale dynamically from 2 GB Android devices all the way up to high quality on a gaming PC. We have introduced our new R15+ avatar framework with dynamic heads. This provides a foundation for more lifelike avatars on the platform, including recently released avatar makeup. Together with deep tech like instance streaming, mesh streaming, texture streaming, server authority, and SLIM, these updates remove barriers our creators have seen in creating more original experiences for older users. We are committed to the long view. Our confidence in the future of gaming on our platform has never been higher. With that, I will turn the call over to Naveen. Naveen K. Chopra: Thanks, Dave, and good afternoon, everyone. I am going to share a few observations about Q1 and then discuss the changes to our guidance. With respect to Q1, as Dave highlighted, we saw strong top-line growth of 43% in bookings. I think that demonstrates the ability of our platform to grow at a very healthy rate without the benefit of viral hits. We also saw an improvement in content diversity. Games outside of the top 10 saw a 43% growth in engagement and 41% growth in spending, and as a group, those outside the top 10 accounted for 65% of the growth in spending. We think this is a healthier level of concentration than what we have seen in the recent past. DAUs did come in weaker than anticipated—we will talk about that more in a minute—but very importantly, user metrics like engagement and monetization remained stable relative to the year-ago period. As Dave pointed out, we made a number of important safety-related changes to the platform, starting with the age gating of communications in January. On our last call, we noted that we expected some headwind to engagement and bookings as a result of the rollout of age checks. We now better understand the second-order impacts of reduced communications engagement on things like word of mouth and organic content growth. Additionally, the monetization bias of our recommendation engine likely negatively impacted app store ratings and ultimately sign-ups. We do have additional safety features, including kids and select accounts, rolling out later this year. Those have huge long-term benefits. We have always viewed safety as a compounding moat for Roblox Corporation, and these features are an important ingredient to that. But it does mean continued friction in the short term until we get the benefit of continued adoption of age checks, the planned updates to our communications features that Dave described—which we believe will improve chat vitality and chat density—and discovery enhancements that result in better content recommendations. As a result, we are lowering our guidance for full-year top-line growth to account for a continuation of these safety headwinds that we have experienced to date. Our revenue guidance for the full year will now be 20% to 25%, and our full-year guidance for bookings growth is 8% to 12%. That guidance is based on the expectation that DAUs will continue to contract between Q1 and Q2 and then return to sequential growth in Q3. Consistent with our prior guidance, we do not assume any major viral hits in those numbers. The reduction in our bookings expectation will also impact margins this year. As you would expect, much of that is related to fixed-cost deleveraging given the change in our bookings expectation, although roughly a quarter of the margin reduction relative to our prior guidance is related to the incremental investments we are making in the 18 and over DevEx increase. Even though those investments are incremental to our prior margin expectations for this year, in future periods we plan on them being funded by the capture of additional operating leverage. Even more importantly, we are highly enthusiastic about what they can unlock in terms of long-term growth, which continues to be our North Star. With that, we will open the line for questions. Operator: We will now open the call for questions. At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We request you limit yourself to one question and rejoin the queue if needed. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Eric James Sheridan: Thanks so much for taking the question. Maybe a two-parter, if I can. With respect to incenting the development out of the 18-plus community, could you go a little bit deeper into what signal you were getting in terms of that type of content from developers and what it might mean for the long-term health and compounded growth for the business? And second, with respect to the change on DevEx, can you help us better understand why that was the right number to move to in terms of higher DevEx? Thanks. David Baszucki: Great question. There was a big invention on Roblox Corporation a while back when we moved from a platform without Robux and DevEx to DevEx, and we saw immediately that the incentive of creating a closed-loop ecosystem—where Robux could be used by our users, devs could build interesting experiences, and they could then cash those out—created a virtuous cycle that has been somewhat of a machine driving Roblox Corporation ever since. We have seen massive organic behavior from that virtual economy. We have been very careful in increasing the creator DevEx rate over time, but we have slowly increased it, as we did at RDC recently. The 18 and up market—now that we have age check, we can know quite accurately who is a real 18 and up player—and in addition, that market globally is roughly 80% of the global gaming market, which is astounding given our low, although quickly growing, penetration. Those users also, as we shared, monetize at 1.5x where we are today, and that is a big part of our future in addition to our existing under-18 base. We know systems drive behavior. We want to see novel games on our platform. We want to make it very profitable for creators to make amazing content. We want them to trust our discovery systems that will organically reward experiences with long-term retention. This is a continuation of Roblox Corporation being a systems company, focusing on this big area we are moving towards. Operator: Your next question comes from the line of Matthew Cost with Morgan Stanley. Your line is open. Matthew Andrew Cost: Thank you. Naveen, could you dive one step deeper into the reduction in the guidance? You gave a lot of helpful detail about the behavior of people related to age check. Is the entire guide down driven by the change in behavior versus the severity that you have observed because of age check, or are there other material factors worth calling out? That is question one. And second, on Roblox Reality, are there any increased cloud expenses or CapEx that you are expecting to support that going forward? Thank you. Naveen K. Chopra: Yes, thanks, Matt. With respect to the change in guidance, I would characterize it as largely safety related. There are a number of aspects to that, as we spoke about. It is age checking, it has a follow-on impact to communications, and that affects both users that have age checked as well as those that have not. There are a number of things, as Dave laid out, that we are doing from a product perspective to reignite communications engagement on the platform. We also believe that some of the dynamics we saw around discovery being more monetization biased than we would like plays into that. Content recommendations were probably not as optimal as we would like to see them. So it is the combination of those dynamics, but largely driven by what we are doing from a safety perspective. In terms of Roblox Reality, Dave? David Baszucki: First off, Roblox Reality will not be free. The type of technology we are showing combines the Roblox hybrid engine and cloud, which, if you look into our financial statements, you can see we run at less than a penny per hour roughly. Simultaneously, building close-to-photoreal or photoreal experiences—especially when multiplayer—is very difficult and takes enormous production budgets. Part of what Roblox Corporation is about is democratizing creation for everyone. We believe this is the ultimate combination of both traditional 3D networked multiplayer gaming engines like Roblox, which is somewhat unique given its cloud, with the future research we see in video models moving more and more towards real time. We have the opportunity to build a very Roblox-specific video world model that we call a super upsampler that can key both on video as well as 3D spatial information to do what we believe will be a beautiful job of upsampling with developer prompts. We are right on the edge—in the whole AI space—of running real-time photoreal video models to 2K at 60 hertz, and that is why we say this is an up-and-coming project. When we launch this, it will not be free. This will use cloud compute. We will have some kind of way of subscribing or paying for this, and because of that, we think we will offset the real-time inference side of it. On the training side, we may have additional needs. I do not think we are fully showing them this year. Naveen K. Chopra: Just to put a finer point on the expense side, we have not changed our expectations for CapEx this year. A lot of what we are doing in terms of landing GPU in our data centers will cover what we will need this year. There is some cloud training that we will be doing. That is now factored into the updated margin guidance. As this technology continues to develop, we will use a combination of cloud as well as our own data center capacity to execute both training, and as Dave said, inference will be funded by usage. Operator: Next question, please. Your next question comes from the line of Ken with Wells Fargo. Your line is open. Kenneth James Gawrelski: Thank you. Two, if I may. Naveen, I am puzzled. Ninety days ago you had bookings guidance of 22% to 26%, and you gave the first-quarter guide, which you came near the high end of, and now the guide is meaningfully cut for the full year. How much of this is impacts that you are seeing already in the Q2 period versus expectations of changes rolling out in the June period? And secondly, for Dave, philosophically, on the changes you are making in terms of what content can be discovered by younger users—there are changes that involve embargoing some content—how does that fit with your notion of democratizing publishing, content, and discovery? It feels like a tension between content safety and moderation and democratizing the platform. Where do you see the balance of those today? Naveen K. Chopra: Hey, Ken. I will start on the first one and then hand it over to Dave. We launched AgeCheck in January, and as we said, we expected to see some headwind in hours and DAUs. What we did not fully understand until we had the benefit of three to four months of experience is how that impacts the platform more generally with respect to communications engagement and the knock-on impacts from that. A couple of important things: when we look at what has happened over the last few months, engagement has remained strong, monetization has remained strong, and retention has remained strong. What we have seen is challenges at the top of the funnel—new users coming in. When we think about the rest of the year, we are not going to see the bookings impact of that right away, hence the performance in Q1. But we do know that the fact we had more sign-up headwind over the last few months is going to put pressure on bookings over the remainder of the year. However, when we start to get back to sequential DAU growth in Q3, given the strength of monetization and engagement, we feel confident that we will be able to drive the bookings growth that we are guiding to, which—given the comps in the back half of the year—equates to relatively low single digits. We are not trying to do something heroic in the back half. It is largely driven by a return to DAU growth. David Baszucki: Great question on democratizing creation. Two metrics you can look at for Roblox Corporation over many of the past years: first, total dollar value creators participate in—DevEx every year—which is growing rapidly; second, the growth rates of creator 1, 10, 100, and 1 thousand. Consistently, the total amount goes up, and the growth rate of creator 1 thousand is faster than 100, 10, or 1. That is a metric to measure democratization, and I believe that will continue. Relative to what we have done with kids and select accounts, we believe we are striking a very good balance, and we have the ability to strike this balance because we age check. Other platforms that do not age check have a wide range of users signing up at various ages. We know what age everyone is, and it allows us to align the appropriate content with them. We are doing that with kids and select accounts. The corpus of that content will be very large. It will cover a significant proportion of what they play today, and it will allow creators to participate in a UGC space for 16 and up to introduce innovative concepts, while we are careful with what content reaches under 16. I am optimistic you will continue to see democratization. Operator: Thanks, Ken. Your next question comes from the line of Cory Carpenter with JPMorgan. Your line is open. Cory Alan Carpenter: Thanks for the question. Two related ones. Naveen, you mentioned a few times the expectation to return to DAU growth in Q3. I understand it is a seasonally strong quarter, but you are also rolling age-based accounts out in June. What gives you confidence in the return to DAU growth that quarter? And, probably unrelated, could you elaborate on the changes you are making to address communications friction points and the timeline for rolling those out? Thank you. Naveen K. Chopra: Thanks, Cory. The reasons we are speaking to DAU growth in Q3 are a few things. Number one, as you pointed out, it is a seasonally strong quarter, so we expect tailwinds. Number two, we will have a number of the product changes that Dave will touch on rolled out by then. Number three, regarding the impact of kids and select accounts during that period, we do not expect that to be as dramatic as what we did in January with respect to communications. When we started age gating access to communications, it was a binary experience—users lost complete access to comms—and that had knock-on impacts on overall vitality, sentiment, and app store ratings. What we are doing with kids and select accounts will have some impact, but it is not as big a change because kids or people who have not age checked will still have access to 20 thousand games that represent more than 97% of engagement on the platform from those cohorts. It is not nearly as drastic as age gating communications. David Baszucki: On the comms roadmap: some things are in the pipeline and live in experiment. Global chat is live in an experimental mode with a subset of users. This gives a feeling of chat density even if a subset of people are not age checked and not on comms, because it allows people playing the same experience to connect with people on nearby servers. Preset messages support common Roblox gameplay coordination without requiring full chat and can be safely used across age bands—this is coming soon. The bigger initiative is to move party chat fully natively within experiences, with common functionality friends use when playing Roblox—text and voice—side by side, potentially on a second device. We are not giving a date on this. This is the third top priority on our comms roadmap. Operator: Your next question comes from the line of Jason Bazinet with Citi. Your line is open. Jason Boisvert Bazinet: I had a quick question on the over-18 DevEx incentives. When you roll out incentives like this and the developer community responds and then users respond, how long does that gestation period take? David Baszucki: Great question. This goes back to a board-level discussion prior to doing DevEx at all, when Roblox Corporation was a hobby for many and there was no way to make a living on the platform, much less create a studio making $10 million, $20 million, or $50 million. When we introduced DevEx and Robux, the quality of experiences on Roblox Corporation increased much more quickly. Creators were able to make it a full-time job and dedicate themselves to it, which is why we now have thousands of people who make their living on Roblox Corporation. Over time, we have continuously made incremental updates to the DevEx rate—it started low and has climbed, including at RDC. We have substantial evidence that when creators can trust they will make a certain amount of revenue from their experience, they will put more effort into creating quality experiences. We have seen this pay off time and time again in higher-quality content that creators can trust to build. Operator: Your next question comes from the line of Andrew Marroque with Raymond James. Your line is open. Andrew Marroque: Hi. Thanks for taking my question. Could you give a bit more detail on the shift in discovery algorithms you mentioned—going from shorter-term monetization factors to longer-term health factors? How might that be evidenced from a user perspective, and how does that encourage increased chat density over time? Thank you. David Baszucki: From a user perspective, this is something we and our creators can intuitively see on the home page—the quality and types of experiences and their ratings. We have made great leaps in discovery using ML to predict many factors for each user-game pair. Now that we have developed this capability, and given the potential for 18 and up, we determined we want to drive user growth of that segment, even if we slightly less weight short-term monetization. Our creators welcome this because they want to invest in long-term, high-quality properties, and it can be frustrating to see shorter-term monetization-type games that are not built for longevity. Intuitively and systemically, we believe this is the right thing to do. Operator: Your next question comes from the line of Omar Dessouky with Bank of America. Your line is open. Omar Dessouky: In Q3 2025, your European and U.S. daily active users were about 60 million. In the first quarter, it is 51 million. You characterized the viral surge of the third quarter as a big user acquisition event, and that a lot of your users look the same. Would you still consider that a high watermark you can get back to if you get through the growing pains you talked about today, or does this change your view on retention? Naveen K. Chopra: Hey, Omar. First, to put the DAU trend in context for Europe and the U.S., there are roughly 4 million DAUs that came out due to the Russia block. That is important to note. On the broader question, we expect that we will return to DAU growth as we get through some of the safety friction on the platform. We have said the users we acquired through viral games last year had similar retention characteristics to the platform at large, and that continues to be true. As I mentioned earlier, the nature of this friction is that retention has remained strong. The reason DAUs have come in weaker than we expected is largely top of funnel—sign-ups—which we believe is related to communications friction and how that has been reflected in organic growth through the app stores. Operator: Thanks, Omar. We will take one more question. Your next question comes from the line of Brian Pitz with BMO Capital Markets. Your line is open. Brian Joseph Pitz: Hey. Thanks for taking the question. Dave, you talked about working with some well-known studios to bring their mobile games into the Roblox ecosystem. On the conversation of higher DevEx for the over-18 cohort, what are your expectations for how the revenue share with those creators might compare to the broader mix-shift revenue share on the platform? David Baszucki: We do everything linear, and we do it as a system. We have never cut a custom revenue-share deal. We have had discussions in the past about accelerators and de-accelerators, but DevEx is consistent across everyone. The benefit of raising it for 18-plus is those studios will receive that as part of it. One of the most attractive things to studios—whether traditionally mobile or PC game creators—is the unique architecture of Roblox Corporation: the same build, the same game, whether it is PC, tablet, console, or phone, dynamically scaling with tech like SLIM, texture streaming, and mesh streaming. There is the ability to unify a single build for both platforms, which is very attractive to many studios we talk to. David Baszucki: I am getting the cue, so we will wrap up here. I appreciate all of your questions and feedback, and I will kick it back to Naveen for closing remarks. Naveen K. Chopra: Thank you, everyone, for joining us this afternoon. We look forward to speaking with you next quarter. Operator: This concludes today’s conference call. You may now disconnect.
Operator: Please stand by. Welcome to the Merit Medical Systems, Inc. first quarter 2026 earnings conference call. At this time, all participants have been placed in listen-only mode. Please note that this conference call is being recorded and the recording will be available on the company's website for replay shortly. I would now like to turn the call over to Martha Aronson, Merit Medical Systems, Inc.'s president and chief executive officer. Martha Aronson: Thank you, operator, and welcome, everyone. I am joined on the call today by Raul Parra, our Chief Financial Officer and Treasurer, and Brian G. Lloyd, our Chief Legal Officer and Corporate Secretary. Brian, would you please take us through the Safe Harbor statements? Brian G. Lloyd: Thank you, Martha. This presentation contains forward-looking statements that receive Safe Harbor protection under federal securities laws. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to risks and uncertainties. The realization of any of these risks or uncertainties as well as extraordinary events or transactions impacting our company could cause actual results to differ materially from the expectations and projections expressed or implied by our forward-looking statements. In addition, any forward-looking statements represent our views only as of today, 04/30/2026, and should not be relied upon as representing our views as of any other date. We specifically disclaim any obligation to update such statements except as required by applicable law. Please refer to the sections entitled Cautionary Statement Regarding Forward-Looking Statements in today's press release and presentation, for important information regarding such statements. For a discussion of factors that could cause actual results to differ from these forward-looking statements, please also refer to our most recent filings with the SEC, which are available on our website. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. However, we believe certain non-GAAP financial measures provide investors with useful information regarding the underlying business trends and performance of our ongoing operations and can be useful for period-over-period comparisons of such operations. This presentation also contains certain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures is included in today's press release and presentation furnished to the SEC under Form 8-Ks. Please refer to the sections of our press release and presentation entitled Non-GAAP Financial Measures for important information regarding non-GAAP financial measures discussed on this call. Readers should consider non-GAAP financial measures in addition to, not as a substitute for, financial reporting measures prepared in accordance with GAAP. Please note that these calculations may not be comparable with similarly titled measures of other companies. Both today's press release and our presentation are available on the Investors page of our website. I will now turn the call back to Martha. Martha Aronson: Thank you, Brian. Let me start with a brief agenda of what we will cover during our prepared remarks. I will begin with a brief summary of the first quarter financial results, then I will discuss several areas of operating and strategic progress that we have made in recent months including an important strategic acquisition in the oncology space that we made subsequent to quarter end. Then Raul will provide a more in-depth review of the quarterly financial results as well as our financial guidance for 2026, which we updated in today's press release. We will then open the call for your questions. Beginning with a review of our first quarter results. We reported total revenue of $381.9 million, up 7% year-over-year on a GAAP basis and up 5% year-over-year on a constant currency basis. Our constant currency revenue results exceeded the high end of the expectations that we outlined on the Q4 2025 earnings call. First quarter constant currency growth was driven by 2.7% organic constant currency growth, and contributions from our acquisitions of BioLife and the C2 Cryo Balloon device, both of which exceeded the high end of our expectations. Our organic constant currency growth includes the impact of the strategic divestiture of our DualCap product line in February 2026, which we discussed in our Q4 2025 call. Excluding divested revenue, our organic constant currency growth was 3.7% in the first quarter. With respect to the profitability performance in Q1, we delivered financial results that significantly exceeded expectations. Our non-GAAP operating margin increased 47 basis points year-over-year to 19.7%, representing the highest first quarter operating margin in the company's history. The team delivered 9% growth in non-GAAP EPS, which exceeded the high end of expectations, and we generated $25 million of free cash flow, an increase of 26% year-over-year. We are pleased with the solid start to fiscal year 2026 and I want to thank our team members all around the world for their effort and commitment to our customers. We updated our guidance in today's press release to include the expected financial impacts from our acquisition of Viewpoint Medical on April 1. Importantly, we remain confident in our team's ability to drive stable constant currency growth, improving profitability, and solid free cash flow this year. Our organization is aligned around our priorities for 2026, specifically to drive strong execution around the globe and to successfully complete our Continued Growth Initiatives program which includes our previously disclosed financial targets for the three-year period ending December 31, 2026. Turning now to a discussion on three key operating and strategic announcements we made since our last earnings call. First, on March 16, we announced the U.S. commercial introduction of the Resilience Through-The-Scope, or TTS, esophageal stent. The Resilience stent is indicated for treatment of esophageal fistulas and strictures caused by malignant tumors. Resilience is designed to demonstrate the greatest migration resistance amongst currently available TTS esophageal stents and facilitates physician control and accurate placement. Resilience targets an attractive market opportunity in the United States and we expect adoption and utilization of this differentiated product to contribute nicely to the growth in Merit's endoscopy platform in the coming years. Second, on April 1, building upon our oncology platform, we announced the acquisition of Viewpoint Medical for an aggregate transaction consideration of $140 million, of which $90 million was paid in cash at closing. Viewpoint Medical is based in Carlsbad, California, and manufactures the OneMark detection imaging system and OneMark tissue markers. This unique ultrasound-enhanced technology offers an innovative solution to localize more lesions at the time of biopsy, representing an estimated 1.3 million procedures annually in the United States alone. This represents an expansion of the annual addressed procedure opportunity of approximately three times for our oncology business. Merit has built a market leadership position in wire-free non-radioactive breast localization procedures. Our leadership has been built upon our SCOUT platform, which utilizes the precision and accuracy of radar. The OneMark system is U.S. FDA cleared for percutaneous placement in soft tissue tumors to mark biopsy sites or lesions, and it consists of a surgical detection system and ultrasound-enhanced tissue markers. After placement, the tissue markers are designed to be visible across commonly used imaging modalities and engineered to minimize interference with future imaging studies. This acquisition expands our portfolio of therapeutic oncology products dedicated to the diagnosis and localization of breast and soft tissue tumors. The combination of SCOUT and OneMark provides physicians with localization options during the initial diagnostic biopsy which may reduce the need for a separate procedure to mark the location of the tumor prior to surgery. We believe this acquisition presents multiple strategic and financial positives and importantly, this acquisition is consistent with our Continued Growth Initiatives program. This acquisition represents another example of Merit selectively investing to expand our product portfolio in key strategic markets that leverage our existing commercial footprint. Finally, I want to highlight our new presentation of revenue, which we formally introduced in a Form 8-K filed on April 13. As discussed on our Q4 call, Merit's new executive leadership team and I have been working through a comprehensive analysis of the business and it became clear during this process that we had an opportunity to streamline our internal planning and reporting processes with the goal of aligning how we think about, evaluate, and plan each of our underlying businesses. We also identified an opportunity to streamline how we talk about the business externally as well. We believe there is significant value in aligning how we talk about the business both internally and externally, and we expect these changes to help the investment community not only better understand the composition of our business today, but also the underlying growth drivers of our business going forward. To that end, as disclosed in the Form 8-Ks on April 13, and reported in our earnings press release today, we are now reporting our revenue in two product categories: foundational and therapeutic. Foundational products are used primarily for access and enabling functions in vascular and other procedures. Merit's foundational products comprised about two-thirds of our total revenue in 2025, and sales increased at a 6% compound annual growth rate over the last three years. Therapeutic products are devices and systems that treat disease in a number of very large markets that together represent significant growth potential. Merit's therapeutic products comprised about one-third of our total revenue in 2025, and sales increased at an 11% compound annual growth rate on an organic basis over the last three years. Given that we call on a wide variety of clinicians and our products are a part of so many procedures, we have solidified our new operating model internally around eight platforms: Access, Vascular Intervention, Procedural Solutions, Cardiac Therapies, Renal Therapies, Oncology, Endoscopy, and OEM. The Access and Procedural Solutions platforms are comprised entirely of foundational products. The Vascular Intervention and OEM platforms are comprised of both foundational and therapeutic products. And Cardiac Therapies, Renal Therapies, Oncology, and Endoscopy are comprised entirely of therapeutic products. In the Form 8-Ks, we shared four years of historical revenue in each of these platforms. So to reiterate, going forward, we plan to report revenue results by foundational and therapeutic products. In addition, we intend to continue to highlight additional color on the underlying drivers of growth within the underlying platforms. As I shared last quarter, each of our platforms is being co-led by a marketing lead and a research and development lead, and each team is comprised of cross-functional and cross-geographic members so that we have better alignment on product and commercial priorities, improved communication across functions and geographies, and a team who feels accountable for that platform globally. I am very pleased with how our teams are taking ownership, increasing communication, and thinking about how best to serve our customers in each area. I truly believe that focusing our efforts in this way will enable us to drive even greater growth within each one of these platforms in the years to come. With that, I will turn the call over to Raul for an in-depth review of our quarterly financial results and our updated financial guidance for 2026. Raul? Raul Parra: Thank you, Martha. I will start with a detailed review of our revenue results in the first quarter. Note, unless otherwise stated, all growth rates are approximated and presented on both a year-over-year and constant currency basis. First quarter total revenue increased $18.6 million, or 5%, exceeding the high end of the expectations we outlined on our fourth quarter call. Excluding sales of acquired products, our total revenue growth on an organic constant currency basis was 2.7%, at the high end of our expectations. Excluding divested revenue, organic constant currency growth was 3.7% in the first quarter. By geography, our total revenue in Q1 was primarily driven by growth in the U.S., where sales increased $14.5 million, or 6.8%, and international sales increased $4.1 million, or 3%, both of which modestly exceeded the high end of our expectations in Q1. Turning to a review of our revenue results by product category. First quarter total revenue was driven by a $10.1 million, or 4%, increase in sales of foundational products and an $8.5 million, or 7%, increase in sales of therapeutic products. Including the contributions from acquired products of $6.6 million and $2.5 million, respectively, sales of foundational and therapeutic products increased 1.5% and 5.2%, respectively, on an organic constant currency basis. Organic growth in the foundational product category was driven primarily by our Vascular Intervention and Access platforms, which offset year-over-year declines in sales of OEM and Procedural Solutions products, the latter of which was impacted by our divestiture of the DualCap product line. Organic growth in the therapeutic product category was driven by strong growth in our Cardiac Therapies and Endoscopy platforms and contributions from solid growth in our Vascular Intervention and Oncology platforms, offsetting year-over-year sales declines in our OEM and Renal Therapies platforms. We were pleased with our first quarter total revenue results that exceeded the high end of our expectations despite the notable headwinds to year-over-year revenue growth experienced in our OEM business in Q1. OEM sales declined 14% year-over-year in Q1, significantly lower than what was assumed in our guidance. Sales to OEM customers outside the U.S. continue to see demand trends impacted by the macro environment, particularly in the APAC region, and these headwinds were largely consistent with our expectations. OEM sales to U.S. customers were impacted by inventory destocking dynamics related to product line transfers to Tijuana, Mexico, as expected. That said, customer orders came in lower than expected, which we would characterize as transient or timing based rather than a reflection of share loss. Our OEM business remains healthy despite the quarter-to-quarter fluctuations in growth rates. We continue to believe the appropriate normalized growth profile of our OEM business is in the mid to high single digits annually. Turning to a review of our P&L performance. For the avoidance of doubt, unless otherwise noted, my commentary will focus on the company's non-GAAP results during 2026 and our growth rates are approximated and presented on a year-over-year basis. We have included reconciliations from our GAAP reported results to the most directly comparable non-GAAP items in our press release and presentation available on our website. Gross profit increased 7% in the first quarter. Our gross margin was 53.2%, down 20 basis points year-over-year, but notably stronger than our internal expectations. Q1 gross margin included a $4.6 million impact from tariffs, compared to no impact in the prior-year period, representing a 120 basis point impact to gross margin in the period. Operating expenses increased 5% in the first quarter. The increase in operating expense was driven primarily by a $5.4 million, or 5%, increase in SG&A expense and, to a lesser extent, a $1.1 million, or 5%, increase in R&D expense compared to the prior-year period. Total operating income in the first quarter increased $6.9 million, or 10%, from the prior-year period to $75.3 million. Our operating margin was 19.7% compared to 19.3% in the prior-year period, an increase of 47 basis points year-over-year. First quarter other expense, net, was $1.2 million compared to $1.7 million for the comparable period last year. The change in other expense, net, was driven primarily by gain/loss on foreign exchange and higher interest income. First quarter net income was $56.7 million, or $0.94 per share, compared to $52.9 million, or $0.86 per share in the prior-year period. First quarter net income and EPS exceeded the high end of our guidance range by $3.7 million and $0.07, respectively. Turning to a review of our balance sheet and financial condition. As of 03/31/2026, we had cash and cash equivalents of $488.1 million, total debt obligations of $747.5 million, and available borrowing capacity of approximately $697 million, compared to cash and cash equivalents of $446.4 million, total debt obligations of $747.5 million, and available borrowing capacity of approximately $697 million as of December 31, 2025. Our net leverage ratio as of March 31 was 1.6 times on an adjusted basis. The increase in cash and cash equivalents in the first quarter was driven by a combination of strong free cash flow generation of $24.7 million and $25.5 million of proceeds from our divestiture and sale of the DualCap product line, offset partially by $6.3 million in cash used for financing activities in the period. Subsequent to quarter end, we acquired Viewpoint Medical for an aggregate consideration of $140 million. Of that amount, $90 million was paid in cash at closing, and two deferred payments of $25 million each are scheduled to be paid no later than the first and second anniversary of the closing date, respectively. In addition to the favorable strategic rationale for this acquisition that Martha outlined earlier, the financial rationale for this transaction is compelling. While we expect the transaction to be $0.05 dilutive to our 2026 non-GAAP EPS, for the twelve months ending 12/31/2027 the acquisition is projected to be accretive to our non-GAAP EPS. Longer term, we project this acquisition to be accretive to Merit's multiyear growth and profitability profile. Specifically, we project sales of Viewpoint Medical's OneMark system to grow at least 20% per year, with 70% non-GAAP gross margins and non-GAAP operating margins above our company average. Turning to a review of our fiscal year 2026 financial guidance. As reported in our earnings press release, we have updated our financial guidance for 2026 to reflect the projected contributions to our total revenue and impact on our non-GAAP EPS previously disclosed on 02/24/2026. Specifically, from the acquisition effective date of 04/01/2026 through 12/31/2026, the acquisition is projected to contribute revenue in the range of $2 million to $4 million and to dilute Merit's initial 2026 guidance for non-GAAP earnings per share by approximately $0.05. This non-GAAP EPS dilution includes approximately $2 million of lower interest income on cash balances used for the total purchase consideration and excludes approximately $5.3 million of non-cash, non-recurring transaction-related expenses. For the twelve months ending 12/31/2026, we now expect total GAAP net revenue growth in the range of 6.3% to 7.8% year-over-year, and 5.6% to 7% year-over-year on a constant currency basis, excluding an expected 80 basis point tailwind to GAAP growth from changes in foreign currency exchange rates. There are a few factors to consider when evaluating our projected constant currency revenue growth range for 2026, including first, our constant currency growth range assumes sales of foundational products increase in the mid-single digits year-over-year and sales of therapeutic products increase in the high-single digits year-over-year. Second, our total net revenue guidance for fiscal year 2026 now assumes inorganic revenue contributions in the range of approximately $17 million to $20 million compared to $13 million to $15 million previously. This increase in inorganic revenue expectation is driven by the combination of $2 million to $4 million of Viewpoint Medical revenue and stronger than expected contributions from our BioLife and C2 acquisitions in the first quarter. Excluding inorganic revenue, our 2026 guidance continues to reflect total net revenue growth on a constant currency organic basis in the range of approximately 4.5% to 6% year-over-year. Third, our total net revenue guidance for fiscal year 2026 continues to assume U.S. revenue from the sales of the Rhapsody CIE of approximately $7 million. Fourth, our total net revenue guidance for fiscal year 2026 reflects the impact of our DualCap divestiture. Product sales and royalty revenue for DualCap totaled approximately $20 million in 2025, and net of approximately $1.6 million of sales in Q1 2026, the divestiture represents an estimated year-over-year headwind of approximately 130 basis points to our total constant currency revenue growth in 2026. With respect to profitability guidance for 2026, we continue to expect non-GAAP diluted earnings per share in the range of $4.10 to $4.15, up 5% to 8%. Note, our non-GAAP EPS range reflects the $0.05 of dilution from the acquisition of Viewpoint Medical, funded by the better-than-expected non-GAAP EPS results we delivered in the first quarter. All of the modeling considerations regarding our profitability and cash flow expectations for 2026 introduced on our fourth quarter call remain unchanged. For avoidance of doubt, our 2026 non-GAAP EPS guidance continues to assume a twelve-month tariff impact of approximately $15 million, or $0.19 per share, compared to a $9 million, or $0.12 per share, impact realized during the last eight months of 2025. As a reminder, the expected twelve-month tariff impact assumed in our 2026 non-GAAP EPS range was based on tariff policies in place prior to the decision of the U.S. Supreme Court in late February. This continues to be an evolving situation. The ultimate impact of the U.S. Supreme Court decision and subsequent new and/or additional tariffs or retaliatory actions or changes to tariffs on our business will depend on the timing, amount, scope, and nature of such tariffs, among other factors, most of which are currently unknown. We intend to review our 2026 financial guidance when we report our financial results for the three and six month periods ending 06/30/2026. We will provide an update on the estimated twelve-month tariff impact and potential gains related to refunded tariff payments in prior periods. Finally, we would like to provide additional transparency related to our growth and profitability expectations for the second quarter of 2026. Specifically, we expect total revenue in the range of $400 million to $410 million, representing growth of 5% to 7% year-over-year on a GAAP basis, and up approximately 4% to 7% on a constant currency basis. Note, our second quarter constant currency sales growth expectations include inorganic revenue in the range of approximately $4 million to $4.5 million; excluding inorganic contributions, total revenue is expected to increase in the range of approximately 3% to 5% on an organic constant currency basis. With respect to our profitability expectations for the second quarter of 2026, we expect non-GAAP operating margins in the range of approximately 18.7% to 20.4% compared to 21.2% last year, and non-GAAP EPS in the range of $0.90 to $1.00 compared to $1.10 last year. With that, I will now turn the call back to Martha for closing comments on the prepared remarks. Martha Aronson: Thanks, Raul. As you can hear, we continue to be on a nice trajectory to successfully complete the third and final year of CGI. I want to commend the organization once again for staying focused on delivering these results while also closing a strategic acquisition on April 1 and embarking on our long-range strategy work. I want to add that when our extended leadership team spent several days kicking off our long-range strategy work during the quarter, we had very robust conversations about each platform and there was tremendous energy around this work. We also recommitted ourselves to ensuring that our infrastructure is solid so that we can continue to scale our business globally. As I have said before, we will do that with both organic product development alongside disciplined tuck-in acquisitions focused on our strategic platforms. Finally, as I have continued my global travels and spend time with customers, investors, and employees, I continue to be inspired and excited about the future of Merit Medical Systems, Inc. We will now open the call for questions. Operator: Thank you. Please signal by pressing star 11 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 11. And our first question will come from Michael Petusky of Barrington Research. Your line is open. Michael John Petusky: Hi, good evening. Nice results. I guess there was not much in the way other than, I guess, the reaffirmed guide on Rhapsody. Martha, are there any updates you want to share there, whether it is anecdotal or more quantitative, just on early days progress? Thanks. Martha Aronson: Yes. Thanks very much, Mike. You asked—just to clarify—you are asking about Rhapsody? Michael John Petusky: Yes. Yeah. Martha Aronson: We are very pleased with how Rhapsody is going. Again, just to remind folks, we did a bit of a reset, if you will, on how we are approaching our go-to-market strategy with Rhapsody. We really instituted that toward the end of last year. And I would say at this point, we are very pleased with how we are doing. We have given, I think, our previous guidance or our revised guidance in 2026 of $7 million for Rhapsody for the fiscal year, and we are tracking right on that. Michael John Petusky: Okay, great. And then I am not sure who this is for, but I am just curious about—are you guys, like, is there a formal process? Are you seeking refunds in terms of the tariffs that you had to pay last year and the first part of this year? And if so, how does that process work? Thanks. Raul Parra: I will just give a guidance overview if you do not mind, Mike, because there are a lot of moving parts to this. Just as a reminder, for our 2026 guidance, we have left it unchanged essentially from what we did in the first quarter, which is we have got $15 million that is baked into our guidance for 2026 versus the $9 million that we had in 2025. That is unchanged since the U.S. Supreme Court decision. I think there is still a potential for the administration to challenge that, I believe, through May, and so we will reevaluate that as part of our second quarter reevaluation and we will discuss that further after the second quarter once we are on firmer ground. It is a moving target, but there is also the Section 232 stuff that is hanging out there. Michael John Petusky: I was just going to say, have you guys filed it? Like, is there paperwork to file to seek refunds at this point for you guys or no? Raul Parra: Yes. We have started the process of reimbursement. Like I said, though, I think the challenge is that the administration can still challenge the reimbursement through May. From our perspective, we have started the process of filing and have essentially filed for the majority of that. I think we will have an update, hopefully, on our second quarter call as to how that shakes out. Feeling optimistic, I would say, if things stay as they are today, I definitely think the $15 million would come down. Michael John Petusky: Okay. Very good. Thanks, guys. Operator: Thank you. And our next question comes from Jason Bednar of Piper Sandler. Your line is open. Jason M. Bednar: Hey, good afternoon, everyone. Thanks for taking the questions and nice start to the year here. I wanted to start first on Viewpoint, the recent deal. It is a pretty sizable revenue contribution step-up from this year to next. Could you help us out with how you see this coming together—what is supporting the growth ramp going from $2 million to $4 million in revenue this year up to $14 million to $16 million next year? And then should we think about that 20% growth rate you referenced starting in 2028, building on that $14 million to $16 million? And then, looped in here, just any considerations around synergies that could be realized with respect to that SCOUT platform? Martha Aronson: Yes. Thanks, Jason. Appreciate the question. A couple of comments on that. First, taking a step back on oncology: it is about a $100 million platform for us, and it has been growing very nicely. It has been pretty much a one-product platform, so we have been looking for a while at ways to add to that because we have an outstanding field organization and we wanted to get some additional products in their hands. If you think about the breast cancer market, particularly the biopsy phase—someone has a mammogram or something is seen—in the U.S. alone there are 1.6 million breast biopsies done each year. For SCOUT, the product that we have had for a period of time now, the applicable market has been about 300,000 of those procedures each year. With the addition of OneMark, you actually expand the market three to four times because the other 1.3 million breast biopsies tend to be done for lower-risk patients; SCOUT tends to be used for higher-risk patients. We are really seeing a terrific market expansion opportunity. It then comes down to physician choice about whether they would rather use radar technology or ultrasound technology. We are super excited about that. Both of these approaches happen at the time of biopsy, whereas if you do not do something at time of biopsy, a patient may have to go through an additional localization procedure before surgery. We are excited about what it means for patients. Breast cancer grows about 4% a year, and the wire-free localization market where we play is growing at about 13% a year, so when you ask about our confidence in the future growth rates, we feel good about that. Raul Parra: I will add, Jason, at the midpoint of our 2027 guide, which was around $15 million, you can definitely tack on the 20% that we called out. On the synergies, just to be clear, in the guide for 2027 on a full-year basis it is accretive, both on the top line and the bottom line, with strong gross margins at 70%. We are really excited about it. Jason M. Bednar: Thank you for all that. Super helpful. I want to pivot to the OEM part of the business. I appreciate all the extra color in the prepared remarks, Raul. I heard you on the 1Q performance and the normalized growth profile for OEM. But can you say whether the worst is behind you for OEM? Does that performance get sequentially better in 2Q? Does growth return in the second half of this year? And bigger picture on OEM, Martha, we have seen you take actions on portfolio management at Merit. How do you think of the value OEM provides to Merit versus maybe what you could potentially realize through strategic moves like some of the actions we have seen across other med tech OEM players here the last several months? Raul Parra: I will take the last part first. To level set on what our OEM business is: we essentially sell capacity. We are different than other OEM companies out there; we are not a contract manufacturer. We are selling our own products. Divesting of that just does not really work—we would end up with a bunch of extra capacity. Having said that, we love our OEM business. It is a great asset and remains healthy despite quarter-to-quarter fluctuations. I know you find that frustrating, but as we see the visibility, we are getting excited about what we can do there. We continue to believe the appropriate normalized growth profile is in the mid to high single digits. We are starting to see orders for Q2 that give us a lot of confidence that we are going to be at, at the very least, that mid single-digit growth profile that I just talked about. We are excited to see how the quarter goes; the early start is looking really good. Jason M. Bednar: Just to clarify, you are saying mid singles is how you are seeing 2Q come together, mid single-digit growth for OEM? Raul Parra: That is right. Jason M. Bednar: Perfect. Thanks so much. Operator: Thank you. And our next question comes from Sam Elber of BTIG. Your line is open. Sam Elber: Hey, good afternoon. Thanks for taking the questions here. Maybe I can follow up on some of the dynamics in the Cardiac business that was called out in the prior quarter. Just curious to get an update on how that is shaking out here, and then I will have a quick follow-up. Raul Parra: We continue to be on track. To walk through that issue: when we initially had our fourth quarter call, it was a supply chain issue that unfortunately turned into a recall, and I am sure many of you saw the notice go out. From a financial perspective, it is immaterial to our 2026 financial results. We continue to be on track to have this product back on the market. It is unfortunate that it came to this, but to highlight it, it is a Class I recall, and we have not had any of those since 2017. Just to clarify, this was in Renal, right? Martha Aronson: Just for clarity, Sam. Sam Elber: Okay. That is helpful. And maybe just a quick follow-up on some of the geopolitical issues we are seeing out of the Middle East. Are you able to help quantify or think through any impact on the revenue line and then to input costs, whether it is freight or oil—how should we be thinking about that over the rest of the year? Raul Parra: On the positive side, we have yet to receive any price increases from our vendors. We are seeing fuel surcharges; those are pretty typical and we usually see those at least once a year as gas prices fluctuate, so that is nothing unusual. Right now everything is manageable. If the issue continues, we will have to reevaluate, but as of now, we feel like we can overcome whatever is coming our way. On the sales side, we continue to get orders from the Middle East region. We did leave about $1.5 million of revenue on the table from shippers that were not able to pick the product up and deliver it. We are seeing an impact, but it is very manageable, and we continue to feel really optimistic about the guidance that we put out for 2026. Martha Aronson: Thank you. Operator: And our next question comes from David Rescott of R.W. Baird. Your line is open. David Kenneth Rescott: Great. Thanks for taking the questions. Two from us, and I will ask them both upfront. I heard some of the commentary around OEM as it relates to the quarter, Q2, and the guide for the year. I recall that there is some APAC impact in there in general. Can you provide any color around what the assumptions are for China and APAC at this point and, in broad strokes, how that is shaking out versus contribution from that region in the prior year at least? And then on the operating margin side, I believe the results were a little better than we expected. Lower OpEx growth seemed to be the case, better gross margin. Can you help us think about how you are thinking about controls on the OpEx side through the rest of the year? I believe you commented on gross margins already, but would be curious around any of the underlying assumptions you have for better-than-expected operating margins for the year. Raul Parra: On the APAC region and OEM: that was essentially in line with our expectations. APAC as a whole was up 1% on a constant currency basis in Q1, which was a beat versus the high end of our guidance. China sales increased by about 2% year-over-year on a constant currency basis in Q1, essentially in line with our expectations. VBP impact was modestly better than expected. As far as China, we continue to expect low single digits for 2026 as we continue to deal with volume-based purchasing. Moving to operating expenses, we were expecting a lower gross margin, so we controlled operating expenses. With the conflict, as that came out, we really talked to the executive team about being in control of operating expenses, and they did a really good job. We let that flow through to the bottom line with an $0.11 beat and a much better operating margin than we had initially indicated on the fourth quarter call. One of the nice things is that we were able to offset the $0.05 dilution of Viewpoint and essentially increased our EPS guide to cover for that. Overall, the P&L was off to a really strong start for Q1. We beat on the revenue side by over $4 million, gross margin was better than anticipated, we controlled operating expenses, and that gives us a lot of confidence as we head into the rest of the year. We are really confident in the full-year operating margin guide and obviously focused on our CGI targets. Martha Aronson: And, David, I might add one comment. Hats off to Raul and Travis in our finance team. One of the things we have been working on is a number of our processes across the company and getting our finance partners involved earlier in the process. We are doing our best to ensure discipline throughout the organization when it comes to spend. Hats off to our finance team partnering with engineering, operations, etcetera. Thank you. Operator: And our next question comes from Aidan Lahey of Bank of America. Your line is open. Aidan Lahey: Hi, thanks for taking the questions. Two from me on OneMark. One, when you did the deal, how much were you factoring in it being complementary versus cannibalistic to SCOUT? I know you said physician preference. Is this a move that can open up broader accounts? Would some accounts have both systems? And do you think there is any impact on SCOUT sales during the inorganic period that could impact growth? Martha Aronson: Thanks for the question. We really view this as a market expansion play. There could be a handful of accounts where some have both, and there could be some where someone chooses one over the other. There is an opportunity—it is a bit of a better-and-best offering. There is an opportunity to target accounts very specifically, which our team has done a great job preparing to do. We see it as a total expansion of that time-at-biopsy localization market. Aidan Lahey: Got it, really helpful. And then I think we saw OneMark was actually running a trial that was head-to-head with SCOUT. Now that both products are yours, do the outcomes of that trial change the strategy of SCOUT depending on if it goes one way or the other, and what are the plans there? Martha Aronson: I literally got off the phone earlier today with one of the team members from OneMark. This group is super excited to be part of Merit, and Merit is super excited to have them as part of our team. There is a major congress happening starting today—the Society for Breast Surgeons. There was a training with fellows earlier today, and the team reported that it really is a physician preference. Some are more “audible” and like the radar and hearing it; others prefer being able to see it visually. We are excited to have this enhanced product offering across the portfolio and, as we said, it is a great add to the Merit Oncology platform. Aidan Lahey: Great. Thank you. Operator: Thank you. And our next question comes from James Sidoti of Sidoti & Company. Your line is open. James Philip Sidoti: Good afternoon. Thanks for taking the questions. If I heard you correctly, with gross margin, you were able to keep that basically flat despite about $5 million of tariff expense. What drove that? Was that a mix issue? Can you give us more color on that? Raul Parra: It is essentially a 120 basis point impact to our gross margin from tariffs. Hats off to our sales force for focusing on selling the right products at the right price. We have some acquisitions helping us, and that is part of the mix component. We continue to focus on the “throw the kitchen sink” approach at gross margin. The conflict in the Middle East is exactly why we do that—there are surcharges coming that we were still able to overcome. Our operations group is doing everything they can to maintain or improve costs in a really challenging environment. It is a little bit of everything, but there is a mix component helping us. We divested the DualCap, which was a very low gross margin product, and that is helping as well. We are hyper-focused on CGI goals, and gross margin is an important contributor to operating margin, which is why we focus on it so much. James Philip Sidoti: And then, inventory was up about $20 million in the quarter. Can you explain that? Raul Parra: We have acquisitions that have taken place, and we are building out those inventories. There were certain areas we were a little low in. Over the last year in our Endoscopy segment, we dealt with some supply chain issues, so getting that to a healthy point. Same with our Oncology business, and same within our Cardiac and Renal Therapies—areas that had really strong sales. We are getting safety levels to an area we feel comfortable with. You are also in an environment where you look at the supply chain to make sure you are covered given the performance we expect, so we are making sure our safety stocks are at the right level. James Philip Sidoti: Alright. And if I can, I am going to sneak one more in. Can you just tell us what the distribution looked like for the OneMark system prior to the acquisition, and how many people will be selling it now that it is a Merit product? Martha Aronson: We do not share exactly how big our sales organizations are. Viewpoint was certainly a smaller organization. It will fold really nicely into our team, who are excited to have their Viewpoint colleagues join them. It is not a major expansion of our commercial footprint, but the energy behind it will certainly make up for that. James Philip Sidoti: Okay. So the big jump to revenue in 2027—that is not because of increased distribution. You think that should occur due to product awareness? Martha Aronson: Correct. It is increased product awareness, having options as you go into each and every account, and excellent account planning and targeting that our team is undertaking. James Philip Sidoti: Alright. Thank you. Martha Aronson: Thanks, Jim. Operator: Thank you. And our next question comes from John Young of Canaccord. Your line is open. John Young: Hi, guys. Thanks for taking the question and congratulations on the quarter. Martha, when you came into the seat there was an emphasis on OUS growth given your background. Any updates on the progress or changes that you have made there? In the script, you spoke about some alignment changes. Has compensation changed at all for the reps? Martha Aronson: As we go into 2026, there have not been any significant comp changes for our reps. You have heard Raul talk about our gross margin improvement. Over the last several years, this organization has done a nice job making sure our team knows which products to stay focused on, and we are pushing a bit more emphasis on some of our higher-margin products. In general, about 40% of our revenue is outside the United States, and as you heard, our international teams continue to do a really nice job. I am quite pleased with that. John Young: Great. Thanks. And then perhaps any additional color on the Endoscopy segment and any progress you made in the quarter on the integration and training of that sales force. Thanks again. Martha Aronson: We are really excited about the Endoscopy platform. We brought in the C2 Cryoballoon acquisition, which is so far doing better than our end expectations. We also announced a new product, the Resilience through-the-scope esophageal stent. This is a really nice market for us—sub-$100 million in size. For Merit Medical Systems, Inc., that is a really nice market space. This is a great stent, and because physicians deploy it through a scope, they feel they have more control and accurate placement. Most importantly, the initial feedback is that it is not moving once it is there. Migration has been an issue with a number of stents in that market. We are really excited about the opportunity for Resilience and the Endoscopy business in general. Next week, I will be at Digestive Disease Week with the team, which is one of their big shows—more on the GERD side of things—but across Endoscopy we are very pleased. Raul Parra: I will add a little color. As you hopefully saw last year, our Endoscopy team just got better every quarter as they integrated and learned how to sell both bags. Q1 was mid-teens growth—really strong performance—so they are excited about what they are doing, which makes us excited about their potential. John Young: Great. Thank you. Operator: Thank you. And our next question comes from Jason Bedford of Raymond James. Your line is open. Analyst: Hey, Raul. Hey, Martha. It is Zack on for Jason Bedford here. Thanks for taking the question. You have talked about being open to deals that are somewhat larger than historical tuck-ins, and of course we saw the Viewpoint deal. As you look at the pipeline, can you remind us what those key areas are for the next deal? And in terms of sizing, would you say Viewpoint is a good proxy for deal characteristics and size in terms of helping us level set expectations on acquisitions? Martha Aronson: Thanks. Doing deals is not something where you get to say you want to do something of exactly this size at this time to add precisely to this particular platform. That would be lovely, but that is not reality. We are not going to put a number around a deal. We are looking at a lot of things. This company has grown a lot through acquisition; we plan to continue to do that. It is important to think in terms of tuck-ins or bolt-ons—nothing transformational. Every deal has to have a lot of strategic fit. With our platform structure, I am looking to each platform to have conviction around any proposed deal because they are going to own it. That is how we are building these business lines. It is critical that they believe in it and have done the work and analysis. We do a lot of that at corporate as well, but that is how we are thinking about acquisitions going forward. It has to be strategic and fit certain financial metrics that we have in place—certainly being margin accretive would be one of them. Analyst: That makes sense. Appreciate the color. Then, if I can ask a second one: just curious on that Medtronic distribution deal you did during the quarter. Is there any stocking tied to that, and is there a material impact for you on growth that comes from this agreement? Raul Parra: They are going to gear up, and we are not going to give details. It is not our practice to talk about our customers’ launch plans. We are really excited for our OEM division. They have done a good job working with our OEM partners and customers on finding opportunity, and this happens to be one of them. It is built into our guidance for the year, which gives us a high level of confidence in that mid single-digit growth that we expect in OEM. We have a high level of confidence in their performance for the rest of the year. Martha Aronson: This is a really good example of why we say OEM is lumpy. As you saw—and Medtronic put out a press release on it—we have a relationship with them; they have been an OEM customer as they shared in their press release. These things ebb and flow a bit. As Raul said, we are very excited, and this is a factor in gaining confidence on our OEM platform for this fiscal year. Operator: Thank you. And our next question comes from Mike Matson of Needham & Company. Your line is open. Michael Stephen Matson: I just want to ask one on capital allocation. I understand you are focused on M&A and that has been the priority. But the stock is pretty beaten up, pretty cheap here. Would you consider doing a share repurchase at all? Raul Parra: That is a board-level decision, and I do not want to speak on their behalf. For now, with our net leverage ratio of 1.6, and a lot of opportunity out there from an M&A perspective, we continue to conserve cash. We continue to generate strong free cash flow—as you saw, approximately $25 million for the first quarter, a strong increase over 2025. For now, we are focused on CGI, on our free cash flow goals, and on delivering long-term sustainable growth. Michael Stephen Matson: Got it. I will leave it there. Thanks. Operator: Thank you. This concludes our question and answer session. I would like to turn it back to Martha Aronson for closing remarks. Martha Aronson: Thank you, everybody. I appreciate you dialing in today. We are pleased with our strong start to 2026 and feel good about tracking nicely to our CGI goals. Most importantly, I want to thank our team who is so committed to helping patients all around the world. Thanks, everyone, for joining us today. Operator: This concludes our conference call for today. Thank you for your participation.
Operator: Good morning, ladies and gentlemen. Welcome to Group 1 Automotive, Inc.'s First Quarter 2026 Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the floor over to Peter C. DeLongchamps, Senior Vice President, Manufacturer Relations and Financial Services. Please go ahead, Mr. DeLongchamps. Peter C. DeLongchamps: Thank you, Jamie, and good morning, everyone. Welcome to today's call. The earnings release we issued this morning and a related slide presentation that include reconciliations related to the adjusted results that we will refer to on this call for comparison purposes have been posted to Group 1 Automotive, Inc.'s website. Before we begin, I would like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the call, statements made by management of Group 1 Automotive, Inc. are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume, inventory supply, market conditions, successful integration of acquisitions, and adverse developments in the global economy and resulting impacts on demand for new and used vehicles and related services. Those and other risks are described in the company's filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating with me on today's call are Daryl Kenningham, our President and Chief Executive Officer, and Daniel McHenry, Senior Vice President and Chief Financial Officer. I would now like to hand the call over to Daryl. Thank you, Daryl. Daryl Kenningham: At Group 1 Automotive, Inc., we pride ourselves on performing effectively in challenging times. We have successfully navigated economic recessions, the COVID pandemic, and the CDK outage in 2024. We focus on what we can control and by remaining a pure-play retailer, we minimize distractions and remain focused on what we feel are our core competencies. We estimate that Q1 2026 weather impacted our results by about $7 million in gross profit, driven largely by our aftersales business. Important to note is that Group 1 Automotive, Inc. typically pays our employees during weather closures, and in some markets, our stores were closed for as long as a week this year. In 2026, we continue to focus on our strengths. Where our performance did not meet our expectations, we acted promptly to address those issues, and I will provide further details on those areas later in my remarks. In the U.S., our new vehicle margins remained robust at over $3,300 per car, exceeding $3,250 for the third consecutive quarter. We saw sequential improvement in used vehicle PRUs and a $95 same-store year-over-year increase in adjusted F&I PRU. Two years ago, we introduced a virtual F&I process in our U.S. stores, giving customers the opportunity to conduct their transactions with an agent. This innovation is now installed in one-third of our U.S. stores, doing 20% of our deals in those stores. We are very pleased with the results of virtual F&I. Our PRU results are strong, transaction times have improved, improving customer convenience and the overall experience. Thus far, customer feedback is very positive. In addition, compensation costs are lower than compared to our in-store transactions. We anticipate continued growth in virtual F&I through the remainder of this year and into 2027. In aftersales, we are committed to setting ourselves apart. This quarter, we increased same-store customer pay gross profits by nearly 6%. We are pleased that in our U.S. business, our customer pay repair order count rose by 2.5%. Our growth in aftersales is driven by marketing initiatives utilizing artificial intelligence, vertically integrated customer data management, decreased technician turnover, completion of our workshop air conditioning project, and the addition of 130 new technicians on a same-store basis. Turning to a progress update on our Group 1 U.S. store rebranding initiative, we successfully completed the rebranding of half of our U.S. stores and anticipate being complete by the end of the year. Our team is actively gathering insights from each converted market, allowing us to refine our approach and apply our learning as we go. In the long term, we believe rebranding will improve the effectiveness of our marketing investments and drive greater customer retention, particularly as we focus on engaging households under the Group 1 Automotive, Inc. brand, especially in cluster markets. Our U.K. operation is demonstrating notable progress across key segments. New vehicle margins remain steady year over year, while same-store volumes increased 2%. Same-store used volumes rose nearly 5%, accompanied by sequential PRU improvements. F&I continued its positive trajectory, up year over year and sequentially on a same-store constant currency basis. Our U.K. parts and service business continues to accelerate, increasing 20% year over year in same-store gross profit, and customer pay increased 18%. We are applying many of the same principles we use in our U.S. business, opening our workshop schedules, expanding our hours, pricing our maintenance offerings on the aftermarket competition, eliminating diagnosis fees, and increasing capacity by hiring technicians. Turning to our U.K. SG&A performance, we incurred $3 million in incremental costs due to government-mandated national insurance and minimum wage increases. Without this headwind, we improved our leverage, but we continue to focus on further efficiency there. In the U.S., SG&A performance did not meet our expectations. Consequently, in early April, we implemented cost reduction measures in our U.S. business, cutting our headcount by nearly 700 full-time employees, and reducing SG&A costs by approximately $14 million through contract and vendor elimination. We expect that these efforts will remove $50 million of annual costs from our U.S. operations that will return our SG&A leverage to a more acceptable level. In both markets, across all areas of our business, we continue to look for ways to leverage technology, including artificial intelligence, to improve our returns. Many of these investments are still in the early stages, but they are beginning to demonstrate real benefits. AI can support customer acquisition and retention, enhance inventory optimization through more informed sourcing decisions, drive efficiencies by digitizing processes to reduce SG&A, and put more consistency in performance across all of our rooftops, a key strategic focus for Group 1 Automotive, Inc. We will continue to drive these efforts and look forward to sharing more details in the future. In the first quarter, we also continued our commitment to disciplined capital allocation, particularly in M&A and share buybacks. We divested two Mercedes-Benz dealerships in California. These stores were high-cost operations with significant real estate and operating constraints. In the U.K., aligned with the Volkswagen Group's ideal network plan, we acquired one Škoda and two Volkswagen dealerships while also disposing of one underperforming Volkswagen and one underperforming Škoda dealership. And in the U.K., we finalized a framework agreement with Chinese OEM Geely and will open three Geely dealerships in Q2 in facilities that we already own. We are in additional discussions with Geely and other Chinese OEMs about further representation. Our primary intention is to develop direct understanding of the retail model of Chinese brands. We also believe there is significant profit and sales opportunity with these brands in leveraging our large corporate fleet business in the U.K. During the quarter, we repurchased 205,190 shares, or approximately 1.7% of our outstanding shares. We are managing the business with discipline and purpose, ensuring we deliver strong, resilient performance that our shareholders expect, even in today's dynamic environment. I will now turn the call over to our CFO, Daniel McHenry. Thank you, Daniel, and good morning, everyone. Daniel McHenry: In Q1 2026, Group 1 Automotive, Inc. reported revenues of $5.4 billion, gross profit of $878 million, adjusted net income of $104 million, and adjusted diluted EPS of $8.66 from continuing operations. Starting with our U.S. operations, first quarter performance remained solid across most businesses, despite continued pressure on volumes and margins. New vehicle unit sales declined both on a reported and same-store basis, reflecting not only ongoing affordability concerns, but a tough comparative period which saw elevated new vehicle sales ahead of tariffs. However, new vehicle GPUs increased sequentially from $3,260 to $3,300. We continue to maintain strong operational discipline through effective cost management and process consistency. In our used vehicle operations, in line with the broader market environment, used vehicle retail units declined both on a reported and same-store basis, which were partially offset by higher selling prices. GPUs declined approximately 3% on a same-store and as-reported basis, reflecting continued pressure on vehicle acquisition costs in a more competitive sourcing environment. We continue to leverage our scale and operational flexibility to strengthen used vehicle acquisition while executing disciplined sourcing and pricing in a dynamic used vehicle market. Our first quarter adjusted F&I GPUs were up nearly 4% on an as-reported and same-store basis versus the prior-year comparable period. Aftersales stood out as a key bright spot, with both parts and service gross margin reaching a new quarterly high. Gross profit continues to benefit from our efforts to optimize our collision footprint, shifting collision space opportunistically to additional traditional service capacity and closing collision centers where returns do not meet our requirements. Same-store customer pay and warranty revenues increased approximately 35%, respectively, with corresponding gross profit growth of approximately 69%. Our technician recruiting and retention efforts continue to pay off, with same-store technicians up 3% year over year. Overall, our U.S. business continues to demonstrate resilience, with strong aftersales performance and disciplined execution helping offset ongoing normalization in vehicle margins. Turning to the U.K., while the U.K. remains a challenging operating environment, performance improved across several key areas. New vehicles performed in line with expectations. Used vehicle same-store revenues were up over 6% on a local currency basis, with volumes up nearly 5%. Same-store GPUs declined 2% on a local currency basis, leading to an increase in same-store used vehicle gross profit. Performance reflects improved demand and throughput, despite continued margin pressure in a competitive used vehicle market. Aftersales delivered year-over-year growth in both revenue and gross profit on an as-reported and same-store basis, while F&I delivered year-over-year growth in revenue and gross profit on a same-store basis. The aftersales business remains an important stabilizer within the U.K. operations, and along with F&I, it is a key area of focus as we work to enhance profitability by bringing best practices from the U.S. Same-store technicians are up 3%, adding significant capacity to our shops. Same-store customer pay and warranty revenues were up over 612% year over year on a local currency basis. Same-store F&I PRU reached 1,128, with an as-reported and same-store PRU both increasing over 8% year over year. We are continuously taking decisive actions in both the U.S. and U.K. to control costs, strengthen operational efficiency, and position the business for improved returns as market conditions stabilize. Turning to our balance sheet and liquidity, our strong balance sheet, cash flow generation, and leverage position will continue to support a flexible capital allocation approach. As of March 31, our liquidity of $714.3 million was comprised of accessible cash of $191 million and £523 million available to borrow on our acquisition line. Our rent-adjusted leverage ratio, as defined by our U.S. syndicated credit facility, was 3.09 times at March 31. Cash flow generation year to date yielded $147 million of adjusted operating cash flow and $95 million of free cash flow after backing out $53 million of CapEx. This capital was deployed in the same period through a combination of acquisitions, share repurchases, and dividends, including the acquisition of $135 million of revenues through March 31, $72 million spent repurchasing 205,000 shares at an average price of $353.08, and $7 million in dividends to our shareholders. We currently have $306.3 million remaining on our board-authorized common share repurchase program. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release, as well as the investor presentation posted on our website. I will now turn the call over to the operator to begin the question and answer session. Operator: We will now open the call for questions. To ask a question, you may press star and then one on your telephone keypads. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press star and two. We ask that you please limit yourselves to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Alex Perry from Bank of America. Please go ahead with your question. Analyst: I was wondering if you can walk us through the cost savings plan in more detail. It looks like $50 million in annualized savings with benefits beginning in the second quarter. Maybe help us parse out what the expected second quarter benefit is and what we should expect in the back half as well. And just provide a bit more color on the overall plan. Thank you. Daniel McHenry: Alex, hi. It is Daniel here. I would say coming out of January and February, we could see some weakness in the market and our SG&A leverage at that point was much lower than we would have expected. Going into March, we developed a cost-cutting program: 700 heads to come out of the business. They have all been completed by April. Total cost effect of that headcount reduction is approximately $35 million. In addition to that, we have taken cutting exercises around contracts, as Daryl talked about earlier, and that is close to $15 million in terms of cost. So on an annualized basis, or a quarterly basis, we would expect that to be about $12.5 million a quarter. Now, what would that have done for us in quarter one if we had taken that cost out on January 1? U.S. SG&A was circa 70.5%. We would have expected that to have been about 68.5%. So it is about 200 basis points out of cost in the U.S. Additionally, we continue to take cost out in the U.K., but we do have that additional national insurance in quarter one that we did not have last year. Analyst: Really helpful. Thanks for all the color there. And then my second question is about the used business. What is the path to getting used profitability back up to historical levels? I know you mentioned some of the sourcing cost on the used side, but maybe talk through the path there and if we should expect any near-term improvements on the used GPUs. Thanks. Daryl Kenningham: This is Daryl. We saw some nice sequential improvement in used PRU. Sourcing is the big challenge right now, because the SAAR was depressed in the first quarter, so there were fewer trades. We ended the quarter with 26 days. We do not rely very heavily on auctions—11% of our sourcing comes from auctions—so we work hard on organic sourcing. But the problem there is it is heavily late-model vehicles. Our mix of cheaper, higher-margin used cars in our inventory is very light compared to what it has been historically, and everybody is scrambling for those. Everybody really wants those because, obviously, one of the reasons people buy used cars is because they are more affordable. As we get better at that, I expect we will see margin improvement. I think we are better and more disciplined in our inventory acquisition. We are much better and more disciplined in both the U.S. and the U.K. on aging management and pricing decisions to market, trying to use more technology in both markets. While I do not think you will see leaps and bounds of improvement, I do think the additional discipline and the lack of supply provides a floor on used car PRUs. Analyst: Incredibly helpful. Best of luck going forward. Daniel McHenry: Thank you. Operator: Our next question comes from Bret Jordan from Jefferies. Patrick Buckley: Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our questions. There have been some recent headlines around rising negative equity values. Have you seen similar trends with your customers? And has there been any impact on converting a potential customer to a buyer on the sales floor when they realize they have to write a check to make the transaction happen? Daryl Kenningham: The short answer is yes. Negative equity is high and can be a headwind. We watch affordability measures quite a bit. The average car payment is high, insurance rates are high, negative equity is high. But there is also evidence that affordability is actually a little better now than it has been in some time. When you look at car payments as a percentage of people’s salary and people’s pay, it actually takes fewer weeks on the measure that a lot of people watch. It is better in 2026 than it has been. So there are a lot of things going on with affordability right now. Negative equity is one piece of that puzzle. Things like tax rebate checks are another piece. I do not think it is a huge limiter; it is just another piece of the affordability puzzle now. Patrick Buckley: Great. That is helpful. Then focusing on the U.K., there has been a more prominent impact from recent energy spikes there. How has the consumer held up into Q2? It sounded like Q1 was a pretty healthy quarter from a demand side. Have there been any signs of a pullback more recently? Daryl Kenningham: One of the things that we were really pleased with in the U.K. in the first quarter was our order take rate going into the plate-change month in March—it was very high, higher than we had seen in several years. When you go into a plate-change month, you really know how it is going to come out by about February, because the order bank dictates what kind of volume you are going to do. We were really pleased all through January and February with our March order take. I do not see that has changed materially. On a relative basis, April is not a plate-change month, but on a relative basis, I do not see that has changed. One thing we are really pleased about going into the second quarter in the U.K. is the health of our used car inventory. Inventory is significantly better than it was a year ago. One of the challenges in the U.K. market is when you have two months—March and September—which drive so much of your new car volume, it creates these huge used car inventories in April and October. If you do not have a lot of discipline in the way you manage your used car inventory, you can get caught, and candidly, in the past, we have been caught. I am really pleased with our aging, our inventory levels, and our discipline this year in the U.K. Our used car inventories are in a much better place, and we hope that means better things for us in used cars this year there. Patrick Buckley: Great. That is all for us. Thanks, guys. Operator: Our next question comes from John Babcock from Barclays. Please go ahead with your question. John Babcock: Thanks for taking my question. The first one, on your plan to exit the JLR brand, where does that stand, and also, did that impact your U.K. operations, or is that now considered part of discontinued ops? Daryl Kenningham: It is not discontinued ops because, materially, it is a very small part of our business. We are in active negotiations on a number of them, both with the OEM and with potential buyers. We have closed one of the nine. We are in active discussions on several more and very close to contract finalization. Once we get those finalized, we will be able to announce those, but we are pleased with where we are on that. John Babcock: And then just back to the cost actions. With the 700 people that you cut from the workforce, where were those? I am sure they are spread across different teams, but were those more weighted to the sales side, or more in the back office? Any more color would be useful. Daryl Kenningham: It was across the board. We took SG&A as a percentage of gross targets by store, market, and business unit, and assigned headcount targets based on that. It came from across the enterprise—in the stores and at the corporate level. Fortunately, in some of our corporate activities, we have been able to implement technology which helps keep our productivity up, so we did not need some of that headcount. It was across the board, and that is done. We have already executed the headcount actions. John Babcock: Understood. Are you able to provide any split between U.S. and U.K.? Daniel McHenry: That is all U.S. It is Daniel here. The full $50 million was all U.S. headcount reduction. John Babcock: Thank you. Operator: Our next question comes from Rajat Gupta from JPMorgan. Please go ahead with your question. Rajat Gupta: Great, thanks for taking the question. I had a follow-up on the disposal question. The California stores that you divested—could you give us a sense of proceeds and any EBITDA or earnings impact we should dial in from that? I have a couple of quick follow-ups. Daniel McHenry: We do not typically disclose the proceeds. But it is fair to say the multiple that we received for those stores was much higher than the multiple that the company trades at. Both stores needed significant CapEx. They had fairly expensive real estate attached to them. For us as a company, we were pleased with the outcome for selling those stores. Rajat Gupta: Got it. That is helpful. And then on parts and service, thanks for calling out the weather impact. If I adjust for that, the U.S. business would have grown roughly 4% versus the 2% reported. How should we think about that in the context of your general outlook for mid-single-digit type growth? Maybe there is some warranty headwind. How should we think about that going forward? Daryl Kenningham: There is a little warranty headwind. On a year-over-year basis, warranty was only up 4% for us in the U.S. The mid-single digits is still the model, Rajat. Two things to keep in mind with us. We have converted some of our collision centers into shop space. You cannot just turn that off one day as a collision center and turn it on the next day as a service workshop; you have to put all new equipment in there and restaff it. There is transition time between when it stops being a collision center and when it starts being a productive workshop. So you see a big negative on our collision comps because of some of those collision centers that we have closed. In addition, what we see in the sector is a decline in the collision business in general, which exacerbates that. You see that in our wholesale parts numbers that were only up 2.8%—not very much—and that is a lower-margin part of our business. You take the collision decline, which is a lower-margin part, and the slower growth in wholesale parts, and you mix that into CP and warranty, and you see a slower number on aftersales growth. We had almost 6% same-store gross profit growth on customer pay in the U.S.—pleased with that. I always want it to be more, but when we pull all of our aftersales levers, that is generally directed at customer pay. Hope that helps. Rajat Gupta: That is helpful. Just one clarification: the F&I adjustment of $6.8 million—what was that tied to? Daniel McHenry: That was effectively a one-time, nonrecurring adjustment to our revenue calculations for retrospective rebates. Rajat Gupta: Understood. Thanks for all the color. Good luck. Operator: Our next question comes from Jeff Lick from Stephens. Please go ahead with your question. Jeffrey Francis Lick: Good morning. Thanks for taking my questions. Daryl, as you look at the first four months of this year, it has been pretty noisy. Could you parse out where you think the consumer is and maybe bifurcate the typical mass affluent or luxury consumer versus the volume consumer as we get through April? We have heard some of your peers say April has been okay but maybe feels a little weak, like people are being cautious because of the war. Curious for your thoughts on where things are at. Daryl Kenningham: I would not disagree with what I have heard so far from our peers and some of the industry experts on the consumer. There is no shortage of distractions for consumers these days, and in our industry, consumer confidence and the SAAR run together. As consumers lack confidence, it is a headwind. I do think there is evidence that consumers are still spending. Ex-weather, we have seen some decent performance. But there is no shortage of distractions for consumers right now. That is one of the reasons we took the cost actions we did, Jeff. We want to make sure we are lean enough if the SAAR stays in this range—mid-15s, 15.6, 15.7—so that we are able to compete effectively. Jeffrey Francis Lick: And then just to follow up, on the 700 headcount, obviously in the back of your mind you are thinking, if we do this, it could come back to haunt us in terms of operational abilities on the cost side or on the gross margin side. Where might you worry you could be cutting to the muscle, as you think about the dealership of the future and functions that can be performed by software? Daryl Kenningham: I do not think we cut muscle on this one. We tried to be very logical about it. Where we did touch what I will call “productive” people—those who sell and service vehicles—we focused on very low-productivity areas of our business. We are using a lot of technology in our sales department to manage customers, inbounds, leads, sales, and conversion. We feel like we have enough technology overlay to compensate for lower-productivity salespeople we may have separated with. On a technician basis, we touched very few technicians, and if we did, it was around very low-productivity roles. We have actually leaned into more technician investment during this period. There are things we did not touch: any of our people development initiatives, training initiatives, people retention initiatives, or our air conditioning project across our dealerships. We continue our technician mentoring program—three quarters of our hourly techs are part of a mentoring program now—which we feel is vital to retention and growth. We did not touch anything that impacts longer-term growth opportunities in aftersales. Daniel McHenry: Jeff, it is Daniel here. One typical example of where we cut costs: this quarter, Q1, we rolled out digital deal jacket across 100% of our dealerships. Effectively, deals are either signed online or are held online. Traditionally, we would have had a scanner in a dealership scanning roughly 100 pieces of paper that formed the deal jacket. Clearly, going 100% digital meant that that scanner was no longer required. Jeffrey Francis Lick: Scanner being a person. Daniel McHenry: Correct. Jeffrey Francis Lick: Okay. Awesome. Thanks for taking my questions, and best of luck in Q2 and the rest of the year. Operator: Our next question comes from David Whiston from Morningstar. Please go ahead with your question. David Whiston: Good morning. On the upcoming Geely U.K. locations, are they going to be standalone or in the existing Group 1 Automotive, Inc. footprint somewhere? Daryl Kenningham: They are in buildings we already own, usually part of either a franchise that we have or in a cluster of dealerships that we have. As an example, north of London near Watford, we have a site with a BMW store where we had a MINI standalone store and a BMW standalone store. MINI is now part of the BMW operation, which left us an empty showroom and service facility on the same campus, and we were able to put Geely in there. So we do not have to sell Geelys and BMWs in the same showroom, and it gives us a separate facility we already own. There is no incremental CapEx to do that except for some minor imaging investment. David Whiston: Okay, thanks. And then on the virtual F&I, I am trying to balance that it is great for efficiency and speed for the customer, but are F&I managers losing some opportunities here financially? Peter C. DeLongchamps: No, they are not. In fact, they are gaining because they become much more efficient. They are actually doing more deals at the store level. The key to this was customer convenience. As we perfected this, we have lowered turnover, lowered comp, and actually increased PRU on what I would call the bottom performers. This has been a terrific initiative that has paid off in multiple ways. Daryl Kenningham: One way to look at it is the productivity of the F&I producers. Many of the folks who are virtual F&I managers for us used to work in our stores. They now are virtual F&I managers doing deals all over the country. In an average day, an in-store F&I manager might do three deals. As a virtual agent, they can do seven, eight, nine, 10—that is what we see. We are really pleased with that. We are able to attract a different type of employee because we can offer things like part-time work and working from home. It has taken us two years to get here—it was not simple. The team worked really hard through our learning process on this. It was a long ramp up; that is one of the reasons we have not talked about it until now. But we feel there are productivity gains as well as quality of life benefits for our team. David Whiston: Thank you. Operator: Our next question comes from John Sager from Evercore. Please go ahead with your question. John Sager: Hey, Daryl. Thanks. I wanted to dig into the divergence between the U.K. and the U.S. and where you think you might have more impact on SG&A cost savings over time. Is there basically more low-hanging fruit in one region or the other? Daryl Kenningham: I do not think there is low-hanging fruit in any region, honestly. Since COVID, we have been pretty disciplined with our SG&A and I think we have demonstrated that. Our headcount is still lower than it was pre-COVID. In the U.K., there is still opportunity as we grow lines of business—we saw F&I grow, aftersales grow quite a bit, and nice same-store sales growth in new and pre-owned. We must ensure we contain cost as we grow. Whether it is marketing costs or people costs, some transaction costs, we do not have as much automation in our U.K. business as in our U.S. business. That is a focal area for us. In the U.S., it is about people productivity, whether it is a technician or a salesperson. How do we put them in a position to be as productive as possible? Those are areas we are really focused on in both markets. Daniel McHenry: John, one thing I would note in the U.S. specifically: January and February SG&A as a percent of gross was outsized, and some of that was around the weather we had in the U.S. March SG&A as a percent of gross was a lot healthier. With the actions we have taken, hopefully that will continue into Q2 and Q3. John Sager: That makes sense. Thank you very much. And then relative to the 84% in the U.K. for the full year '25, you had improvement in Q1. I would expect that to come back again in Q3. Could we end the year materially lower than that 84%, or is 80% still a bridge too far for this year? Daniel McHenry: The aim is to get as close to the 80% stated SG&A as a percent of gross as possible. On the basis of where we were in Q1, I think that is possible, but it will require consistent work. Operator: Our next question comes from Mike Ward from Citigroup. Please go ahead with your question. Michael Ward: Good morning. I just want to double check the math. The $7 million impact from weather was all on parts and service in the U.S. Is that correct? Daryl Kenningham: That is correct, Mike. That was our estimate, probably a little conservative. We assumed that all the vehicles sales we lost were replaced—whether that is true or not, who knows. But parts and service you are not likely to get back. Michael Ward: Okay. And if I do the walk, that $7 million was an 80-basis-point impact inflating the 70.5%. Is that right, Daniel? Is that what you were alluding to? Daniel McHenry: That is correct. Michael Ward: Okay. Then you have the cost savings which knock it down 150 to 200 basis points. I am assuming with the brand rollout there are some additional operating costs that are unusual as we go through this year. If we are at a steady state, are we getting down to somewhere in the mid-60s for SG&A as a percentage of gross in the U.S.? Is that the right way to think about it? Daniel McHenry: If you think about the walk and reverse the effect of the weather and assume we had the $12.5 million cost reduction, somewhere close to the high 67% is reasonable. That does not include any of the rebranding or other items. Daryl Kenningham: On your question on rebranding, we did have some incremental costs—for signage, uniforms, and things like that—in the stores we have completed. One thing I was really pleased to see in March was real leverage on our operating advertising spend. We saw some really good leverage in March. Some of that is because it is March and you have more volume to spread it over, but also we are doing more with Group 1 Automotive, Inc. advertising than we ever have because we have about 50 stores on it. Rather than advertising 50 different brands, we can now advertise one and get more leverage. Hopefully, we will see that continue as we go through the year. We are trying to do more advertising with one voice rather than 148 different store voices. Michael Ward: Makes sense. Turning to the U.K., what is your current position with the China brands? I saw that you are expanding your relationship with Geely. How many stores do you have, what do they represent, and where are we going? Daryl Kenningham: We have three that we have signed agreements with that will become live in Q2. We have a framework agreement with Geely so we can go beyond three. We have three stores with specific dealer agreements with Geely that will be operational in Q2. We are talking to Geely about more than three. We are also talking with other Chinese OEMs about representing them. We have taken a slightly slower pace. We were concerned some brands got over-dealered. We could have signed dealer agreements last year and been part of the sales growth, but it might have hurt profitability because the UIO is still growing. They have only done any real volume for six to eight months in the U.K., so there is not a lot of UIO yet to drive service departments. We are taking a measured approach, but we are in now and excited to learn how the retail model really works for Geely. We are in active discussions with some of the other brands. We will rely on our formula—we are good dealers, good representatives of OEMs, and they will want to do business with us. That formula has worked for us in both markets, and we feel like it will work well with the Chinese OEMs as well. Michael Ward: Makes sense. Daryl Kenningham: Thank you very much, everybody. Appreciate it. Michael Ward: Thank you. Operator: With that, we will be concluding today's question and answer session. I would like to turn the floor back over to Daryl Kenningham at Group 1 Automotive, Inc. for closing remarks. Daryl Kenningham: Thank you, Jamie. In summary, we remain committed to our strategic initiatives: local focus, operating excellence, differentiated aftersales, and disciplined capital management. We will continue to build on our results from the first quarter. The U.K. remains a priority as we build on improving our operating performance, execute on our various initiatives there, and shape the portfolio to drive better returns. We believe consistent execution against these priorities positions us to navigate near-term challenges while also building long-term value. Thank you for your time today. We look forward to discussing our second quarter results on our call in July. Operator: Ladies and gentlemen, this concludes today's conference call and presentation. Thank you for joining. You may now disconnect your lines.
Operator: Good day, everyone, and welcome to the Sinclair, Inc. first quarter 2026 Earnings Conference Call. At this time, all participants are placed on a listen-only mode. We will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Christopher King, Vice President of Investor Relations. Sir, the floor is yours. Christopher King: Thank you. Good afternoon, everyone, and thank you for joining Sinclair, Inc.'s first quarter 2026 earnings conference call. Joining me on the call today are Christopher S. Ripley, our President and Chief Executive Officer; Narinder Sahai, our Executive Vice President and Chief Financial Officer; and Robert D. Weisbord, our COO and President of Local Media. Before we begin, I want to remind everyone that slides for today's earnings call are available on our website sbgi.net, on the Events and Presentations page of the Investor Relations portion of the site. A webcast replay will remain available on our website until our next quarterly earnings release. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to several risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements because of various important factors. Such factors have been set forth in the company's most recent reports as filed with the SEC and included in our first quarter earnings release. The company undertakes no obligation to update these forward-looking statements. Included on the call will be a discussion of non-GAAP financial measures, specifically Adjusted EBITDA. This measure is not formulated in accordance with GAAP and is not meant to replace GAAP measurements, and may differ from other companies' uses or formulations. Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on our website. Please note that unless otherwise noted, all year-over-year comparisons throughout today's call are presented on an as-reported basis. I will now turn the call over to Christopher S. Ripley. Christopher S. Ripley: Thank you, Chris, and good afternoon, everyone. We delivered a strong first quarter, with results that reflect the consistency of the broadcast business and the growth potential of Tennis Channel. For the quarter, total revenue of $877 million was up 4% year over year, while Adjusted EBITDA of $126 million grew by 13%. Distribution revenue increased by 2% year over year as modestly improved subscriber trends continued and we are starting to see the benefit of our partner-station buy-ins. Net retrans revenue was also up year over year. In addition, we continue to see growth in our core advertising business. Core advertising grew 4% year over year in the first quarter, a result we were pleased with given our underexposure to NBC, which delivered an exceptionally strong quarter to its affiliates on the back of the Super Bowl, Winter Olympics, and NBA. Looking ahead, Fox, our largest affiliation, will carry a record schedule of World Cup soccer matches on the broadcast network in June and July, ahead of the political ramp in the fourth quarter. Turning to execution across our broader strategic priorities, we have built real momentum. We have now closed on a substantial majority of our JSA and LMA partner-station buy-ins, with only a small number remaining, and we expect the full $30 million in annualized synergies in 2026. We also recently completed two accretive duopoly transactions in Providence and Tulsa, with several smaller portfolio discussions underway. Our strategic review of the broadcast business remains active. As previously discussed, our ideal path forward is a broadcast combination concurrent with a ventures separation. We remain Scripps' largest shareholder and our perspective on the strategic logic of the combination is unchanged from what we shared previously. Within Ventures, the portfolio generated $12 million of cash distributions during the quarter, ending with $451 million of cash. That liquidity provides flexibility as we advance our venture separation planning. As a result of our first quarter results and current forecast, we are reaffirming our full-year 2026 guidance. And finally, we continue to work to strengthen our balance sheet. Earlier this month, we retired approximately $165 million in term loans at a discount through an unmodified reverse Dutch auction. As a result, we will save approximately $12 million in annual cash interest expense. As evidenced by this transaction, deleveraging remains a top priority. We ended the quarter with total debt of $4.4 billion and total liquidity of approximately $1.5 billion, including total cash of $844 million. We are pleased with our first quarter financial and operational results. Our team is executing with discipline across multiple priorities and we are well positioned for the remainder of 2026. The industry continues to await several important decisions that are now in front of the Federal Communications Commission. While the recent California litigation involving the Nexstar transaction took up much of the broadcast regulatory headlines over the past few weeks and has introduced some near-term uncertainty on timing, we believe the broader environment remains constructive for local broadcasters and we continue to feel optimistic about the direction of significant issues. Both the FCC and the Department of Justice approved the Nexstar acquisition of TEGNA with no material conditions, and we remain pleased with the overall deregulatory tone from Washington. I will not rehash most of those other issues which we discussed on our fourth quarter call in February, but one development is worth noting. In late February, the FCC launched an inquiry into the sports media marketplace, examining how streaming exclusives affect consumers, broadcasters, and free over-the-air access. Since the launch of the FCC inquiry on February 25, well over 10 thousand comments have been submitted on the FCC's sports media marketplace inquiry, making it one of the most commented-on inquiries in Commission history. As every television viewer and sports fan knows all too well, the fragmentation of live sports programming is causing increasing customer frustration with both higher costs and confusion around where the games are televised. With 96 of the top 100 most watched telecasts last year being live sports broadcasts, including record ratings across almost every major sport, this has become an increasingly important topic for both consumers and regulators. Broadcast delivers what no other platform can: the widest reach and the lowest cost to the consumer. The numbers make the point. The NFL Thanksgiving game on Fox drew 57.2 million viewers, the most watched regular-season NFL game ever on Fox. The Amazon NFL game the very next day drew only 16.3 million. Same week—roughly three and a half times the audience on broadcast. Meanwhile, last year, NFL games aired on 10 different services, which, according to some estimates, could cost a consumer over $1,500 to watch all of the games even though the large majority of those games aired free over the air on broadcast networks. Live sports is the cornerstone of the broadcast ecosystem. It drives mass audiences, and it underwrites the financial model that sustains local television stations and the local journalism they produce. The migration of major sporting events behind streaming paywalls is not just bad for consumers; it risks eroding one of the last shared viewing experiences we all have and it pressures the very business model that funds local news and community programming. Maintaining broad and free access to live sports should remain a top priority for policymakers as they continue to examine this issue that has clearly struck a nerve with viewers and policymakers across the country. With that, let me turn the call over to Robert D. Weisbord to discuss operational highlights in the quarter. Robert D. Weisbord: Thank you, Chris, and good afternoon, everyone. Let me walk through our operational performance and how we are positioned heading into the remainder of 2026, starting on slide six. We delivered solid growth in core advertising, with first quarter core revenue up 4% year over year, driven by strength in digital and our acquisition of Digital Remedy. Advertisers continue to prioritize platforms that provide scale, interactivity, and live engagement—and broadcast consistently delivers on all three. Notably, our NBC affiliates delivered very strong results, benefiting from the convergence of major live sporting events. The Super Bowl was the second most watched telecast of all time in the U.S. The Winter Olympics were the most watched Winter Olympic Games in 12 years on broadcast television. And the NBA continues to deliver solid ratings for the network. While we are underweight NBC, we are overweight Fox, which is our largest network affiliation, and we are already seeing strong demand for the FIFA World Cup soccer tournament on Fox this June and July. Notably, 70 of the 104 total matches will air live on the linear FOX broadcast stations, with 40 matches scheduled for prime time. This is exactly the kind of appointment viewing broadcast is built for—delivering mass audiences with unmatched reach across the country. Our core advertising continues to benefit from digital revenue, including our programmatic digital advertising platform. As ad dollars increasingly shift across linear, connected TV, and digital, our digital offerings allow us to capture demand across all those channels rather than being limited to linear. That matters in the political cycle too. Beyond linear, we continue to see engagement growth across podcast and social platforms. Recent activations like the Tailgate Tour and The Block demonstrate our ability to engage audiences beyond traditional broadcast while creating meaningful opportunities for our advertising partners. Our next activation will be at the World Cup, hosted by unfiltered soccer stars Landon Donovan and Tim Howard, two of the most capped players in U.S. National Team history. In summary, Sinclair, Inc. continues to execute well on its core broadcast business. Broadcast's differentiated role is strengthened in a year like this—political- and sports-heavy 2026—with both ratings and subscriber trends showing positive momentum. Turning to slide seven. Tennis Channel continued the momentum around live sports and delivered an exceptional quarter and a historic month of March. March 2026 was Tennis Channel's most watched month ever, led by the Indian Wells and Miami Open tournaments attracting record audiences. The Miami Open women's final between Sabalenka and Gauff was the most watched women's match in Tennis Channel history, breaking a viewership record set just two weeks earlier at the Indian Wells women's final. In fact, four of the top five most watched matches of all time for Tennis Channel occurred in March, as Tennis Channel household viewership increased by 19% year over year in the quarter. In addition, Tennis Channel has hit record DTC subscriber numbers in recent weeks, driven in large part through its recent launch with Amazon Prime Video. Tennis Channel 2, the network's FAST channel, which launched on Peacock in January, will continue to feature Women's Day every Tuesday—a programming day exclusively dedicated to women's tennis—reinforcing our leadership in women's sports programming. While we remain disciplined on expenses, we are also making thoughtful, high-return investments to support the long-term growth of the franchise: expanding our content rights portfolio, scaling our direct-to-consumer platform, and building out Tennis Channel 2 as well as our digital platforms. Tennis Channel is a differentiated premium sports asset and we are investing behind it accordingly. We are fully bullish on the network. Lastly, we continue to build out Amazing America 250—From Neighborhood to Nation—a multi-platform celebration of U.S. history, culture, innovation, and community spirit. Programming will expand as we approach the 250th anniversary of our nation's founding on July 4. Let me now turn the call over to Narinder Sahai to discuss the first quarter financial results in more detail. Narinder Sahai: Thank you, Rob, and good afternoon, everyone. Turning to slide eight, I am pleased with our first quarter results that reflect strong execution across the business. At the total company level, revenue was $877 million, up 4% year over year. Distribution revenue of $458 million grew 2%, supported by lower subscriber churn across key MVPDs and incremental benefit from our partner-station buy-ins, both of which also contributed to growth in net retransmission revenue. Core advertising revenue of $305 million also grew 4%, reflecting the contribution from the Digital Remedy acquisition that closed in March and continued strength in live sports including the Winter Olympics and NFL playoffs. Adjusted EBITDA was $126 million, up 13% year over year. The increase reflects both revenue strength and operating leverage, with operating expenses absorbing the cost base from the Digital Remedy acquisition while core operating costs remained well controlled. In the Local Media segment, total revenue of $701 million benefited from the same distribution and advertising trends. Distribution revenue of $402 million and core advertising revenue of $261 million both showed modest growth year over year. Segment Adjusted EBITDA of $117 million reflects lower programming and production costs, lower network compensation related to prior-year station sales, and disciplined SG&A expenses. Within the Tennis segment, total revenue of $70 million was also up year over year. Adjusted EBITDA of $20 million was below last year's first quarter, reflecting an increase in sales and programming expenses as we continue to invest behind the network's growth that Rob referenced earlier. Capital expenditures on a consolidated basis were $15 million. Overall, the quarter reflects broad-based execution, improving subscriber trends, and solid advertising demand across the company. Turning to slide nine, I would like to provide an update on Sinclair Ventures. Consistent with the strategy we previously outlined, Ventures continues to shift from passive minority investments towards majority-controlled operating businesses with a focus on durable, nondiscretionary, and recurring revenue streams that convert strongly to free cash flow. Ventures generated $12 million in cash distributions during the quarter, primarily from the secondary market monetization of one of our minority investments, following the $104 million for the full year 2025. These distributions demonstrate our ability to monetize investments while preserving upside in the broader portfolio. We also remain selective on new capital deployment with incremental investments of $6 million in the quarter. Ventures ended the quarter with $451 million in cash and cash equivalents. That liquidity provides meaningful optionality as we advance separation planning and continue to evaluate capital allocation opportunities. Overall, as we advance our work towards a potential separation, Ventures continues to generate meaningful cash while repositioning the portfolio toward greater operational control and long-term value creation. Turning to slide 10, as Chris referenced earlier, in early April, we settled an unmodified reverse Dutch auction for our term loans, retiring $165 million in par value at a discount. The delevering transaction is expected to reduce our annual cash interest expense by approximately $12 million. Including borrowings under the AR facility, total Sinclair Television Group, or STG, debt was $4.4 billion. Our nearest material maturity, excluding the AR facility, continues to be in December 2029. At quarter end, as defined in our credit agreement, STG net first lien leverage was 1.5x, net first lien leverage was 3.8x, and net leverage was 5.1x. Net leverage fell by 0.2 turn sequentially, and these figures do not yet reflect the April term loan retirements that I referenced earlier. We ended the quarter with $844 million in consolidated cash, including $392 million at STG and $451 million at Ventures. Including revolver availability, total liquidity was approximately $1.5 billion. Before turning the call back to Chris, let me briefly frame our first quarter results and outlook in the context of the broader operating environment. When we introduced 2026 full-year financial guidance in February, we planned for stable core advertising trends supported by a sports-heavy broadcast calendar while remaining appropriately cautious given macro headwinds in certain categories. Since then, given the conflict in the Middle East, the external environment has evolved. Consumer sentiment has moved meaningfully lower, inflation expectations have ticked higher, and advertiser visibility in select areas is somewhat more measured than a quarter ago. At the same time, the drivers underpinning our full-year outlook remain firmly intact: record midterm political cycle with competitive races across several of our key markets; the FIFA World Cup and a sports-heavy broadcast calendar in the second and third quarters; and steady distribution supported by moderating subscriber churn and expected benefit from our partner-station buy-ins that are now substantially complete. Based on that balance, we are reaffirming our 2026 full-year guidance today. Let me now turn the call back over to Chris for closing comments before we open the call to questions. Christopher S. Ripley: As we wrap up on slide 11, let me briefly summarize our quarter. First, we continued to execute and build momentum on our core broadcast business. We delivered strong results across the board that translated into meaningful cash generation with stable core advertising trends, audience strength anchored by live sports, and improving subscriber churn across key MVPD partners. Live sports continues to drive the kind of appointment-viewing audiences that no other platform can match. Both the FCC and DOJ are now examining facets of the live sports broadcasting marketplace and we believe they are asking the right questions. Tennis Channel further reinforced this dynamic during the quarter, delivering four of the top five most watched matches in network history, alongside record growth in our direct-to-consumer product. We also continue to advance our deleveraging priorities with STG net leverage improving in the quarter by 0.2 turn sequentially to 5.1x. We also allocated capital to retire $165 million in par value of our term loans at a discount. Looking ahead, we reaffirmed our 2026 guidance, anchored by a resilient revenue mix, strong midterm political revenue expectations, a sports-heavy broadcast calendar headlined by the World Cup, and continued cost discipline. We will now open the call for questions. Operator: Certainly. Everyone at this time will be conducting a question-and-answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. And once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Steven Lee Cahall from Wells Fargo. Your line is live. Steven Lee Cahall: Thank you. Chris, it seems like with Nexstar–TEGNA, a big win for the broadcast—far more expanded definition of the market to come into the twenty-first century. On the other side, we are seeing Nexstar and TEGNA tied up in some legal issues. So what do you feel like you glean from watching them go through these processes as you think about potential M&A for Sinclair, Inc.? And just a related one on this topic: you mentioned that you are still Scripps' number one shareholder. My sense is that there is not a—[inaudible]—a lot of— Christopher S. Ripley: You still there? Steven Lee Cahall: Sorry. Let me try that again. So in the Nexstar deal the DOJ's much more expansive view of the TV ad market, but now Nexstar is going through, you know, an interesting legal process. So what do you think watching them go through this merger that informs your thinking on potential mergers and acquisitions? And then you mentioned you are the number one shareholder of Scripps. Do you think there is a path there to continue to engage in the future? Christopher S. Ripley: I think I have got your questions, Steve. So the first one as it relates to what is going on with Nexstar–TEGNA, I think what you first said is very important. We have seen an approval of that transaction from both the FCC and the DOJ with no conditions and no divestitures required from the DOJ. So that is a huge change in the way the DOJ has historically looked at our market, which was defined as just competition amongst local broadcasters. They have finally come up to date with the realities of the current marketplace, which is that we compete across many different mediums, including cable and connected TVs. So that is a huge win, and it has been a long time in coming. It will be tremendously helpful to the industry going forward in pursuing much-needed consolidation. As I have talked about before, we firmly believe under this rule set—which is now essentially been verified at both the FCC and the DOJ with a new large precedent—we are going to head towards a marketplace where you have two large groups that the industry consolidates up to, which still will be relatively small in the TMT landscape, but will be much better competitors within that broader landscape as they improve on efficiencies and gain more access to better talent and open up new business opportunities. So that is very exciting. Now, obviously you noted the downside here is some of the issues coming up at the state level, specifically in California for Nexstar–TEGNA. We do think that the case brought against that deal is very flimsy in terms of the merits, and we believe that now that we have seen the playbook, any future transactions can significantly mitigate a similar playbook in future transactions. I think there are a lot of unique features in the Nexstar–TEGNA deal—like it was essentially a number one and number two coming together—which certainly would not be what you would expect mathematically to happen in the next combination. There were a bunch of optics around the deal which did not look great, which were very unique to this situation. So we, of course, did not want to see that happen and would rather Nexstar just proceed forward on a clean basis. But we have a lot of faith they will play through this. We do not think the merits of the lawsuit are really there, and we do think future large transactions will learn a lot from this process and be able to mitigate the risk. And then as it relates to Scripps, the industrial logic is still there. Our position on the deal is still the same. As I mentioned in my remarks, we would be happy to pick up discussions again around such a transaction. But we are not standing still. We are looking at multiple other opportunities to achieve similar levels of benefits and synergies. So we will keep moving, and if something were to materialize with Scripps, great—but if not, we are moving forward. Operator: Your next question is coming from Aaron Watts from Deutsche Bank. Your line is live. Aaron Watts: Hi, guys. Thanks for having me on. Just a couple questions. One follow-up on the line you were just addressing. Given the noise or pushback that is being generated with getting the Nexstar transaction across the finish line, do you still expect the FCC to press ahead with trying to officially change or abolish the national ownership caps so that future deals do not have to rely on waivers? Christopher S. Ripley: I do think that will happen. Of course, that is up to the FCC, and certainly as an industry we have been lobbying for that. So it is something that I do expect will happen in the future, that you do not have to rely on waivers. Aaron Watts: Okay. I wanted to ask for a bit more detail around Local Media core advertising. Your rate of growth slowed down sequentially from 4Q into January. I am guessing Olympics played a key role there. But can you talk about other puts and takes? And then how is 2Q core tracking relative to what you saw in first quarter? Has the war had any discernible impact yet on your bookings, particularly in the auto vertical? Robert D. Weisbord: It definitely was sports-related in fourth quarter. Being underweight on NBC—and based on our NBC performance—we know the market still was delivering on the core advertising. Fortunately or unfortunately, a lot of the weight moved to NBC, and that is why as we head into World Cup and given how we are overweight on Fox, we are bullish on the end of second quarter going into third quarter by carrying 70 games on the Fox network. We are still comfortable with our guidance that we have given for the year on core. We will remain watching these headwinds. As mentioned, consumer confidence is starting to wane, gas prices are increasing, and so the cost of goods being shipped most likely will be going up, and we will see that domino effect. But we remain confident in our annual guidance that we will still achieve that guidance. Christopher S. Ripley: And just to add on to what Rob just mentioned, also remember that these are as-reported numbers, and we did have station divestitures to Rincon and Yakima/Spokane, which impacted the reported number on core. So keep that in mind. Aaron Watts: Okay. But overall, it sounds like your full-year view on core has not changed despite these moving parts that you have outlined? Robert D. Weisbord: Yes, we are still comfortable with the full-year view and, as Chris mentioned and I mentioned, we are coming off of record or very high growth in live sports. Live sports between all our platforms drives significant revenue, so we are still comfortable with the annual outlook. Aaron Watts: Okay. If I could squeeze one last one in, I appreciate the time. Just around political. Sounds like still a lot of optimism on that front for the year. CTV was the big mover in terms of share in 2024, expected to grow further this year. Where do you think the share shift will come from going forward? Do you expect that broadcast TV can maintain its share? And can you also discuss the campaign finance limit case that is currently being debated in court? Help us understand how potential outcomes could impact your political ad revenues particularly related to lowest unit rate or cost—if not for this midterm cycle, then potentially as we think ahead to 2028. And thank you again. Robert D. Weisbord: We are comfortable. We think the shift to CTV, which is a natural shift, is coming from search and social and going into CTV. We have some TVB research which showcases on the 18+ demo, which is the voting demo, that if you extrapolate Amazon Prime—which does not take political ads—as well as YouTube, which is short video, broadcast delivers 78% of the commercial inventory. And just recently, as we were talking earlier, I indicated that the faucets have now opened on broadcast political spend. We have seen significant buys from the GOP and the DEM PACs in North Carolina. They just started to have their expenditures; they have a $1 billion estimated political fund. So we think we are situated in the markets where there are highly competitive races to capture those dollars. Christopher S. Ripley: And, Aaron, in terms of your question around some of the back and forth on lowest unit rate/cost—you have got the court matter, there is also a petition for reconsideration by the TVB around the recent FCC interpretation. Look, I think that all is important to some extent. There is a real case to question whether something like a lowest unit rate is even constitutional. But that will all take some time to play out. What you should know is that we are not particularly concerned about that affecting the outcomes that we expect for the year. That really plays into the dynamics of what goes on in political ad spend. Number one is I like to always say that politicians do not return money to their donors once the elections are over. There is a real incentive to get advertisement on the air in the right places where it can impact voting leading up to the elections, and that is unequivocally on broadcast television—and more specifically on our stations, which are in a lot of the battleground states and have a very large independent-voter viewership that has a high propensity to vote. So our local news audience is highly coveted when it comes to political advertising. Political advertisers, as things heat up, tend to move to inventory categories which have more protection in terms of their ability to be preempted, and those categories come with higher prices and do not tend to be where your general advertisers play. So we think that in terms of the yield component of this and the total demand, these things matter around the edges, but they will not have a meaningful impact on the outcomes. Operator: Your next question is coming from Analyst from Hover Research. Your line is live. Analyst: Great. Thank you. My first question is, you mentioned a few times that you are seeing modestly improving subscriber trends. Can you maybe quantify that? I mean, on a same-station basis, were you down, say, roughly 4% year over year on your subs? Is that reasonable? Christopher S. Ripley: Our overall subscriber churn in Q1 was mid-single digits, and that did have a very modest overall improvement. More importantly, on the traditional MVPD side, we did see over a 100-basis-point improvement in churn there sequentially, and that is one of our biggest contributors. It is improving and being driven by some of the larger MVPDs like Charter leading the way with its streaming bundling strategy. We have talked a lot about it in the past. It is a great strategy; it is working. You can see it in their numbers publicly. We are increasingly seeing it in what they report to us. Comcast has also been doing better as well, and they are the two bellwethers of the space. Analyst: Great. Thank you for that. My next question, if I could: Can you maybe touch on what your outlook is for your net retrans this year, or if you want to do it on a two-year basis, could you share that with us? Christopher S. Ripley: We do expect net retrans to grow over the long term. We have not given any more specific guidance on net retrans. We feel with the trends that we are seeing—as we talked about earlier on subscribers seeing modest improvement there—on our network affiliation costs, which we are about to have a big year on, the balance of power has been swinging back towards the affiliates as the networks have played catch-up on retrans and the dollars there are very significant to the networks, really irreplaceable. Now you are seeing all the networks stream all of their content—even Fox now streams its content. It is just a simple equation: they are monetizing their content on both broadcast and streaming, but the cost is almost exclusively borne by broadcast. Just as there is a rebalancing that is happening within pay TV where broadcast audience well exceeds its share of the pay TV pie and our growth in gross retrans is being driven by that rebalancing, the cost of our network affiliations is also imbalanced, and the streaming divisions of the networks need to be paying a lot more of the cost of programming relative to the network divisions. That rebalancing is going to be tremendously helpful in reducing the cost of our network relationships going forward. Analyst: Okay. Very good. So in other words, over time you think it will evolve in that direction, favorably to your cost base? Christopher S. Ripley: That is right. Operator: Thank you. Your next question is coming from Benjamin Soff from Deutsche Bank. Your line is live. Benjamin Soff: Good afternoon. Thanks for the question. I had a couple, but first I wanted to ask a follow-up. You made a comment that you might have some strategies to mitigate potential challenges in future transactions. I was hoping you could unpack that a little bit. Christopher S. Ripley: I cannot get into specifics in terms of how a transaction would play out and what specifically we would do. But just the setup alone would be different. Here, you had a number one and number two essentially coming together. You had a transaction that got closed almost immediately after the approvals. Certain optics would not be the same just naturally. Being the first large transaction where a new market definition has been defined by the DOJ, but not having anything on paper about that, is something that could be addressed more proactively. Benjamin Soff: Got it. And if there are divestitures from other deals, what is your appetite for buying station assets? Do you think you would be allowed to create duopolies, and how should we think about potential synergy in those types of deals? Christopher S. Ripley: We are very interested in double-ups. Anywhere we can add stations within a market, that is where we get the biggest efficiency gains. Also, it really does improve the news product that we supply to the marketplace. It both expands the number of stories that we cover and differentiates the products being offered to the marketplace. So in the areas where we can have multiple affiliates in a market, those are the ones that are going to be most interesting to us—where we can have an accretive transaction and also be deleveraging as well. Benjamin Soff: Got it. And my last question is just on ATSC. What are your latest thoughts there on the business opportunity, and can you remind us where we are on the path to commercializing it? Thank you. Christopher S. Ripley: We have been making good progress on ATSC 3.0 with the founding of EdgeBeam. It is off and running. The team is assembled. There is significant work being done in Boston where they are based. They are having a lot of traction around digital signage. The eGPS product is up and running in several markets. Automotive is another area that we are very bullish on, but it will be a bit longer term. I would put streaming offload as well in that same bucket. BPS, which is outside of EdgeBeam but is an industry-wide effort led by the NAB, has a lot of traction. There is a pilot going on right now in the energy sector which we are expecting a readout from shortly, but we already know the answer—that BPS is the only practical solution to a backup to GPS. A lot of the experts have already weighed in, including government agencies, that if we want a credible backup that can be rolled out in a timely basis, that is not space-based and not vulnerable to jamming and disruption from our enemies, it needs to be BPS. That is a very unique opportunity for the entire industry powered by 3.0 and vitally contributes to American safety and security. I am more bullish than I have ever been on the opportunities around 3.0. Of course, it improves picture quality, consumer experience, interactivity, etc., and there will be more and better content put out to our audiences. But the real incremental revenue opportunities are going to be around datacasting and other use cases, and that will be dramatically enhanced through the sunset of 1.0, which will unlock a lot more capacity to do these use cases and is in front of the FCC as we speak. Operator: Thank you. Your next question is coming from Daniel Louis Kurnos from Stonex. Your line is live. Daniel Louis Kurnos: Thanks. Afternoon. Chris, I am sure you are super excited to answer another M&A question, but I just want to be crystal clear. Obviously, some timing—we have to see how Nexstar plays out. Do you think with that court case ongoing and sort of the concentration ramifications, market definition ramifications, and your previous answer, that you could put up a transaction or find a willing participant in this environment at this time? And given your current stance on your preference to spin Ventures in conjunction with M&A, does that mean that you are willing to bide your time until you find the right transaction and this cleans up and you find the path forward? We are not saying it will not happen, but it may just take longer than we anticipate. Christopher S. Ripley: Dan, I think it is fair to say that the Nexstar–TEGNA transaction and what is going on at the state level is not ideal in terms of creating a good environment for M&A. It certainly creates questions in people's minds, including your own, or you would not be asking the question. Players within the industry are not immune to that. But I do think as they dig in—and as we have—they will get more and more comfortable that this can be mitigated. We have confidence that this deal should not hold up progress on M&A, and we think we will be able to play through that. As it relates to the Ventures separation, there is a lot of work that goes into a spin, so we are doing that work now. We are working on the carve-out audits. We are proceeding on getting ready. We are not letting time waste away here. But at the same time, as we have said pretty consistently, the ideal outcome is a separation of Ventures alongside a broadcast combination. So there is not a rush to separate Ventures, but we are going to make sure that we have everything ready to go to do that. Daniel Louis Kurnos: Okay. That makes sense. And then as we think about Tennis—you guys spent a good amount of time talking about it today and the strength that it has. I know, Chris, in the past, you have talked about, like, hey, anything could be core, not core. It seems like it is having a moment. Are you guys leaning more into Tennis? How are you thinking about it as a long-term asset within the portfolio, especially in the consideration of if you were to do transformational M&A on the local side? Christopher S. Ripley: We are leaning into Tennis Channel, you are right in thinking that. About a year ago, we hired Jeff Blackburn, who is a legend in the streaming industry and had an amazing career at Amazon. He is doing wonderful things—time spent up over 20%, subs up over 30%, the product is getting better. There is tennis momentum and interest in tennis is at an all-time high and continues to grow. There is a lot to like about what is going on at Tennis. We are investing in the product. We are upgrading the rights, the programming, and the direct-to-consumer experience. A lot of that investment has been over the last year and it really has not even come to light yet. Over the course of this year, you are going to see more and more upgrades to the product and to the experience. When we hired Jeff, that was a commitment to invest in Tennis Channel. It is an amazing asset already, but as it translates its business more and more onto the streaming side—where it already has all the rights it needs—it is going to be a really interesting asset. Robert D. Weisbord: We believe that over time the asset—right now about 20% of the audience is through digital—and the goal for Jeff and his team is to get to 50%. We are making this crossroads. What helps those crossroads are the storylines: we were asked the question a little over a year ago about Federer’s retirement, Rafa’s retirement. Now we have the next generation rivalry with Sinner and Alcaraz. Even though Alcaraz is out short term, that rivalry is not going anywhere. On the women’s side this year, the rivalry has evolved between Swiatek and Sabalenka, which will cause even further tune-in. As you saw in the 1000s that took place at Indian Wells, the BNP Paribas, and Miami Open, that was followed in Monte Carlo with record ratings. So when we increase this talent, next generation, and America has the next star on the horizon with Ben Shelton, it bodes well for the sport and for the network. Daniel Louis Kurnos: Rob, can I stick with you for a second and just talk a little more World Cup? Is there any way to think about the incremental that we should expect from World Cup, number one? Number two, given how much Olympics sort of sucked the oxygen out of the room in Q1, could we see that kind of event—especially in what is a particularly lackluster viewing time for television as we are in between seasons? And you also mentioned in your prepared remarks just around the digital acquisitions adding. You talked a little bit about getting prepared for cross-sell with your digital assets when you have this marquee event coming up. Maybe flesh out your thoughts there so we can get a bit more sense on how you are game-planning for it. Robert D. Weisbord: We are super bullish, and we have had large advertising inquiry already in the early phase of selling. Forty games are in prime time, and as you indicated, it is normally a weaker viewing period as we head into the summer months. With most of the games and the finals happening here in the States, we are totally bullish. We have set up a process/platform as you indicated, and we have Landon Donovan and Tim Howard who played the most men’s caps. In June, we are launching a female soccer team with Julie Ertz and Kealia Watts, which is great because it also leads into the NFL season—Julie is married to Zach Ertz and Kealia is married to JJ Watt. So you have a very competitive household that will play out on audio as well as soccer. At the men’s World Cup, you are going to get a female perspective, and that bodes well for 2027 and the women’s World Cup. The way we have set this up to be able to take advantage with our stars on the audio side—you are going to see Vince Carter and Tracy McGrady doing an activation at the NBA Draft—gives us natural tie-ins between our audio and our broadcast. The third element is activations at these events. It is a 360 offer to our advertising clients, and that is why we are seeing early inquiry from advertisers. Christopher S. Ripley: Maybe I will just add to that. There is great synergy between what we are doing on audio and video, as Rob mentioned. We have not had a World Cup in this time zone for quite some time, and being partially in the U.S. this is a bigger World Cup than we have seen. The comps are certainly different. We are going to do way better than we did four years ago. I do not think it will be as big as the Olympics in terms of total impact, but it is definitely going to be a nice incremental pickup for us. Daniel Louis Kurnos: Okay. And if I could just tie this all together and maybe bring Narinder into it too. As I look at your year right now, you guys are pacing towards the high end of your prior revenue guide and towards the lower end of the imputed expense guide, especially based off of Q1. Obviously, we have political and there is a lot of uncertainty out there. I just want to be clear on what you are saying. It sounds like you are just being cautious given the macro. You are not necessarily seeing anything yet, but in all other circumstances, it feels like you would be potentially raising guidance at this point, but you just want to see how things play out given the uncertainty out there, which I think is logical? Narinder Sahai: Thanks for the question. I think you captured the puts and takes properly. If I look at core, as I mentioned, there are headwinds that have picked up from what we anticipated when we issued the guide, and the visibility is a little bit less than what we had before, but nothing that changes our view that we will be outside the ranges we gave you. On the distribution side, we are pleased with all the things the traditional MVPDs are doing with their packaging. We are clearly seeing those results translate into our numbers now, and we are monitoring that trend going forward. A few months does not create a long-term trend—obviously, we want to make sure that we see that consistently repeat itself before we say we have seen enough and now is the time to update our guidance. On the cost side of the equation, you know us very well—management and expense control is built into our DNA. It is an ongoing process, and we continue to look at any and all efficiency measures. But we are also investing in the right assets. We talked about Tennis Channel; we are putting energy behind it. We think it is a great differentiated asset, and we are going to continue to do that where it makes sense for us. If you take all of those things together, sitting here today—too early in the year, same with political—there is no reason to go ahead and change the ranges. We will continue to monitor it, and if there is a good reason to change that, we will come back and tell you next quarter. Operator: Thank you. Your next question is coming from David Hamburger from Morgan Stanley. Your line is live. David Hamburger: Thank you. I was wondering, could you just articulate why the separation of Ventures is contingent upon a broadcast station transaction? And have you provided any guidance at all as to how Ventures would be capitalized upon a spin-off or a separation? Christopher S. Ripley: Ventures is not contingent. It is just our preference. At some point in time, if we are unsuccessful getting a combination on broadcast, we would just move forward with the Ventures separation with the thinking that broadcast would then combine at some point on its own. There is optionality that Ventures gives us as we think about various combinations. It has a decent amount of cash. It obviously has some other assets as well, which could be more or less attractive to varying partners that we are in discussions with. That is really the main reason—having those various levers to ensure that a combination gets done that maximizes the outcome for all shareholders. In terms of the capitalization question, Ventures does not have any debt. The four walls of Ventures are already very well defined—it is in our financials. There is no debt on any of the Ventures wholly owned subsidiaries, and it does sit on about $451 million of cash currently. That is how it would be capitalized if you just spun Ventures today. That could obviously change a little bit if it is done in conjunction with a combination on broadcast. David Hamburger: And to clarify, you are saying a combination on broadcast—or a combination of Ventures with another company? Christopher S. Ripley: I am saying, tying back to what I said earlier, that some of the assets of Ventures may play a role in a broadcast combination. You could see the mix within Ventures change depending on what happens on the broadcast side. David Hamburger: How might that change? Have you provided any sort of guidelines or guardrails around how the complexion of that business might change? Christopher S. Ripley: No, but I just went through it—there is cash, there are other assets. In its simplest form, if more cash was needed in the combination, we could use some cash from Ventures in order to complete it. That is an example. But since there is no specific transaction to talk about on broadcast, I cannot give you any guidelines. David Hamburger: And at what point would you potentially make that determination—that you would just proceed with a spin in the absence of effectuating a broadcast deal? Christopher S. Ripley: We are not going to lay out a specific timeline on that at this point. As I mentioned, we are doing work to get the necessary items in place to do the spin—like a carve-out audit, for instance—and that will play into the ultimate timing. Narinder Sahai: If you take a step back and go back to the rationale for entertaining a Ventures separation—Ventures has close to a billion dollars of assets that we do not feel are fully reflected in our valuation. How do we do that? We can provide enhanced disclosures for investors to take a look at it and determine how they want to value those assets. If that is not happening, then we look at whether these assets would be fairly valued in the hands of other investors. That was the thinking we had to separate Ventures. Now, as that conversation continues, as Chris outlined, there is some optionality we want to preserve. We are not under a specific timeline to make that happen. We have started the work on Ventures separation, and we are going to be very thoughtful about it. We are pursuing broadcast transactions in parallel. We do not know what the contours of those are going to be sitting here today talking to you about this. We want to preserve that optionality. As that picture starts to come into focus, we will provide you more color on what that separation timeline and what the capitalization, etc., would look like—but it is too early for us to give you a firm read on that today. David Hamburger: Okay. And just one quick question around the balance sheet. Could you talk about how you sized the $165 million of loan buyback? Why specifically that amount—was there any specific target you were looking to achieve? And how could we think about that going forward—your appetite to do more of that? Narinder Sahai: We had cash in STG, and we looked at how to deploy that cash. We have outlined that delevering the STG balance sheet is a top priority for us. This was the right time for us to go out and see if there would be any demand for us to take some of the debt investors out from our term loans. We started the process with a certain number in mind that would be interesting for investors to participate in. As we went through the process, we looked at how much cash we wanted to deploy at this point, and that is where we drew the line and executed that transaction. Looking ahead, all options for us are on the table. Delevering is a top priority. As we generate more cash in a political year, you can expect us to continue to focus on that. No specific timeline to give you here today on when the next one is or the one after, but as those opportunities arise, we will obviously look at them and execute on those. Operator: Thank you. Your next question is coming from Analyst from Barclays. Your line is live. Analyst: Hey, guys. Thanks for taking my question. I know you do not have any distribution contracts up for renewal this year. It seems like some of your peers have been going into blackout and it is becoming more common, and then GCI filed the private lawsuit against Nexstar–TEGNA. So I guess just curious your thoughts. I know you have some in 2027, but do you think this is a sign that renewals are becoming more and more contentious going forward? Christopher S. Ripley: We do not think this is anything new. There are some blackouts currently going on. There were last year, and there was the year before that and the year before that. We have been very fortunate that we really have not had any meaningful blackout for many years now, and we see no reason to necessarily change that. But the reality is broadcasters comprise about 50% of the viewership on pay TV and only get about one third of the pay TV pie. The process of rightsizing that to what arguably should be greater than 50%, since we represent the most premium programming on pay TV, is not easy. That adjustment—that shift of share away from cable channels that increasingly are becoming completely irrelevant toward broadcast—is a difficult process. I do not see the activity that we are currently witnessing as really all that unusual from prior years, and I think the industry will manage through it as it always has. Analyst: Great. Thank you. And then just know you have done a good job managing costs and are always looking to cut costs. I was wondering if you have been using any kind of AI tools in helping manage costs, or is there anything in the pipeline that you can do that can enhance cost reductions going forward? Christopher S. Ripley: AI is a big focus for us—as I am sure every company says—but for us it is a true statement. We have rolled out AI tools to our entire workforce. We have both a bottoms-up organic strategy bearing fruit in terms of people in various areas coming up with ways to use AI tools to improve productivity, and we also have a top-down strategy with a group dedicated to working on AI that is bringing new tools and workflows to the business. When you consider the media business—beyond our newsrooms, content creators, and reporters—almost everything else you could see being facilitated or automated by AI. We do not deal in hard goods or products; it is really just information and bits going back and forth, and largely people in front of computer screens. The content creators—those are the differentiators. Over time, you are going to see a lot of the other roles within Sinclair, and I imagine a lot of other media companies will follow suit. We see a lot of potential for that in terms of creating greater efficiencies, but also opening up capacity for new revenue streams as well. Narinder Sahai: The application of AI is not just in cost reduction. It is fundamentally reimagining and reinventing how we do things structurally. That is the way to look at it for this to be sustainable, and that is how we are looking at it. There are significant applications of the technology on the revenue growth side as well. We have been working with the technology for several years now. We have iterated on it, and we have some interesting opportunities in the pipeline that we are working with. So as Chris mentioned, this is not just a statement for us—it is actually true. Robert D. Weisbord: I will end it by trying to paint a picture of the revenue side. With our podcast, just as one of our content creators—Tracy McGrady and Vince Carter—they have a big following in China. Using AI tool sets to convert their English language to Chinese and allow it to be distributed in China is just one opportunity that opens up what we are doing on a global basis, not just a United States basis. That is what excites us about some of this technology. While we will put it into the operations to make them more efficient, we are going to get greater velocity from these AI tool sets. Analyst: Thank you, guys. Operator: Thank you. We have reached the allotted time for Q&A. I will now hand the conference back to Christopher S. Ripley for closing remarks. Christopher S. Ripley: Thank you, operator. We want to thank everyone for joining us for our first quarter earnings call. To the extent you have any follow-up questions that were not already answered, please do not hesitate to reach out to us. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Good morning, everyone, and welcome to the MYR Group First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] Today's conference is being recorded. I will now turn the call over to Jennifer Harper, Vice President of Investor Relations and Treasurer, for introductory remarks. Jennifer Harper: Thank you, and good morning, everyone. I would like to welcome you to the MYR Group conference call to discuss the company's first quarter results for 2026, which were reported yesterday. Joining us on today's call are Rick Swartz, President and Chief Executive Officer; Kelly Huntington, Senior Vice President and Chief Financial Officer; Brian Stern, Senior Vice President and Chief Operating Officer of MYR Group's Transmission and Distribution segment; and Don Egan, Senior Vice President and Chief Operating Officer of MYR Group's Commercial and Industrial segment. A copy of yesterday's press release announcing our first quarter results can be found on the MYR Group website at myrgroup.com under the Investors tab. A webcast replay of today's call will be available on the website for 7 days following the call. Please note, today's discussion may contain forward-looking statements. Any such statements are based upon information available to MYR Group's management as of this date, and MYR Group assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. For more information, please refer to the risk factors discussed in the company's most recently filed annual report on Form 10-K. Certain non-GAAP financial measures will also be presented. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in yesterday's press release. With that, let me turn the call over to Rick Swartz. Richard Swartz: Thanks, Jennifer. Good morning, everyone. Welcome to our first quarter 2026 conference call to discuss financial and operational results. I will begin by providing a summary of the first quarter results and then turn the call over to Kelly Huntington, our Chief Financial Officer, for a detailed financial review. Following Kelly's overview, Brian Stern and Don Egan, Chief Operating Officers for our T&D and C&I segments, will provide a summary of our segment's performance and discuss some of MYR Group's opportunities going forward. I will then conclude today's call with some closing remarks and open the call up for your questions. We delivered strong financial results in the first quarter, supported by ongoing work with long-term customers and the selective pursuit of new opportunities while continuing to expand customer relationships. Quarterly results reflect strong bidding activity and continued infrastructure investment to support electrification needs across our business segments. We continue to monitor project opportunities and remain focused on disciplined project execution. Safe, reliable delivery and strong customer relationships remain central to our operations. Our teams are focused on understanding our customers' requirements, maintaining clear communication and producing consistent results. I'm proud of our teams for their continued dedication to quality, safety and collaboration. Now Kelly will provide details on our first quarter 2026 financial results. Kelly Huntington: Thank you, Rick, and good morning, everyone. Our first quarter 2026 revenues were $1 billion, which represents an increase of $167 million or 20% compared to the same period last year. Our first quarter T&D revenues were $541 million, an increase of 17% compared to the same period last year. T&D segment revenues increased primarily due to higher revenue on unit price and T&E contracts, partially offset by a decrease in revenue on fixed price contracts. Work performed under master service agreements increased to approximately 70% of our T&D revenues. C&I revenues were $459 million, a record high for our C&I segment and an increase of 24% compared to the same period last year. C&I segment revenues increased primarily due to higher revenue on fixed price contracts. Our gross margin was 13.4% for the first quarter of 2026 compared to 11.6% for the same period last year. The increase in gross margin was primarily due to a larger portion of our projects progressing at higher contractual margins, some of which are nearing completion. Gross margin was also positively impacted by better-than-anticipated productivity, favorable change orders and a favorable job closeout. These margin increases were partially offset by an increase in costs associated with inefficiencies on certain projects. T&D operating income margin was 9.7% for the first quarter of 2026 compared to 7.8% for the same period last year. The increase was primarily due to better-than-anticipated productivity and a favorable job closeout, partially offset by an increase in costs associated with inefficiencies on a project. C&I operating income margin was 8.1% for the first quarter of 2026 compared to 4.7% for the same period last year. The increase was primarily due to a larger portion of our projects progressing at higher contractual margins, some of which are nearing completion. C&I operating income margin was also positively impacted by better-than-anticipated productivity and favorable change orders, partially offset by an increase in costs associated with inefficiencies on certain projects. First quarter 2026 SG&A expenses were $69 million, an increase of approximately $7 million compared to the same period last year. The increase was primarily due to higher employee incentive compensation costs and employee-related expenses to support future growth. Our first quarter effective tax rate was 26.9% compared to 28.9% for the same period last year. The decrease was primarily due to a favorable impact from stock compensation excess tax benefits, partially offset by higher U.S. taxes on Canadian income and other permanent difference items. First quarter 2026 net income was a record $47 million compared to net income of $23 million for the same period last year. Net income per diluted share of $2.99 increased 106% compared to $1.45 for the same period last year. First quarter 2026 EBITDA was a record $82 million compared to $50 million for the same period last year. Total backlog as of March 31, 2026, was a record $2.84 billion, 8% higher than a year ago. Total backlog as of March 31, 2026, consisted of $981 million for our T&D segment and $1.86 billion for our C&I segment. First quarter 2026 operating cash flow was $85 million compared to operating cash flow of $83 million for the same period last year. The increase in cash provided by operating activities was primarily due to higher net income, partially offset by the timing of billings and payments associated with project starts and completions. First quarter 2026 free cash flow was $69 million compared to free cash flow of $70 million for the same period last year. This slight decrease was due to higher capital expenditures, partially offset by an increase in operating cash flow. Moving to liquidity and our balance sheet. We had approximately $258 million of working capital, $9 million of funded debt, $460 million in borrowing availability under our credit facility and $163 million in cash and cash equivalents as of March 31, 2026. We improved our already strong funded debt-to-EBITDA leverage ratio to 0.04x as of March 31, 2026. We believe that our credit facility, strong balance sheet and future cash flow from operations will enable us to meet our working capital needs, support the organic growth of our business, pursue acquisitions and opportunistically repurchase shares. I'll now turn the call over to Brian Stern, who will provide an overview of our Transmission and Distribution segment. Brian Stern: Thanks, Kelly, and good morning, everyone. The T&D segment delivered strong first quarter results, supported by a mix of small to midsized projects across our markets. Execution remains consistent with a focus on safety, quality and reliability. Bidding activity remained steady with increases in revenue and margins from the prior quarter and compared to our first quarter of last year. We continue to deepen relationships with long-standing customers while also pursuing opportunities with both new and existing customers, supported by a positive industry outlook. This quarter, Sturgeon was awarded an MSA in Arizona, spanning transmission, distribution and substations along with EPC program opportunities in the Northwest. Great Southwestern Construction secured the construction of 2 greenfield substations in Texas. High Country Line Construction was selected for substation work in Arizona, along with the 345 kV transmission line project in South Carolina. L.E. Myers was selected for a 345 kV transmission job and several overhead distribution rebuild projects across Illinois and Iowa. Harlan Electric was awarded overhead transmission work in Pennsylvania. This activity is supported by a strong industry outlook. According to the S&P Global Horizons Top Trends 2026 report, grid infrastructure has become a central focus in 2026 as electrification and digital demand continue to strain existing systems and underinvestment in transmission and distribution modernization presents a potential bottleneck for reliability and capacity growth. This dynamic reinforces the ongoing importance of our T&D project activity across our markets. We expect work to remain steady across the U.S. and Canada, spanning a range of sizes and complexities. Our ability to support this demand is driven by a continued focus on safety and ongoing investment in our workforce. We are proud of our accomplishments in the first quarter and look forward to advancing this momentum in the months ahead. I'll now turn the call over to Don Egan, who will provide an overview of our Commercial and Industrial segment. Don Egan: Thanks, Brian, and good morning, everyone. Our C&I segment achieved strong first quarter results supported by the health of our core markets. Bidding activity remained consistent and backlog expanded further, reflecting both market demand and the depth of our customer relationships. By working closely with customers to understand their needs, plan projects effectively and execute safely and efficiently, we continue to create opportunities for long-term collaboration across projects of various sizes. These strong ongoing customer relationships remain central to our strategy, reinforcing our position as a trusted partner in the industry. Data center projects and water, wastewater projects are driving the strongest growth in today's construction market. According to FMI's 2026 North American Engineering and Construction Outlook, data center construction starts are up nearly 100% year-over-year. While nonbuilding infrastructure such as power, water and wastewater also continues to grow, supported by committed funding and long-term investment needs. These projects require specialized expertise in grid modernization and complex installations creating multiyear backlogs and sustained demand. The result is a clear divergence within the construction market. Mission-critical electrical and infrastructure work is showing sustained resilient growth, while more traditional commercial building segments remain volatile. Our teams across all subsidiaries continue to execute and pursue a diverse range of projects. We were awarded multiple data center projects in New Jersey, Arizona, California and Colorado, clean energy work in California and multiple water treatment plants in Colorado. These awards reflect the strong and growing demand for data centers and related electrical infrastructure projects across our key markets. We continue to earn significant project awards, reflecting our ongoing ability to deliver value across markets and sectors. In closing, we continue to see steady performance across our core markets, supported by our long-standing customer relationships that drive opportunities. Our employees remain central to this execution with a consistent focus on quality and safety across every project. Thank you, everyone, for your time today. I will now hand the call back to Rick for his closing remarks. Richard Swartz: Thank you for those updates, Kelly, Brian and Don. Our first quarter 2026 performance reflects the effectiveness of our business strategies and the value of our long-term customer relationships across both segments. We believe we are well positioned for continued growth as investments in electrical infrastructure increases, supported by safe execution, disciplined bidding and close collaboration with our customers in a dynamic energy environment. Our record of integrity, teamwork and dependable project delivery enables us to pursue new opportunities and deepen long-term customer relationships. I appreciate our employees for their contributions and our shareholders for their ongoing support. As we move through the rest of 2026, we look forward to building on the progress and continuing to strengthen our customer relationships across the business. Operator, we are now ready to open the call up for comments and questions. Operator: [Operator Instructions] Our first question comes from Sangita Jain of KeyBanc Capital Markets. Sangita Jain: First, can I ask about C&I margins, which were very, very strong in 1Q. If you could help us kind of understand what led to the strength and what we should expect going forward? Richard Swartz: Yes. I said our backlog margins were similar to what they were in the past, but we had less risk in our contracts. And again, we've been focusing on carrying less risk in our contracts along with project execution and making sure that we continue to do as much prefab as we can. We do it in a controlled environment where we're taking that labor risk out of the field. So we continue to double down on that. And then we also had some projects that were nearing completion that had some potential upsides. With that being said, our margin profiles coming into this year, we were at 5% to 7.5%, and we're looking to increase that going forward for the rest of the year. We're looking kind of at that 6% to 9% margin profile and operating kind of in that mid-ish range on the C&I side. Sangita Jain: That's helpful. And then can we talk overall guidance for the year because you also beat on -- well, I shouldn't say beat, but your revenue performance was also very strong in 1Q, and I think you said 10% in each segment for the year? And how should we think about T&D margins, which also came in towards the high end of your range? Richard Swartz: Yes. I think previously, our margin profile on T&D was at 7% to 10.5%. And as we look at what's in our backlog and the quality of our backlog work, really upping that margin profile to that 8% to 11% with the goal of operating in that mid part of that range. So again, an increase on that one going forward for the rest of the year. Now quarter-to-quarter in either one of those, it can be a little lumpy depending on which projects are starting and finishing. But we see that kind of as our goal overall. Along with that, I think if you look at our revenue growth, we came into the year saying we have that 10-ish percent growth. I think when we look at it across both segments as a whole, kind of that 12-ish percent growth this year is where I would forecast that out, knowing it can be lumpy quarter-to-quarter depending on how subcontractors come into our mix or materials delivered. So it can be a little lumpy between segments, but I'd look at that overall 12% growth on revenue. Operator: Our next question comes from the line of Manish Somaiya of Cantor Fitzgerald. Manish Somaiya: Congrats team on a fantastic quarter. Rick, I wanted to just go back to the C&I business. I think you mentioned that the fixed price contracts are now about 86% of the mix. If you could just help us understand where that mix has been over the past year, over the past couple of years? And perhaps that's what's kind of driving some of the upside in C&I based on solid execution? Richard Swartz: It's solid execution on that. I mean, as I said, a little less risk in our contracts, so more favorable terms and conditions, managing our projects very well. So that's really where it is. I'd say that mix has been similar over the past. So fixed cost is really a big component of how we do C&I work. I think we're pretty good at executing it as a whole and our customers trust us and continue to release that work. But again, with contracts that have a little less risk in them contractually than what historically they've had. Manish Somaiya: Okay. Helpful. And then, Kelly, if you could just talk about cash flow from operations, free cash flow. Clearly, Q1 was exceptionally strong. How should we think about it for the rest of the year? Kelly Huntington: Sure. Yes, we delivered another strong quarter from a cash flow perspective, and we were able to maintain our DSO in that kind of mid-50s range, which is significantly below our historical average. I think if we look out, we could see DSO rise to the low 60s, and that will really depend on the timing of new awards and the weighting between projects with more favorable billing structures versus more MSA-like work. As I noted in my comments on the call, MSA work in T&D represented 70% of our revenues, which was an uptick from what we've seen for the last few quarters. And we like that work. It's recurring, it's predictable, but we never get into an overbuild position. So that can represent a little bit of a headwind from a DSO perspective. The other thing I would say about cash flows is I would just point out CapEx. We've been talking for a couple of quarters now, how we expect that to be trending more to about 3% of revenue on a full year basis. And that is above our historical average, really driven by the opportunities that we see on the T&D side of the business that is the more capital-intensive side of the business. And with first quarter being light from a CapEx perspective, which was really just due to timing, that does mean we'll see an increase as we look rest of the year. Operator: Our next question comes from the line of Julien Dumoulin-Smith of Jefferies. Brian Russo: It's Brian Russo on for Julien. I was wondering if you could just elaborate a little bit more on what's driving the structural margins higher now in both segments? Is it just your confidence in your labor productivity and maybe better contract terms? Or is it more so a function of the electrician labor constraints that we read and see nearly every day in the end markets that you serve. Is that driving better bidding power for you and the E&Cs. Richard Swartz: Yes. I would say that tight market right now on labor isn't really turning into margins today and what we're seeing. It still remains fairly competitive, and we feel that will potentially change in the future, and we continue to be selective on the larger projects we're taking on because I've said in the past, we don't want to be the first in on those projects, plenty of opportunities, great conversations going on with our clients. I think it really has more to do about what I talked about a little earlier in the call with better contract management, better terms and conditions and then better execution on our project side as far as the way we're laying out our projects, doing pre-fab, kitting our material, really being more efficient out there. So that's really where we've seen those margin increases. But again, hopefully, in the future, we can see more margins come in because of the tightness of the market with the labor. Brian Russo: Okay. And should we assume kind of gradual improvement in the segment margins as we move through the year, assuming lower margin projects are burned off and replaced in the backlog with the higher margin type profile? Is that the way to progression? Richard Swartz: I think from quarter-to-quarter, it can be lumpy. We've given the new margin profiles that 6% to 9% operating margin for C&I and that 8% to 11% for T&D. And again, we plan on operating on a yearly basis, kind of in that mid-ish range of those. With that being said, it can always be lumpy quarter-to-quarter depending on weather, depending on project timing, which ones are finishing up, which ones are starting. So again, on a yearly basis, I'd look at that. But from a quarterly basis, it's always going to be lumpy. Brian Russo: Got it. And then just on the T&D side, can you just talk about some of the recently signed MSA awards and kind of the cadence of layering that into the backlog, the Xcel $500 million 5-year MSA and then I think it was a Kentucky new MSA highlighted last quarter. Neither of those are in backlog yet. Is that accurate? Richard Swartz: The Kentucky one wouldn't be in complete backlog yet. I mean we're not burning it. So the whole amount is not in there. Again, we only count on the MSA side, 90 days of that work in our backlog. So the Xcel one is starting to have some activity, but a little bit slower start as we said it would. And we see that progressing and going forward and that spend really start continuing to ramp up this year slowly and into next year and take off from there. But good activity on those projects and great opportunities going forward. Brian Russo: Okay. And then just lastly, I think your 10-K referred to any large transmission or T&D project awards granted this year would not start construction or generate revenue until 2027 at the earliest. I mean is that kind of insinuating that you're still in discussions on some high-voltage transmission projects? And that -- is that what you were referring to? Or were you being more broad? Richard Swartz: Yes, we are. Yes, that's -- we anticipate with our conversations going on that some of those large projects will start rolling in our backlog this year. So we see that still happening, ongoing great conversations with our clients, and we see that continuing into next year also. But we do feel we'll have some large projects come into our backlog in the future quarters. Operator: Our next question comes from the line of Ati Modak from Goldman Sachs. Ati Modak: I guess some of your peers in the market are increasingly stepping into C&I data center exposure. I'm curious how you're thinking about your exposure on a relative basis. You've guided to a very strong year and obviously, the fundamentals look pretty strong. But does it create a little bit more competition or risk to project awards or pricing concerns? Any thoughts on that? Richard Swartz: Not overly concerned. We've got long-term client relationships with a lot of the data center providers. We've been doing it since we're not just trying to get in the market now. We've been doing data centers since data centers first started. So again, we continue to expand that market, very good conversations with our clients. But along with that, we've always said we want to balance business. So we don't want 100% of our resources just doing data centers. But again, we haven't seen margin pressure from these new entrants. There's a lot of work going on. And again, it's how do we keep our relationships with our clients going forward and keeping those relationships strong. Ati Modak: Great. And then I guess you mentioned some of the transmission line awards along the larger projects. You mentioned 345 kV line awards. So I'm curious what the outlook for [ 500 kV ] and more specifically 765 kV lines looks like as you think about the rest of the decade. Like in terms of your conversations, how are you positioning for that? Richard Swartz: I feel we're well positioned for that. We've done -- there hasn't been much 765 kV done in the country, but we performed that work in the past, having great conversations with our clients. It's a matter of project timing. I think the 765 kV for the most part, won't get started the project at the earliest, probably mid next year, rolling out. But again, very good conversations with our client. We've got long-term alliances with some of those clients that are building that work. And as I said, ongoing conversations. So hopefully, more to come in this year, next year. I think there's great activity in that market, though. Operator: Out next call comes from Brian Brophy of Stifel. Brian Brophy: Congrats on the nice quarter. Just a big picture question for me, Rick. How would you compare the environment you're seeing here today, maybe over the next couple of years to the demand environment we saw back during the CREZ project in 2013 and 2014? And what do you think the market [ implications ] of that? Richard Swartz: Yes. I don't -- I really can't say what the market -- what the margin impact or implications are on that. What I can say is when you go back to the CREZ days and you look at that during that '13, '14, '15 time frame, it had an increased margin against not just on our work, but across all our peers at that point. But that was in one area. I mean that was [ 2,500 miles ] being built out in Texas. And now you have the build-out going across the United States over the next 10 years or so, over the next decade. So I think it's just going to be amplified from what we saw there. Potentially, we're not seeing that yet today. But again, our conversations with clients aren't just about projects that are going to start in the next year or 2. We're having conversations with clients about projects going to start in '30, '31, '32 and beyond. And they're concerned about 2 things where are they going to -- how do they get the material lined up to have their project built on time and where -- how do they get their labor secured. So very good conversations with our clients. Operator: Our next question comes from the line of Justin Hauke of Baird. Justin Hauke: Great. First of all, thank you for giving those updated margin targets. That's interesting. I just wanted to clarify on those, the 6% to 9% for C&I and the 8% to 11% now for T&D, those are like kind of multiyear targets at this point, right? That's not -- you're not talking about just for this year because of some of the pull-through, but that's kind of the operating environment as it stands today, right? Richard Swartz: Yes. We see that, as I said, on a yearly basis this year, we feel those are our margin profiles we can operate within. I think when you look beyond, I don't see the market getting any softer. So we haven't got done anything beyond that, but that's where I see it for this year. And again, I think there's great opportunities going in future years. Justin Hauke: Yes. Okay. That's what I figured. And then I guess the second thing, I heard you talk a little bit more about the prefab capacity that you guys have as something that's been controlling the risk terms on your jobs. I feel like you mentioned that more than you have in the past. And Kelly, maybe it's a question on the CapEx as well. You've got a lot of net cash here, $152 million. Is that one of the areas where you're seeing or where you expect to kind of deploy some of that capital to the extent that there aren't acquisitions that you do and kind of expanding some of that prefab capacity? Kelly Huntington: Sure. I can start on that, and then Rick or John might give you a little bit more color. But absolutely, that is an area where we continue to invest. I mean we've been doing prefab for a long time, but I think our teams are continuing to push the limits on how we can perform more work in a controlled environment in a way that really helps us to be effective at the job site, especially in congested areas and can help support our more consistent execution. I would still say that the vast majority of our capital expenditures go to the T&D side of the business, but it is part of our growth in CapEx overall. Richard Swartz: Yes. And then you talked a little bit about our strong balance sheet and what we're doing with that. I think we'll continue to invest in the prefab, but that's not going to take that all up. So I think we continue to look for acquisitions. And I'll say right now, there's some great activity in the market with some, I would say, some high-quality companies that are out there. So we talked about kind of the 12-ish percent growth on revenue overall, and that's on the organic side. If we capture the right, I guess, acquisition and it came into our portfolio, that would be above that. So again, we're looking to potentially do acquisitions with that money or do stock buybacks either way. Kelly Huntington: Yes. And I would just kind of reiterate Rick's point in a very strong financial position with almost no debt at the end of the quarter and [ $160 million plus ] in cash on the balance sheet. So in a good position to support that strong organic growth that we're seeing as well as pursue the right acquisitions. Operator: At this time, I'm showing no further questions in the queue, and I would now like to turn the call back over to Rick Swartz for additional closing remarks. Richard Swartz: To conclude, on behalf of Kelly, Brian, Don and myself, I sincerely thank you for joining us on the call today. I do not have anything further, and we look forward to working with you in the future and speaking with you again on our next conference call. Until then, stay safe. Operator: Thank you very much. This concludes today's conference call. We thank you for your participation, and you may now disconnect.