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Operator: Thank you for standing by, and welcome to Parsons Corporation's First Quarter 2026 Earnings Conference Call. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, David Spilly, Vice President, Investor Relations. Please go ahead, sir. David Spille: Good morning, and thank you for joining us today to discuss our first quarter 2026 financial results. Please note that we provided presentation slides on the Investor Relations section of our website. On the call with me today are Carey Smith, Chair, President and CEO; and Matt Apoulos, CFO. Today, Carey will discuss our corporate strategy and operational highlights, and then Matt will provide an overview of our first quarter financial results as well as a review of our 2026 guidance. We then will close with a question-and-answer session. Management may also make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These risk factors are described in our Form 10-K for fiscal year ended December 31, 2025, and other SEC filings. Please refer to our earnings press release for Parsons' complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements. Management will also make reference to non-GAAP financial measures during this call. We remind you that these non-GAAP financial measures are not a substitute for the comparable GAAP measures. Please refer to our earnings press release and presentation slides for a reconciliation of the non-GAAP financial measures. And now I'll turn the call over to Carey. Carey Smith: Thank you, Dave. Good morning. Welcome to Parsons' First Quarter 2026 Earnings Call. I want to begin by recognizing the dedication and performance of Parsons' more than 21,000 employees who delivered a strong start to the year. Most importantly, I'm pleased to share that our 7,500 team members in the Middle East region have remained safe during the current regional conflict. They've shown tremendous resilience in managing volatility while continuing to deliver our customers' critical missions. As we'll discuss later in the call, our Middle East business produced solid financial results this quarter, and I am very proud of what the team has achieved. As demonstrated by the current military operations, our differentiated solutions spanning cyber, electronic warfare, air-based defense, countermanned aerial systems and intelligence and operations centers are vitally important to protecting both our nations and our allied security. Post conflict, Parsons is prepared to support the Middle East on its path to recovery by providing essential capabilities, including critical infrastructure protection, air-based defense, integrated air and missile defense, transportation solutions and the reconstruction of conflict-affected areas. We believe Parsons is well positioned to advance allied priorities with our nearly 70 years in the region, extensive footprint and performance reputation. We are proud of the work we do in defense, security and infrastructure for our global customers. The first quarter highlighted the resilience of our business and our team's high level of execution as we delivered our highest adjusted EBITDA margin ever, reached record levels for both total and funded backlog, achieved a robust book-to-bill ratio of 1.4x in both segments and generated record first quarter cash flow. Revenue performance was in line with our expectations, and we continue to complement our organic growth with strategic accretive acquisitions that enhance our differentiation and drive long-term shareholder value. Looking at our first quarter financials in more detail, total revenue increased by 8% and organic revenue grew 3%, excluding our confidential contract. This total revenue growth was driven by 12% growth in our Federal Solutions segment and 3% growth in Critical Infrastructure. Our record adjusted EBITDA margin of 10.1% was driven by a 10.8% margin in Critical Infrastructure, marking our highest first quarter performance in that segment. The 50 basis points of margin expansion at the corporate level in Q1 builds on the 40 basis points of expansion we delivered in the first quarter of 2025. In addition, we significantly exceeded our cash flow target and closed the quarter with record total and funded backlog of $9.3 billion and $6.6 billion, respectively. On the bookings front, contract awards increased 17% year-over-year, resulting in a strong book-to-bill ratio of 1.4x. Our Critical Infrastructure segment reported a book-to-bill of 1.4 for the quarter, marking 22 consecutive quarters above 1.0. Performance in the Middle East was outstanding with a book-to-bill ratio of 1.5. In Federal Solutions, contract awards increased 38% year-over-year, resulting in a book-to-bill ratio of 1.4x. These strong bookings provide a foundation for continued organic growth in both segments. A key driver of our future performance is the strategic importance of our contract wins. During the first quarter, we secured 4 single award contracts valued at more than $100 million. These included a $593 million contract extension under the Federal Aviation Administration's Technical Support Services or TSSC 5 contract with $410 million booked in Q1. This award exercises the first option period, extends performance through 2030 and supports the FAA's aviation system capital investment plan. TSST V has a $1.8 billion ceiling value with a 4-year base period and 2 3-year option periods. We received a production award notification from the United States Cyber Command for the Joint Cyber Hunt Kit solution, a new sole-source contract with a ceiling value of up to $500 million with $250 million booked in Q1. Importantly, this contract was another transaction agreement, which allows for faster, customized and collaborative industry partnerships. Parsons is an industry leader in the use of these rapid delivery vehicles. We were awarded a new 5-year contract valued at over $340 million to provide program management services for a major transportation project in the Middle East, booking over $300 million in Q1. Our transportation work in the region spans rail and transit, roads and highways, bridges, airports and intelligent transportation systems. We were awarded more than $145 million under the Garden contract. Under these task orders, Parsons will enhance command and control, space and intelligent surveillance and reconnaissance technologies for the Air Force and other federal customers. We will develop and sustain next-generation software, deliver on-site training and rapidly deploy advanced mission applications. We booked $38 million on these contracts during the first quarter. We also received an additional $150 million on 2 contracts to continue serving as the main construction manager for remediation projects on the Faro mine and giant mining programs in Canada, 2 of the largest and most complex mine reclamation projects in the world. We booked the full amount on these contracts during the first quarter. After the first quarter ended, we received 4 more strategic federal awards previously unannounced. First, we were awarded $400 million for 2 other transaction agreements, each having a 3-year period of performance. This new work shows the continued demand for our mission-critical defense and intelligence capabilities and our ability to deliver solutions to our national security customer base rapidly. Next, we were awarded a single award classified IDIQ contract with a ceiling value of $184 million over 7 years that represents entirely new work for the company. We were awarded this contract based on our differentiated technology, including our unique biometrics capabilities. And finally, we were awarded an $87 million increase on its current national security prime contract. Importantly, in all of our Federal solution wins, we are leveraging our artificial intelligence capabilities to enhance our solutions and create differentiated outcomes. I would now like to highlight some additional accomplishments during this quarter. We closed our acquisition of Altamira Technologies Corporation in an all-cash transaction valued at up to $375 million. Altamira advances high-priority national security mission supporting intelligence community and Department of War customers by providing multi-intelligence technology solutions and performing critical operations. Altamira expands Parsons' market presence in signals intelligence, missile warning, space and foreign military exploitation and adds critical customer depth with the National Air and Space Intelligence Center, National Security Agency and other classified intelligence customers. We were named one of the World's -- most Ethical Companies by Ethisphere for the 17th consecutive year, and we were honored for our project excellence on 2 major infrastructure initiatives. In Georgia, our team received the Engineering Excellence Honor Award from the American Council of Engineering Companies for the ARS Mill ramp extension in Cobb County. Internationally, we were recognized with the Refurbishment and Retrofit Project of the Year at the Big Project Middle East Awards for our work on the King of Dolo Financial District residential uplift project. Looking forward, we are optimistic about Parsons' future. The synergies between our Critical Infrastructure and Federal Solutions segments across 6 growing, profitable and enduring end markets set us apart and create significant opportunities for us to meet or exceed our financial goals. In Critical Infrastructure, we continue to see strong demand in both North America and the Middle East. Our focus on hard infrastructure, roads and highways, bridges, airports, rail and transit and intelligent transportation systems is aligned with the spending priorities in these geographies. Also, there's a need for urban development, support to major events and advanced manufacturing that match our core competencies. Our #1 ranked program management, #3 ranked construction management and AI-enabled solutions underpin our success. While we continue to monitor geopolitical developments, including the ongoing war in Iran, our momentum and our customers' commitments to advancing their projects forward give us confidence in continued growth. Although our business has not been affected by the conflict to date, our customers remain focused on ensuring their budgets are aligned with the right priorities and their programs are properly phased. Across the Middle East, the emphasis on diversifying economies, hosting major global events and addressing defense, security and infrastructure requirements is expected to continue driving demand for our expertise. Turning to Federal Solutions. We are encouraged by the momentum in the United States defense spending. In fiscal year 2026, $1 trillion has been appropriated for defense, and we're beginning to see funds flow from both the base budget and reconciliation industry. For fiscal year 2027, the administration has submitted a $1.5 trillion defense budget comprising a $1.15 trillion base and $350 billion of reconciliation funding. This proposed 44% increase over current funding levels, which is focused on modernization, would represent the largest defense budget in history. The fiscal year '27 budget presents substantial opportunities for Parsons that are closely aligned with our strengths, including missile defense, cyber, space, counter unmanned aerial systems, electronic warfare, facilities modernization, critical minerals, countering weapons and mass destruction and joint all-domain command and control. Our purpose-built Federal Solutions portfolio is aligned with our nation's defense and security priorities. And because of our strategic acquisitions and sustained research and development investments, we've built differentiated capabilities that help safeguard our nation and outpace evolving threats. We are encouraged by the strong bipartisan commitment to increasing U.S. defense spending in response to the evolving global security challenges. Our leading indicators, including our $54 billion pipeline, strong win rates of 60%, total backlog of $9.3 billion, of which 71% is funded and our $11 billion of contract wins not yet booked, give us confidence that we will continue to remain an industry growth leader, excluding the impact of our confidential contract in both segments. We operate in 2 large and well-funded segments across 6 end markets, and our favorable financial outlook is supported by our proven execution and effective capital deployment. We are reaffirming our 2026 guidance ranges, which Matt will review shortly. In summary, we had a strong start to the year, delivering new records for adjusted EBITDA margin and total unfunded backlog, exceptional book-to-bill ratios in both segments and record first quarter cash flow. Our operational discipline, strategic contract wins and additional corporate achievements reinforce our position as an industry leader. We remain optimistic about our future and are confident in our ability to drive long-term shareholder value. With that, I'll turn the call over to Matt to provide more details on our first quarter financial results. Matt? Matt Ofilos: Thank you, Carey. We've started 2026 with solid results and favorable forward-looking indicators towards future growth. With a strong book-to-bill in both segments, record adjusted EBITDA margins and our highest total and funded backlog to date, we are well positioned to deliver for our customers and shareholders. We continue to effectively deploy capital, investing in strategic acquisitions, internal research and development and increased share buybacks, all to support long-term growth and create shareholder value. Turning to the details of our first quarter results. Total revenue grew 8% and 3% on an organic basis, excluding the confidential contract. These increases were driven by growth in our critical infrastructure protection, space and missile defense and transportation markets. Highlights included strong growth on key contract drivers for the year, such as Airbase Air Defense and the FAA-TSSC5 contract. Total revenue, including the confidential contract decreased 4% from the prior year period and was down 8% on an organic basis. SG&A expenses for the first quarter increased 10% from the prior year period, primarily driven by costs related to recent acquisitions and higher transaction expenses. Record first quarter adjusted EBITDA of $151 million increased 1% from the prior year period. Adjusted EBITDA margin expanded 50 basis points to a record 10.1%. The -- these increases were driven by improved execution and contributions from accretive acquisitions. I'll turn now to our operating segments, starting first with the critical infrastructure, where first quarter revenue increased by 3% from the first quarter of 2025. This increase was driven by organic growth of 2% and inorganic revenue contributions from our TRS and Applied Sciences acquisitions. Organic growth was primarily driven by strength in the global transportation markets. As a reminder, Middle East revenues were negatively impacted by the number of work days in Q1 given the holiday schedule compared to 2025. We expect this to resolve in Q2 where there are 3 additional workdays compared to the prior year. Critical Infrastructure adjusted EBITDA of $79 million increased 8% from the first quarter of 2025 and adjusted EBITDA margin expanded 50 basis points to 10.8%. Both adjusted EBITDA dollars and margins were first quarter records for critical infrastructure. These increases were driven by the ramp-up of recent awards, accretive acquisitions and strong program execution. Moving to our Federal Solutions segment. Our first quarter revenue increased 12% and 4% on an organic basis, excluding the confidential contract. These increases were driven by growth in our critical infrastructure protection space and missile defense and transportation markets. Total Federal Solutions revenue, including the confidential contract, decreased 10% from the prior year period and 17% on an organic basis. Federal Solutions adjusted EBITDA decreased 5% from the first quarter of 2025, while adjusted EBITDA margin expanded 40 basis points to 9.4%. The adjusted EBITDA dollars were primarily impacted by lower volume on the fixed-price confidential contract. The adjusted EBITDA margin increase was primarily driven by accretive contract growth and acquisitions. Next, I'll discuss cash flow and balance sheet metrics. Our net DSO at the end of Q1 2026 was 72 days, a 14-day increase in the prior year period. This increase was primarily driven by lower volume on the confidential contract and timing of collections in the Middle East. During the first quarter of 2026, we used $4 million of operating cash, which was an $8 million improvement from the prior year period. Capital expenditures totaled $15 million in the first quarter of 2026. Looking ahead, we expect CapEx spend to ramp in Q2 as investments in classified facilities and upgrades to our enterprise systems accelerate Sport Parson's long-term growth and drive greater efficiency throughout the business. Trailing 12-month free cash conversion was 102%, reflecting our disciplined focus on contract execution and collections. Our balance sheet remains strong as we ended the first quarter with a net debt leverage ratio of 2.0x. This includes the impact of the upfront cash consideration of $330 million for the acquisition of Altamira in the quarter. During Q1, we repurchased approximately 583,000 shares for an aggregate purchase price of $35 million. Turning next to bookings. In the first quarter, we secured $2 billion in contract awards, a 17% increase year-over-year, driving a strong enterprise book-to-bill ratio of 1.4x. On a trailing 12-month basis, our book-to-bill stood at 1.1x, which extends our track record of a trailing 12-month book-to-bill of 1 floor grader for every quarter since the IPO. Both segments reported a book-to-bill ratio of 1.4x for the quarter. Our Critical Infrastructure segment continued its impressive streak with its 22nd consecutive quarter above 1.0, with particularly outstanding performance in the Middle East, where we achieved a book-to-bill ratio of 1.5x. In Federal Solutions, contract awards increased 38% year-over-year. Our backlog at the end of the first quarter totaled $9.3 billion, a 3% increase from the prior year period. Funded backlog of $6.6 billion remains the highest since our IPO and increased 7% year-over-year. At the end of Q1, our funded backlog represented 71% of total backlog. Now let's turn to our guidance. We are reiterating our 2026 guidance ranges provided on February 11 and based on our financial results for the first quarter of 2026 and our outlook for the remainder of the year. These guidance ranges are outlined in our earnings press release and PowerPoint presentation, both of which are located on our Investor Relations website. On Slide 11 of our PowerPoint presentation, we also include other key assumptions in connection with our 2026 guidance, including quarterly cadences. 2026 guidance reflects the evolving budget environment, a competitive labor market and reality is of a challenging government procurement landscape. While these factors present challenges, we're also benefiting from the tailwinds, including unprecedented global infrastructure spend, federal portfolio that's tightly aligned with the administration's priorities, recompete risk of less than 3% of 2026 total revenue and a record $9.3 billion in total backlog, including our highest funded backlog ever. On top of that, we have $11 billion in awarded contracts still to be booked, which further strengthens our outlook. We've lowered second quarter expectations due to the timing of recent wins. However, we continue to believe strong backlog and recent awards are supportive of growth projections in the full year guidance. In summary, we delivered strong results for adjusted EBITDA margins, contract awards total unfunded backlog and our revenue was in line with expectations despite a complex global environment. We can continue to deploy capital effectively, investing in organic growth opportunities, acquisitions, share repurchases to support our growth strategy. All of this reflects our disciplined execution, and we remain confident in our ability to achieve commitments and create long-term value for our shareholders by delivering critical capabilities for our customers around the world. With that, I'll turn the call back over to Carey. Carey Smith: Thank you, Matt. This quarter's results underscore the strength and durability of the person's portfolio with a robust pipeline, high win rates, strong book bill performance in both segments record levels of total and funded backlog and $11 billion and contract wins awarded yet to be booked, we are confident in our outlook. With that, we will now open the line for questions. David Spille: Certainly. And our first question for today comes from the line of Sangita Jain from KeyBanc. Sangita Jain: First of, Carey, it's really good to hear that all your Parsons team members are safe and you had very strong 1Q results. Can you elaborate on some of the conversations you may be having with your customers about the balance between the short-term disruptions and the long-term opportunity? Carey Smith: Certainly. Thanks, Sangita. I appreciate your question. As you mentioned, our first concern is always for the safety and security of our employees, and all 7,500 are safe and secure. Most importantly, all the employees are working on the job sites and in the offices. We really have not seen an impact to date. I will point out too, the contract has not delayed any of our funding. The Middle East exceeded their first quarter cash forecast. We have not seen any slower contract awards or positive negotiations that's clearly reflected by our strong 1.5x book-to-bill. And we've not had any force majeure insurance claims. One thing that's good about our portfolio is that no Middle East program represents more than 1.6% of our revenue, and we have 20% of Middle East backlog. The contracts are pretty long in duration as well. The average contract duration is 4.7 years and 49% of our revenue is tied to long-term frameworks, and we're clearly holding our full year guidance for the Middle East of 8.5% organic. What we're seeing, Sangita, to your question is many of the GCC countries are using the periods of high oil prices to fund diversification into non-oil sectors and advanced technologies such as artificial intelligence and digital infrastructure so that they're less vulnerable to future price swings. I do want to point out that post conflict, we believe there's going to be significant investment in areas, including redundancy and resiliency. So not only will Parsons be doing our traditional areas of transportation, water and environment and urban development, but we're going to expand into prioritized areas, including integrated air and missile defense, border security, counter unmanned air system, critical infrastructure protection, water security and desalination, rail, pipeline security and rebuild opportunities, and there's also a priority to take key assets into hardened underground facilities such as data centers, treatments plants and military assets. Just reported on the defense front, it was April 27, the Arabian Gulf business indicated that the defense spending in the Middle East is expected to rise by 20% over the next 3 years. Sangita Jain: That's super helpful, Carey. And maybe one for Matt. Can you talk about some of the puts and takes that went into your guidance since you're FS margins have recovered really well and your CI margins are very strong, but you decided to keep the full year margin outlook unchanged. Can you help us walk through that? Matt Ofilos: Yes. Thanks, Sangita. So to your point, really strong Q1 at north of 10% margin, 10.1%. CI now has 5 straight quarters, north of 10%. So the performance here has been a really strong obviously, still early in the year, 9.7% is 10 basis points this year, but on the back of 110 basis points over the last couple of years. So we're still bullish on our margin expansion opportunities over the next couple of years. But obviously, we want to be thoughtful. It's still early in the year. When we look at Fed, Fed is 9.4% in Q1 were high 8s, low 9s is kind of a target for us for the year. And then infrastructure, we're 10.5% at the midpoint. So 10.8 to start the year is a little bit better than total year expectations. But obviously, early in the year, we will expect within federal, we'll have some additional growth and cost types. We've talked previously about mix is always the biggest driver to Fed margins. And then on the infrastructure side, we had a little bit lighter pass-throughs and materials in Q1. So a little bit of pressure there on margins. So again, early in the year, a great start to the year, but we'll watch over the next couple of quarters. David Spille: And our next question comes from the line of Sheila Kahyaoglu from Jefferies. Sheila Kahyaoglu: Maybe Carey, can you just talk about -- the Middle East seems okay. But aside from that, how do you think about the first half versus the second half growth trends? What's really driving the upswing in the second half and some of the major program drivers there. Carey Smith: Yes. Thank you very much, Sheila, for the question. I appreciate it. So both we anticipate both of the segments to grow within the second half of the year. What's driving it? Let me start with federal are the new awards. We just highlighted the 4 awards, 3 of which were federal that occurred during Q1 and then the 4 awards that have already occurred after Q1 ended. So very strong start to the year for federal -- also seeing significant growth on FAA. FAA, we achieved 25% growth in the first quarter, and we expect the FAA to be strong throughout the year. So I would highlight besides the awards I mentioned during the call, areas such as munitions, Holston and programs are ramping up. Also, a lot of classified work and other transaction agreements FAA and then our Missile Defense HC teams contract, which we expect to achieve over 10% growth this year as we're supporting the important Golden Dome program. Within the Critical Infrastructure segment, I mentioned the Riyadh metro, so we expect that to have a ramp-up in the latter half of the year. Within the North America group, we expect P3s, particularly on the East Coast to ramp up. And then we had some recent wins on the West Coast, including the LA Metro line A extension of the i70 in Missouri and the silver line in Texas, and probably a couple of other programs, I'll highlight in the Middle East would be the Entertainment City as well as King Salmon International Airport. Matt Ofilos: Yes. And Sheila, the only other one I would add that as we've talked previously about the Joint Cyber Hunt kits through ceiling tech that program is an LRIP, as you know. And so second half will transition to production and have some critical deliveries before the end of the year. So that's also benefiting in the second half. Sheila Kahyaoglu: Got it. And maybe to follow up, Matt, on that. You said Q2 is a little bit lower given award timing. Can you just give us a little bit more color on that? What are you seeing in the outlay environment? Why was it lower? Matt Ofilos: Yes. So some of the awards that Carey highlighted that came in, started were kind of expected earlier in the year, call it, January, February, so we thought we'd be ramping on those. Additionally, some phasing within the Middle East. Middle East makes up about half of the reduction to Q2. So that's really just phasing as we see the customers' prioritizations. -- again, the second half ramp on those awards is going to benefit the Middle East business. But overall, again, the reductions are really kind of just phasing and timing of awards. Carey Smith: And it's super exciting to see the federal momentum that we had. David Spille: Our next question comes from the line of John Godyn from Citi. John Godyn: Maybe we could just revisit the $1.5 trillion budget. You described it as a generational investment, well aligned with the Parson portfolio. Could you just elaborate on what's most exciting there for you? And then sort of a quick follow-up to that. Obviously, there's some concern about the $1.5 trillion budget going through you guys don't have a perfect crystal ball, but any thoughts on how that may play out as we just sort of form our own views. Carey Smith: Yes. Thanks, John. I appreciate the question. As you mentioned, it is exciting. It is a generational investment. It's been recognized on a bipartisan basis that we're facing with the most complex and dangerous threat environments in our nation's history with adverse series advancing capabilities. And so the need for that budget is there. the budget is focused around 3 pillars, and I'll kind of hit on where persons plays in each of those pillars. The first 1 is super charging Americas defense and industrial base. So while that pillar talks about shipbuilding and air power also within that pillar is a focus on critical minerals onshoring and energy independence and emerging technologies, both areas where persons place. There probably is most important to us is the second pillar, securing America's military advantage in the whole land. Counter unmanned air systems and economy are going to see big increases of greater than $70 billion on the top line for drug dominance and counter unmanned air systems. The specific insurance initiative is going to increase from $10 billion to $11.7 billion and $3 billion of that is aligned to infrastructure improvements. In cybersecurity, there's going to be over $20 billion of additional funding. There's artificial intelligence, $58.5 billion of investment in AI as well as showing all the command and control. And then there's going to be a significant hike in both procurement and research development and technology overall, particularly in the space area, which could be more than double the 2026 enacted level. Missile Defense is a budget priority, Missile Defense agencies to receive $17.9 billion. And then if you look at Golden Dome to receive $17 billion, that would be within the budget. The next pillar focuses on securing America's military witness, and we play in 2 areas there. The first one is modernizing the nuclear triad. We're involved in nuclear command control and communications -- and the second area is in improving the infrastructure for our riders, which is right up our outlook. So overall, I'd say looking at a procurement increase of 85% in RD&T increase of 63% is good. As you mentioned, it's not for certain. And I'd say, in particular, the discussion right now is over the Reconciliation Bill. Reconciliation 2.0 is moving forward, but the future is not real clear yet. Speaker Johnson is planning on a floor boat sometime this week, which would be based on the Senators -- the Senate budget resolution. But there's a discrepancy between some of the house republican, someone add additional items that are election related and additional DHS provisions. In other words, Republicans are recommending that the skinny vote basically be passed. So I would say this week, we expect the next step on the reconciliation to see whether or not the Senate House do pass the identical reconciliations, which would move that go forward. John Godyn: That was excellent. And if I could just ask 1 totally separate question on M&A. You guys closed 3 deals in the last 12 months and a relatively large 1 just recently -- can you just refresh us on M&A pipeline thoughts from here? And how we should be thinking about the M&A strategy maybe for the next 12 or 24 months? Carey Smith: Yes. Thanks, John. So M&A remains our #1 focus for capital deployment. As you mentioned, we closed 3 deals last year, followed by a deal, the first quarter of this year. We anticipate this year will close between 2 to 4 deals -- we've got a strong pipeline in both federal and critical infrastructure. We continue to keep our borrower growing greater than 10% on the top line, greater than 10% EBITDA margin. We're continuing with our strategy of preemptive as well. We like to get with companies that we know well that we've worked with. We have a similar mission and culture. And that way, we're more certain for success after the integration of those assets. So you can expect to see us continue to focus of our capital on M&A. I think it's been a significant differentiator for the company. In fact, as I look over those -- the federal wins that I cited on the script, I would say many of those are due to the fact of our revenue synergies that we've been able to drive across the federal business. David Spille: And our next question comes from the line of Andrew Wittmann from Baird. Andrew J. Wittmann: I just -- Matt, I just wanted to help understand the quarter a little bit better. The holiday timing in the Middle East, how did that affect? Can you quantify the effect or estimate the effect on the growth rate in the CI segment for the quarter? And then how much of the benefit you're going to pick up here in the second quarter. Just to understand that moving -- those moving pieces a little bit more clearly. Matt Ofilos: Yes. It was about 3 days from Q1 to Q2. So think of it as $10 million to $15 million of impact. So -- we had a little bit of a headwind in Q1. A nice part for when we originally guided to first quarter for Middle East, we're expecting flattish to down a bit. It actually came in up 2.5%. And -- and so a little bit of a strong start to the year for the Middle East and some tailwinds into Q2. . Andrew J. Wittmann: Got it. Okay. And then, Carey, on the $11 billion of awarded but unbooked, that number has been pretty steady there. Is that getting worked down? And then just going to replenish to the same level? Or is it kind of stagnant? I'm just kind of curious as to the dynamics of what's going on in there? Carey Smith: Yes. Great question, Andy. So what we did is we moved the FAA work, which we look for 410. So that basically moved down to way were to not book as you saw by announcements that we made or the stuff that we've already won post Q1, we're going to be well over that. So that number is going to go right back up as we go into the next quarter. I think the important thing as well is to look at our book-to-bill ratios, which very strong again across the board, 1.4 for persons, 1.4 for federal and critical infrastructure and our backlog of $9.3 billion and then add to that $11 billion, and again, the $11 billion, to your point, is going to be replenished by these new awards. Andrew J. Wittmann: Okay. And then I guess maybe just 1 final thing. Just on cash flow, Matt, your contract assets number, so your unbilled -- or contract assets, cash that you've got or that you don't have, that work that you performed is up a decent amount. Maybe you could just drill into that a little bit. Is this a certain types of work that you're starting to perform in greater amounts today? Is this a geographic thing with somebody that you're working for and have that asset it stick out with the DSOs up a little bit. Obviously, there's a seasonal effect there. I mean just digging into some of these working capital pieces are -- would be interesting to understand those dynamics. . Matt Ofilos: Yes. Good question, Andy. So to your point, DSO was up about 14 days, which is a good number. And so overall, really happy with the cash performance in Q1. We do have a higher balances. A lot of it is related in the federal business to milestones on some of the munitions projects that it will deliver over the next 2 quarters. So I expect a number to come out over the next 2 quarters. I don't think it will continue to expand. I think when we get into production on the Cyber Hunt kits, we may have a little bit of fluctuation, but not to the same scale. So I'd say the biggest driver has been the munitions programs and the upcoming milestones there. David Spille: And our next question comes from the line of Gavin Parsons from UBS. Gavin Parsons: Carey, how big is your UAS business? And are you seeing any accelerated procurement yet given Mideast learnings? Carey Smith: Yes. So the big part of the kind of UAS, we have 2 components. One is our non-kinetic business. and that mostly goes through the Army 10 cap program. And as I mentioned, it's deployed in the Middle East right now. The second part of it is our drone arm, which is a system of systems. And that's basically -- it's a technology readiness level 9 that's been deployed. It is currently deployed in Laredo on the southern border. So if I pull those 2 components out, I would guess probably $100 million-ish, if I had to make an estimate. Yes, we see growth as far as -- we see future growth as far as the Middle East. So we were brought in the Middle East originally to fix another company system that was not working. So our system had basically replaced that. And there's ongoing demand. We also see demand within the United States. There's a couple of procurements that were waiting on award from Department of Homeland Security and Customs and Border Protection and the Coast Guard. Gavin Parsons: The ABD contract, I think that might also possibly fall in that category. I mean is that just Europe and Africa? Are there other geographical opportunities? Carey Smith: Yes. That's a great point, Gavin. I didn't include that in the number. I just threw out, but they are based here defense contract. That's roughly $1 billion over 5 years, and we're on a run rate to achieve that. So air system, it's much higher. We think air-based defense is going to continue to increase within the region as well as within Endo Paycom. Our contract within Europe has rapidly expanded. It's currently being used for early morning for the Middle East activities. David Spille: And our next question comes from the line of Gautam Khanna from TD Securities. Gautam Khanna: I was wondering what's the latest on the FAA program, that Peraton 1. I didn't know if much work has come your way yet and what's your latest expectation on that? Carey Smith: Yes. So just to recap, we've been supporting the FAA for over 5 decades. We've supported them for 24 years on the technical support service contract. The FAA just issued our extension for 3 years, 1 full year early. -- indicating their intent to fully use that contract. Under that contract, we provide engineering and design support, installation, integration services. We do project structure management and also technical logistics and field support. Importantly, we've supported about 1,000 FAA sites. So we have people pretty much everywhere embedded in the facilities and equipment work that occurs with the national aerospace system, whether it's radars, navigation aids, communications, surveillance, automation towers. We do the terminal radar approach control system, they're about traffic control centers and much more. Our FAA revenue, as I mentioned, is projected to grow at 25% this year. On just the TSC contract and we were at 25% for the first quarter. We also had additional growth in on areas like voice communication switches and some contracts that we have outside the TSSE putting us at around a 35% growth rate. In addition to the legacy work that we've performed on the DSSC, we're starting to perform work for the implementation of the new air traffic control system. And that work includes voice communication, automation and training systems. We've been working very closely with Peraton. We have an associate contractor agreement as well as with the FAA, both the FAA and Peraton when to continue to use Parsons as the implementer for that work. Gautam Khanna: And I just wanted to also circle back to the Q2 commentary. It sounded like bookings have been pretty strong to start the quarter. What would you expect, do you have a view on what book-to-bill could be in the second quarter based on what's in the pipeline and what you've already been awarded? Matt Ofilos: Yes. To your point, Gautam, really strong start to the year. We are expecting north of 1.0 again at the Parsons level in Q2. . Gautam Khanna: Okay. And within the segments, is there any SKU is 1 particularly strong relative to the other? Matt Ofilos: Not really. I think they'll both just be around 1 or better. I don't think we'll see another 1 another 14 necessarily, but I think they're both in a good place to be north of 1. Carey Smith: And again, critical infrastructure, 22 consecutive quarters greater than 10% and our trailing 12 months as a company has been over 10 since IPO. Gautam Khanna: Great. And then you did -- I mean, obviously, you touched on the Middle East business being more resilient than I think people worry about. At what point do you start to worry about this? I mean I'm just curious in terms of does it disrupt the pace of contract awards? I know you mentioned there's a long duration to the backlog there. But I'm just curious at what point should we worry because it does seem like an overhang? Carey Smith: Yes. Again, I would say we are not worried. The work that we're performing there is Critical Infrastructure work. And now we've actually added additional defense capabilities supporting the war. Hitting on the Critical Infrastructure work for 60% of our work is in Saudi Arabia. The public investment fund just released their priority 6 ecosystems this week. So whether it's tourism, travel and entertainment, urban development, advanced manufacturing, industrial and logistics, clean energy, Neom, we play in every single 1 of those areas. They also reiterated that they're going to maintain all giga projects. I don't see any cancellations. So there's only been minor rephasing of programs, but they've got to get ready to be on the world stage, which can be 2030 for the Expo, 2034 for the World Cup. And I'll point out in Saudi Arabia. Importantly, 80% of the investment is going to be deployed within Saudi Arabia. We've been there for 7 decades we have a 50-50 joint venture company. So we see that as very stable. Within the UAE, we're focused still on a lot of development work. There's still a lot of development that has been going on. So we don't see any slowdown there. And Qatar, our focus is primarily on 2 areas. Ashgalis our primary customer. And then we do a lot of work in the city of Blue South or which we just got the contract recompete win. So we've been very strong. As a result of the war, we've been supporting during the war effort, cyber, electronic warfare, counter unmanned air systems, air-based defense. And then we see, as I mentioned earlier, post war that we're going to have opportunities, particularly when you look at areas like Critical Infrastructure protection, a lot of the attacks from Iran have been on data centers, water utilities. So those assets are all going to have to be protected, potentially put underground, but definitely have critical infrastructure protection. And then there's going to be additional rebuild. So to have a company that has a long deep history within the region, a very demonstrated proven performance as a trusted partner, We look forward to continuing to work across the Middle East and be able to help that region very quickly recover. Operator: Our next question comes from the line of Jonathan Siegmann from Stifel. Jonathan Siegmann: Matt and Dave, on the Cyber Hunt contract win, interesting work, and it's new for Parsons. You mentioned it's going to start ramping up in the second half. Can you maybe level set just how steep that ramp could be and any kind of differences in margins or capital intensity of that type of work? Carey Smith: Yes. So I'll start, and Matt can jump in as well. But we're excited about the Joint Cyber Hunt Kit award. It started off as another transaction agreement over 100 companies submitted white papers. They down selected the 3 companies to build prototypes and then we were ultimately selected as the successful winner. We've already started the low rate initial production, and we'll be moving into production in the fall. I will note that we've produced over 500 of these kits. We're expecting another 500 to 750 as we go forward on the new contract. Another unique thing that was in our solution is -- it's the first use of a genic AI in a threat hunt kit solution, and we think that was a big discriminator in helping us win that award. It's margin accretive. It is double-digit margins. Matt Ofilos: Yes. So John, just to add on to Carey's $500 million ceiling over a relatively short window, kind of 3- to 5-year contract, booked the first $250 million within the quarter. So feel really good about that work. We've already kind of started long lead material purchases on the production orders to kind of get ahead of schedule and help out there. I would say for second half versus first half, we're seeing about a $50 million growth on those -- on that contract, which is helping our second half, of course. And then I think from a margin perspective, this year, it's favorable and accretive. I think we'll see more benefit in the out years as we get further into the production and deliveries. Jonathan Siegmann: Fantastic. And maybe one more for you, Matt. And I think your earlier comments tied to this, but just to confirm directly, remaining performance allegations for Federald Solutions was down sequentially and diverge from funded backlog. Is that just the phasing that you mentioned earlier? Or is there anything else to kind of keep in mind? Matt Ofilos: Yes. No, exactly. It was the phasing that I mentioned and nothing else behind that. Operator: And our next question comes from the line of Tobey Sommer from Truist Securities. Tobey Sommer: I wanted to double click on the Middle East, again, if we could. With some of the -- your customers experiencing less oil, petrochemical revenue currently. Is there -- how do you look at the risk that the eventual rebuilding of that to generate revenue could proud out or elongate the projects that you are working on and pressure a little bit of revenue growth there? Carey Smith: Yes. First, Tobey, I'd say that among sort of the 3 major investment funds, Abu Dhabi, Qatar and Saudi public investment fund, they've amassed over $5 trillion of wealth. So when you look at Abu Dhabi Investment Fund, they're like the fourth largest sovereign fund in the world. The public investment fund is the fifth largest sovereign fund in the world. So they have amassed a lot of wealth over time regarding oil prices. They also have the capability both in the UAE and Saudi that they aren't dependent on the Strait of Hormuz. They both have oil pipelines that they can continue to transport oil. The focus within the regions is very strong. There's a Saudi Vision 2030, there's visions in the UAE for 2030 and 2040. There's a national vision for Qatar for 2030. Their whole focus has been how do they diversify their dependence away from oil. So to be able to do that and achieve that, they're still going to prioritize infrastructure investments and to be on the world stage and be present for those events. What we're seeing, and I'll take public investment fund strategic plan that they just published is the rephasing and moving things away from other sectors or other priorities to stay laser focused on what's going to drive economic and social benefit to the region, and that's where we play. Tobey Sommer: Appreciate that. And then if I could, with respect to the Cyber Kits and that aspect of your business related to technology and sort of products, how do you envision that growing and becoming a more meaningful part of the company? And if you could dovetail your M&A strategy in coming years, with your response? Carey Smith: Yes. Thanks. So we have a lot of products within the portfolio. Cyber Hunt Kit being one of those. We also have -- I'll just give you a few examples, assured position, navigation and timing. So if you lose your GPS signal, you can get location information. We have a product called TRx, which is an emulator product that could emulate certain signals that's been useful in Ukraine and can also be useful in Endo Paycom and in the Middle East region. In the space side, we have a space series of products that's called the ACs products. that are involved with a lot of the control timing of satellite vehicles we have space ground systems. We've delivered over 170 different ground system solutions. And then on the infrastructure side, we have the intelligent transportation system where we're the most globally deployed system in the world today, just extending our reach now into the Middle East. We had our first deployment there. And we've won some real big statewide procurements recently, including Georgia. So products is definitely a focus for us. So matter products into 2 categories. We have products that you might call hardware products, and I'll take like our Blue Fly system. It's a search and rescue system that's able to assist local law enforcement as well as customs and border protection. But the secret sauce within there is really the digital signal processing, and that's an area that we focus on as a company. So our product offerings include both software as well as hardware. And I would say a lot of the companies that we have been acquiring in addition to ceiling tech, which produced the Joint Cyber Hunt Kit do have products, capacity and focus, and you can expect to see that going forward. We think that, that helps with our differentiation as a company. We think that's driven are very strong win rates, which have been consistent over the past 3 years, and they're also margin accretive. Operator: And our next question comes from the line of Mariana Perez Mora from Bank of America. Mariana Perez Mora: So the first one is a little bit on the budget. The market is mostly concerned about now like the $1.5 trillion ask, but actually how much could actually be done in an election year. How do you think about growth? And how much is already like funded or procured, if you were to think about like a full year continuing resolution. And how are you positioned to that scenario? Carey Smith: Yes. First, so I would say in an election year, a full year continuing resolution is probably very likely. We know how to live with continuing resolutions. We've lived with them for decades. The key for us is really getting these large -- on the federal side, large task order awards, which we've just announced to that are worth $400 million over the next 3 years. Because once you have those then you don't really fall under the CRO you need to do is deliver task orders to those. Another important thing, obviously, with our portfolio is 50% of our portfolio does not fall under the federal government. So half our business is kind of immune from that I would say the budget, we are excited about not just this upcoming budget, but to see the $150 billion of prior reconciliation dollars starting to flow, whether that's for Golden Dome, the munitions, Pacific deterrents, the FAA modernization, that all benefits our portfolio. We do have a record backlog as well. And out of that backlog, 71% is funded and $11 billion of awards not booked yet. So I think we're well prepared as company run for a long time and having these large other transaction agreements and IDIQs puts us in a good spot. Mariana Perez Mora: At. And then if I can be more specific, there is about like a month ago, the Department of State put out a request for information for the second iteration of dips diplomatic platform support services contract at to you actually benefited from that and you got the confidential contract within that main award. How do you think about that? Because when you look at like the areas they are looking at, core transportation and logistics, security with like physical and electronic security support, infrastructure, maintaining and construction and remediation. And if we think about like the the activity going on in the Middle East right now, I would have expect those volumes to pick up. How are you thinking about that contract right now? How are you thinking about like the regards to our information and your positioning towards that? Carey Smith: Yes. Thanks, Mariana. So the DPS contract, to your point, is coming out for reprocurement again. I believe we were the #1 awarder at the very top on the last steps contract. -- we are definitely planning to bid and prepare to win that contract. Within the Department of state today, the majority of our work is with diplomatic security we provide for diplomatic security, electronic security systems. We do biometrics capabilities and counter unmanned air systems. -- we deploy those at over 250 embassies and conflicts to date throughout the world. And I'd say that's kind of our ongoing continuous business. But the DIPS contract, we are going to be bidding. Operator: Our next question comes from the line of Louie DePalma from William Blair. Louie Dipalma: On the space front, last year, you announced a strategic partnership with Global Star -- and I was wondering, do you anticipate any potential positive impacts from the proposed Amazon acquisition, perhaps you could become 1 of Amazon's main satellite partners for defense applications across their LEO broadband and also their LEO cellular constellations that are in the process of being built out -- and also related to the Globalstar partnership. Is there a potential that your technology could be embedded into drones and other unmanned platforms to provide resiliency in the various theaters right now, whether it's the Middle East, Ukraine or the Asia Pacific. Carey Smith: Yes. Thanks, Louie. Appreciate the question. On the second part, the answer is yes, it could be embedded into drones to be able to support. We're excited about the acquisition of the Globalstar by Amazon, and we are starting to engage with Amazon. I don't like to get ahead of these discussions, but I'd be happy to discuss that on future upcoming calls. Louie Dipalma: And there's been a lot of questions and answers on the Middle East. But are you reiterating the prior full year outlook for 8.5% growth in the region? And -- has there been any change in like the long-term view? And in terms of the variables, like how important is like the price of oil in terms of the long-term picture here in the Middle East. Carey Smith: Thanks, Louie. Yes, we are reiterating our 8.5% growth for the Middle East. Long-term view, we're very optimistic about the Middle East. One thing we've done very well is, first, we've been positioned there are some in decades. We have gotten in at kind of ahead of need. We're seen as their trusted partner for all their big programs. We positioned intentionally around Riyadh about 3 years ago because we knew if there ever became funding challenges, they would focus on RiyadhRio because of the Expo and because of the World Cup. So we're involved in transportation. We're involved in urban development. We're involved in water and environment. Then we expanded our capabilities recently into defense and security. So we won a border wall project, and we won a project with the Ministry of Defense. So we've moved into other sectors. We've also gotten into data centers. We're currently involved in about 12 data center projects within the region and also artificial intelligence projects. So I think what the team has done there very well has successfully moved from our core, which is going to continue into new areas. And I believe that we're focused on the right priorities. If you look at Saudi Arabia, 49% of their GDP is now based on non-oil. So the countries over there have been very successful in diversifying away from oil. I'm really excited about our prospects in the country. I think they're going to only increase after the war with Iran. Louie Dipalma: Great. And so even if priorities shift you expect to maintain your share because Parson's ability to be versatile in terms of like perhaps shifting from a transportation project or an entertainment project to a data center project? Or what shifts do you expect to potentially take place? Carey Smith: So I would say, again, public investment fund in Saudi just reiterated their 6 priorities. So they're laser-focused on tourism and entertainment, urban development advanced manufacturing, industrial logistics, clean energy and Neon. We're in all 6 of those areas. So whether it's doing airports, the world's art entertainment city. -- participating in the World Cup and the Expo. -- tourism and hospitality sector we're in. We do a lot of urban development with the developers there. I mentioned we're doing the data center work in country. building industrial cities. We're performing logistics efforts. We do a lot of water work, desalination work, renewable work. So I think we're just really well positioned where the money is going to be spent. Operator: And our next question comes from the line of Noah Poponak from Goldman Sachs. Noah Poponak: Matt, is it possible to quantify what's in the full year revenue guidance -- what are you assuming for organic revenue growth in Federal Solutions ex confidential and organic revenue growth at CI. And how do you expect those to split first half versus second half? . Matt Ofilos: Yes. So federal, excluding confidential contract, organic revenue growth is 6.6%, and then CI is just north of 6 6.1%. In first half versus second half, call it, just about 4% on federal versus 9 in the second half and then infrastructure is 3-ish first half and then 9 in the second half. So that's the ramp that we talked about earlier. Noah Poponak: Helpful. And Matt, on the CI margin, I guess, a lot of progress there in the last 18 months. The guidance implies that slows down quite a bit through the rest of the year. Can you talk a little bit more about that? Trying to figure out if that's truly mix and other inputs? Or if you're sort of still living in ultra conservative mode because of the issue of that margin? Matt Ofilos: Yes. So without a doubt, very happy with the performance of the CI margin over the past quarter, 18 months to your point. And so again, 10.5% at the midpoint is about 10 basis points above 2025. We still have these legacy contract closeouts that we're going. So I would say there's some thought in my mind around some flexibility for Kerry and I if we were to accelerate some of the closeouts. But generally speaking, to your point, the performance within the business is quite strong. And so we feel really good Generally, the only other thing I would add is Q1 was a little bit stronger than expected with lower pass-throughs and materials, as I mentioned before. And so there's some natural headwinds over the next 3 quarters as we ramp on some of those newer programs. But all in all, again, just really strong performance out of Middle East and North America and some favorable trends. Noah Poponak: Okay. And Carey, you mentioned munitions and missile support, missions work a few times on this call. Remind us what you do there and maybe how big that is? And then you also mentioned reshoring of critical minerals. What does Parsons do there? Carey Smith: Yes. So Matt will give you the numbers on how big others in just a second. But let me hit on what we do on munitions. So we currently have projects at both Holston and Radford and we've been awarded 4 of those projects to it each. And what we're doing is modernizing the facilities. When you go to these facilities, they're old, they're like to decades old. So we will go in, for example, and put a new incinerator system that is more modern, doesn't have as many environmental issues. That would be a sample project. We built a great moat around this because we actually have not had competition on most of these projects. So we're really well positioned there. The most recent win that we have was the Neom award. And that was a unique 1 because that's with a commercial Norwegian company to stand up an energetic facility within the United States. So when you look forward, both under the reconciliation funds that were already passed and you look forward at the next budget, there's a big focus to redo our plans, recognizing the importance of both ammunition and munitions. And I think we're in a really strong spot for those. And then your second question on critical minerals. So we provide -- we're a delivery partner to private clients as well as federal agencies across mining projects, industrial projects and infrastructure programs Our history in the mining and critical minerals space dates back to 2013. And it really started with the 2 mine projects I mentioned on the call, Giant and Faro mines. Those are 2 of the most complex high-risk environmental programs in North America, they're up in Northern Canada. So at Giant mine, for example, we're managing the safe construction of the roaster complex stabilizing underground workings and containing about 237,000 tonnes of underground arsenic trioxide. And at Faro Mine, we leak taminated water treatment, dam safety management, landform reconstruction and Habitat. These are most multibillion-dollar projects. They're each over $2 billion, and they range from $12 billion to $20 billion. So the expertise that we have there is very applicable to some of the critical minerals onshoring activities where they're going to need companies that come in and they understand the technology, they understand speed to production can manage program and construction management, perform contaminated waste management, deal with indigenous communities and understand how to do the environmental work. Matt, over to you. Matt Ofilos: Yes. I'd say just high level, each 1 of these contribute kind of $40 million to $50 million a piece. Radford is a little bit smaller this year as it kind of scales back in terms of delivery. But all in all, really strong market that's growing, and we're really excited to be part of it. Obviously, it's a high demand for the administration. And so we're happy to show -- use our capabilities here and and be able to grow this market. Carey Smith: And each of the 5 projects I mentioned are over $100 million in revenue. Matt Ofilos: Over the period, it's about $40 million to $50 million per year. Operator: And our final question for today comes from the line as a follow-up from Jonathan Siegmann from Stifel. Jonathan Siegmann: Just back on some of these products. The IronClad controller that you guys offer, can you just sketch out the opportunity for that product? And is that something that might have been used on some of the drones that were deployed in Epic Fury or maybe partnered with some of the drone dominance programs. Carey Smith: Yes. The name is not bringing a bell with me, John. I'll have to get back to you on that one. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to David Spille for any further remarks. David Spille: Thank you all for joining us this morning. If you have any additional questions, please feel free to contact me directly. We look forward to connecting with many of you over the coming weeks. And with that, end of today's call. Have a great day. 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: Hello, and welcome to the Ingersoll Rand First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference to Matthew Fort, Vice President, Investor Relations. You may begin. Matthew Fort: Thank you, and welcome to the Ingersoll Rand 2026. First Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon and we will reference these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference will be available later today. Before we start, I want to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward-looking statements on Slide 2 for more details. In addition, in today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release, both of which are available on the Investor Relations section of our website. On today's call, we will review our company and segment financial highlights and provide an update to our full year 2026 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow time for other participants. At this time, I will turn the call over to Vicente. Vicente Reynal: Thanks, Matthew. Good morning, everyone, and thank you for joining us today. Beginning on Slide 3. The first quarter represented a solid start to 2026, especially given the continued complexity of the global operating landscape in the markets where we play. Adjusted EPS grew high single digits with revenue and adjusted EBITDA finishing in line with expectations. This performance reflects the durability of our portfolio and the consistency of our execution. Conditions remain mixed, but we're seeing continued improvement across several end markets and in short cycle activity. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline remains robust, focused on differentiated technology and services that strengthen our portfolio and enhances our organic growth profile. Finally, IRX remains a key differentiator, allowing us to remain agile and stay focused on what we can control, including operational execution, disciplined pricing and capital allocation. On Slide 4, our inorganic growth strategy remains a core element of our overall strategy and the pipeline remains robust. This is supported by our value creation flywheel, which is a core engine of our performance, generating durable free cash flow, which further enables consistent high-return capital deployment. We're pleased to announce the signing of Fox s.r.l., which is expected to close at the end of this month. As a leading manufacturer of hydropneumatic accumulators and position dampners, Fox enhances our pump technology by utilizing dampeners to absorb pressure pulses. This protects downstream pipes and equipment, helping customers reduce downtime and maintenance costs and thereby increasing the return on investment offered by our solutions. Today, we have over 200 companies in our funnel with 10 transactions currently at the LOI stage. More than 90% of these opportunities remain internally sourced, which reflects the strength of our operating model and deep industry relationships. We continue to expect 400 to 500 basis points of annualized inorganic revenue to be acquired in 2026, and we have a few additional deals expected to close in the coming months. Our approach to M&A remains unchanged, which is disciplined valuation, strategic fit and a focus on bolt-on acquisitions that strengthen our core technologies or expand into attractive adjacencies. Now I will hand it over to Vik, who will share an update on our financial performance for the first quarter. Vikram Kini: Thanks, Vicente. Starting on Slide 5. Orders finished up 5% year-over-year, resulting in a book-to-bill of 1.07x, which is consistent with normal seasonality. Worth noting, we did see a delay in orders of approximately $40 million, which was driven by a few long-cycle projects. This delay was primarily driven by the conflict in the Middle East. We believe that the impact is transitory, and we expect these orders to be recovered in the balance of 2026. As a matter of fact, we have already recovered approximately 1/3 of these orders in the month of April. Excluding that delay, organic orders would have finished approximately flat year-over-year. Total revenue grew 8% year-over-year, finishing in line with expectations. For the first quarter, adjusted EBITDA also finished in line with expectations at $469 million with an adjusted EBITDA margin of 25.4%. The year-over-year margin pressure was primarily driven by the flow-through on organic volume declines, the dilutive impact from tariffs and continued strategic investments for commercial growth. Corporate costs were $38 million. Our Q1 adjusted tax rate was 19.8% and adjusted earnings per share was $0.77 for the quarter, up 7% year-over-year. On the next slide, free cash flow for the first quarter was $163 million, finishing large in line with expectations and normal working capital seasonality. With nearly $4 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Our leverage remains well below 2x, providing us with flexibility to continue to deploy capital effectively throughout 2026 and beyond. Our capital allocation strategy remains unchanged, which prioritizes M&A, while also maintaining our commitment to share repurchases and quarterly dividends. Now I'll hand the call over to Vicente, who will review our segment results as well as full year guidance. Vicente Reynal: Thank you, Vik. On Slide 7, ITS orders finished up 5% for the first quarter. Book-to-bill for the quarter was 1.08x. Organic orders for the quarter were down 3%. Excluding the impact of delayed orders, which Vic mentioned, organic orders finished approximately flat. Important to note that on a 2-year stack, organic orders are up 1%. On a total segment basis, revenue grew 7% year-over-year. Adjusted EBITDA margin finished at 26.7%, which was down year-over-year, largely driven by the flow through on organic volume declines, the dilutive impact of tariffs and continued commercial investments for growth. On a reported basis, every ITS product line grew orders, except the power tools and lifting. On an organic basis, let me provide some additional color on orders by product line. Compressors were down year-over-year, driven by the previously noted timing on the large projects. The blower and banking business continues to perform well and was up year-over-year. Power Tools and Lifting was down year-over-year, driven by the lift in business. And we remain encouraged by the core tool business growing organically mid-single digits, driven by launches in new product technologies as well as growth in the short-cycle momentum that we're seeing. From a regional perspective, here are a few highlights on organic orders. We saw stabilized compressor activity in the U.S., and we continue to see encouraging order trends across many of our compressor categories. Additionally, China continues to outperform the underlying market. delivering another quarter of positive organic order growth. In our Innovation in Action section, we're excited to share a large win in carbon capture, where Ingersoll Rand was selected to provide a combined vacuum and blower application for an innovative carbon capture technology, which utilizes a proprietary gas separation process. This technology is applicable across a wide range of applications, including transportation like rail, power generation for data centers as well as industrial engines. Although this innovation is still in its early stages, we're encouraged by positive outcome demonstrated through the integration of our connected technologies. Turning to Slide 8. Q1 orders in PST were up 6% year-over-year with a book-to-bill of 1.04x. Organic orders saw a modest increase of 1%. Our Life Science business maintained robust growth with a double-digit increase in orders, while the remainder of PST business was impacted by the timing of some large projects. In Precision Technology business, the short-cycle book and ship business continue to see organic order growth. First quarter organic revenue finished up 4%, with both Precision Technologies and Life Science Technologies businesses delivering positive organic revenue growth in the quarter. PST delivered adjusted EBITDA of $122 million, which was up 15% year-over-year. Adjusted EBITDA margins improved 120 basis points year-over-year, reflecting continued strong operational execution. For our PST Innovation in Action, we are highlighting a great win for our Life Science business, which integrates core ITS product technologies into ILC Dover's end-to-end bulk powder system solutions. ILC Dover developed a comprehensive fully integrated bold powder system, which includes hardware, containment and mixing in collaboration with our own vacuum technology for a leading pharmaceutical manufacturer. This end-to-end design, assembly and installation utilize both ILC Dover powder solutions as well as our Ingersoll Rand Elmorishli vacuum pumps for powder conveyance. As we move to Slide 9, we are reaffirming our full year guidance for 2026. Total company revenue is expected to grow between 2.5% and 4.5%. And driven by organic growth of 1% at the midpoint, growth from M&A of approximately 2%, which includes the carryover impact from all transactions completed as well as the recently announced signed transaction of funds. And finally, we expect FX to be a tailwind of approximately 0.5%. Total adjusted EBITDA for the company is expected to be in the range of $2.13 billion and $2.19 billion. Corporate costs are planned at $170 million and are expected to be incurred evenly per quarter throughout the remainder of the year. Adjusted EPS is projected to fall within the range of $3.45 and $3.57, which is approximately 5% growth at the midpoint. We anticipate our adjusted tax rate to be roughly 23%. Net interest expense to be about $230 million and share count to be approximately 394 million. Free cash flow to adjusted net income conversion is expected to be approximately 95%. The phasing of revenue adjusted EBITDA and adjusted EPS is expected to be consistent with what we have seen in prior years as outlined on the table. We continue to monitor the changes in tariffs carefully, including the recent changes in Section 232 tariffs. We remain able and continue to be adjusting our mitigation actions to best minimize the effect of tariffs as well as inflation. And as a result, we do not currently expect any net tariff and inflation impact to our full year guidance. Additionally, as I mentioned earlier in the call, mostly for orders from the Middle East are tightly long-cycle projects. We anticipate order recovery throughout the year and with strong execution from the team expect no impact on full year revenue or adjusted EBITDA at this time. Finally, on Slide 10, as we conclude this segment of the call, I believe our performance in 2025 are solid start in 2026 with a book-to-bill above 1x and the improvement in the short-cycle business setups up well for continued success throughout the remainder of 2026. We remain agile to effectively navigate the complex global environment. Through disciplined execution, ample liquidity and a strong balance sheet, we continue to differentiate Ingersoll Rand as an investment. Our approach to capital allocation remains unchanged, leveraging our strong free cash flow to drive durable earnings growth and create long-term shareholder value. IRX remains the backbone of the organization, enabling operational execution. Finally, and most important, I would like to thank our employees for the ongoing dedication and commitment to embracing our ownership mindset. Thank you for help in delivering another strong quarter. And with that, I will hand the call back to the operator and open it for Q&A. Operator: [Operator Instructions] Your first question comes from Mike Halloran with Baird. Michael Halloran: Maybe we could just start on what you're seeing on short-cycle versus long-cycle side of the business. On the short-cycle side, are you seeing sequential acceleration? Are you seeing signs of improvement in demand normalizing? And then on the long-cycle side, maybe just talk about what you're seeing outside of the Middle East where you talked about the project delays and if you're seeing delays more systemically or what the customers are saying? Or if there's any signs that side of the business might be improving? Vicente Reynal: Yes, sure, Michael. So Mike, on the short cycle, looking specifically at the U.S., we're seeing signs of stabilization and improvement, which is definitely consistent with the ISM moving back to above [ 50 ]now for the past few quarters. I'll say that compressor activity in the U.S. stabilized during the quarter as well. And we're seeing encouraging order trend across several compressor categories. In addition, the short-cycle businesses continue to improve. As we mentioned on the prepared remarks, our core tool business is growing organically at mid-single-digit rate. That's a good indicator for us to see on that short cycle. And then on the -- within the PST side, in the precision technology, we saw book and turn or short cycle business grow organically which also lines up really well with what we're seeing and actually continued improvement as we went through the quarter and here into April. In terms of the long cycle, we categorize the longer-cycle funnel activity has remaining stable as well. And as we think about continued rising energy prices in Europe, we see these as a potential longer-term tailwind given the nature of our products and the value that we create for our customers in terms of delivering energy efficiency products and services. As we indicated before, what we're seeing right now is kind of customers in ITCs taking a little bit of time more to decision-making and finalized, which is consistent to what we have said before in terms of the elongation of the funnel and the overall decision making. However, projects are not canceled or anything of that nature. So we feel this is just a bit of a timing side in terms of the elongation of the decision that has not decreased. And as we have mentioned previously, the specific to the Middle East, we have seen some of these longer-cycle projects being delayed, but we expect that to come back over the course of 2026. And as Vik mentioned in the prepared remarks, already 1/3 of those projects have come in and booked here in the month of April. Michael Halloran: And then maybe the follow-up is just to put that in the context of how you're thinking about the guidance for this year. How much of that is embedded sequentially? Are you embedding some level of improvement as we work through the year? And as we think about how the orders are going to cadence out, I know you guys don't give specific guidance here, but how should that work out through the year when you consider comps, you having some of the projects, some sequential improvement as we're thinking about the short cycle side of things? Vicente Reynal: Yes, Mike, as we think about delivering the full year organic revenue guide, our expectations for organic growth and the cadence through the year has not changed from the original guidance. If you -- as you have seen on the midpoint of our guide, we're expecting about 1% full year organic growth and when we provided our original guidance, we indicated slightly negative organic growth in Q1 and then low single-digit growth for Q2 to Q4. Q1 kind of came in as we expected and even -- actually, if we were to exclude the Middle East pushouts, it kind of came even better than what we expected. So as we think about our second half guide that implies low single-digit organic growth, which is supported by a very good solid backlog growth from 2025 where our full year book-to-bill was above 1x, Q1 here in 2026, again, book-to-bill above 1x, 1.07x. As we mentioned here before, the ongoing momentum in the short-cycle activity, which we have seen in both segments, provides a good setup as we go into the second half, ongoing commercial investments for growth, including a very focus on the penetrated markets. And then as we all know, the prior year comps will continue to moderate, particularly in ITS as we kind of move into the second half. Operator: Your next question comes from Julian Mitchell with Barclays. Julian Mitchell: I know you've given the color on sort of first half, second half splits on revenue and earnings and so forth in the deck. But just wondered if you could perhaps hone in a little bit on what you're anticipating for the second quarter. Just backing the numbers out, it looks like kind of organic sales company-wide may be flattish year-on-year in Q2 and then the EBITDA margin is down, I don't know, 50 to 100 bps year-on-year in the quarter. I just wonder if those are roughly accurate and any kind of segment color for what you're seeing in the current quarter? Vikram Kini: Yes, Julian, I'll take that one here. So I think first your read is pretty directionally correct. I think Vicente kind of outlined kind of the full year and kind of the expectations, but maybe to give a touch more color specifically in terms of the phasing, both first half, second half as well as second quarter. First and foremost, just to reiterate, our expectations and assumptions for phasing for EBITDA delivery in the year haven't changed. First half of the year being in that kind of 45.5% to 46% range, the balance in the second half. As far as Q2, one, we do expect sequential improvement on margins from Q1 to Q2. But in Q2, margins, we do still expect to be slightly down year-over-year, kind of in that 50 to 100 basis point kind of range. It's primarily driven by ITS. We do still expect to see continued margin expansion year-over-year on the PST side. And then just to fill in the color there on the organic revenue side of the equation, as Vicente just mentioned, Q1 was expected to be slightly down, and that's exactly what we saw. From an overall perspective, Q2 is expected to be flattish to slightly up. And then the low single-digit growth on the organic side is what we're expecting in the second half based on the kind of the drivers that Vicente just walked through. Julian Mitchell: That's very helpful. And then just my follow-up would be around the ITS business. As you said, sort of margins, I think, are down there for 5 quarters in a row year-on-year, down again second quarter. Maybe help us understand kind of the confidence on those being up in the second half? And anything you could flesh out in terms of price cost impacts, anything changing competitively with what's happening on tariffs and inflation in ITS, please? Vikram Kini: Sure. I'll start on that one there, Julian. So obviously, a fair comment from your side, I'll note that obviously, the last 5 quarters, the majority of those have been impacted by the kind of the tariff dynamics and kind of the underlying impact that's had on some of the demand environment, which is really the driver of what you're seeing on the margin front. I think from a total year perspective, our expectation on a full year basis is that ITS will be approximately flat year-over-year. As we indicated, Q1 was going to be the most challenging quarter, particularly given we hadn't really started comping or lapping the Liberation Day tariffs from prior year, which really started in the second quarter. As far as the second half and to your question, we do expect that's where margin expansion kind of comes back, supported by, I would say, the slightly better organic volume outlook that we have kind of expected in the back half of the year. Continued improvement in price cost driven by, I'd say, full implementation of all the tariff-related pricing actions that have been taken as well as kind of some of the targeted in-year actions that we always kind of have executed on. And then many of the productivity initiatives, including we were -- I think you saw us take some pretty meaningful restructuring charges in the back half of last year, which we would expect to continue to bolster margins, particularly as we move into the back half of this year. So I think that's what kind of gets us to that kind of flattish margin expansion on a year-over-year basis. But yes, it is a little bit more back-end weighted as a result of those drivers. Vicente Reynal: And the only thing I will add is that the exit rate on margin expansion will be consistent with our long-term targets. Operator: Your next question comes from Jeff Sprague with Vertical Research Partners. Jeffrey Sprague: Just a couple of things first. Just the language on tariff here that you don't expect any impact. Does that mean you haven't sorted it all yet, and you're still kind of working through it? Maybe you could just kind of talk us through the AIFA change versus the 232 change. I guess you're saying you think you land kind of net neutral. But again, just looking for a little more clarity there. Vikram Kini: Yes. Jeff, happy to provide a little bit more. Obviously, a number of moving pieces to keep it simple here. No, we have obviously worked through all those individual new components. And I think the simple takeaway is kind of what you indicated here that at this time, those moving factors, whether it be the tariff-related changes, some of the underlying kind of disinflationary movements in the market as well as a lot of the proactive measures that our internal teams have been working on from a mitigation perspective, those are kind of netting out relatively neutral on a full year basis. So our rate at this point in time based on what has been announced is relatively neutral. And obviously, like everyone else, we're anxious to kind of see how things continue to play themselves out for the balance of the year. Jeffrey Sprague: And then maybe unrelated, just a little more color on Life Sciences, if you could, just how the year is unfolding, what you see in the pipeline? It looks like some of the Life Sciences reshoring announcements of a year or 2 ago, we're seeing some ground break on some bigger projects. Just wondering what the funnel looks like there? And is the visibility actually improving? Vicente Reynal: Yes, yes, definitely improving. And clearly, we're pleased with what we saw here in the first quarter, double-digit organic order growth momentum on the Life Science side. And a lot of these return and investments that we're seeing, particularly in biopharma and very specific around API production in the U.S., it's really a great trend for us in terms of the product that we have. So good visibility. As a matter of fact, this week, we had a great session with one of the largest biopharma companies here in the U.S. where we can collaborate as we look into specific technologies that we can actually put and help them to really accelerate some of the productivity and production that they have to do here in the U.S. So looking good, and we feel positive about it. Operator: The next question comes from Joe O'Dea with Wells Fargo. Joseph O'Dea: Just wanted to circle back on the EBITDA margin kind of trajectory with ITS because I expect that will be the biggest area of focus coming out of this quarter. And if we're talking about something like, call it, 27.5% to 28% in Q2, and moving to something that approximates 30% in the back half. Just if you could unpack any quantification around that? I know you gave some of the items. But any more detail around like the pricing that you put in place for tariffs, but the timing of when that starts to flow through the P&L or the impact from the restructuring, any other cost mitigation just to help with a little bit of the quantification around that bridge from Q2 into the back half. Vikram Kini: Yes, sure. Joe, obviously, we're not going to necessarily provide the exact specifics on the individual components, but let me give a little bit more color on some of the moving parts. So one, I think, obviously, kind of your read on the directional movement of margins is in line with expectations. As we've indicated, we do expect to see kind of sequential margin improvements here as we move through the year. Frankly, both a statement about ITS as well as PST for that matter. On the ITS front, just to kind of delve into the components a couple of moving factors. One, obviously, as I indicated here, we do expect to see organic volumes improve in the second half as comparatively to the first half levels. Clearly, those do come with, what I would call, a normal flow-through, which clearly will be a benefit that you haven't really seen kind of in the numbers over the last few quarters, just given some of the volume dynamics. Second piece would be price. So specific to price, all of the, I will call, tariff-related pricing actions have large -- are in the numbers. They were all largely taken to the back through 2025. And I would say you're seeing those in the numbers as we speak. What you haven't necessarily seen is some of the, I'd say, in-year 2026 actions, which is, I think, a catalyst of some of the margin expansion you would expect to see in the back half of the year. The other factors I would probably point to you here would be on the productivity side of the equation. So you mentioned one on the restructuring. The restructuring has been taken, as you can expect, that restructuring is global in nature. So it does take some time for some of those actions to be fully executed, which we expect to kind of largely conclude here through the first half of this year and those benefits to start being more visible into the back half of the year. And the other piece would be, I would say, the direct material side. As a reminder, direct materials is approximately 70% of our cost of goods sold. And there is a lot of activity going on, whether it be on the ITV front or the classical, I would just call it, direct material procurement side of the equation. And as you've seen in years past, those benefits tend to be much more visible when you have kind of your seasonally strongest quarter, which is always in the back half of the year and particularly the fourth quarter. So again, that's another driver of kind of some of the back half margin expansion that you're not necessarily seeing manifest right now in the first quarter. Joseph O'Dea: All helpful details. And then just on the demand front, when you talk about some of the order delays and some of that coming back in, in the quarter, but trying to understand a little bit of the ripple effect from the conflict. And so if you could just talk about what you're seeing in Europe, overall demand and then over the course of March and April, if you have seen any impact associated with the conflict or if that order impact is largely contained to the Middle East region? Vicente Reynal: Yes, Joe, it is mainly contained right now to the Middle East. And the Middle East, it was really, as we said, a handful of this kind of loan cycle large projects that as the conflict started and people had to just stay at home and not being able to leave. I mean we have a lot of our team members, they're all safe and sound, but they had to -- they could not leave their house to go and talk to customers, same thing at the customer side. So that is really what created some of the delay and the impact. And but therefore, as you can see here already in the month of April, as we said, already 1/3 of those orders kind of already booked into us, and we don't see any cancellation whatsoever. So yes, so I think it's just at this point in time, mainly due to fairly contained on that. As we think about continued perhaps impact in Europe, the main impact that we see is clearly the increase in energy prices, which we view it as a potential long-term tailwind for us, given the nature of our products, as we said before, and how we can create customer energy efficiency for products and services. There was actually -- the teams were telling me about a win that they had where they're saving upwards of $15,000 per month on a specific location and a customer creating a payback of compressor to be anywhere into the 1 year. Not everyone is going to be like that. But I mean, I think that is really part of what we're very focused on how can we help our customers lower those energy costs so that with the technology that we have. Operator: Your next question comes from Amit Mehrotra with UBS. Amit Mehrotra: I just -- sorry to revisit this, but I just want to sort of revisit the triangulation between organic growth in the quarter, orders both kind of flat to down and then this 1% full year organic growth and then the comps actually get a little bit harder as we progress through the year on organic growth. So I'm just trying to triangulate those 3 things and if there's kind of this embedded expectation of demand that we're not seeing yet as we progress through the year. Or maybe that's not. Maybe you can clarify that for me. Vikram Kini: Yes. Sure, Amit. I'll start. So I think as Vicente indicated here, first and foremost, the short-cycle side of our business, whether you look at either on the ITS side or the PST side, is the piece that we're definitely seeing, I'd say, stabilization and even, I'd say, improvement on as we think back to the last few quarters. So that's obviously very encouraging. It's kind of the base of the business. And obviously, what will be driver of the improvement that we see in the demand environment. As far as the order numbers you saw in Q1, I think as Vicente said here, clearly more impacted by the longer cycle projects. Those are projects that you typically book in the first half of the year, they go into backlog, and those might be 6 to 18 months in duration, right? So yes, obviously, we want to continue to see those get to the finish line. But one, our expectation is a lot of it was just timing and transitory. We do expect those projects to kind of not just stay in the funnel, but ultimately get to the finish line. And those will continue to feed the backlog, not just in the back half of this year, but even into 2027. So again, yes, we do want to see that longer cycle those projects hit to the finish line. But that, for us, is more of the longer-term side of the equation. We're very encouraged by what we're seeing on the, let's say, shorter cycle in some of the book ship businesses as well as some of the momentum we continue to see on the Life Sciences side as well. Amit Mehrotra: Okay. And I just wanted to follow up on that point and maybe Vicente, the short-cycle stuff seems encouraging underneath the surface, but ultimately, it's not piercing its way through to the organic growth profile of the business. And I'd like to get maybe your perspective on this because, obviously, you know the business better than anybody else. And my understanding, my feeling is, is that you guys took a lot of price over the last several years. I'd love for you to opine on whether there's a demand elasticity, I mean, because energy prices are high and surged during the quarter, which arguably would create a little bit of a cycle for your products. Maybe just opine on whether there's a demand elasticity issue vis-a-vis pricing market share. Like is there something else going on where some of the short-cycle momentum that we're seeing across the broader industrial is not really piercing through your organic growth in the moment? Vicente Reynal: Yes. I'll say, Amit, we're -- I mean, underneath obviously, all the data that we have, I mean we're kind of clearly seeing it. I mean, if I think about the PST side, when you think about the 2-year stack organic orders on PST, they're basically up mid-single-digit organic. And when you kind of unpack what we saw in the first quarter, Precision Technology, which is kind of the more short cycle in nature, we saw the short cycle in nature piece actually continue to do fairly well, offset by some loan cycle kind of year-over-year comp. I mean some of the loan cycle, I think we tend to like to look at it better, more on the first half and second half kind of comparison versus on a quarter-to-quarter basis. Within the ITS, when you think about the blower and the vacuum side of the business, those tend to be more short cycle. We have always indicated in the past historically that we have our vacuum business that is based in Europe as a good leading indicator for upswings in manufacturing demand based on short cycle, and we're seeing that. I mean we see that clearly -- so kind of when we unpack at a high level, and you can start excluding some of these loan cycles, we definitely see that short cycle continues to improve. And keep in mind, I mean, the demand elasticity by comprise. I mean we had a lot of statistics and a lot of analysis. We see that as long as we continue to innovate and we sell based on cost of ownership, payback that remains strong, that's how our sales teams they sell today, they sell based on that total cost of ownership on the ITS side, but also on the PST side too as well. Operator: Your next question comes from Nathan Jones with Stifel. Nathan Jones: Vicente, I'd like to just ask about -- you've made a couple of comments on the call today about the potential for high oil prices, higher energy prices in Europe to be a catalyst. We had a similar circumstance in 2022. And I believe there was a surge in demand for your products then. I'm hoping you can kind of compare where we are today in Europe to where we were maybe in 2022. I know there were some government programs that helped there. But maybe just any color you can give us on the similarities that you see and differences that you see between now and then and how rising energy prices or high energy prices impacted the business back there? Vicente Reynal: Yes, Nathan, we'll say, as you can imagine, we're looking at a lot of those indicators to see how comparable it is gas prices are not at the same level as what it was back then, but definitely has spiked and increase and even although gasoline and oil prices. I mean I was just in Europe with the team at [indiscernible] and diesel prices are actually higher than petrol prices, which in the European market they have not seen in quite some time. So it's going to take a little bit of time. I mean, I think as you can imagine, I mean, this -- we're still early into what I would say, the conflicts in the Middle East and we're still early into that acceleration of the oil and gas prices. But clearly, that is definitely going to help us, and we're leveraging our demand generation tools. we're leveraging and going back into the funnels and reassessing that return on investment and communicating with customers as to that energy efficiency that we can achieve based on our new technology. So again, staying optimistic in terms of being able to provide better solutions to our customers that will allow them to lower that energy cost. Nathan Jones: And I guess my follow-up question. You guys have frequently talked about the time from RFQ to booking as a sign of customer confidence. Can you talk about any changes you've seen there have they got any shorter? Or are we still waiting for that to come? Vicente Reynal: Yes, it has improved. It is definitely not to the early days when we said that a marketing qualified lead will take 4 -- I mean, we said historically before all this allocation, it could take anywhere between 6 to 8 weeks and clearly [indiscernible]. It has improved a little bit, but it's nowhere near back to the levels that it was before. Operator: Your next question comes from Joseph DeBlase (sic) [ Nicole DeBlase ] with Deutsche Bank. Nicole DeBlase: Yes. It's Nicole DeBlase. I don't know where that came from. So I guess maybe first, organic growth for PST pretty strong, and I think it was better than your expectations for maybe flattish originally for the first quarter. So if you could unpack that a little bit? And do you think that, that 4% growth that we saw in 1Q is sustainable throughout the rest of the year, meaning that maybe PST outperforms ITS in 2026? Vicente Reynal: Yes, Nicole, we definitely were pleased with what we saw and very pleased with what we saw, as we mentioned on the Life Sciences side of the business and kind of the short cycle nature that we saw on the PST. And I think we said too as well that we're pleased with what we're seeing here as we kind of move into the month of April as well. So I think we're encouraged also I made the statistic that when you think about PST organic 2-year stack, I mean, they're in the mid-single digit, which is kind of what we always said that, that segment should be operating above mid-single-digit plus. Nicole DeBlase: Okay. Got it. Understood. And then just thinking a little bit more about the progression of short cycle, I know this has been asked a lot of times, so I don't want to beat a dead horse, but did you guys actually see improvement in order activity on the short-cycle businesses throughout the quarter and then into April? And Vicente, if you could just remind us like what -- roughly what percentage of your total sales are short cycle today? Vicente Reynal: Yes. Nicole, we definitely saw -- we saw progression improvement, I would say, on the short cycle through the quarter and kind of as we continue, as I said, here, moving into the month of April. But other cadence continues to go fairly well in terms of -- in line with expectations. And so I think we're pleased with that. Vikram Kini: Yes. Nicole, on the second part of your question about the kind of short cycle versus long cycle. Probably the easiest way to frame it up would be at the enterprise-wide level, roughly 40% of our revenue is aftermarket, which obviously has more of a activity-based kind of book and ship kind of dynamic to it. And then when you kind of peel that apart on the whole goods side or the balance of the original equipment side, it's approximately 75% to 80%, 75% is probably a good proxy is more shorter cycle in nature, and that leaves about 25%, which is more of the, I would call it longer-cycle project type business. And you do see a relatively equitable split between both segments. Both segments have that longer cycle dynamic, as we mentioned on more. Operator: Your next question comes from Chris Snyder with Morgan Stanley. Christopher Snyder: I understand that price cost is, I guess, basically a net neutral for you guys throughout the rest of the year when we net out all the tariff changes and any sort of mitigation. But I guess is the expectation that the company will push more price in 2026 than what you thought coming into the year in response to inflation and just kind of part of that mitigation efforts. I mean if so, any way to think about how much more price in '26 versus the expectations in January? Vikram Kini: Yes, Chris, let me unpack that and clarify a few things here. So I think the price cost being more neutral, particularly here in the first quarter, as we're continuing to lap some of the tariff dynamics, I think that's more of a fair statement. I think as you move into the back half of the year, we do expect the price cost dynamic to turn a bit more positive. And what I would point to that is, are we taking, what I would call, incremental tariff-related actions at this point? No, I don't think that's the case anymore. As we indicated, as we came into the year, we expect pricing to kind of revert back to that kind of more normalized 1% to 2% that you've seen in historic times. That does include just some of the, I'd say, normal course pricing actions you would expect. Again, not kind of peanut butter and vanilla across the entire enterprise, but targeted pricing where it makes sense. And so that's a that's still, I'd say, in play here, which does drive some of the more second half, particularly Q4 price cost being positive. So again, not being necessarily more on the tariff at this point in time, just given things have kind of stabilized much more, what I would call normal course pricing. Christopher Snyder: I appreciate it. And then maybe if I could just follow up on the Middle East. I understand there was an impact on orders in Q1, but for the full year, you guys are saying no impact on sales or orders, it seems like for the full year. But I guess, did the Middle East have an impact on Q1 sales? And is there any impact that you expect to come through in Q2 on the Middle East and again, on the revenue side? Vikram Kini: Yes, Chris, to keep it fairly simple. I think the teams did an exceptional job here in Q1. So on the shipment or revenue side no, no meaningful impact one way or the other in Q1. At this point in time, obviously, not expecting any material movement here in Q2. But obviously, clearly, an area that we're watching, just like everyone else in terms of how the conflict continues to play itself out. Operator: Your next question comes from Stephen Volkmann with Jefferies. Stephen Volkmann: Most of it's been answered, but I guess I'm curious, we're approaching the 2-year anniversary of ILC Dover now. Is there anything qualitative you can say around how that asset specifically is performing relative to the segment, maybe in terms of growth or margin, just kind of bring us up to speed on how that's doing? Vicente Reynal: Yes, Steve, we don't tend to go into kind of unpeeling each of the businesses and particularly across any of the 2 segments. But, I mean, after a 2-year anniversary, we're pleased with all the investments that we have done. I mean we have a full lineup of new team, team really leveraging the tools that we have around IRX. And really, as you can see, obviously, that -- and investments that we have done in commercial investments to really accelerate and penetrate more. And you're seeing it now here in the numbers. I mean, obviously, ILC Dover is a good part of the PST segment today. And as we said -- and particularly the Life Sciences and Life Science Technology at a double-digit kind of order run rate we're pleased with that because we have now created a really good platform for the M&A. And as you remember, that was kind of what we were looking for with the ILC Dover to as well. And now we have embedded quite a few of these now bolt-on acquisitions into the Life Science business of ILC Dover. So continue to be pleased. I think the team is executing very well, and we see a bright future ahead. Stephen Volkmann: Okay. And then just a follow-on to that, is there anything in the M&A funnel maybe of the 10 LOIs or something that would be even close to that size of ILC Dover? Or is this all more like what we've seen year-to-date? Vicente Reynal: Yes. I think, Steve, on the NOI, it's kind of more on the bolt-on in nature. Having said that, I mean, there's definitely a couple of transactions and particularly one that is not of the size of ILC, but about a little bit more than $1 billion purchase price transaction. But that one is not on the. It's in the funnel, and we're having great conversations, but it is not one of the 10 LOIs. Operator: Your next question comes from Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Vicente, you mentioned, I think, 40% of the business now aftermarket. I think we've talked a lot about recurring revenue. I think it exceeded $450 million last year, and you talked about a backlog of $1.1 billion in future revenue. Has that continued to grow? I mean, what do you see in terms of mix for '26 and sort of moving forward? Vicente Reynal: Yes, Andy, I think continues to be an area of emphasis and focus. And yes, particularly continues to do very well. We have launched new solutions, and we're pleased with making the great progress towards achieving that $1 billion recurring revenue target that we said by kind of run rate at the end of 2027. So it's an area of focus the team is putting a lot of attention. And as you can imagine, it has created incredible customer loyalty and stickiness. -- when we have these solutions to the customer. So it's going to continue to be an area of investment for us. Andrew Kaplowitz: That's helpful. And then just one more on the Middle East. You mentioned you've got 1/3 of the delayed 40 minute or longer-cycle orders back in April. But could you give us more color on what the nature of these orders are? And do you think you need the Middle East conflict and to get all of the orders back? Or are your people telling you that it's just a matter of time, even if the conflict last that you get these delays back? Vicente Reynal: Yes. So these were really kind of plant expansion and production capacity extensions related kind of long cycle project orders. We don't need -- at this point in time, we don't expect that it needs the conflict to end. And it was just a matter of kind of putting the final details of these purchase orders. But obviously, as you can imagine, I mean, the teams and the customer were not able to, even in some cases, leave their homes to be able to have that kind of close communication and finalizing things. So I think it's just -- at this point in time, we think it's timing. There's definitely going to be rebuilt in a lot of the petrochemical facilities that have been kind of damaged so that I mean we clearly have products that participate in that regard. So I think it's going to be good for the long term, we also believe. Operator: Your next question comes from Nigel Coe with Wolfe Research. Nigel Coe: It's been a long time since as question, but what percentage of the current portfolio, Vicente, do you think is levered to energy be a process markets, oil and gas, chem, et cetera? Vicente Reynal: Yes. Good question. It's -- a lot of our technologies are very applicable to multiple industries. And they're, in some cases, kind of agnostic. And clearly, we're pivoting and kind of trying to help in some of these cases, situations as we see expansion into production capacities like petrochemical facilities, how our, for example, our Nash liquid embracing that is widely used in the pulp and paper. It's also and can be very well utilized in the destination towers of petrochemical facilities to be able to recompose products even further. So I think we're putting attention to obviously help our customer where health is needed. And that percentage of total revenue kind of could fluctuate based on the approach that we give to certain customer levels. Nigel Coe: Okay. Okay. So what you're saying is that it doesn't matter what it is today, there's opportunities to grow that number. Okay. And then just maybe a follow-on to Joe DeBlase's question. The Life Sciences, do you think that the double-digit Life Sciences revenue growth can continue? And I guess what I'm asking here is, was there anything unusual on the destocking or restocking activity there? Or do you think that life sciences can be sustained? And how does the Life Sciences margin compared to the average within PT? Vikram Kini: Yes. Nigel, this is Vik. I'll take that. So maybe I'll answer it kind of backwards here. So I'd say on an overall basis, the Life Sciences margin profile is comparable the overall segment. Clearly, it's the area where you've had more of the integration with the ILC Dover assets with legacy Life Sciences assets bigger sell and things of that nature. So -- but it's also probably the area we see continued opportunity particularly as some of those Life Sciences businesses continue to show good growth momentum. It's solid margin particularly areas like biopharma. So again, I would say relatively in line with the overall segment, but clearly an area for opportunity. As far as the growth cadence, things like that, listen, I think clearly, we're encouraged by what we saw. Obviously, double-digit growth came over the entirety of LFT is not necessarily something we've called for over the entire year or anything of that nature. But clearly, we're encouraged by what we're seeing here. We expect to continue to see good momentum. And I think to Vicente's point earlier, the fact that you have a 2-year stack on orders, that's in that mid-single-digit realm, I think definitely is kind of where we have been targeting this segment to operate, and we continue to expect to see continued momentum here as we move forward. So I think we're really encouraged by what we're seeing here. And we definitely see continued margin expansion, particularly as we move sequentially through the course of the year. Operator: Your next question comes from Joe Ritchie with Goldman Sachs. Joseph Ritchie: So lot's been covered. Maybe just kind of just parsing out the ITS margins this quarter. I know you've attributed it to volumes, tariffs and investments seems like tariffs probably had the outsized impact this quarter, not that I'm estimating maybe something in that $10 million to $15 million zone. Can you maybe just give us some quantification on the tariff impact this quarter? And then ultimately, if we're getting back to neutral as the year progresses, I guess we should probably see that come back in the upcoming quarters. Vikram Kini: Yes, Jess, I think with that question, I think the 2 drivers you mentioned there about the tariff-related dynamics as well as just to flow through on organic volume, which obviously this is a healthy gross margin business. So clearly, those are the 2 biggest factors. We haven't necessarily quantified 1 versus another, but those are the 2 bigger drivers. To your point, yes, clearly, as we move into Q2, remember, the tariff-related noise really started in April of last year or kind of in the second quarter of last year. So I think on a year-over-year basis, this is where the comps on the margin side of the equation start to moderate a bit more, and that's why the margin expansion expectation is more back-end weighted here, particularly now with all the pricing actions and mitigation actions and things like that have really gone into place. I think it's also worth noting here that even over the course of the last year and even into Q1, we continue to invest on the cost side of the equation and on the SG&A side, really feet on the street, R&D, the same areas we've talked about quite a bit. And so for us, that's an area that we wanted to be hyper-focused on continuing to invest because that's going to drive the ongoing organic growth moving forward. So I'd say those are the biggest drivers. But yes, your point is valid that as we move sequentially through Q2 and really into the back half of the year. that's where those tariff-related headwinds moderate. Joseph Ritchie: Okay. Helpful, Vik. And then maybe Vicente, just on the M&A pipeline and the I know back in the day, I think you guys had a goal ultimately to get the PST business up to like a $2 billion-ish type run rate business from a revenue perspective. As you think about your pipeline and whether that's the LOI or maybe the broader company pipeline that you're looking at? Like how much of that is centered on the PST business versus ITS going forward? Vicente Reynal: Yes. Joe, so I'll say that on the PST side, back to your commentary about making it larger and bigger, I mean it's kind of doubled in size since we started talking about PST. And those 10 LOIs, I would say, a good blend between both IPS and PST. And -- but again, we continue to see a lot of great prospects in the PST side that we're very excited about. Operator: Your next question comes from David Raso with Evercore ISI. David Raso: For the second half of the year, ITS, the margins, can you give us a sense of where do you think that growth will come from organically between compressors, vacuum and blowers and the lifting power tools segments? And just remind us on the relative margin between those 3? Vikram Kini: Yes. Sure, David. I'll kind of give you a quick overview. So obviously, the power tools piece is relatively small. It's kind of the smallest piece of the equation. To keep it very simple, the margin profile between compressors, blowers and vacuum actually quite comparable. You don't see a dramatic mix impact between them or things of that nature. Clearly, some of those technologies maybe have more aftermarket than others. But in totality, fairly comparable. So I think the simple answer to your question here is, and then clearly with compressors being upwards of 65% of the revenue base, clearly, that's going to be the biggest driver just because it's the biggest piece. But I do think that we expect to see, I'd say, positive contributions from all the underlying technologies. And as Vicente said here, when you think about the shorter cycle kind of momentum we've seen in the lower vacuum side. We've seen it in pieces of the compressor side. So I think we're encouraged at least by, I'd say, some of the underlying market activity that we're seeing that should kind of lend itself to some of that expansion you see in the back half of the year. David Raso: All right. So sort of mix agnostic, just we just need the volume essentially regardless either subsector. Vikram Kini: Generally correct. Yes. David Raso: When -- in the tariff impact and you say it gets better as the year goes on. Can you just clarify in the first quarter, is that pricing you put in against tariffs and they're dropping revenues at 0 margin? Or are we actually getting an EBITDA hit and we need the price to catch up to that in the second half of the year? Vikram Kini: It's more the former of what you said. So the pricing actions related to tariffs have largely all been taken through the balance of 2025. You're seeing that come through now offsetting tariffs. I would say it's dollar neutral but obviously margin dilutive. And now, obviously, on a year-over-year basis, you move through Q2 to Q4, you're seeing the tariff piece of that start to normalize because you had the tariffs in prior year. And clearly, with the mitigation actually taken combined with some of the ongoing pricing actions we're taking, that's why we expect to see better momentum, particularly exiting the year and in Q4. Operator: Your next question comes from Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: I think I got one last question even this far in the queue. I think no one brought up China yet, and I want to say that your comment there was, as I recall, orders still outperforming underlying markets. Is that a comment around improvement of the stabilization you've been commenting on the last couple of quarters? Or what are you seeing in that market? Vicente Reynal: Yes. Andrew, China for all, again, we have been able to outperform the market that we have -- that we're playing in China with basically new technologies taking technologies from other acquisitions and localizing that in China for China. And the team has done now consistently a pretty good job over the past, say, 3 quarters of being positive on an organic quarter basis. And so again, it's -- we're pleased with the execution. It's just another form of kind of highlighting the self-help commercial that we continue to push on a low basis, yes. Andrew Buscaglia: What do you see for the China market this year? Like what's your sense in terms of where that market is going for you guys? Vicente Reynal: I think we still don't see the market itself outgrowing. Now what we see is us outgrowing and taking share in the market itself. If the market is not -- we don't see China market shrinking. It is obviously highly competitive. But we still see a lot of good opportunities based on the technologies that we have and how we're approaching the market. I mean we got hundreds of examples. I was in China earlier this year and one of our medical device facilities -- and in China, for China for the medical device operation is opportunity is very high, as an example. Operator: That is all the time we have for questions. I'll turn the call to Vicente for closing remarks. Vicente Reynal: Thank you, Sara. Just finally, I just want to pass one more thank you to our employees for their ongoing dedication and commitment to having that ownership mindset and controlling what we can control and continue to deliver performance for our shareholders, which, by the way, all of our employees are and they have that reward in skin in the game to continue to deliver long-term value performance for all of us. So thanks again for the interest, and we'll talk soon. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good day, and welcome to the Bunge Global First Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mark Haden, Investor Relations. Please go ahead. Mark Haden: Great. Thank you, Betsy, and thank you all for joining us this morning for our first quarter 2026 earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found at the Investor Center on our website at bunge.com under Events and Presentations. Reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well. I'd like to direct you to Slide 2 and remind you that today's presentation includes forward-looking statements that reflect Bunge's current view with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation, and we encourage you to review these factors. On the call this morning are Greg Heckman, Bunge's CEO; and John Neppl, our CFO. I'll now turn the call over to Greg. Gregory Heckman: Thank you, Mark, and good morning, everyone. I want to start by thanking our team for their hard work and adaptability in what has been a very dynamic start to the year. The first quarter of 2026 was one of the more rapidly changing operating environments we've seen in recent years, and the team executed with the discipline and speed that defines this organization and delivered strong results. Even since our Investor Day last month, the world has changed considerably. The Middle East conflict, which was just emerging when we gathered in March, has continued to evolve. In addition to the very real impacts to those involved, it has meaningfully disrupted global trade flows, logistics costs and supply chains. In response, we are taking prudent operational steps to support the continuity of supply for our customers, including working with relevant regulators, policymakers and partners to preserve essential commodity flows and manage risk. These actions focus on maintaining flexibility in shipping arrangements and leveraging our global capabilities and regional capillarity to continue serving customers reliably. In the U.S., a bright spot in agriculture right now is biofuels. With everything going on in the world at the moment, having more biofuels in the supply is good for everyone. We need policy that supports the sector, and that's exactly what the EPA did with the recent RVO decision. We commend the agency for setting a volume that supports the investments made by fuel producers, oilseed processors and farmers in supplying biofuels to the market. Globally, there are many variables still at play, not the least of which is the uncertain duration of the Middle East conflict and the impact that will have on everything from farmer inputs, including fertilizer to fuel prices and what that might mean for the mix of crops farmers plant in the next growing season. What we can say with confidence is that Bunge's business is designed for complexity and change. Our combination of an integrated global platform, disciplined risk management and operational excellence allows us to perform through the cycle, and this quarter is clearly evidence of that. Looking at our operating results, the first quarter exceeded our expectations. The higher results were primarily driven by our soybean and softseed processing and refining segments, reflecting strong execution in a dynamic environment and improved market conditions. To drill down a little deeper, our results underscore the advantages of our larger platform and reach. While Grain Merchandising performance was impacted by distribution-related factors, including higher logistics and energy costs, those same conditions drove higher demand for renewable feedstocks. This in turn benefited our soy and softseed value chains. Turning to our outlook. Based on what we can see today, including the strength of Q1 and the forward curves as we look at the balance of the year, we are increasing our full year adjusted EPS guidance range to $9 to $9.50, and that's up from the $7.50 to $8 we provided on our fourth quarter call. While the current macroeconomic and geopolitical environments remain uncertain, our balanced footprint and diversified value chains give us the tools to adapt. The long-term fundamentals driving demand for our products and services remain firmly in place, and we're well positioned to execute in any environment. With that, I'll turn it over to John for a deeper look at our financials and outlook. John Neppl: Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on Slide 5. Our reported first quarter earnings per share was $0.35 compared to $1.48 in the first quarter of 2025. Our reported results included an unfavorable mark-to-market timing difference of $1.28 per share and an unfavorable impact of $0.20 related to Viterra transaction and integration costs. Adjusted EPS was $1.83 in the first quarter versus $1.81 in the prior year. Adjusted segment earnings before interest and taxes or EBIT was $661 million in the quarter versus $406 million last year. In the Soybean Processing and Refining segment, higher results were primarily driven by South America, reflecting stronger processing performance in Argentina and Brazil. North America also delivered higher results across both processing and refining. In the destination value chain, higher origination in Brazil was more than offset by lower processing results in Europe and Asia. And results in global oils merchandising activities also increased, reflecting strong execution. Higher process volumes were largely attributed to the combined company's expanded production capacity in Argentina. Process volumes were also higher in North America and Brazil. Higher merchandise volumes reflected the combined company's expanded soybean origination footprint. In the Softseed Processing and Refining segment, results were higher across all regions. In Argentina, results increased in both processing and refining. In North America, higher processing results more than offset slightly lower refining results. In Europe, higher processing and biodiesel results more than offset lower refining results. Origination results in Canada and Australia increased, reflecting our expanded footprint in large crops. Results from global oils merchandising activities also increased, reflecting strong execution. Higher softseed process volumes primarily reflected the combined company's increased production capacity in Argentina, Canada and Europe and higher merchandise volumes were driven by the company's expanded softseeds origination footprint. For the Tropical Oils and Specialty Ingredients segment, higher results in Asia, Europe and global oils merchandising activities were partially offset by lower results in North America. In the Grain Merchandising and Milling segment, higher results in wheat milling, global cotton and commercial services were more than offset by lower results in ocean freight, which was impacted by the significant spike in bunker fuel costs. Results in Global Grains Merchandising were in line with last year. Higher volumes primarily reflected the company's expanded grain handling footprint and capabilities, along with large global grain crops. Prior year results included corn milling, which was divested in 2025. The increase in corporate expenses was primarily driven by the addition of Viterra. The year-over-year comparison was also impacted by the timing of performance-based compensation and a $15 million cash benefit received in 2025 related to a prior joint venture. Other results were in line with the prior year. Net interest expense of $136 million was up in the quarter compared to last year, reflecting our expanded footprint and merchandising activities with the addition of Viterra, partially offset by lower average net interest rates. Let's turn to Slide 6, where you can see our adjusted EPS and EBIT trends over the past 4 years along with the trailing 12 months. With the favorable biofuel environment, synergy capture and ramp-up of in-flight projects, the earnings trend is expected to improve. Slide 7 details our capital allocation. For the first quarter, we generated $530 million of adjusted funds from operations. After allocating $95 million to sustaining CapEx, which includes maintenance, environmental health and safety, we had $435 million of discretionary cash flow available. We paid $136 million in dividends, invested approximately $240 million in growth and productivity-related CapEx and invested $105 million to acquire IFF's soy protein concentrate and processing businesses. This results in a net use of $47 million. Moving to Slide 8. At quarter end, readily marketable inventories, or RMI, exceeded net debt by approximately $400 million. Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted EBITDA was 1.6x at the end of the first quarter versus 1.9x at the end of 2025. Slide 9 highlights our liquidity position, which remains strong. At the end of the first quarter, we had committed credit facilities of approximately $9.7 billion, all of which were unused and available. We also had essentially all of our $3 billion commercial paper program unutilized, providing ample liquidity to manage the ongoing capital needs of our larger combined company. Please turn to Slide 10. For the trailing 12 months, adjusted ROIC was 8% and ROIC was 6.7%. Adjusting for construction in progress on our large multiyear projects and excess cash on our balance sheet, our adjusted ROIC would increase to 9% and ROIC to 7.2%. Moving to Slide 11. For the trailing 12 months, we produced discretionary cash flow of approximately $1.35 billion and a cash return on equity of 9.1% compared to our cost of equity of 7.2%. Please turn to Slide 12 and our 2026 outlook. Taking into account Q1 results, the current margin and macro environment and forward curves, we now expect full year 2026 adjusted EPS in the range of $9 to $9.50, which is up from our previous range of $7.50 to $8. As Greg mentioned in his remarks, the environment remains complex. Forward curves in certain regions have reacted, but significant uncertainty remains, particularly in the second half of the year. For the full year compared to our previous outlook, Soybean and Softseed Processing and Refining segment results are forecasted to be higher. Tropical Oils and Specialty Ingredients and Grain Merchandising and Milling segment results are expected to be lower and corporate and other results are expected to be in line. Additionally, we now expect the following for 2026, an adjusted annual effective tax rate in the range of 22% to 26%, which is down slightly from our previous expectation of 23% to 27%. Net interest expense in the range of $620 million to $660 million, which is up from our previous range of $575 million to $625 million, primarily due to higher short-term debt levels supporting an expected increase in working capital. Capital expenditures in the range of $1.5 billion to $1.7 billion and depreciation and amortization of approximately $975 million. With that, I'll turn things back over to Greg for some closing comments. Gregory Heckman: Thanks, John. So before we turn to Q&A, I just wanted to offer a few thoughts. The themes we laid out at Investor Day have not changed, and this quarter reinforces them. Bunge today is stronger, more agile and better positioned than at any point in our history. We've transformed our portfolio and strengthened our operating model. With the integration of Viterra, we now have an unmatched global footprint and set of capabilities, supported by a disciplined approach to growth and capital allocation. We're now a more diversified business across geographies, origination, processing and crops, which, as we demonstrated this quarter, helps us mitigate risk and bring more balance to our processing footprint. We're also entering a meaningful phase of value creation, driven by the contribution from our organic investments and Viterra-related synergies. Viterra cost synergies are running ahead of plan, and we've identified significant network and commercial opportunities. At the same time, we're making progress in other key areas, further sharpening our portfolio and positioning Bunge for the future. In March, we announced the closing of our acquisition of IFF's soy protein, lecithin and processing business. This transaction complements Bunge's existing protein portfolio and expands the company's lecithin offerings, reinforcing our commitment to providing a diverse and reliable range of ingredient solutions to our food customers. As we said at our Investor Day, it doesn't matter whether the world moves further towards deglobalization or swings back toward globalization. We're positioned to deliver. This is a business with durable earnings power and the ability to create value in any environment. We've built a business that provides real differentiated solutions for farmers and for our food, feed and fuel customers, and we're continuing to advance across everything we do. We have the right people, assets, systems and strategies in place to manage uncertainty, adapt to external challenges and remain focused on what truly matters, serving our customers and creating value for all stakeholders. And with that, we'll turn to Q&A. Operator: [Operator Instructions] The first question today comes from Manav Gupta with UBS. Manav Gupta: Congrats on the very strong quarter and the guidance raise. I want to just make a quick comment. A lot of time, Analyst Days are well -- the intentions are right, but the execution is not the best. Your Analyst Day in March was an extremely well-organized event, a great use of everybody's time. And I know the whole team worked very hard, particularly, Mark. So I wanted to congratulate the whole team for putting together a very strong Analyst Day in March. It really helped us out. So my quick question to you here is, we are seeing a very strong macro. Yes, RVO is strong, but world is seeing distillate shortages. U.S. can avoid some of those distillate shortages if we run harder in renewable diesel and biodiesel, we think we have estimated that we have 25% more capacity to run harder, which would probably translate to 1.2 billion additional gallons, which can be made in the U.S., which will help solve some of these shortages. But to probably make 1 billion gallons more of renewable diesel in '26 than '25, you probably need 8 billion pounds of additional feedstock and maybe 50% of that is soybean oil, the most easily sourced feedstock. So can you talk a little bit about the dynamics out there, what you're seeing out there from renewable diesel, biodiesel producers. Obviously, margins are great, but there also are some of the refiners basically looking there and saying, we need to run harder on renewable diesel, biodiesel. That's the only way we can actually avoid some of the shortfalls, which the global markets are seeing. If you could talk about that. Gregory Heckman: Sure. I'll start, and John, you can add on if you want. But no, you're exactly right. The market has set up where we've got clarity in the U.S. around the RVO, which has been very helpful. But the other driver, of course, we continue to see policy evolving not only in Brazil and Indonesia, which have been moving to utilize more biofuels but -- and renewable feedstocks, but also in Europe. So there's definitely a macro shift. Everyone is understanding the value of fuel security at home. And then the big driver, of course, is higher crude prices and higher diesel prices, right, which makes even some of the discretionary blending work on renewable diesel and the traditional biodiesel. So there are just a lot of support. And of course, that drives that value back to the farm gate, to the farmer, and that sends the right signal for mix of crop in production. So it is a good environment, although the forward curves are heavily inverted, and that continues to show kind of some of the uncertainty of the speed that it will play out. But the supply is there, the stocks are there, and we're here to supply the vegetable oils that are needed. Operator: The next question comes from Ben Theurer with Barclays. Benjamin Theurer: Greg, John, congrats, and I can only echo what Manav just said. So same from my side. Following up on that, and you just talked about the future curves a little bit being inverted. So maybe help us putting into context what you're seeing right now. As we look at the guidance, I mean, you made close to $2, so there's somewhere like $7, $7.5 to be made based on your current guidance. How should we think about the cadence? Because clearly, about 2 months ago, you talked about more like $0.80 to $0.90 for the first quarter, and now it was basically $1 more because of everything that has changed through March. So how should we think about 2Q and then maybe the second half balance as well a little bit of like a 3Q, 4Q cadence, what you're seeing right now in the market? John Neppl: Yes. Thanks, Ben. This is John. So our previous guidance had been 30%, 70%, first half, second half was how we saw it back when we had our first quarter forecast of low $0.80 range. But now we're looking at the year to be 40% first half, 60% second half. And then when we look at the second half, it's a little more even, but we're looking at 45%, 55%, Q3, Q4 is kind of how we see it playing out right now. Benjamin Theurer: Okay. Perfect. And I mean, given your guidance update, just real quick, you've taken down internally or given on your commentary, a little bit the tropical oils and specialty ingredients as well as the grain merchandising and milling. I wanted to understand a little bit more why the merchandising piece has been taken down considering all the disruption in the market? What are you seeing? What are the issues here? John Neppl: Yes, Ben, I'll start and Greg can jump in. But I think first, that's always the toughest to forecast is our Grain Merchandising and Milling segment. But in the first quarter, we got kind of off to a rough start. You can see the numbers certainly below where we would expect it to be, largely driven by the ocean freight dynamics, the bunker fuel costs that hit us in Q1. And looking forward, it's hard to see when things are going to turn. We think still balance of the year we'll have better results in that segment. But certainly, given the tough start to the year, we're calling it down at this point. And obviously, depending on what happens dynamically in the market, we'll be in a position to take advantage of it. But just -- it's really driven by that slow start to the year. Gregory Heckman: And the feed grains and wheat do continue to be fairly heavy S&Ds there. Now we'll see as we see the mix of how crops are planted as we see how the crops develop and then, of course, how we see how weather develops here over the balance of the year, those will be key things to watch and those balance sheets could tighten up. On the food side, there's really -- on the tropicals, we've seen our food customers some lower volumes overall. And then, of course, we've seen cocoa prices come off. So our cocoa butter equivalent business, we're seeing -- while volumes are still okay, their margins are definitely down from the dynamics we saw previously. And then just this uncertainty driven by the geopolitical situation as well as some of the tariff uncertainty has them shorter bought as well on the food side, which is always a little tougher on margin. So it's kind of no one thing, but a little bit of everything, and that's what's reflected in the change in the tropicals forecast. John Neppl: And then, Ben, maybe I'll tack on a couple of additional things. We had an unusually low tax rate in Q1, just driven by some discrete timing items. But over the year, we expect our tax rate to normalize more into that range that I mentioned in prepared remarks. And so we'll see a little bit higher tax rate in Q2 and then throughout the rest of the year. And then we are expecting higher interest costs as well beginning in Q2, just given the level of high prices and relatively large working capital usage we anticipate for the balance of the year. Operator: The next question comes from Tom Palmer with JPMorgan. Thomas Palmer: You've got kind of 3 businesses, I guess, embedded in the soybean and softseed segments, processing, refining and merchandising. I think the processing strength, especially nearer term is pretty transparent. But what about what you're seeing on the refining side and maybe oilseed merchandising side? Are you seeing any pickup in those businesses given some of the crush dynamics carrying through? Or is the strength really more isolated to that crush processing side? John Neppl: Yes. Tom, this is John. I'll start, and Greg can jump in. I think refining premiums, while they're not -- they're certainly not where we were back in '22 and '23. They've been pretty resilient. And refining volume has still been strong. Big demand on the food side continues. We'll see how things play out here with the market and inflation given the current global environment. But we've been pretty pleased with refining volume and the margins have been pretty resilient, as I mentioned, on the food side. And of course, on energy, there are still energy customers taking refined, maybe not to the level they were back in '22 and '23, but it's done reasonably well. Then on the oilseed merchandising side, we had really strong results in Q1 on the merchandising side with farmer selling and origination. And so that was a big driver of some of the strong performance that we reflect now in those 2 segments. The specific oilseed origination gets reflected there, and that was part of what helped drive the strong results. Gregory Heckman: And when you think about the end-to-end, it's part of what we talked about, that margin can move around, right, between origination, processing, merch and refining and distribution. And with our larger global system, our team now has, whether it's our origination assets, our storage assets, our distribution assets to point them to where the most value can be created to support our system. And so with a larger soy and softseed footprint, it is supported by that merch capabilities as well. So while you may not see it, that's where you got to really think about the power of the total system. And then as John said, the higher prices that we saw as the conflict started, the higher flat price run-up, we really saw better farmer selling globally, really kind of everywhere, but Argentina. And of course, that -- you saw some of that reflected in those value chains in those oilseed and soy processing value chains, softseed and soy processing. Thomas Palmer: Okay. And then you noted how inverted the crush curve is. Why is visibility so limited in the second half? And just to confirm, this is kind of a follow-up to Ben's question on cadence. This guidance increase is really more about the first half strength because of that visibility? Gregory Heckman: Yes. We've got a number of factors that are playing out. One, you don't have the farmers engaging out forward. You also don't have the end consumer engaging out forward. So the curves are reflecting the uncertainty, but they're also affecting the lack of liquidity that's out there. You've got the length of the conflict, of course, is a concern. We've got the crop development here in the Northern Hemisphere that we'll continue to watch. And then there is increasing concern about El Nino developing, what that could mean. And then we've had 2 tough softseed crops the last 2 years in Europe. And so we're waiting in new crop, if we see the good sunseed crop in Europe, you could see some improvement. But again, that's all yet to develop. And then we still have China-U.S. trade is yet to play out. We could see some additional soy business. Could there be any old crop. It feels like it's getting kind of laid or some new crop business that could change the soy flows. And then could we even see some corn business done with China. So there's just a lot of, I guess, open switches on how this will play out, and I think the market is reflecting that. Operator: The next question comes from Pooran Sharma with Stephens. Pooran Sharma: Congrats on the quarter. I wanted to just maybe get your take on where soy oil inventories are headed or maybe the cadence of tightening. I think on the last call, you mentioned if we go to a 5.6 billion gallon RVO or anything with -- in that range of 5.2 billion to 5.6 billion, you could see soy oil inventories going from being in excess to being kind of tightened up within a few quarters. But given the half RIN restriction being delayed until 2028, does this change your view on that cadence of tightening that you had on the last call? Gregory Heckman: Yes. I think the delayed RVO, definitely, we saw stocks really build. So I think you're right. We'll now see those start to draw down as we move through the year and move into Q3 and especially Q4. And then, of course, some of that will depend globally on policy in Indonesia, in Brazil and in Europe. And then some of those policies even in Europe are put in place, will they be retroactive or not. And so some of those can affect the demand and how fast these stocks get drawn down. Pooran Sharma: Okay. I appreciate that color. And just on the follow-up, I wanted to understand Argentina with a little bit more granularity. We had thought bean availability would be tighter in Q1, just given prior selling patterns and the timing of harvest in Argentina. So I was just wondering if you could help us frame up what drove the stronger-than-expected processing there. I think you called it out in the press release. Was it timing, better origination? Any color there would be helpful. Gregory Heckman: Yes. Part of it, we're just operating with a bigger footprint now. The combined Viterra Bunge footprint there, we're now the biggest ag business in Argentina. So our capabilities to execute. And then we saw some farmer selling. But then, of course, as the rain came in, that really slowed down. And then, of course, we're going to watch closely how that affects any bean quality. So as we move forward with harvest, we kind of expect the farmer selling to start to pick back up there in Argentina. But we just got a better origination and processing footprint than we had before and the way that it's working together as we brought those teams together and running that as one business. We also have a very nice sunseed business there in Argentina, and that is a very nice seasonal offset to our European sunseed business. And if you remember, a lot of the brands really favor that sun oil. So now we're able to give year-round supply to that, and we've had good sunseed production. And so that's also been helpful to Argentina. Operator: The next question comes from Heather Jones with Heather Jones Research. Heather Jones: First question is related to the inverted curves and it's 2 part. Greg, you mentioned that the end consumer is not engaging as much. And so just wondering, is that on both oil and meal? Because I would think with the RVO visibility that on the oil side, they would be. And wondering if you could just share with us where you're seeing the most inverted curves or I should say, disparity between where you think they should be and where they are right now? And then I have a follow-up. Gregory Heckman: So yes, it's been both energy and food that have not engaged further out on the curve. So really both, I think, with some of the uncertainty. And then if you kind of zoom out and think about the average curves for '26 on soy across the Bunge footprint, they're definitely up versus prior forecast. And of course, the U.S. has been the big driver there from an overall. So as that plays out, that's one of the things that definitely could get better as we see those inverted curves kind of work their way out a quarter or a month at a time. And then when you look at softseed, the '26 kind of average curves for our footprint, again, up versus prior forecast, and that's driven really by North America canola. Some of that's on the RVO clarity and some of that's on ample seed supply. And then I mentioned a little bit earlier, of course, Europe and Black Sea, we're coming off a couple of years of small sun crops. So those margins will be pressured until we get to new crop, but that's an area where you can see margins get better if we get a good sun crop we're hoping. John Neppl: Yes. Maybe, Heather, just worth adding is there is a little bit lack of liquidity going forward, but probably the one area we've seen them get a little bit further ahead is on the oil leg, given the price dynamics. But obviously, for us, we don't lock in the margin until we have all 3 legs priced. And so customers certainly are looking forward. But again, too, it's hard to -- I think for some of them hard to gauge where prices are going to end up. So still a bit dynamic. Heather Jones: Okay. And then I just wanted to talk about the U.S. strength. I mean oil has obviously helped, but recently, it's been driven a lot by meal. And just wondering if you could give us your view of what is primarily driving that? I mean there's been these talks about the traits in Argentine meal and that's been rejected at all. But just wondering if you could walk through the primary drivers and when you expect or do you expect that strength to moderate? Gregory Heckman: Well, I think the meal demand globally continues to surprise in a good way to the upside here kind of month after month, and that really seems to be driven with the meat economics, right, the profitability in the meat sector and the consumer favoring a lot of animal protein, which is supporting. And we know the animal feed, they love to feed soybean meal. It's been competitive. And it feels like that's good momentum to continue to move through. And then, of course, beef prices remain high, and that's also been supportive when the consumer is eating protein that pork and poultry are very, very competitive. Operator: The next question comes from Andrew Strelzik with BMO. Andrew Strelzik: I wanted to start maybe by revisiting the conversation about the South America operating environment, particularly on the crush side. You talked a little bit about Argentina in the first quarter, but just more broadly between Brazil and Argentina, kind of where do things stand today in terms of the curves? How are you expecting that to evolve? There's obviously a lot of visibility into the U.S. curves that we're able to see, but just curious how you're thinking about that. Gregory Heckman: Yes. Those curves are both inverted as well and not as much visibility in those markets as we see in the U.S. Those farmers did both in Argentina and Brazil, sell into the flat price rally there in Q1. That slowed down here a little bit in Q2. But you've also had good bean crops there and the expectation is there'll be another good bean crop behind that. So from an overall environment, that's setting up well. Andrew Strelzik: Okay. And then from -- I wanted to ask about share repurchases as well. And I know -- I believe at least you guys have only committed to -- for this year, the remaining Viterra portion of the buyback. But as we think about the operating environment continuing to get better, the earnings environment, cash generation. I guess how should we think relative to kind of what you guys outlined at the Investor Day, the pace of the share repurchase opportunity ramping from here or beyond this year? John Neppl: You bet, Andrew. This is John. So I think we're going to certainly watch how things progress. We do expect to finish the $250 million here before the end of the year. And as you know, we've laid out a new framework as part of Investor Day on how we think about capital allocation. And one of those, of course, is allocating more closer to 50% of our discretionary cash flow to return to shareholders. When we look at that and we overlay that for the balance of '26, we've got a fair amount of capital commitment yet to do this year, which really ultimately, we expect to use up largely any discretionary cash flow we have between dividends, our current buyback program expectations and the CapEx commitment we have should largely use that up. Now if things continue to improve, there's only one other thing we'll be looking at, and that is that our leverage ratio is a little elevated with Moody's right now versus where we want to be by the end of the year. So we'll be monitoring that as well. But certainly, in that whole mix, share buyback and if we have an opportunity to pull some of that head into '26, we'll certainly look at it. Operator: The next question comes from Steven Haynes with Morgan Stanley. Steven Haynes: Maybe just a higher level on some of the potential like shifts in global acreage. Can you maybe give us some guideposts around, I guess, a, what maybe the range could be on those shifts? And then also like if any of those potential outcomes might be materially better or worse for your new larger combined footprint? Gregory Heckman: Yes. If we look at the current year, it kind of seems like fertilizer was in place, planning intentions were in place. There may have been a slight shift we'll see with a few more soy versus corn acres here in the U.S. I mean weather has been good. Things are off to a good start. But we don't think it will be a big shift to just where the shock started to happen on price that stocks were in place. I think where you want to watch it as we go later into the year, really, if this is sustained around availability and price on fertilizer is probably South America, Brazil in the next cycle and then U.S. in early '27. So I think that's yet to be played out. And then the other would be if we see the El Nino, which a higher percentage of some possible El Nino effect, which then could start to have the markets doing some work and sending some signals about which crops the farmer should be planting. But that's yet to be played out later in the year. Operator: [Operator Instructions] The next question comes from Matthew Blair with TPH. Matthew Blair: Great. Congrats on the strong results. It looks like you're -- when looking at your net leverage calcs, the RMI factor is now at 70% this quarter versus 50% last quarter. Could you talk about what gives you the confidence to push that assumption up? John Neppl: Yes, that should be the same as last quarter. I think we adjusted it up from pre-close. So when we closed on Viterra, we had substantially more RMI in their inventory, and they actually with the rating agencies had a higher RMI credit than we did. And so our blended rate overall went up. Now it varies by rating agency and how they look at it. And so we just use kind of a rule of thumb of 70% for purposes of understanding the trend in our leverage. But certainly, each rating agency has their own policy and their own formula that we work with. But we continue to -- that's obviously a big part of our balance sheet. And as you can see, at the end of Q1, it was pretty significant and actually exceeded our debt level. Matthew Blair: Sounds good. And then could I just circle back to the implied Q2 EPS guidance? It looks like it's roughly flat quarter-over-quarter despite just better board margins. You have the RVO in hand that didn't come in until the end of Q1. You highlighted some of the headwinds from things like higher tax, higher interest. But are there any other moving parts? And I guess, should we think of this implied Q2 guidance as somewhat conservative? Or is there anything else going on there? John Neppl: Yes. I think if you look at quarter-over-quarter, yes, you pointed out a couple of the key things where we're going to expect quite a bit higher interest level in Q2 and higher tax rate. And really, everything else is largely in line or higher with the exception of tropicals, we expect to be a little more challenging in Q2. And some of that's uncertainty Greg talked about around CBE on cocoa butter palm prices, some of the potential tariff impact. And we do expect higher corporate expense in the next quarter as well versus Q1, which is historically a little bit low on the performance-based incentive side. Operator: This concludes the question-and-answer session. I would like to turn the conference back over for any closing remarks. Gregory Heckman: Thank you. I'd like to thank you all for joining us today. I'd also like to thank the team for their continued execution, the focus on our customers and the ability to really manage the optionality and the agility of this global footprint and capabilities that we've got. So I look forward to speaking with you again. Have a great week. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to SiteOne Landscape Supply First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Elema, Chief Financial Officer. Thank you. You may begin. Eric Elema: Thank you, and good morning, everyone. We issued our first quarter 2026 earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website at investors.siteone.com. I am joined today by Doug Black, our Chairman and Chief Executive Officer; and Daniel Lafon, SVP, Strategy and Development. Before we begin, I would like to remind everyone that today's press release, slide presentation and the statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission. Additionally, during today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the select presentation. . I would now like to turn the call over to Doug Black. Doug Black: Thanks, Eric. Good morning, and thank you for joining us today. We are pleased with our first quarter 2026 performance as we overcame the weather and market-related softness in sales volume and delivered 14% adjusted EBITDA growth compared to the prior year period with meaningful gross margin expansion and tight SG&A management. Furthermore, during the quarter, we acquired Reinders, a strong fifth generation market leader in irrigation, agronomics and landscape lighting in the Midwest, which will contribute to our growth this year. We have seen volumes improve in April with the oncoming of the delayed spring season. However, with the recent increase in macroeconomic uncertainty, we believe that our end markets could continue to be soft this year. On the other hand, we expect pricing to be stronger which will benefit organic sales growth and gross margin expansion. With the benefit of our commercial and operational initiatives, we remain confident in our ability to gain market share and expand our EBITDA margin in 2026. Coupled with a solid pipeline of potential acquisitions, we believe that we are well positioned to deliver solid performance and growth for our shareholders in 2026 and in the years to come. I will start today's call with a brief overview of our unique market position and our strategy, followed by the highlights from the first quarter. Eric will then walk you through our first quarter financial results in more detail and provide an update on our balance sheet and liquidity position. Daniel Laughlin, will discuss our acquisition strategy, and then I will come back to address our outlook and guidance for 2026 before taking your questions. As shown on Slide 4 of the earnings presentation, we have a strong footprint of more than 680 branches and 5 distribution centers across 45 U.S. states and 5 Canadian provinces. We are the clear industry leader approximately 3x the size of our nearest competitor, we estimate that we only have about a 19% share of very fragmented $25 billion wholesale landscaping products distribution market. Accordingly, our long-term opportunity to grow and gain market share remains significant. We have a balanced mix of business with 66% focused on maintenance, repair and upgrade, 20% focused on new residential construction and 14% on new commercial and recreational construction. The only national full product line wholesale distributor in the market, we also have an excellent balance across our product lines as well as geographically. Our strategy to fill in our product lines across the U.S. and Canada, both organically and through acquisition further strengthens this balance over time. Overall, our end market mix, broad product portfolio and geographic coverage offers multiple avenues to grow and create value for our customers and suppliers while providing important resilience in softer markets. Turning to Slide 5. Our strategy is to leverage the scale, resources functional talent and capabilities that we have as the largest company in our industry, all in support of our talented, experienced and entrepreneurial local teams to consistently deliver superior value to our customers and suppliers. We've come a long way in building SiteOne and executing our strategy, but we have more work to do as we develop into a world-class company. The current challenging market conditions require us to adopt new processes and technologies faster and to be even more intentional in driving organic growth, improving our productivity and mastering the unique aspects of each of our product lines. Accordingly, we remain highly focused on our commercial and operational initiatives to overcome near-term headwinds, but more importantly, to build a long-term competitive advantage for all our stakeholders. These initiatives are complemented by our acquisition strategy, which fills in our product portfolio, moves us into new geographic markets and adds terrific new talent to SiteOne. Taken all together, we expect our strategy to create superior value for our shareholders through organic growth, acquisition growth and EBITDA margin expansion. On Slide 6, you can see our strong track record of performance and growth over the last 10 years with consistent organic and acquisition growth. From an adjusted EBITDA margin perspective, we benefited from extraordinary price realization due to rapid inflation in commodity products during 2021 and '22. In 2023 and 2024, we experienced significant headwinds as commodity prices came down. In 2024, we also experienced further adjusted EBITDA dilution and from the acquisition of Pioneer, a large turnaround opportunity with great strategic fit and from our other focus branches, which resulted from the post-COVID market headwinds. In 2025, pricing improved from a 3% decline in 2024 to flat, and we achieved excellent progress with Pioneer and our other focus branches both of which contributed significantly to our improvement in adjusted EBITDA margin despite the soft end markets. In 2026, we expect pricing to be up 2% to 3%, and we expect to continue achieving improvements with our focus branches. Accordingly, with the benefit of our other commercial and operational initiatives, we expect to continue expanding our adjusted EBITDA margin despite the continued market softness. For the longer term, we believe that we have significant room to improve our adjusted EBITDA margin as we execute our strategy and reach our full potential as a business. We have now completed 108 acquisitions across all product lines since the start of 2014, adding approximately $2.2 billion in trailing 12-month sales to SiteOne, which demonstrates the strength and durability of our acquisition strategy. These companies expand our product line capabilities and strengthen SiteOne with excellent talent and new ideas for performance and growth. Our pipeline of potential deals remains robust, and we expect to continue adding and integrating more companies in 2026 to support our growth. Given the fragmented nature of our industry and our current market share, we believe that we have a significant opportunity to continue growing through acquisition for many years to come. Slide 7 shows the long runway we have ahead in filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery, hardscapes and landscape supplies categories. We are well connected with the best companies in our industry, and we expect to continue filling in these markets systematically over the next decade. I will now discuss some of our first quarter performance highlights as shown on Slide 8. Net sales were $940 million, essentially flat year-over-year, with organic daily sales down 1%. Due to the timing of winter storms, the spring selling season was delayed in March. Additionally, we believe that the increased macroeconomic uncertainty and higher interest rates are negatively affecting an already soft new residential construction market and the more resilient repair and upgrade market. These factors resulted in a 4% decline in organic sales volume for the quarter, which was partially offset by 3% growth from pricing. Gross profit increased 3% and gross margin improved by 90 basis points to 33.9%, driven by effective price realization and continued progress with our commercial initiatives including strong growth in private label products and with small customers. SG&A as a percent of net sales increased 70 basis points to 37.2% and due to the organic sales decline. That said, we were pleased to have kept our base business SG&A flat versus prior year on an adjusted basis. During the quarter, as we benefited from the 2025 branch consolidations and closures and continue to execute our operational initiatives. Adjusted EBITDA for the quarter increased 14% to $25.5 million versus the prior year period, and adjusted EBITDA margin expanded 30 basis points to 2.7% despite the flat sales, demonstrating our ability to successfully navigate the market headwinds with disciplined execution of our strategy and initiatives. In terms of initiatives, we made good progress during the quarter, executing specific actions to improve our customer experience, accelerate organic growth, expand gross margin and increased SG&A leverage. For gross margin improvement, we achieved positive organic daily sales growth with small customers and grew our private label product sales by over 40% during the quarter. Both contributing to our strong gross margin expansion. These 2 initiatives not only help us expand gross margin, but also help us gain market share and outperform the market. To further drive organic growth, we increased our percentage of bilingual branches from 67% of branches to 68% of branches during the quarter, while continuing to execute our Hispanic marketing programs. We are also continuing to make good progress with our sales force productivity as we leverage our CRM to focus on disciplined revenue-generating actions from our inside sales associates and over 600 outside sales associates. We increased our digital sales on siteone.com by over 60% in the first quarter versus the prior year period. while also increasing regular active users by approximately 60%. We believe we are gaining market share with the customers who are engaged with us digitally as we achieved strong positive total sales growth with these customers during the quarter. siteone.com helps customers to be more efficient and helps us to increase market share while making our associates more productive, a true win-win-win. On the SG&A front, we continued to lower our net delivery expenses during the first quarter, driven by delivery associate and equipment efficiency gains along with improved pricing. Note that our teams have done a good job of working with our customers to pass through fuel surcharges to mitigate the significant near-term increases in fuel cost. We expect to reduce net delivery expense in 2026 and for the next several years as we execute our local market delivery strategy and best practices. We also continued to achieve improved profitability with our underperforming branches or focus branches during the quarter, though they were also negatively affected by the delayed start to the spring season. As a reminder, we achieved an over 200 basis point improvement in adjusted EBITDA margin of our focused branches in 2025 and are looking for strong improvement with these branches once again in 2026. In total, we are making great progress on our commercial and operational initiatives, which will help us gain market share drive organic sales growth, improved gross margin and achieve operating leverage in 2026 despite low sales growth. Furthermore, these initiatives will help us expand our adjusted EBITDA margin over the next several years towards our long-term objectives. On the acquisition front, we've added 2 companies to our family so far in 2026 with approximately $110 million in trailing 12-month sales including Reinders, a strong market leader in the Midwest for irrigation, agronomics and lighting products. Reinders is a good example of a company that we have been courting for many years before they decided to sell their fifth-generation family business late last year. Reinders family carefully consider their options and chose SiteOne as the best long-term home for their company. We have built a solid backlog of additional companies, and we expect to close more acquisitions during the year, yielding a more typical year in terms of total sales acquired. With an experienced acquisition team, broad deep relationships with the best companies, a strong balance sheet and an exceptional reputation as the acquirer of choice. We remain well positioned to grow consistently through acquisition for many years, in the very fragmented wholesale landscape supply and distribution market. In terms of our acquisition team, I'd like to take a moment to recognize Scott Salmon who retired from his role last month after leading our strategy and acquisition team for the last 7 years. Over that period, we added over 70 companies with over $1.3 billion in trailing 12-month sales to SiteOne, while significantly improving our integration processes. Scott has been a tremendous leader and colleague, and we are very grateful for his significant contributions at SiteOne. Fortunately, we have a very strong successor for Scott with Daniel Laughlin, stepping into the role to lead our strategy and acquisition efforts going forward. Daniel is a critical member of our acquisition team meeting some of the most successful acquisitions from 2014 through 2021. Recently, joined us in January and has been part of a smooth leadership transition. We're very confident in Daniel's experience, capability and deep knowledge of SiteOne and our industry, and we look forward to further executing our acquisition strategy under his leadership in the coming years. as we build on the strong foundation that's been established. Now Eric will walk you through the quarter in more detail. Eric? . Eric Elema: Thanks, Doug. I'll begin on Slide 9 with some highlights of our first quarter results. Net sales were approximately $940 million, up modestly from the $939 million for the first quarter of last year. There were 64 selling days in the first quarter, which is the same as the prior year period. Organic daily sales decreased 1% as a result of a 4% decline in volume, partially offset by a 3% increase in pricing. February and most of March, were particularly slow from a sales perspective as winter storms across several regions, limited customer activity and delayed applications, driving a weaker volume result. We saw increased sales activity toward the end of the quarter with better weather conditions. As Doug mentioned, sales volume has improved in April compared to the first quarter. . Pricing performance was strong and broad-based. While we continue to see deflation in grass seed and PVC pipe, which were down 10% and 8%, respectively, in the quarter, the collective magnitude has moderated versus prior periods and was more than offset by price increases across other product lines. In addition, at the start accordingly, we now expect prices to contribute 2% to 3% to 2026 sales growth, while acknowledging the ongoing global uncertainty. Organic daily sales for agronomic products, which include fertilizer and control products, ice melt and equipment, increased 2% for the first quarter due to improved pricing partially offset by the later start to the spring selling season, which delay applications. Organic daily sales for landscaping products, which includes irrigation, nursery, hardscapes, outdoor lighting and landscape accessories, decreased 3% for the first quarter due to adverse weather and soft demand in the new residential construction and repair and upgrade end markets. Geographically, our Eastern regions were more affected by weather, where persistent storms materially disrupted early season customer activity. More broadly, sales were down for the first quarter in 5 of our 8 regions compared to the prior year period. Our central region was a bright spot, achieving double-digit organic sales growth with solid demand and less disruption from winter storms. Acquisition sales, which include sales attributable to acquisitions completed in 2025 and 2026, contributed approximately $12 million or 1% to net sales growth. Daniel will provide additional details regarding our acquisition strategy later in the call. Gross profit increased 3% to $319 million, and gross margin improved 90 basis points to 33.9% for the first quarter. The year-over-year improvement reflects strong execution of our commercial initiatives, including continued momentum in private label sales and growth with small customers, along with solid price realization and vendor support. These gains were partially offset by higher freight and distribution costs as well as continued deflation in certain commodity products. Selling, general and administrative expenses increased to $350 million for the first quarter from $343 million for the prior year period. SG&A as a percentage of net sales increased approximately 70 basis points to 37.2%, driven primarily by the decline in organic daily sales during the quarter. Despite the sales headwind, we continue to tightly manage costs and drive productivity across the business. SG&A in the base business, on an adjusted basis, was flat for the first quarter compared to the prior year period. The effective tax rate was 28.9% for the first quarter compared to 25.5% for the prior year period, primarily due to an increase in excess tax benefits from stock-based compensation year-over-year. We continue to expect the effective tax rate for fiscal 2026 will be between 25%, 26%, excluding discrete items such as excess tax benefits. Net loss attributable to SiteOne was $26.6 million for the first quarter compared to $27.3 million for the prior year period, primarily reflecting higher gross profit, partially offset by our SG&A. Our weighted average diluted share count was approximately $44.6 million during the first quarter compared to approximately $45.1 million for the prior year period. In the first quarter, we repurchased approximately 155,000 shares for approximately $20 million at an average price of $128.90 per share. Post quarter end, we repurchased an additional 6,000 shares for approximately $800,000. Adjusted EBITDA increased 14% to $25.5 million for the first quarter and adjusted EBITDA margin expanded 30 basis points to 2.7%, reflecting the improvement in gross margin and disciplined cost management during the quarter. Adjusted EBITDA for the first quarter includes adjusted EBITDA attributable to noncontrolling interest of $700,000. Now I'll provide a brief update on our balance sheet and cash flow statement as shown on Slide 10. Working capital at the end of the quarter was approximately $1.1 billion compared to $1.0 billion at the end of the same quarter last year. Cash used in operating activities decreased approximately $8 million to $122 million due primarily to a modestly lower net loss and the effect of working capital changes. We made cash investments of approximately $102 million for the first quarter compared to approximately $21 million for the same period last year. The increase primarily reflects the acquisition of Reinders as well as higher capital expenditures. Capital expenditures for the quarter were $23 million compared to $15 million for the same period last year. due to increased investments in our branch locations. Net debt at quarter end was $585 million, and net debt to trailing 12-month adjusted EBITDA was 1.4x which is within our targeted range of 1 to 2x and lower than the 1.5x at the end of the first quarter of last year. Available liquidity at the end of the quarter was approximately $502 million consisting of $84 million of cash on hand and $418 million in available borrowing capacity under our ABL facility. Post quarter end, we amended our ABL facility and extended the maturity date to April 2031. As a reminder, our priority from a balance sheet and liquidity perspective is to maintain our financial strength and flexibility so that we can execute our growth strategy in all market environments. I will now turn the call over to Daniel for an update on our acquisition strategy. Daniel Laughlin: Thanks, Eric. As shown on Slides 12 and 13, we completed 2 acquisitions during the first quarter representing approximately $110 million of trailing 12-month net sales. Both of these companies align well with our strategy of expanding our product offering, strengthening our presence in attractive local markets, and adding high-quality teams to SiteOne. On January 13, we completed the acquisition of Bourget Flagstone Company, a wholesale distributor of hardscape products with 1 location in Santa Monica, California. This acquisition establishes our presence in the Santa Monica market and the surrounding Malibu and Pacific Palisades areas and provides a strategically located site to expand our hardscapes offering in Southern California. Bourget Blackstone brings a long history in the market, strong customer relationships and deep expertise in natural stone and hardscape products. On March 16, we completed the acquisition of Reinders a leading fifth-generation, family-owned distributor of irrigation, agronomics, holiday and landscape lighting and landscape supplies with 12 locations across the Midwest. Reinders significantly expands our presence in the Midwest and strengthens our capabilities in irrigation and agronomics, supported by a team known for technical expertise, on-site diagnostics and strong customer service. The Reinders leadership team will remain with the business, preserving its legacy and customer relationships while benefiting from SiteOne scale, resources and infrastructure. I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work and for welcoming the newly acquired teams when they joined the SiteOne family. Looking back since 2014, we have completed over 100 acquisitions, representing approximately $2.2 billion of trailing 12-month net sales added to SiteOne. These companies have steadily expanded the number of markets where we can offer a full product line while strengthening our local teams. Summarizing on Slide 14, our acquisition pipeline remains active, supported by long-standing relationships across the industry in a disciplined, consistent approach to evaluating opportunities. While many factors can influence timing, our focus is unchanged, partnering with well-run businesses that fit strategically aligned culturally, and create long-term value for our customers, suppliers, associates and shareholders. With a strong balance sheet, a dedicated acquisition team and a proven integration model, we remain confident in our ability to continue executing our M&A strategy in supporting SiteOne's growth in 2026 in the years to come. I will now turn the call back to Doug. Doug Black: Thanks, Daniel. I'll wrap up on Slide 15. As mentioned, the spring season was delayed in March, and we have seen improved sales volume and overall positive organic daily sales growth in April so far. However, the recent energy volatility and higher interest rates have increased the macroeconomic uncertainty, and we believe this is having a negative effect on the already weak new residential construction end market and the more resilient repair and upgrade end market. On the positive side, as mentioned earlier, we now expect to achieve 2% to 3% growth in pricing, which will support organic daily sales growth and gross margin expansion. Overall, we continue to expect low single-digit growth in organic daily sales for the year. In terms of end markets, we are experiencing weakness in new residential construction demand, which comprises 20% of our sales and we expect this market to be down for the full year 2026. New commercial construction demand, which represents 14% of our sales was solid in 2025 and we believe it will remain flat in 2026. Main activity from our project services teams continues to be slightly positive compared to the prior year, which is a good indicator of continued demand. The ABI Index has improved recently, and our customers remain bullish for the remainder of the year. We believe that this end market will be flat this year. We believe the repair and upgrade market, which represents 30% of our sales, was down in 2025, but seemed to have stabilized during the second half. So for this year, the repair and upgrade market has been resilient but sluggish with lower consumer confidence. While the long-term fundamentals for repair and upgrade are strong, we believe that repair and upgrade demand will be down slightly this year due to the increase in macroeconomic uncertainty. Lastly, in the maintenance end market, which represents 36% of our sales we achieved excellent sales volume growth in 2025 as our teams gained profitable market share on top of steady demand growth. We have seen the same trends this year so far, and we expect the maintenance end market to continue growing steadily in 2026. In total, after almost 4 months of activity, we expect end market demand to be down modestly this year with weakness in new residential construction and repair and upgrade more than offsetting growth in maintenance. Given this backdrop and with the benefit of our commercial initiatives, we expect flat sales volume, which when coupled with 2% to 3% growth in pricing is expected to yield low single-digit organic daily sales growth for the full year 2026. We expect gross margin in 2026 to be higher than 2025, and driven by price realization and our commercial initiatives, partially offset by higher freight and logistics costs supporting our growth. With our continued strong actions to improve our productivity, and by continuing to address our focus branches, we expect to achieve operating leverage in 2026, yielding solid improvement in our adjusted EBITDA margin. In terms of acquisitions, as Daniel mentioned, we have a good pipeline of high-quality targets, and we expect to add more excellent companies to SiteOne throughout 2026. Lastly, we have an extra week in 2026. Unfortunately, this extra week occurs in fiscal December during a very slow sales period, which is a traditionally loss-making period for SiteOne, as a result, we expect the extra week will reduce our adjusted EBITDA by $4 million to $5 million. With all these factors in mind and including the negative effect of the 53rd week, we expect our full year adjusted EBITDA for fiscal 2026 to be in the range of $425 million to $455 million. This range does not factor in any contribution from unannounced acquisitions. In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment teamwork and selfless service. We have a tremendous team, and it is an honor to be joined with them as we deliver increasing value for all our stakeholders. I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partner. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from David Manthey with Baird. David Manthey: Thank you. First off, Doug, I'm most interested in your commercial and operational initiatives, of course, in this sort of slow period. Was hoping maybe you could scale the long-term margin improvement opportunity here, say, next 3 to 5 years? What do you think you can drive out of these many efforts that you have going on, and then as it relates to 2026, maybe if you could highlight the top 2 or 3 that will have the biggest impact this year? Doug Black: Yes. Thanks, David. Longer term, we have a -- we have our path to 13%, and that's been our target for a while, and we feel good that we can get there with the combination of our commercial initiatives driving organic growth, gross margin expansion and then SG&A efficiency levered. And so the biggest opportunities to drive that I would say on the gross margin side, private label is obviously a big one, and we've got great progress going on there. We're also penetrating with small customers. We have a lower share with small customers than we have with the larger customers. And as we penetrate those small customers, that's a good gross margin driver for us. On the SG&A side, we have our focus branches. That's a big opportunity for us. We made a lot of progress last year. We aim to continue to make progress over the next to 3 years with those lower-performing branches as we raise them up, that's largely SG&A reduction. And then our delivery efficiency is a big opportunity for us to reduce our last leg of delivery expense. As you know, over the years, we've worked on our inbound freight and our supply chain. We're now putting a lot of focus on our outbound delivery from the branches. And so those are some of the bigger opportunities. And of course, just the general leverage we get by driving organic growth, which the aiders there are our digital is a big driver of our sales force performance efforts. And then private label and small customers would also contribute to organic growth. So you put those together, we have lots of opportunity. We're mining those this year to drive our business. Longer term, we feel like that can get us up into the double digits on for that 13% objective. David Manthey: That's great. Maybe I could double-click on the private label. I believe you said it grew 40%, maybe I heard that wrong. But what percentage of total sales are private label as we sit here today? And then could you talk about just what are the key products that are driving the outsized growth there? Doug Black: Yes. I want to clarify that the 40% were our high-growth private label product lines, which are pro trades the lead there that's in lighting and landscape supplies, portfolios or nursery private label and Solstice Stone is our hardscape private label. When you take those 3, they grew at 40%. If you add in LESCO and our total private label, it grew at 10% in the quarter. So still moving ahead we're approximately 15% private label, and we're looking to increase that by 100 basis points a year. And so we accomplished that last year and we aim to keep ticking that up over the next 5 to 10 years, quite frankly. Our goal there would ultimately be kind of 25%, 30% private label. And so, we've got a good start this year to being on that same pace heading towards that goal. Operator: Our next question comes from Ryan Merkel with William Blair. Ryan Merkel: I want to start off with the quarter. Doug, can you talk about what was the impact of weather? You missed the Street by about $40 million. I know that's difficult, but any help there would be helpful. And then how much was macro being weaker in the quarter? You called out new resi construction. Just curious what you saw there. Doug Black: Right. Well, it's kind of hard to discern because both are happening at the same time. I would say that maintenance is 36% of our business. And that's the 1 that gets the most deferred as we're moving kind of from quarter-to-quarter based on when the spring starts and so as we mentioned, and we've seen the volumes improve in April. We haven't caught all the way back up to where we aim to be for the year, but we've seen that improvement, and that's largely that maintenance and some of the new construction came in seasonally. On the macro side, we just -- you can see that we've dropped our guide for the market, we would have initially said it was flat. Now we're saying it's going to be modestly down. I think that's -- that quantifies the macro uncertainty. We feel like we're seeing that and that we'll continue to see that throughout the year. Consumer confidence is low, gas prices are up. It's just -- it's not a great environment. And that makes the weakness in new resi a little bit worse. And we've seen some of that. And it weakens the repair and remodel market, which we've seen some of that. It's mixed. It's not falling off the cliff. We still believe that the remodel market is resilient, but you can certainly see some jobs being deferred and there's weakness here and there in that market. Ryan Merkel: Okay. That's fair. I know quantifying weather is difficult. So I appreciate that. My second question is on price. You're raising it a little bit, but I thought you might raise it more -- so I'm curious, like is the cadence just sort of 3% across each of the quarters, the rest of the year? And what are you assuming now for PVC and fertilizers because I think there's probably some inflation there. Doug Black: Yes. Good question, Ryan. When we talked to it last quarter, we were thinking 3 in the first quarter, stepping down to 2%. And then in 1 in the second half, we were comping the increases in June time frame of last year. Our thinking now is through -- we did 3 in Q1. We see continuation with that. It's probably even a little firmer 3 here in the second quarter. And then there's some uncertainty. So we think 2 maybe in the second half gets you kind of midpoint of that 2% to 3%. There is some upside and -- but there is also some uncertainty. We're still evaluating PBC. We're working closely with our suppliers expecting those price increases here during the quarter and monitoring overall price increases across the rest of our supplier base -- there's just a lot of uncertainty looking out in the rest of the year. So I think 2 to 3 is a fairly conservative point right now for where we sit. Certainly, there is some upside opportunity in the rest of the year and we'll have a better view of that as we progress through the second quarter. Operator: Our next question comes from Mike Dahl with RBC Capital Markets. Michael Dahl: Just to touch on kind of the margin breakdown. I think last quarter, you articulated that within the year-on-year composition like the gross margin and SG&A contribution would be relatively dimmer, just given the moving pieces, price better, volume a little worse, a good start to the year on gross margin. Can you just help us understand kind of within your expectations today, how you would think about the breakdown between gross margin and SG&A leverage this year? Eric Elema: Yes, we still expect to get SG&A leverage for the full year. we're looking at Q2 and Q3 for that to occur. Q4, we have the extra week, so that will be dilutive. So we don't expect to get SG&A leverage in the fourth quarter. But to your point, we do believe that gross margin now expected to be higher, you can see what we did here in Q1, expect to expand gross margin in Q2. We were thinking more flat in gross margin in the second half of the year when the year started. So there's some upside opportunity, I would say, Q3 probably a little better than we thought Q4 unknown. SG&A right, with a little bit of a change in the end market outlook. So SG&A, gets a little bit harder to leverage. We feel like we're doing a really good job managing the cost side of it, but organic, we still believe low single digits. I would say it's probably tilted a little more in favor in gross margin at this point. We thought 50-50 contribution when the year started. And I would say that's shifted up in favor of gross margin. Michael Dahl: Okay. That's helpful color. And just as a follow-up on the SG&A dynamics, I mean, with the more subdued outlook on kind of market dynamics, obviously, you have all the initiatives in place, but is there anything else kind of more discrete or incremental that you're now contemplating in terms of further cost-out actions? Doug Black: Yes. I think we always win if the market is tougher, if volumes are lower, we'll take action manage labor tightly, other expenses more tightly, et cetera. So there are certain actions we can take. But as Eric mentioned, SG&A leverage is certainly more challenging as the volume goes down. So we would expect a little bit more -- less leverage more on the gross margin side for the remainder of the year. If things get tougher, we can certainly fight to maintain that leverage. And we'll continue to manage it tightly in any case and then see how it works out on the volume side. Eric Elema: The other point I would add to on SG&A is the rising fuel cost for delivery goes through SG&A. And we've talked about fuel surcharge that we implemented at the end of March. The charge for that is in sales. So you can see a little bit of a negative impact on SG&A from the dollar side. Operator: Our next question comes from Keith Hughes with Truist Securities. Keith Hughes: So talk a lot about inflation on this call. Are you seeing any signs that you're not able to get any of these price increases through on customers given what's kind of a shaping demand environment right now? Doug Black: Our market is pretty efficient, and it's been traditionally pretty efficient and pass it through price increases. So, so far, we -- obviously, we work with our customers on that. But so far, we've been able to pass through price increases, and we feel pretty confident that we can continue to do that, working with our customers and suppliers to make it as seamless as possible for our customers, but our market tends to be pretty efficient there, and we don't expect that to change. Keith Hughes: And I mean there are some categories where there could be a lot more inflation specific PVC pipe. When you get increases from your suppliers, how long does that take to get implemented? Is there usually any drag when numbers go up notably? . Eric Elema: No. It's pretty much concurrently. We're in contact with suppliers. We've been signaled ahead of time and we plan accordingly and provide notice to our customers in advance of those price increases. Doug Black: Especially with things like pipe and fertilizer and products that move around, the market, there's a good communication in the market where we can give the customers heads up and we're giving a heads up by the suppliers and it happens pretty quickly. I was going to say we're in the height of the fertilizer season. So this price increase has been in effect since 41. So we've managed through that and nothing significant to call out. I would say it's fairly inelastic and PVC pipe. We'll work through that in the coming months, but I would like to highlight the last 3 years, '23, '24, '25, they've been significant declines in PVC pipe in price. So we wouldn't expect these increases that are being contemplated to be an elasticity issue. Keith Hughes: Okay. Just a final 1 on grass seed, still looking for grass seed, whatever price does there, it's still a third quarter reset. Is that still the case? Eric Elema: That's correct. Operator: Our next question comes from Matthew Bouley with Barclays. Matthew Bouley: So on the gross margin, you have that 10% growth in private label and it sounded like success with smaller customers. So it seems like that would move the needle a bit on margins. You have the 90 basis points there. So question is I want to see if you can quantify how much of the margin expansion is coming from some of these commercial initiatives that presumably are more structural in nature versus if there's any kind of temporary benefit that you sometimes see due to inflation. You had the 3% price just to sort of help us kind of dial in gross margin forecast in a more normal environment. Doug Black: Yes. we typically don't give a breakdown specific by initiative. And so I don't think we can offer any help there. It's just I would say that private label small customers contributing strongly as is the price realization that we're getting on the other side. I don't know, Eric, anything to comment on that? Eric Elema: Yes. And I think of this quarter is if we look in the light of Q3, Q4 in the line of the basis point contribution, you can see where price has been benefiting us. So we're a little bit better there, but I would say that we've had pretty good run rate now with private label contributing to gross margin expansion for a number of quarters. Matthew Bouley: Okay. Got it. That's helpful. Yes. Sometimes in the past, you guys have quantified at least the temporary benefit. But I guess the second question is on Reinders just because it's a fairly large deal. Obviously, in the past, some of the bigger deals, you guys have taken a little bit of time to sort of integrate them into the whole system. So -- just any color on kind of the margin profile of this business? And if there is opportunity for you to expand margins further with this business as you do integrate it in the cycle . Doug Black: Yes. No, Reinders is a strong company. We're excited to have them join. There are pretty significant synergies with Reinders they're in irrigation, agronomics, lighting landscape supplies. And so on those product lines, we tend to have higher synergies. And so there's good synergies there. We'll get some of those synergies this year. We are system-wise, we'll integrate them next year, but we are syncing up with their teams and capturing some of those opportunities. We do expect them to be nice and profitable this year around -- probably around where we are and in the future, there's significant upside there as our synergies fully kick in. So excited about the deal. It's a strong company. They've got a great team. and we can certainly add value. They actually do a lot of digital. They're 1 of the leaders in the market with digital. And so we're going to take our time integrating with their digital and ours. But it's good to join forces with a company that's more progressive relative to other companies in the industry. And Reinders is 1 of those companies. Operator: Our next question comes from Jeffrey Stevenson with Loop Capital Markets. Jeffrey Stevenson: Are there any concerns of fertilizer shortages or potential inflation pressures and other commodity products, such as PVC piping could have an impact on maintenance demand similar to a couple of years ago when customers were holding off on certain maintenance projects due to elevated commodity price levels. Doug Black: Right. Yes. And you're referring to the kind of COVID where prices move significantly in fertilizer. And that did hurt demand in that year exactly which year it was. But the nature of the increase around 5% for fertilizer is not to the magnitude that we feel like it will create any kind of demand degradation. Fertilizer does move around from routinely a couple of percent here and there. So 5% isn't a tremendous move and we feel like our customers will be able to handle that and it won't affect the applications. In terms of supply shortages, we've got a great supply chain. We've got multiple sources for most of our products, but we don't anticipate, at least at this time, that there will be any shortages in supply that will drive additional inflation. So we feel pretty good about where we are and the ability of the market to absorb some of these price increases that are obviously, we never enjoy absorbing price increases into a market, but 5% is a manageable level there. Jeffrey Stevenson: Okay. No, that's very helpful, Doug. And then I just wonder if you could quantify any more of the magnitude of expected new residential declines this year. And then on top of that, kind of what you're hearing so far from builders or in the spring selling season and if I remember correctly, typically, there's an 8- or 9-month lag between when there's a single-family housing start and when that shows up in demand and if that's the case, if there's any improvement and starts as we move through the year, is that going to be more of a kind of late '26, 2027 when it will show up in demand? Doug Black: Right. Yes, you're correct. I mean we go by completions, not start. And there is a lag there in 6 months, 6 to 9 months, et cetera. So we feel like the new res market is going to be down mid- to high single digits this year. And we're getting mixed. There's mixed messages from builders. Some are more positive, some are less positive. But our view is that we're probably not going to see much improvement this year and it starts to improve this year, that will certainly help us in 2027, but not in 2026. Operator: Our next question comes from Charles Perron-Piche with Goldman Sachs. Charles Perron-Piché: First question, as you look to drive efficiency -- as your customers look to drive efficiencies, are you seeing them leaning more into sites, digital and delivery tools and a higher freight cost environment and more broadly, how can you have your investment in technology help you again the current backdrop? Doug Black: In terms of our customers, yes, we do see them using digital more and as we mentioned, our digital sales are up 60% or we expect them to be up substantially this year and more and more customers are utilizing digital just to make their ordering and interactions and transactions with us more efficient. In terms of fuel prices are up, Eric mentioned that we've implemented fuel surcharges. We work with our customers routinely to get the product to their job sites at the lowest possible cost. And so yes, our delivery capability gives us a ways of working with our customers and getting it there in a low-cost fashion. And so we have a fair bit. We have about 1/3 of our business is delivered -- and we see that going up as things get tougher and customers kind of allowing us to help them get the materials there and get the job done at a lower cost. Charles Perron-Piché: Got you. That's good color, Doug. And shifting gears to capital allocation. You repurchased $20 million of shares in Q1, which is quite high for relative to the other first quarters in the last few years. How does he inform your willingness to do more? And at the same time, can you talk a little bit more about the M&A pipeline and your confidence to close more deals in 2026. Eric Elema: Yes, I'll take the first part of that. we continue to be opportunistic. We're going to look at the whole year and making sure that we're first focused on growth, M&A. We we had good visibility that Reinders acquisition was going to close in Q1 a seasonal slow quarter for us. But obviously, where the stock is, represents a good buying opportunity. We're going to continue to be opportunistic the rest of this year. We see that balanced capital approach, and we did close to [ $ 100 ] million in repurchases last year. So depending on where M&A turns out, we'll balance that out in how we buy back shares. But we'll continue to be opportunistic again where the price is. Doug Black: Yes. In regards to M&A, the pipeline is healthy, we're constantly in discussion with owners and confident we can continue to have success for the rest of 2016 and beyond. Operator: Our next question comes from Sean Calnan with Bank of America. Shaun Calnan: Just first, can you kind of quantify the improvement in volumes that you're seeing in April? And should we expect Q-Q to be the highest growth quarter, just given the shift in sales from 1Q to 2Q? And then the fertilizer pricing increase with April being a big month for that. Doug Black: Yes. I would just say that volumes have improved. Volumes aren't positive in the first -- in April, but they have improved versus where they were in the first quarter. And in terms of volume by quarter, there's no real gauge that would make the second quarter. I mean, obviously, first quarter is lower. You do some catch-up in the second quarter. It's going to tend to be higher, but we're talking percentage 1, 2 percentages. And the third and fourth quarter also kind of split by the season. spring season in September, October. And obviously, that's third and fourth. So it's really hard to call volume growth by quarter. What makes more sense to us is kind of half year what it is at the end of June and what it is at the end of the year is a better way to kind of think about volume and because you get the full screen season and you get the full fall season, if you take that book. So we'll see how the spring continues to evolve, and we'll have a better read when we get to June. Shaun Calnan: Okay. Great. And then when you have expectations for price increases, like we have right now, do you typically see customers try to get ahead of those price increases and pull forward their purchases? Doug Black: Sure. That tends to happen, especially on fertilizer pipe, but keep in mind, our customers don't have massive storage. So they're taking some product to the extent that they can. And we work with customers on commercial jobs that are already in progress. And so yes, some of that goes on whenever there's a price pass-through, and that's why we give our customers as much lead time as possible so that they can they can adjust and do their purchasing to try to get ahead of it themselves. Operator: Our next question comes from Collin Verron with Deutsche Bank. Collin Verron: I just want to dive into the cost a little bit more. It looks like inventory costs in the COGS line dipped around 3% in the quarter despite the total sales being relatively flat. So can you just walk us through the moving pieces there? Is that the mix improvement toward private label showing up or are there some other factors in there that we should be considering? And how are you thinking about that going forward? Is there any reason that, that year-over-year decline might move throughout the year? Eric Elema: Yes. I think you hit on it it's private label, it's product mix, but we also have the lower. We had -- we were fully stocked for the spring selling season with fertilizer in particular. So I would say that, that continues a bit into Q2. But beyond that, I would expect that not to continue. Collin Verron: Great. That's helpful. And then just on the freight handling distribution expenses, I saw a sizable increase I know it's a small piece of the COGS bucket, but it was just a notable headwind in the first quarter. So can you just talk about what was driving that inflation and sort of the magnitude that you're baking into the guidance for your freight handling distribution expenses in that bucket? Eric Elema: Yes. So there's the rising cost of diesel in there for Q1 that's in March. That's a component. We've got international freight to related to our private label products. We got the increase there. But also keep in mind that we have our fifth DC in the cost there with that not in the Q1 prior year. So we mentioned that too on the last call that we would have an increase in distribution costs. So that's in there as well. Operator: Our next question comes from Matt Johnson with UBS. Matthew Johnson: Appreciate the time. I guess, first off, if we could just dive into the fertilizer piece a little more. I know it's given the disruption in the Middle East, it sounds like you guys took a 5% price increase there. But could you just give us an update on how much inventory you guys have in your distribution centers. And then, I guess, assuming that urea prices stay at these levels, I think they're up somewhere around 40% to 50% year-over-year. But how should we think about the impact of fertilizer costs for you guys as that starts to come through? Doug Black: Yes. So urea is up substantially. Keep in mind that it's only 1 component of fertilizer and we can actually move components around and fertilizers. So there is some latitude there and we take advantage of that to try to minimize the effect on our customers, the 5%, as I said, is a reasonable reflection of passing through cost, maintaining our margin. We obviously that price increase is mid-season. So we have -- we stock up for the season. And so we obviously have some product in our branches that we're shipping. And as I mentioned, we -- so far, we've not experienced any supply shortages that would that would not have -- have product available for our customers or allow us to gain market share. So we feel like we're in pretty good shape there, and we think it will be continue to be a successful season. Eric Elema: Yes. I think we're going to get good place on supply. We're working with our category team leaders. So we feel good not only about the season, but into the fall. And as we get later in the year, we'll continue to evaluate those opportunities. Matthew Johnson: That's great. I appreciate that. And then I guess if we could just talk a little more about the focus branches. I think you guys drove a little over 200 basis points of EBITDA margin improvement at those branches in 2025. I guess given all the kind of disruption and noise in the market right now, how do you guys feel about your ability to achieve a similar result this year at those focus branches? Doug Black: Yes. Well, we feel good about it. I mean, obviously, if the market turns out to be tougher and we're lower on volume that will affect the focus branches, but we -- we had improvement in the focus branches, good improvement in the first quarter, and we feel very good about our being able to turn those branches improve the profitability even in a soft market condition. So we feel good at this point, the tougher the market gets, the tougher that gets, but we can move the needle even in the softer market there. Operator: Our next question comes from Andrew Carter with Stifel. W. Andrew Carter: I just want to follow back up on Reinder. It's $100 million incremental -- and you said it's similar to company margins, and you also acquired it right before -- right ahead of the spring season. So why shouldn't this be an $8 million or $9 million kind of type contribution to EBITDA for the year therefore, your kind of EBITDA range has some added flexibility. Doug Black: Yes. You kind of nailed it. That's what we expect. And yes, it provides, I guess, more insurance for our range. Keep in mind that, obviously, we won't reflect the full $100 million. We did miss almost 3 months of that. But yes, we do expect it to be profitable along the lines of what you're saying there. And that helps us have confidence in our range, given kind of softer market conditions and overall uncertainty that we need to keep in mind. W. Andrew Carter: Sounds good. I appreciate that candid answer. I'll pass it on. Operator: We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Doug Black for closing comments. Doug Black: Well, thank you all for joining us again today. Before I conclude, I want to highlight an upcoming event we have. We're hosting our 2026 SiteOne Investor Day on June 23 and 24 in Atlanta, we'll be going through a comprehensive update on our performance, our strategy, our long-term initiatives and offer investors an opportunity to engage with our executive leadership team, which we're quite proud of. And so we look forward to welcoming investors and analysts to our event in June. We appreciate your interest in SiteOne. We look forward to speaking to you again at the end of the next quarter. Again, a big thank you to our terrific associates and to our customers for allowing them to us to be our partner and to our suppliers for supporting us. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to Humana's First Quarter Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, which are available on our website. We will begin this morning with brief remarks from Jim Rechtin, Humana's President and Chief Executive Officer; and Chief Financial Officer, Celeste Mellet. Following these remarks, we will host a question-and-answer session where Jim and Celeste will be joined by George Renaudin, Humana's President of Insurance segment; and Dr. Sanjay Shetty, President of Center well. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our fourth quarter 2025 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news release and our filings with the SEC are also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles, or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliation of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. With that, I will turn the call over to Jim. James Rechtin: Thank you, Lisa, and good morning, everyone. Thank you for joining us today. We have a few headlines. Let me start with we are pleased with our first quarter, and that is because we are where we expect it to be. And I'm just going to repeat that for emphasis. We are pleased with our first quarter because we are where we expect it to be. And right now, second headline, we are turning our attention to bids and we are approaching bids with a focus on returning to a sustainable margin of at least 3% in 2028 and making progress against that in 2027. We know that we need to make some progress against that in 2027. Those are the commitments we laid out in June of last year at Investor Day, and we stand by those commitments. The primary headline here is that we believe that we are on track to meet our commitments from Investor Day, and we're doing the things to follow through on that. So as usual, I will frame my comments today around the 4 drivers of our business. First is product and experience, which drive customer retention and growth; second is clinical excellence, which delivers clinical outcomes in medical margin; third, highly efficient operations; and fourth, capital allocation and growth in both CenterWell and [ Medicaid ]. So I'll start with product and experience where there are 3 things that I want you to take away. First of all, our member growth trajectory is on track. Now we will, and we have and we will continue to manage distribution and growth dynamically if things change, but our growth trajectory is on track. Second, I want to emphasize that membership, both new and returning, is performing as expected 3 months into the year. Now as we turn our attention to bids for the 2027 plan year, we want express appreciation for CMS' engagement on the improved rate notice. This helps promote more stability in the industry as a whole, and it has a positive impact on the health of our seniors. Nevertheless, medical cost trend continues to outpace program funding. And so our third takeaway, which is something we have noted previously, is that we will adjust benefits to remain on track to deliver our 2028 commitment of returning to a sustainable margin of at least 3%. And again, we expect to make the necessary progress towards that goal in 2027. We are very aware that we need to make some progress in '27. So turning to clinical excellence. Our outlook on BY '28 Stars has not changed. We continue to be confident that we're on the right track to return to top quartile Stars results in BY '28. Our performance on the Stars compensation metric as disclosed in our proxy is a good indicator of our progress. However, as you know, we don't know industry thresholds. And so while we feel good about our progress, we cannot guarantee an outcome in October. We will share more about our progress in the Q2 earnings call once the hybrid season is complete. For BY '29 Stars, we are seeing a strong early start. We have early engagement efforts. These are new efforts, early engagement efforts, which are translating into improved member activation and improved outcomes. To provide just one example, we're identifying certain chronic conditions among new members faster than we have in the past. What this allows us to do is to better target our gap closure efforts. And as a result, at the end of Q1, we are about 5% ahead of last year's GAAP closure pace on a per member basis on certain key HEDIS metrics. Now regarding highly efficient operations, we continue to make progress on our operating model changes. This includes centralizing certain teams, expanding outsourcing and increased automation of processes. All of these things are increasing efficiencies. And then finally, on capital allocation, we recently completed the acquisition of Max Health. This is a Florida-based primary care organization that will expand CenterWell's reach into new critical markets. We also saw Medicaid membership grow by approximately 50,000 lives, and this is largely driven by the January start of programs in Michigan, Illinois and South Carolina. So in conclusion, we expect to double individual MA margin in 2026 adjusted for Stars. We expect to double individual MA margin. We continue to feel good about the way our member growth is setting us up for this year in subsequent years. We are making good progress on Stars. We will continue to be disciplined in pricing with a focus on unlocking the earnings power of the business by 2028. As a final note, before I turn it over to Celeste, I want to share an update on the insurance leadership transition that we announced in December. George Renaudin, Insurance segment President, will retire effective June 29, 2026. Until then, he will focus primarily on the annual MA bid process, and he will continue to serve as a strategic adviser through at least the end of 2026. Aaron Martin, who is currently President of Medicare Advantage, will begin leading the day-to-day management of the insurance segment now. He will continue to report to George and he will formally assume the role of Insurance Segment President when George retires. John Barger, a 30-year industry veteran with more than a decade in Medicare Advantage, will lead MA operations effective immediately and will formally assume the role of President of Medicare Advantage when Aaron transitions. I want to personally thank George for his nearly 3 decades of service to Humana and its instrumental impact on growing the Medicare Advantage business. And with that, I will turn it to Celeste for a few remarks before we get to Q&A. Celeste Mellet: Thank you, Jim. There are a couple of items I will briefly address before we begin Q&A. First, we are pleased that available information to date suggests that our Medicare Advantage members, both new and existing, are performing in line to better than our guidance, even after adjusting for a more subdued flu season and the winter storms. This data, including what we continue to monitor in April, includes risk scores, hospital admits per thousand, or APTs, pharmacy claims, and initial medical claims, which are continuing to complete for the first quarter. And we continue to enhance our claims and cost trend monitoring practices, including anomaly detection to identify and react to claims and payment trends faster as well as to improve first-time payment accuracy. This work -- this important work improves visibility into cost trends and further strengthens payment integrity. Turning to capital deployment and the balance sheet. In the first quarter of last year, I posited that there was a real opportunity to increase the efficiency and resiliency of our balance sheet. Over the last 12 months, we have made considerable progress towards this end. Our efforts include bolstering liquidity and addressing future funding needs with rating agency-friendly instruments, such as the $1 billion junior subordinated notes we completed in March, which is expected to fund 2027 maturities. In addition, we executed on several initiatives to optimize the balance sheet, including deploying subsidiary reinsurance and augmenting legal entity structures successfully mitigating over $3 billion in capital contribution requirements for 2026. We are maintaining dividend levels and limiting share repurchases to amounts necessary to offset dilution from employee stock compensation, and we intend to increase both when our cash flows and funding capacity grow with the execution of the plan laid out at our Investor Day. And we are pursuing noncore asset divestitures to help fund strategic acquisitions and expect to share more news with you on this front over the next several months. All in, we are pleased with the results of our balance sheet enhancements and are comfortable with our capital levels, which provide a prudent buffer above regulatory and rating agency requirements. Consistent with this disciplined approach, we continue to evaluate a pipeline of initiatives to further strengthen the balance sheet. Lastly, let me reiterate the key messages that Jim highlighted. We are pleased with the solid start to 2026 and believe our expanded membership base, relentless focus on returning to top quartile Stars and pricing discipline position us well to deliver stable and compelling MA margin and unlock the earnings potential of the business by 2028 as laid out at our Investor Day last year. We remain committed to taking appropriate action to meet the commitments we have made to you. I will now turn the call back to Lisa to start the Q&A. Lisa Stoner: Thank you, Glen. Before starting the Q&A, just a quick providers. That's in fairness to those waiting in the queue. We ask that you please limit yourself to 1 question. With that, operator, please introduce the first caller. Operator: Our first question comes from Ann Hynes with Mizuho. Ann Hynes: I would just like to dig into DCP and IBNR a bit. in the press release, it looks like IBNR grew about 35% sequentially, and this is versus a 22% membership growth when looking at just total Medicare Advantage. Could you provide some insights into the drivers of this elevated IBNR growth relative to the membership growth? And also relative to your expectations coming online, if it came in line with your expectations? And is this a conservatism on your part? Anything would be great, any more details would be great. Celeste Mellet: Ann, thanks for your question. So consistent with the prudent assumptions we embedded in our guidance at the beginning of the year, which we are maintaining. We did take a prudent approach to claims reserves for the quarter given how early it is in the year and given the membership growth. So you are right. IBNR was up 35%, well above the growth in membership. We typically point you to looking at membership growth to understand how IBNR ship flows. So we believe we are prudently reserved coming out of the first quarter, just given the year ahead. I want to reiterate that we feel very good about what we saw in the first quarter and through the end of April in terms of all of the early indicators and completed claims. And what we're seeing in April so far is fairly consistent with what we saw in the first quarter. Operator: Our next question comes from Andrew Mok with Barclays. Andrew Mok: I wanted to ask about the Welsh Carson put call options given some near-term exercise windows. First, do you plan to exercise your June call options for the first 2 clinic cohorts? And second, if Welsh Carson were to exercise the full amount of its put options, what would the total cash obligation look like in '27 and '28? Celeste Mellet: Andrew, it's Celeste. So we need to make a decision on the put call option in the middle of this year. We will obviously be mindful of all of the other things that are going on in our cash position on our balance sheet. I would say that Welsh Carson has been an amazing partner to us, and we're proud of what we've built together and meeting in a leading primary care business for seniors and continue to see structural value in this type of relationship. In terms of if they put to us, next year, so next year would be the beginning of the first quarter, it would be about $1 billion to $1.5 billion in 2027. And to be clear, they can only put the '25 cohort to us in 2027, but both would be about $1 billion to $1.5 billion. And we have included any outflows related to puts or calls in our funding plan. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: I wanted to talk a little bit more about your '27 bidding strategy. I appreciate your prepared remarks around rates and trend for '27, and how you'll be reducing benefits to bridge the delta between those 2 numbers and protect margins. But I want to ask your thoughts about protecting margins beyond that. Specifically, the reality that the full cost profile of your members probably won't be known for a couple of months, combined with the fact that you're in my confidence that you're going to get your Stars back for '28 will reduce your TBC for 2028? So I want to ask how investors should think about the potential that the company might get some cushion to bid above and beyond that retrend differential you talked about to reflect this new member uncertainty in the 2028 TDC reality in order to protect 2027 margins? James Rechtin: Justin, thanks for the question. I'll start, and then George will probably jump in here as well. So let me just be clear about how we're thinking about bids as we go into the year. Obviously, there's only so much detail that we can get into, but we can certainly share kind of philosophically what our principles are as we approach the bid. So Number 1 is the focus on being back to a normalized margin of at least 3% in 2028. And so to be there in 2028, we have to look at 2027, and we have to be mindful of the progress that we need to make in order to be on track for 2028. That certainly takes into account TBC considerations, it takes into account what we do and what we don't know about the current cohort, all of those things have to be accounted for in our bid strategy this year. Like that is priority Number one. Priority Number 2 is within the constraints of priority Number 1, and I'm just going to -- again, I'm going to emphasize that one more time. Within the constraints, the priority Number 1, we want to provide as much stability as we can reasonably to our members so that we retain them. So retention is priority Number 2, retention, retention, retention. And the way that you do that is you have to understand the different segments of your customers, you have to understand what their needs are. And to the extent that you make adjustments to benefits, you do it in a way where it has the least impact on the things that are most important to them. It doesn't mean you don't make adjustments. It means you do it in a way that is thoughtful to your members. And then, look, the third priority is growth, and that's a distant third priority. If we happen to grow some, great, but the priority is not growth. The priority is; Number 1, being on track for 2028, and; and Number 2, retaining the members that we have because, again, churn is expensive, and we want to minimize churn the most we can. George, what would you add to that? George Renaudin: Yes. Thanks, Jim. Justin, the other thing just to consider is that as we're looking through this, we are going market by market. So it's not just a matter of taking a look at the various benefits and paying a lot of attention to those that Jim mentioned our members care about most and it also helped drive better health outcomes and better Stars results. But it's also looking at it market-by-market, understanding the environment we're in with various providers and going through each one of those geographies because it's not just a matter of benefit changes, you also have to look at geographies and make sure that every geography is going to be supportive to the long-term trajectory of what we're trying to accomplish to get to our '28 targets, and we'll make a lot of progress in '27. We also do have a fairly good amount of information now about the new cohort. It's not perfect information by any means, but as Celeste has mentioned, all the key indicators of both our new and concurrent members we have, and those are lining up according to expectations, our APTs, our authorizations, pharmacy, MRA, all those things are lining up the way that we are expecting, as Celeste mentioned in her opening comments. And the other thing just to emphasize here is, one of the things that we are seeing in the industry today is that the industry is taking it appears to be any way, a more measured approach given the funding environment medical trend. The help we received from CMS is helpful, but it is not, as Jim said, keeping up with medical trends. So we and others are having to make benefit adjustments, geographic adjustments in line with those expectations to continue to make progress towards our '28 goals. Operator: Our next question comes from Jason Cassorla with Guggenheim Partners. Jason Cassorla: Maybe just a quick 1 on earnings seasonality. You guided 2Q MLR slightly above [ 91 ]. It represents a deceleration in the year-over-year step-up in MLR compared to this first quarter. I guess with your significant new member growth and as far as headwind, maybe can you just help bridge us to that MLR expectation for the second quarter that would be helpful. Celeste Mellet: Yes. So the first quarter to second quarter change this year versus last year is very much affected by the levels of PPD. So a year ago, we had higher PPD in the first quarter. If you recall, we've talked about how we reserve fairly conservatively at the end of '24 given the regulatory uncertainty, we were in a more regular position at the end of '25. So we released more PPD in the first quarter of '25 than the first quarter of '26 so the seasonality from the first quarter to the second quarter is less pronounced than it was last year. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: I was hoping you could maybe expand a little bit on trend dynamics in the quarter. I guess maybe speaking ideally to how much of a benefit you think you might have seen from flu and weather in the quarter. And then also potentially whether there's any difference in trend dynamics, if you were to focus maybe more on the retained membership you had in the MA book. Celeste Mellet: Thanks for your question. So first of all, if you recall, we reported our fourth quarter and gave our guidance for the year in early February. So we already had a pretty good understanding of flu, and we had captured the more beneficial flu season in our guidance. It was very, very modestly better than we had expected, but de minimis. As it relates to weather, it's fairly easy to isolate the impact. And if you think about where we are most concentrated from a plan perspective, it's an area that were less affected by weather. So we were able to strip out the impact of weather, and we're still seeing favorability running in line to ahead on all of the indicators that I mentioned to you. Operator: Our next question comes from David Windley with Jefferies. David Windley: I wanted to switch to CenterWell and the operating cost ratio there, which ran a little higher than we were expecting. I wondered how much of that might be a result of the acquisitions and onboarding those? And then for the consolidated relatedly, the operating cost ratio seems to need to have a flatter trajectory through the year than would be normal for you? And how are you planning to execute that? I'm wondering if those 2 are related? Sanjay Shetty: Great. Well, this is Sanjay. Thanks for the question. So first off, just stepping back and looking at Center wall more broadly for the quarter. I would say we're really pleased with the solid growth across each of our lines of business in the first quarter. We're seeing that both because of the growth in Humana's membership as well as our continued agnostic expansion. And so you can kind of see that across each of the 3 businesses. Starting with pharmacy, we continue to see industry-leading mail order penetration for our Medicare members and have seen really nice uptake by new members in 2026. We're also continuing to expand our agnostic volume across specialty, direct-to-consumer and direct-to-employer, including looking forward to the new [indiscernible] partnership that we announced earlier this week. Second, in primary care, we're seeing really nice patient growth year-to-date, so sequentially 110,000 patients or 22.5% sequential growth. And that's both through organic growth as well as through our recent acquisition of Max Health. And in the home, we're seeing solid growth in Central Home Health and within One Home and that includes through the launch of the next phase of our skilled nursing facility value-based care model now covering an additional 2 million patients. So all in, we're really pleased with the growth and execution across CenterWell. I think one of the things you may have noticed is that in the first quarter, we did have a handful of items that will not repeat, and in some cases, will actually reverse later in the year. And so I think that's what you're getting at. A couple of examples of what those are include the skin substitutes in our ACO reach program in the primary care organization. That's both current year and continued runout from the prior year, for which CMS will hold us [indiscernible]. Second, some timing-related items related to the Villages Health acquisition that as we continue to integrate, we'll see improvement for the rest of the year. And finally, some transaction and integration costs associated with the Max Health acquisition that were not previously contemplated in our Q1 guidance. Celeste Mellet: Thanks, Sanjay. And I'm just going to add to that -- sorry. And Sanjay, I'm just going to add to that, first, if you're comparing to the first quarter of last year, particularly in Central, it is a tough comparison. If you recall, we did mention onetime positivity, particularly in specialty pharmacy, which is driven by better-than-expected drug mix, and we also had some favorability in 1Q '25 in PC. If you take a look at the OCR and center well, it does actually tie to your question, it was, in 1Q '25, it was well below the rest of 2025. This year is you're going to have a more normalized OCR level throughout the year rather than the ramp that we saw in 1Q '25 through the rest of the year. And just generally in CenterWell, I would look to 2024 for seasonality. We had about 20% of our earnings in CenterWell in the first quarter of '24, we expect about the same in 2026. And then just taking a step back to the consolidated OPR, yes, the first quarter was impacted by some of the noise in the comparisons in CenterWell. Our expectations for the year are in line with what we laid out in our guidance. And if you want to -- if you look towards the insurance business, you can see really nice progress there on the OCR. But we are still expecting a significant pickup in the OCR this year -- or improvement, I should say, not pick up. Operator: Our next question comes from A.J. Rice with UBS. Albert Rice: Maybe just going back to the MA side of things. I appreciate the comments about all the metrics you're tracking and they're tracking well. I think historically, there's always been this view that -- and what reality has shown out is the second quarter claims experience really tells you whether you've got a problem or not. It sounds like some of these metrics are things you just normally would have tracked in prior years, but maybe some are new that you've done because of your initiatives. And I wondered if you could just give us a flavor for how much incremental information given the initiatives you have that you feel like you have to sort of get ahead of what normally shows up in the second quarter? And just to follow up on one of the previous discussions about the bids. If your expectation and a lot of what you're gearing for is the earnings power in 2028, understanding the restrictions on TBC from year-to-year and understanding the desire to hold benefits constant, does that cause you to lean in to making sure you hold on to membership because you're going to get this big lift on Stars next year and maybe in a normal year, you go from more margin improvement next year. But because you know Stars and some of the other things happening for '28 are going to be positive, you'd sort of be willing to slow that progression just to hold on or even grow membership? Any thoughts on that aspect of your bid strategy? James Rechtin: A.J., let me start -- first of all, there's a lot in there. I'm going to try to tease it apart and hit the different components of it. I'll start, I'm sure either Celeste or George want to weigh in as well. So let me just start with kind of the leading indicators. I think the way to think about our understanding of trend as it progresses through the year is that each incremental month is narrowing the range of possibilities of what you might see then for the balance of the year. So you don't -- of course, you don't have perfect information at the end of March. You don't have perfect information at the end of April. You don't even have perfect information, frankly, at the end of June. But each of those months is narrowing the range of outcomes that you might see for the rest of the year. And so we're obviously looking at the first quarter. And as Celeste indicated, we have also taken an early look at April as it's coming in. And all of the indicators look as expected in that period of time. And then what I would say is it's not so much that we're looking at new and more indicators, it's more -- the way I would describe it is we are being more disciplined in looking at them on a regular basis and a regular cadence so that we understand that trend even more in real time than we have in the past. I mean that's that's the way I describe it. So are we feeling better each month? Yes. Do we also want to see what happens at the end of the second quarter? Of course. Clearly, we want to see what happens at the end of the second quarter. And clearly, we will feel better than we feel now. So that's kind of how we think about that. On the second part, which I'm going to now blink on is the bids, yes, bids in '28. Look, the way that we have thought about this, including last year, including this year, including next year, is that we have a margin expectation that is kind of consistent with over time being at a place that provides a sustainable attractive margin for the business and a good return on capital. And that during this period of time, where we have the Stars challenges, we are making adjustments so that we can protect the business through that period of time while also making progress against margin. And so we're starting with where does our margin need to be each year. We did that this year. We started with where does our margin need to be this year. We don't start with, hey, how much do we want to grow? We start with, where does our margin need to be to be on track to 2028 and and back to a sustainable and durable long-term margin? That is the first principle that we started with. That is the same thing we started with a year ago, frankly. And so yes, we have an idea of the various scenarios that may play out in 2018. Obviously, we don't know what 2028 is going to look like, but we can kind of hone in on these 4 or 5 different scenarios that might play out, and we need to plan for '27 in a way that puts us in a situation where we can accommodate each of those scenarios. And when I talk about multiyear planning, which I've done a lot of over the course of the last few years, that's what we're talking about. We should always be looking out 2 to 3 years in trying to understand how the external environment might evolve and making sure that we are putting in place plans and contingency plans that can accommodate the unknown across that period of time. And that's really what we're doing. So let me open it up to Celeste or George to add. Celeste Mellet: I just want to add on the claims work. There's -- we're doing a lot more both in the front -- particularly on the front end of claims, where we are looking for anomalies and differences in terms of regional provider CRGs, just looking for things that might indicate that something which would normally be identified down the pike, something is different than our expectations. And we're also spending a lot more time looking at the inventory, what's in there and some of the drivers of that. And then on the back end, we're going deeper on the new member components than we typically would as well as the overall, but breaking down in much more depth and more green some of the things that we would look at so we are -- we can identify hotspots faster if they exist. And as I said previously, the early indicators and then the ongoing claims that we see are running in line to better than our expectations. George Renaudin: It's George. Thanks, Celeste. I'll just add 2 quick things. One is we've talked in the past about how much progress we're making into operability and the work we're doing in Stars where we're getting out of head, jim mentioned all the things we've done to be able to reach out on the front end to our members as they're coming in, our new members, that also is helping inform where we are. So that's yet one more indicator. And then on -- I want to be very direct on your question about TBC. We are very well aware of the TBC limitations. We're very well aware of what happens when TBC comes back when -- with our expectations on what we're going to recover in Stars. And so that is very much part of our planning process as we're going to the '27 bids. Operator: Our next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. I guess I really do like the commentary around focusing on margins, first and foremost. But I just wanted to understand a little bit because this commentary because this year, you expect to double margins on an M&A basis. And now you're saying next year, you're willing to cut benefits even though this year you were able to do that without -- with a relatively stable benefit design. So are you saying that the funding shortfall for '27 is bigger than this funding shortfall for '26 as far as Humana goes? Or is there something else around the timing of some of the cost-cutting initiatives on the G&A side that make next year potentially more reliant on benefits? I'm just trying to understand a little bit of a change in tone here about margins and cutting benefits if necessary to achieve margin improvement. James Rechtin: Yes. Again, I'll kick off. Anybody who wants to add, feel free to add. The short answer is, yes, the gap between funding and medical cost trend is larger going into this bid season than it was a year ago. Like it just -- it's very clearly larger than it was a year ago. And that is really what is driving our thinking. And we're still on track on our plans around cost management. We're still -- the other components that go into our margin that we laid out last year in June, they are all largely on track. The difference right now is the funding environment relative to medical cost trend. And that's mostly the funding environment. Medical cost trend has been relatively stable now for 2 years so... George Renaudin: If I could just add 1 other piece of that, Kevin. And that is that while we appreciate what CMS has done to create a more stable environment, as we've said, the funding still doesn't keep up. And we will, this year, as we have in past years, make the appropriate adjustments. If you -- just as a reminder, we were having to adjust benefits for 2 years, and we made those adjustments earlier than most of our competitors did. And so we continue to take a very disciplined approach as we go into this bid cycle, and you can expect that going forward. Operator: Our next question comes from Scott Fidel with Goldman Sachs. Scott Fidel: I wanted to ask us 2 more targeted questions with the 2 of the Medicare lines of business and just around the themes in terms of the monitoring and sort of early utilization trends. First would be just on individual MA, how you're seeing sort of those trends on the new members of particular maybe playing out between HMO and PPO? And then also, we really haven't talked much on PDP yet where you have had pretty substantial growth. So curious around how the PDP line of business appears to be performing from a utilization perspective relative to the margin targets that you laid out in your guidance? James Rechtin: Let me just hit PPO and HMO here for a second, and then I'll hand it off to the others to handle PDP and add to the commentary on PPO and HMO. Look, the short answer is our portfolio as a whole is performing the way we expected it to perform, like that's the headline. But I think more importantly, I just want to continue to reinforce the message that we have delivered now for a couple of quarters, which is there is nothing inherently good or bad about any type of product. There's nothing inherently -- there's nothing inherent in the product that doesn't work. it is all about how do you price the product and how do you structure the product to target the right segments in the right way? And if you kind of look back in time, because I know there's all this talk about, hey, PPO is bad, PPO is not good. Look, if you look back in time, we had a number of years where the industry priced PPO aggressively and they were -- we, the industry, were using PPO as a growth engine, pricing aggressively and you saw disproportionate growth in PPO. And you saw that happen at the expense of margin in that product. We spent 2 years repricing our PPO product. We spent been 2 years repricing our PPO product, and most of the industry either did it with us or followed suit shortly thereafter. And the result that you're seeing is that growth is rebalancing back to being more equal between HMO and PPO across the industry, we believe. And again, that is a result of the industry taking a different approach to how they price that product. And when we do that, that product can perform financially, and we see that product performing financially. Now look, every year, we're going to step back, and we're going to look at our whole portfolio. And we're going to say, "Hey, are there pieces, are there geographies, are there pieces that we need to reconsider based on new information?" But the practical reality is all product, if priced appropriately, is good product. And right now, when we look at our portfolio, our portfolio is performing. Celeste Mellet: And just to add quickly, while we don't get into cohorts beyond new and concurrent members, as we called out, are what we're seeing from a claims perspective and an early indicator perspective on both new and concurrent members are running in line to better than expected. George Renaudin: It's George. Scott, you also asked a question about PDP. As we look at our PDP business today, it's still -- it's on line with our expectations. The membership mix, the pharmacy trends we're seeing and member behavior are in line with expectations. So we remain confident our '26 pricing. If you remember, our guidance is right along the same lines as our guidance for '25. So relatively flat, but what we're seeing so far looks fairly good. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: Operating leverage still stands as a meaningful contributor to that 2028 bridge. Just can you remind us on the progress on addressing some of the operating costs? Was there any timing dynamics to call out in the quarter? Anything we should think about for the year? I guess, can you remind us of some of those components of the cost levers embedded in 2026 guidance? And what are some of the longer-term opportunities, the progress relative to what you were thinking maybe a year ago at the Investor Day and just have there been any changes or surprises on that front in terms of those levers near and longer term? Celeste Mellet: Yes. Thanks for your question. So we are making great progress against our operating cost targets. In terms of the particular quarter, as I mentioned earlier, there's a little bit of noise just given the tough comparison to last year in CenterWell versus some of the less favorable onetime noise in CenterWell this year, but our expectations for the year are on track for what we had guided to you or at the beginning -- on our fourth quarter call. As it relates to the cost cutting, both tactical and strategic, we are making really excellent progress there. So in terms of the tactical cost-cutting measures that we talked about, we -- Jim announced the early retirement program last year. We're continuing to see those employees exit. The last of them will leave at the end of the second quarter. That gives an opportunity to folks who've been here for a really long time to if they'd like to go do something else or fell off into the sunset and enjoy their lives outside of Humana. They can do that. We've been optimizing our internal policies. They squeeze out differences. They also, in some cases, get us more in line with corporate best practices. We've been improving productivity and increasing volume discounts, while also improving payment terms with vendors. And we've been consolidating our supplier base to drive better supplier relationships. Those are some of the more tactical things. Some of the more strategic long term, some of which are running through 2026 are changing and expanding our outsourcing capabilities. What 2026, you'll see where we're seeing the improvement is really in some of our corporate functions where we were well below industry benchmarks in terms of outsourcing percentages. We're getting close to those benchmarks. So in finance, for example, and HR recently made some changes there as well. Over the longer term, we see significant opportunities to consolidate our relationships and increase service and quality for our membership and our patients, at the same time, it will also reduce costs, continuing to standardize and simplify our processes while leveraging technology to use more automation and create efficiency. And Jim talked about our operating model changes. There are some components that have shifted already. We've been really focused on centralizing the things that make sense to centralize. We believe it makes sense for us strategically, but it also does have -- is beneficial to our cost, and I think provides better and more consistent experiences for our members and our patients across the country. So those are just a few examples. And again, we are very confident in the progress that we are making this year and the targets we laid out for 2028. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: Just wanted to follow up on some of the CenterWell commentary. I'm just hoping to get any early observations within CenterWell on trend. Anything to call out on patient profiles or patient behavior that you've observed across your expanded Medicare membership versus the growth that you're seeing in the carrier agnostic population? Sanjay Shetty: So this is Sanjay. Thank you for the question. So broadly speaking for CenterWell, the growth in Humana is definitely a tailwind to the business across the 3 businesses. We see that within the pharmacy business through the mail order penetration that we have in our Medicare business. We see that within the Home Solutions segment, both in CenterWell home health as well as within One Home, which, as a reminder, is our post-acute value-based convener. And specifically within the primary care organization, that growth has been helped by the growth of Humana. Broadly speaking, what we're seeing in that population is in line with what the plan is seeing as we enter the new year, although it is very, very early for us in the year. So I think we will continue to monitor that. As an early indicator, though, some of the things that we track are engagement of those new patients and those are tracking very much in line with expectations. Operator: Our next question comes from Lance Wilkes with Bernstein. Lance Wilkes: Great. I was wondering if you could help us understand some of the management processes that you put in place in order to drive the a large number of key initiatives you've got. So the first key question I had was just with Stars, with the integration in value-based care of the acquisitions, Medicaid rollout, the PBM initiatives, and outsourcing initiatives, are those things that are being done sort of within each of the units? Or are you setting up kind of flex corporate staff that are getting injected into those? And how are you monitoring and managing that? And a kind of comparable question is, you've commented on how you're looking at cost trends, other key operating metrics. And just interested in how you're doing that more and faster? Is that an AI thing? Is it merely you just put more staff to look at things more frequently? Or if you had any other sort of adjustments to some of the financial systems and clinical systems that enable you to do some of this? James Rechtin: Yes, let me go ahead and touch on kind of management process around all the initiatives that we have. We actually did stand up a transformation office probably 15 to 17 months ago. We have staffed that with a combination of hiring some people from the outside, and we've moved some legacy teammates into that organization as well. And the way to think about it is, they do 2 things. One is they're helping to kind of track initiatives, just make sure that we're on track in making the progress that we expect, flagging issues or problems and escalating those to the appropriate place so they can get resolved. And then the second thing that they're doing is they're providing surge resources to the business is kind of the way to think about it where there are temporary need for surge resources. Sometimes that surge resource is extra analytical horsepower, sometimes it's the arms and lengths to get things done. But the primary owner and driver of the change is the business. It's the individual functions and teams that need to work differently over time for this to be sustainable change. What the transformation office is, is an enabler and accelerator more than it is the entity that is making the change happen itself. The change has to occur in the base business and the base business appropriately needs help sometimes getting that done. And so that really is what we put in place. Look, realistically, again, I think it was probably about 17 months ago that we put this in place. It took 3, 4, maybe even 5 months for it to get up and running the way we wanted it to run. These things, when you start them off, they're always a little bit bumpy. Everybody is trying to figure out how to work together. Right now, it's working quite well, and you're getting good feedback from the business in terms of the support they're getting and the transformation office is kind of picking up momentum as we go. So that's the way I would describe it. Again, if others have anything to want to add. George Renaudin: Jim, one thing I would just add is 1 of the things that the transformation office has added that's really helpful to us as operators is that as we are tracking towards our 5-year plan, which we talked about at Investor Day. And as we're talking about returning to our margin in '28, one of the things the transformation office helps us ensure we do at the business level is it keeps our eyes on the horizon where we're trying to go. And so that's one of the major inputs that the transformation office is doing beyond the surge help that Jim talked about. Operator: Our final question comes from Michael Ho with Baird. Hua Ha: Great. I wanted to reframe Justin, A.J., and I guess, Kevin's question a little differently about the '27 margin setup. So if I were to use 2025 a year with flat rates, poor funding environment, where Humana was still able to drive individual MA margin improvement, I believe, doubling it to around 1% as sort of a comparison year. The setup for '27, stronger rate notice, stronger year-to-year star ratings improvement granted your star in payment year '25 or higher overall, but your diversification efforts are driving a stronger year-to-year improvement into '27 and now potentially similar conservative posture on benefits from pricing. Would it be fair to make this comparison and say the year-to-year set up into '27 actually feels even better than '25 when it comes to your ability to drive margin improvement? James Rechtin: So here's kind of the way that I would characterize it is, as we're heading into '27 bids, our transformation efforts are more mature -- well, frankly, they're stood up, they're more mature, they're giving us more tailwind operationally in a whole bunch of different areas, G&A cost management, clinical cost management, et cetera. And because of that, we do have a broader array of other levers that can help us achieve the target margin that we're trying to achieve next year. And so every year, we are looking at what is the funding gap or surplus relative to medical cost trend? What are the things that we can do operationally to close a gap or increase the surplus in a way that then minimizes the impact that we have to have on our members? But then ultimately, you still have to come back and say, okay, but what are the changes that you have to make to benefits in order to get to your target margin, so in order to get to a sustainable, durable, attractive long-term margin that gives us an appropriate return on capital? That's the logic you're going through each and every year. And again, what I would say is I do think we have more momentum on the transformation side that is giving us other levers -- giving us more levers outside of benefits than we had 2 years ago, but you're going to have to look at both. At the end of the day, you're going to have to look at both. So look, with that, let me just move to close real quick. I want to thank everybody for joining us this morning and for your interest in Humana. We very much appreciate that. And I also want to say thank you to our 65,000 associates who serve our members and our patients every day. It's the work that those associates do that makes things happen here. And we appreciate your support. We appreciate their support, and we hope you have a great day. Thanks. Operator: This concludes the conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Yum! Brands Inc. 2026 First Quarter Earnings Call. [Operator Instructions] I would now like to turn the call over to Matt Morris, Head of Investor Relations. You may begin. Matthew Morris: Good morning, everyone, and thank you for joining us today. On our call are Chris Turner, our CEO; Ranjith Roy, our CFO; and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from Chris and Roy will open the call to questions. Please note that this call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ from these statements. All forward-looking statements are only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and risk factors discussed in our SEC filings. Please refer to today's release and filings with the SEC to find disclosures, definitions and reconciliations of non-GAAP financial measures. Please note that during today's call, system sales and operating profit growth will exclude the impact of foreign currency. For more details on our reporting calendars by market, please refer to our Financial Reports section of our IR website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. We'd like to make you aware that our second quarter earnings will be released on July 30 with the conference call on the same day. Now I'll turn the call over to our CEO, Chris Turner. Christopher Turner: Thank you, Matt, and good morning, everyone. At Yum!, we remain committed to our mission to grow iconic route brands globally by building the world's most loved, trusted and connected brands. In support of that mission, we recently unveiled our raise-the-bar priorities to drive our next chapter of global growth. These priorities include battling for the future consumer, accelerating restaurant unit economics, and reaching the full potential of Byte. Our world-class franchisees, along with our unrivaled culture and talent, are critical enablers of these priorities, giving us the scale and expertise to win across the 155 countries in which we operate. We expect raise the bar to come to life over time and the momentum reflected in Q1 across these priorities and key parts of our business is encouraging. Yum!'s Q1 results marked a solid start year with our fundamentals as strong as ever. We are incredibly pleased with the company's top line performance, the integration of new company-owned Taco Bell stores, improved KFC restaurant level margins and disciplined G&A spend. all of which contributed to strong profit growth. To give more context, I'll review Q1 performance and the momentum across our priorities, starting with KFC, which represents 53% of our divisional operating profit. In Q1, KFC delivered 6% system sales growth. To battle for the future consumer, KFC is elevating its menus through high-impact collaborations and innovation and expand its software platform building on insights and best practices from Saucy by KFC. The platform includes globally deployable, bumped and dripped flavor lineups, enabling faster speed to market and more consistent execution across geographies. Eight of KFC's top 20 markets are reactivating or launching one of these SaaS platforms in 2026, including South Africa, India, Germany, the U.K., France and [indiscernible]. In parallel, KFC is leveraging its new global innovation pantry, which helps markets replicate successful proven menu innovation. For instance, KFC U.K. is off to a very strong start with a 7% increase in Q1 same-store growth and is seeing strong momentum to start Q2, driven the Pickle Mania menu, which featured 4 pickle top items. Pickle Mania is the most successful limited time offer in KFC U.K. history. The U.K. team pulled this concept from KFC's global innovation Pantry after Canada had a successful launch in 2025. Cultural relevance is essential to drive engagement with the next generation of consumers. And as a result, KFC continues to add more food options with rice bowls, boneless chicken and occasion-led innovation. A great example in Q1 is the [indiscernible] that launched in Korea, which rapidly became a fan favorite and sustained double-digit weekly growth into its fifth week. On top of KFC's distinctiveness and innovation, the brand is driving system sales through industry-leading development with 7% unit growth in Q1 and a record number of Q1 gross builds. KFC added new stores in 45 countries, strong unit economics are a key factor behind this momentum. In partnership with its franchisees, KFC is working to accelerate restaurant economics even further across several key markets. Recently, KFC brought one of its best franchisees into Brazil, who is innovating its store formats. The franchisee recently opened with its first prefabricated restaurants in Chile. These stores are assembled in the manufacturing facility over 45 days and only require 15 days to assemble on-site. This represents a reduction in construction time of 17 weeks versus traditional bills. This is just one small example of the ways in which we will encourage our teams and franchisees to take bold ideas to improve franchisee unit economics. Moving to Taco Bell, which represents 39% of our divisional operating profit, Taco Bell's magic formula is firing on all cylinders. Taco Bell U.S. reported 8% same-store sales growth, meaningfully outperforming the industry. This is Taco Bell's eighth consecutive quarter of U.S. same-store sales growth ahead of the industry. On a 2-year basis, Taco Bell's U.S. same-store sales have grown 18% miles ahead of the overall QSR industry. Same-store sales growth in the quarter reflects 3 percentage points of transaction growth with value scores and value mix, both increasing, thanks to the successful launch of the Luxe Value menu. As the Taco Bell leadership team laid out in their 2030 ambitions at Consumer Day in March 2025, the brand has a clear multiyear plan to expand its offerings with long-term targets that reflect persistent market share gains. As one example of the impact of the strategy, expanded use occasions among light consumers has led to perception gains for Taco Bell on factors, including good for dinner, good for large groups and good for healthier options. These expanded perceptions show that Taco Bell was driving not only short-term sales momentum, but importantly, long-term brand strength. Taco Bell was battling for the future consumer by pairing unbeatable value and innovation with cultural relevance. The power of this combination was on display at its Live Mas Live event last month where the brand unveiled more than 20 menu innovations for 2026. The event was streamed on Peacock with headline-making guest appearances from Doja Cat, Davante Adams, Ariana Madix, Benson Boone, [indiscernible] and many, many more. Social media mentions and media coverage were 60% higher than last year and Taco Bell believes the event can be even bigger next year. Live Mas Live is a powerful example of Taco Bell's unique ability to create a marquee brand moment, amplify innovation at scale and reinforced its position at the center of culture. Furthermore, Taco Bell's success is fueled by more than value and innovation. Operationally, Taco Bell is executing at a superior level on key measures, including consumer satisfaction and order accuracy. Taco Bell improved its consumer satisfaction scores in every period since March of last year. The brand relentlessly tracks order accuracy in part by monitoring consumer complaints which have declined this year since rolling out operational improvements in 2025. I am confident that Taco Bell will continue to lead the industry. Thanks not only to value and innovation, but also improved consumer experiences coming to life through superior execution, superior speed and superior digital and loyalty platforms. At our smallest brand, Abbott Burger and Grill we are pleased with the top line momentum generated from aggressive moves to enhance value, bring new innovation the Baja Crispy fish sandwich to its menu and to elevate brand distinctiveness. The positive impact comes while the team continues working to mitigate the ongoing bottom line impact of inflation, particularly from beef prices. One bold move to enhance brand positioning in habits home market of Southern California is the new partnership with the L.A. Dodgers. I had an opportunity recently to experience the amazing new habit location inside Dodger Stadium and the nearby Dodgers themed restaurant in EchoPark. Yum! is also investing smartly in testing bolder bets around innovation to keep our brands ahead of consumer shifts. For instance, through findings from Colider, our in-house consumer insights agency, Taco Bell and KFC are leaning into the fast-growing beverage category by introducing highly differentiated offerings. Starting with Taco Bell. In 2025, 62% of the brand's orders included a beverage, making this an important area in which to increase the pace of innovation and deepen consumer engagement. From the beginning, the team has been intentional from ideation to development to ensure that even the Taco Bell beverage platform becomes a category of warm. Taco Bell continues to pilot Live Mas Cafe in 38 restaurants and a unique set of Taco Bell style drinks that won't be found anywhere else, such as Churo Chillers, and a suite empanada and cream chiller. Taco Bell is already leveraging learnings from the pilot to broaden the beverage menu across the entire system with proven success such as midnight Baja Blast and Agua Refrescas. In fact, 43% of Taco Bell's specialty beverage sales are stand-alone orders without food, proving the opportunity for incrementality is very high. Similar excitement for beverages is building at KFC. This year, KFC is scaling its Quench beverage platform to the U.K., Australia and Canada and building a pipeline of additional markets for further expansion. On top of better operational execution, buzzworthy innovation and compelling value, our brands are also delivering superior results through our digital channels. This quarter, digital mix increased to 63% and digital sales approached $11 billion/expanding loyalty is fundamental to growing our digital business and broadening consumer appeal. This year, KFC is planning 20 additional markets, putting the brand on a path to triple its 90-day active user base. Our proprietary Byte by Yum! technology platform powers our digital business. A key element of our efforts to reach the full potential of Byte is expansion into new markets. This quarter, Taco Bell U.K. became the first international market to roll out both the digital ordering and Smart Ops bundles. Shifting to Byte from previous disparate third-party technologies provides the business with a single unified platform, enabling greater agility and consistency and execution. The capabilities in the Byte platform provide Taco Bell U.K. with more integrated digital and restaurant experiences and greater opportunities for personalization on digital channels and in the restaurant. In addition, use cases for AI continue to multiply, reinforcing the value of Yum! owning our digital ecosystem. This gives you a powerful advantage. Our global data assets, coupled with Byte's reach allow us to scale new AI features quickly for consumers. We also benefit from AI-driven efficiency gains within our digital and technology teams, benefits about which Roy will share more in a moment. All of our bold ambitions from redefining beverages to earning the right to host star-studded streamed innovation events are made possible by our people and our franchisees. We remain unified by our pursuit of accelerating growth into the future. As a testament to that, right now, in our Plano office, nearly 500 KFC marketing, development and franchise leaders and GMs from around the globe are gathered for KFC's marketing planning meeting and Development Summit sharing insights and best practices, showcasing what's working locally and how it can scale globally, all in service of raising the bar in our largest brand. Stepping back, what encourages me most is that the first quarter results reflect the strength we believe matter most. We have incredible brands that our consumers love. Our brands are benefiting from strong long-term consumer consumption trends in the categories in which we play. Specifically, Mexican and chicken are projected to grow well ahead of the overall limited service restaurant market over the next 5 years. We have world-class franchise partners who are experts at navigating dynamic environments. We have proprietary digital and technology capabilities that create seamless experiences for consumers and enable more productive restaurant operations for our franchisees. We are still early in 2026, and we know the environment remains dynamic, but our teams are executing with focus. Our brands are staying close to the consumer and we remain confident in the opportunities ahead as we raise the bar. With that, Roy, over to you. Ranjith Roy: Thanks, Chris, and good morning, everyone. I'll begin with reviewing our first quarter results before discussing Yum!'s balance sheet, liquidity position and guidance for the year. Beginning with the top line. In the first quarter, Yum! system sales grew 6%. We grew new units by 5% and same-store sales globally at 3%. Digital sales approached $11 billion with digital mix reaching a new high now at 63%. The Taco Bell U.S. achieved restaurant level margins of 23.9%. We are pleased that despite significant inflation, Taco Bell has again demonstrated its ability to expand U.S. company-owned margins. KFC restaurant level margins were 10.3%, up 100 basis points year-over-year, driven by a 240 basis point increase in U.K. restaurant margins. Ex special G&A was $284 million and was up 4%. Franchise and license expense was $43 million, $9 million higher year-over-year, primarily due to the investment in marketing and innovation testing as part of the Hut Forward program. Excluding Pizza Hut, Yum! system sales grew 7%, G&A grew 3% and core operating profit grew 10%. Now on to development. We opened 130 new stores in the quarter. KFC opened 648 new stores, driven by a strong start in China and development across 45 countries. As we focus on our raise-the-bar priorities, you can imagine we are actively prioritizing ways to further accelerate unit economics, including optimizing restaurant build costs and introducing new equipment suppliers and specifications. Additionally, KFC's creativity around innovation is playing a role in accelerating unit economics. The brand's new beverage platform, Quench provides attractive refit ROI with paybacks under 3 years as seen on existing U.K. stores. But this package also improves overall paybacks on new restaurant builds. Our innovation and growth mindset continues to help us identify, attract and support world-class franchise partners who are eager to join our system and take advantage of these opportunities. We expect further momentum in KFC markets that have recently transitioned franchise partners, including in Turkey, Italy and Japan, where total units are up 9% year-over-year. While the Middle East conflict creates uncertainty globally, the impact on development has thus far been relatively minor and has included short-term delays to obtain government permits and procure equipment in select markets. such as the UAE and Turkey. At this time, we see no change to our KFC development plans for the year. and note that 90% of KFC's development outside of China is contractual through development agreements with our well-capitalized franchisee base that believes in the brand. Moving to Taco Bell. The brand opened 30 gross units in the first quarter, including 14 in the U.S. and 16 internationally. In the U.S., the brand has a long-term opportunity of 10,000-plus stores, representing over a decade of future growth and capturing exciting new opportunities such as college campuses and airports. In international markets, Taco Bell total international system sales were up 16% in Q1. This is backed by strong performance in many key markets, including 2-year stacked same-store sales growth of 23% in the U.K., 18% in Canada and 45% in India. Success in these larger markets is generating increased interest from new partners to launch Taco Bell in other new markets such as Poland and Germany. Recall Taco Bell entered 5 new markets last year and plans to expand its market count further this year. Shifting to technology. We continue to raise the bar on modern QSR technology and digital experiences with Byte by Yum!. As we mentioned on our previous earnings call, the U.K. and Australia markets for KFC are on track to roll out by bundles this year, representing 2,000 incremental restaurant locations native to Byte once that rollout is complete. And as Chris said, in Q1, Taco Bell U.K. became the first international market to onboard both the Byte digital ordering and smart ops bundles, demonstrating the platform scalability across markets and brands. Within Byte and beyond, our digital and technology leaders are focused on the myriad ways we can adopt AI, which can be a powerful enabler of Yum!'s long-term growth. We are embedding AI in our consumer-facing technologies and innovations across our restaurant operations. In Q1, Taco Bell U.S. piloted AI-driven A/B testing in the drive-thru with plans to roll out the technology nationwide this year. This new feature can dynamically change the layout content and visuals on a car-by-car basis. allowing the brand to generate insights more quickly and make more effective national adjustments. Whether it is voice AI in the drive-thru or AI-driven dynamic menu boards, the seamless rollout of these new tech features has been made possible due to the physical and digital assets we have developed and deployed over the years. including the underlying integrated by technology and the physical investments in digital menu boards that we and our franchisees rolled out over several years. Similar AI-driven enhancements will be tested and scaled across our brands to drive loyalty adoption and growth. Beyond consumer-facing technologies, as Chris mentioned, Yum! is also uniquely positioned to capture efficiency improvements from AI that will accelerate productivity within our enterprise. We are currently building an enhanced version of the Byte Kitchen Display System, with an overall team that is half the size of what it would have been in the past, enable us to accelerate the pace of technology innovation substantially and expand the pipeline of value-added digital and technology initiatives our team members can work on. We are excited about the potential that AI provides to our business. Next, I'll provide an update on our balance sheet and liquidity position. For the quarter, gross capital expenditures totaled $75 million. Our net leverage ratio ended the quarter at approximately 3.8x. During the quarter, we repurchased approximately 1.2 million shares for a total of $185 million. As a reminder, we generate a run rate of approximately $1.8 billion in operating cash flow [indiscernible]. When you couple that with the additional debt capacity we generate each year from our profit growth and our 4x net leverage ratio expectation, that is a run rate of over $2.5 billion of cash generated annually that we expect to grow at a healthy clip each year going forward. We are disciplined around our priorities and the use of this capital to maximize shareholder value through: first, prioritizing strategic investments in the business; second, maintaining a strong and flexible balance sheet third, offering a competitive dividend; and fourth, looking any remaining excess cash to shareholders. As we refinance upcoming maturities, we will have the ability to upsize debt offerings and return substantial excess capital to shareholders. And subject to financing market conditions, we intend to do so. For this year, we expect our full year interest expense to fall in the range of $510 million to $520 million, excluding any potential debt issuances. More broadly, as we look ahead to the balance of the year, we remain very confident in our ability to meet or exceed each component of our long-term growth algorithm when excluding Pizza Hut. We now expect Taco Bell U.S. restaurant level margins to be between 24.5% and 25.5%, reflecting better top line momentum and higher margins than originally planned from the acquired Taco Bell stores. As we shared last quarter, full year ex special G&A growth, excluding Pizza Hut, is expected to be up mid-single digits. As a reminder, amortization of reacquired franchise rights is anticipated to increase $30 million this year, largely due to the acquisition of franchise stores by Taco Bell in Q4 2025. To help model the shape of the year, we expect Q2 to reflect high single-digit growth year-over-year ex special ex Pizza Hut G&A due to the timing of project spend. Additionally, we expect approximately $5 million of noncash closure expenses for Habit as we opportunistically optimize our store network by making a small number of closures in subscale markets. Turning to Pizza Hut. The brand saw strength across many international markets. Note 11% system sales growth in the Middle East and 8% system sales growth in both China and Latin America. Pizza Hut's Q1 core operating profit growth was in line with our guidance, and we expect Q2 core operating profit of approximately $70 million. Both Q1 and Q2 core operating profit includes expense related to the onetime Hut forward investment that we previously disclosed. With regard to the strategic options review for Pizza Hut. That process has progressed since our last earnings call, and we remain on track to complete the review in 2026. As previously communicated, the objective of the review is to create value for Yum!, Pizza Hut and its franchise partners by determined the optimal approach to capitalize on Pizza Hut's structural advantages. Its strong brand equity, experienced franchise partners and meaningful scale. In closing, Yum! delivered a strong start to 2026 with core operating profit growth, excluding Pizza Hut of 10%. We are only in the early innings of executing against our raise-the-bar priorities that will help refine Yum!'s next chapter of growth. We are excited for the journey ahead. And with that, operator, we are ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of David Palmer with Evercore. David Palmer: I always enjoy getting some color from you on global demand trends and what you're seeing out there. It looks like as we look at the system sales results and market for KFC, China and Canada may be a little bit of slowing on a 1-a-year basis, but Asia, India, Middle East look very strong, if not accelerating, Europe pretty stable. So any color as you look around the globe in terms of demand trends as we think about the rest of the year? Christopher Turner: Yes. Thanks, David. We're pleased with the progression in KFC International. If you look over the last 4 quarters, we've seen acceleration on a 2-year same-store sales basis. in each of those quarters in KFC International. Lots of good things happening. As you said, if you look across those markets, you've got plenty of double-digit system sales growth markets. And we gave a few examples in the speeches. U.K. is at the lead of bringing to life a more vibrant consumer proposition, leveraging innovation, expanding consumer use occasions Korea. I was with the Korea team from KFC earlier this week. They have doubled their system sales over the last few years. They've reached the highest rate of unit development last year, nearly 3 to 4x their previous pace in Latin America as the Serono Group moves into Brazil, we're seeing great things. But if you step back and say what's driving that. [indiscernible] has now been in the business for a year. He, of course, was part and parcel of building the Taco Bell strategy that we laid out last year and he's bringing the same thing. He's setting a very high aspiration. He's creating specific targets and then he's building the strategies that will bring that to life. Of course, given the 150 markets, that's going to take some time to come to life, but those countries that I mentioned are proof points that his strategy is working, and we're excited about the momentum ahead. Operator: And your next question comes from the line of David Harentino with Baird. David Tarantino: Chris, another question on international. And I guess mines more focused on the franchisee appetite for unit growth given all the geopolitical issues that are out there. And I know you mentioned on the call that there was still a good pipeline for this year. But thinking more into next year or the next few years, are you seeing any signs of pause related to the unit growth, either for KFC or Taco Bell. I know Taco Bell International is a big opportunity for you. So if you can comment on that as well, that would be great. Christopher Turner: Yes. Thanks, David. As we look at our unit development outlook, we have high confidence. We just set a new record for Q1 unit development in KFC. The Taco Bell international unit development story continues to grow. If you think about KFC, as we mentioned on the call, we're actually with our KFC franchisees and our development leaders here this week in Plano. We're talking about the elements of the raise the bar strategy. Of course, the first part of that is battling for the future consumer, which should lead to higher same-store sales growth and higher AUVs that [indiscernible] is accelerating restaurant economics and reaching the full potential to buy. But that accelerating restaurant economics is about leveraging those higher AUVs over time and leveraging our scale and supply chain in prototype design. And the scale that Byte provides us to improve unit economics. And that will ultimately help us to broaden the number of markets from which we get strong unit development. We have incredible unit economics in our biggest unit development markets today. China, India, Middle East, but we know there is so much white space that we can get to if we can improve paybacks in broader markets. Europe is a prime example of that. our team and our franchise partner in Italy has shown us that, that is possible. If we go to Taco Bell International, we're continuing to see great growth. If you look at the system sales numbers and those same-store sales growth numbers that Roy shared, a lot of great things happening there. It was in 2021 that we had 100 units in Spain, we're now at 180 units today. 2022 is when we had 100 units in India and the U.K. We're now at 156 and 142 in those 2 markets. Canada will probably be the next market that gets to 100 units, and we're adding new markets all the time. So we're pleased with the progress there. Our long-term aspiration is to sustain or even accelerate our pace of unit development. Unknown Executive: And David, I'll just add to that. If you look at history and KFC, there's no more consistent unit developer than KFC global over time. because it's underwritten by a really strong investment case in many markets around the world and amazing well-capitalized franchisees. So if you look in times of disruption in the past, 2021 and 2022, you had a lot of supply chain disruption grew net new units, 8% and 11% in those years. In 2024 and 2025, you're talking about the Middle East crisis and its aftermath. We saw 7% net new unit growth in both years. when you exclude the impact of Turkey and Russia exits. And as for the current conflict, its relevance to unit growth, the entire Middle East represents less than 150 units in our current pipeline. And as of today, our partners in that region expect no change to plans. And so we have a lot of confidence in KFC, both based on track record as well as what we're seeing on the ground. Operator: And your next question comes from the line of John Ivankoe with JPMorgan. John Ivankoe: I was curious how you're currently thinking about the organization post Pizza Hut. You obviously have an opportunity include use of modern AI to really rethink your organization from a top-to-bottom perspective. It's really an opportunity, if you will, for Yum! to kind of restart itself and how it thinks about managing the business from the store level all the way up. So how should we think about total dollar spent, whether it's G&A as a percentage of system sales, whether we should just revert back to kind of AI and Byte specifically bending the curve on G&A, just to give us some guidepost in terms of how you're thinking about this potentially big overall efficiency and effectiveness opportunity for the overall Yum! G&A spend. Christopher Turner: Thanks, John. Of course, the Pizza Hut process, as we said, continues to progress well. We'll share more once we conclude that process. But if I step back and think broadly about the impact of on the organization. We're very pleased with the progress we're making. Of course, it is enabled by the fact that we have gotten to more consistent platforms through Byte by Yum! that both across our restaurant footprint, particularly in the U.S., and we'll be expanding more and more internationally, but also in our above store systems. And if I talk about our philosophy as it relates to AI, first and foremost, we want to use AI to drive growth. That's what's exciting in our business, and you're going to see us have use cases, like the one we mentioned, be the leader in rolling out AB testing to our digital drive-throughs and Taco Bell is all about driving growth and getting a better consumer experience out there faster. We're also going to use AI to elevate our team members, whether in the restaurants or in our above-restaurant roles, we want to help make our jobs easier and allow people to be more productive and do things faster. And so just a couple of examples from an org standpoint that are pretty interesting. I was with our GM of KFC U.K. this week. That team has really embraced they now have 10 different AI agents that are playing roles in the organization. For example, there's a virtual team member on the KFC U.K. development team, that's helping with permitting and it's taken care of a lot of the basic analysis and fact gathering, which is speeding up our applications for permits on new units there. Our corporate learning and development team has a virtual team member Judy, who is doing some great work in helping us build training programs, getting those out faster and being more productive in how we do it. So we're really pleased with the progress. More to come there, but we're going to use it to drive growth and make our jobs more productive and easier for our team members. Operator: And your next question comes from the line of Dennis Geiger with UBS. Dennis Geiger: I wanted to ask a bit more about Taco Bell's impressive momentum and the outlook for the U.S. Taco Bell. Chris, you gave a lot of good color in the prepared remarks. But could you touch a little bit more on how the brand generates these strong results even in this particularly difficult consumer environment? And the second piece, just as it relates to the dynamic around the Live Mas Cafes, anything more to share on what you're seeing there and sort of the potential for those cafes looking ahead? Christopher Turner: Yes, thanks a bunch. Look, the Taco Bell team has continued to put up quarter after quarter of great results. It's an amazing business. And if you dig into why this Taco Bell continue to perform. It's really about delivering what consumers need in any environment. It's not just one thing. It's multiple things. that's grounded in structural advantage. The Mexican category is growing ahead of the overall restaurant space and Taco Bell was a category of one in that space. We also have a business model there that allows us to deliver value while also ensuring high margins for our franchise partners. So structural advantage is one piece, and then you got a great strategy. . Sean and his team laid that out very clearly last year at the Consumer Day, raised their aspirations. They set a very specific target to strive for $3 million AUVs by 2030, and then they laid out an actionable strategy to bring that to life, and we are on track with that strategy. They're doing a great job executing it. Of course, that strategy covers ensuring we have a culturally relevant brand. We mentioned some examples of that. Craveable innovation that is broadening the consumer use occasion. So it's given more consumers, more reason to come to the brand more frequently. And that is driving transaction growth at all income levels. It's allowing us to expand with families with children. We also have very easy experience, the fastest drive-through of any large-scale QSR player and those operations are getting better, as we mentioned. And of course, we deliver unbeatable value the WEX value menu that we revamped in Q1 is performing very well. 1/3 of all Taco Bell tickets have an item from the value menu there, and people are really building meals with a lot of variety using the value made. So lots of strength but we're just in the starting stages of the strategy that Sean laid out. So we're very excited about future continued momentum in Taco Bell. As we go to beverages, the Lomas case, I think of right now, as the seed for broader beverage expansion already across the entire Taco Bell business, if I open up my Taco Bell app right now, I can find 15 different specialty beverages available there. Some of those came from Litmos Cafe, like the Refrescas. But you got dirty sodas, you've got freezes, already a really distinctive business, coupled with our proprietary QSR Baja Blast platform through our partnership with Pepsi Care. So we're already getting tremendous returns from the Litmos Cafe investments. We'll continue to see how that pilot goes to see where we take the specific concept. Operator: And your next question comes from the line of Gregory Francfort with Guggenheim Securities. Gregory Francfort: I guess maybe clarification. Are you guys disclosing the KFC U.S. and international comps anymore? And then my question is on Saucy and the thought process. I think, Chris, you made some comments about taking elements of Saucy and bringing them to different markets around the world. Are you viewing this as maybe a testing hub for the rest of the system? And do you expect to maybe bring some elements of it into the U.S. system at some point in '26 or '27? Christopher Turner: Yes, thanks. Let me start with the KFC business. It is a strategically important business for us. It's our biggest brand. It's our home market and a vibrant chicken market. We've said over the last few years, we've been dissatisfied with the trajectory of performance in that business. And we're very pleased with what the U.S. leadership team is doing to change the trajectory there. some good moves in Q1. The partnership with Matty Matheson, which is increasing relevance to a broader consumer set. We are, of course, still serving the core. We have the build your own bucket, $20 value offering in Q1 and as we came into Q2, we've rolled out a revamped value construct the $7, $9, $11 options. So lots of good things happening there, and they are -- they have a big pipeline of innovation that they are working. That ties to say KFC. Similar to Live Mas Cafe, we are already earning a big return on the SAC investment across the global business. So if you were in our marketing planning meetings here in Plano this week, you would see how the Saucy learnings are leading to tenders innovation globally to soft innovation, the way -- the process that we use to identify the specific sauce formulation that will resonate with consumers in any market and even concept inspiration. Christophe Poirier, who developed the Saucy concept is now the KFC Global Chief Concept Officer. So we are leveraging Saucy in a big way in terms of powering the broader KFC business. Ranjith Roy: Yes. And in terms of your question on the disclosure. Look, we're always focused on providing the appropriate level of transparency and disclosure. If you noticed in our press release, we've moved KFC U.S. from being a subsegment where more details are disclosed to the system sales table. So it's still in the system sales table and restaurant counts. But as we look this quarter, we periodically review our disclosure to ensure that it aligns with drivers of growth and profitability that are most relevant to everyone following our releases. U.S. KFC is placed on our disclosure now is reflective of its scale in the overall Yum! portfolio, where it currently comprises materially less than 5% of Yum! operating profit ex Pizza Hut. And of course, we'll continue to focus on it strategically. But from a disclosure standpoint, that's where it landed. Operator: And your next question comes from the line of Andrew Charles with TD Cowen. Andrew Charles: Quick clarification on the question. So the clarification is, does the KFC development guidance for the year reflect the ripple effect of the Middle East conflict and what we're hearing about LPG shortages in some international markets outside of the Middle East? Or are you just speaking to the direct Middle East region, fairly okay? And then Roy, my question was about just helping to level set investor expectations on Taco Bell. What do you believe to be the most instructive way for investors to think about for the remainder of 2026 following 1Q strength. In the past, we've heard about holding your stack steady. Is that a fair way to think about how the remainder of the year should progress for Taco Bell? Or is that overly simplistic mid gas price is north of $4 a gallon? Christopher Turner: Andrew, first on the Middle East with KFC. Just to clarify what Roy shared earlier. We are confident in global KFC unit development on this year and beyond. As he mentioned, the Middle East represents mid-single-digit percentage of our total unit development plan in KFC. There have been some supply chain implications on equipment, so the lead times may be a little longer and some costs may be a little higher but our franchise partners in the region are doing a really nice job navigating that situation. And of course, their first priority is keeping team members safe and keeping consumers safe in this environment, but they're doing a great job navigating the business. So overall, no change to KFC's unit development outlook. On Taco Bell, look, as I mentioned, this is a multiyear strategy that the team laid out. Of course, they're continuing to refine and elevate that strategy for the long term. But you saw a Live Mas Live, the innovation agenda for the year that's going to come to life. It is incredibly exciting. It continues to add and build new consumer use occasions. There are other elements of the strategy that are helping us to retain these consumers who we are attracting to the brand. If I just take loyalty and digital. We're now approaching an 80% digital mix in Taco Bell U.S. and our loyalty program continues to grow. We had 30% growth in loyalty sales year-over-year and it's because the loyalty program is resonating with consumers, and it's helping people to engage with the brand more and more frequently. So a broad range of drivers that will drive the strategy going forward, we're confident in Taco Bell's continued strength. Ranjith Roy: And I think on your question around the remainder of the year. Look, we're not going to give quarter-to-quarter guidance. But I will say from our prepared remarks and what you're hearing in our voice, we have confidence in Taco Bell momentum I'd say, more confidence than we had earlier in this year and you're hearing that from us. And I'd say that's not just top line, but also on the margin front, where we've taken up guidance on margins. Just now, when you think about Q1, what's really impressive is you have not just the backdrop of the consumer, we have the backdrop of inflation. We launched a rebrand of our value platform and expanded restaurant margins at the same time. And so that gives us a lot of confidence in Taco Bell as we look towards the remainder of the year and to Chris's point beyond as well. . Operator: And your next question comes from the line of [ Christine Cha ] with Goldman Sachs. Unknown Analyst: Congrats on a great quarter. A few quarters ago, I think you mentioned plans to appoint a Chief Scale Officer. And I think I'd love to hear your latest thinking on how you intend to align and incentivize the organization and leadership to really focus on driving improvements in unit economics globally that seems to be central to your raise the bar framework? Christopher Turner: Yes. Yes. Thanks so much. Look, we've got an amazing leadership team in our business. Of course, we're powered by the best talent and culture in the industry. We do still intend to add that Chief Scale Officer role. We've taken our time to make sure we get that right from an organizational standpoint, but we're not being our focus on the scale benefits that can come from those teams. The teams that would sit underneath that leader are in place today, and they are doing great work. I took the global supply chain organization, which we pulled together over the last 1 to 2 years, we've got an incredible team there. They are focused on the international sourcing across markets -- they are bringing great leverage. They're going category by category with specific goals for how to dollars to the bottom line for our franchise partners, leveraging young scale. They've already got many, many wins on the board and many more to come. So we are focused on that. And of course, our brand leaders as part of raise the bar, have specific efforts that they are taking on in conjunction with that to ensure that we're accelerating restaurant economics. So lots of good work happening there as we move further on filling that rollable share updates when they're ready. Operator: And your next question comes from the line of Andy Barish with Jefferies. Andrew Barish: Just back on Taco Bell kind of if you wouldn't mind sharing sort of philosophically your thoughts on equity ownership, obviously, the deal in the 4Q, and I think there was a small cleanup deal in Australia in the 1Q or early 2Q. And just kind of -- how should we think about where kind of the Taco Bell franchise system is at least domestically? Unknown Executive: I sense a few different parts to that question. The first one I'd say is like about -- you talked about the equity portfolio in Taco Bell. Can you clarify, is it about our equity ownership or about our franchise base? . Andrew Barish: No, no. It's about your philosophy in terms of being opportunistic in buying more Taco Bell stores. Unknown Executive: Got it. Okay. Look, we love being an asset-light business. We continue to have amazing franchise partners around the world and KFC Taco Bell, who run world-class restaurants. Historically, we made, as you know, opportunistic acquisitions that are relatively small. If you think about the Q4 Taco Bell acquisition we made, 128 restaurants out of a worldwide base of 60,000 restaurants that we have is relatively small. That said, these strategic acquisitions, we view them as providing a number of benefits. First, there's a financial benefit. When you think about the returns we get buying at reasonable multiples and driving growth in those restaurants itself, we can drive returns that materially exceed the hurdle rates we have for investment. Second, the strategic benefits. So you think about some of the acquisitions we made like the KFC U.K. restaurants and the Taco Bell Southeast restaurants and the results that drives in those markets and the ability to open up Byte space that are strategic benefits to the broader system that are way beyond the actual investment that we actually made. And thirdly, it does add mindset and muscle in those markets where you have to run a restaurant, and you have to think like an operator, and that provides broader benefits. So look, I'd say there's a number of benefits that we see from those and we're going to do it selectively and strategically. And when we do it, it will be for specific reasons where it has maximum impact, we're going to keep our eyes open for the opportunities that provide that. Unknown Executive: Operator, we have time for one more question. Operator: And your final question comes from the line of Jeffrey Bernstein with Barclays. Jeffrey Bernstein: Great. Chris, just a question on the broader QSR segment positioning. Just thinking about an industry perspective. I don't think anybody is more knowledgeable on QSR trends with your global portfolio. But in the past, U.S. macro slowdowns, I think was built that QSR was well positioned, retaining the lower income with value, inheriting trade down from above. But it does feel like this go around is increasing investor concerns that QSRs may be losing the lower income with less value and not inheriting from above. To be clear, clearly, you're not seeing that at Taco Bell, but just wondering as you look across the QSR segment more broadly, I guess more of an industry question, do you think QSR positioning has changed at all? Or should QSR again be the beneficiary in the more challenged macro? Christopher Turner: Look, as I look at the U.S. macro landscape and the U.S. consumer, I have to look at it through the lens of our business. And our largest business in the U.S. is Taco Bell, and I think what you're seeing is that when you deliver what consumers want and need, you can [indiscernible] with consumers in any environment. And Taco Bell is bringing that combination that we mentioned earlier, a culture leading brand, craveable food with great innovation an easy experience that is enabled by digital and technology and, of course, leading value. And I think if Taco Bell were just bringing 1 or 2 of those things, you wouldn't see these results. It's the combination that is winning with consumers. And of course, they've got structural advantage that will allow us to sustain that and we see that in all the markets around the globe. The consumer has had various pressures across market for a number of years now, and we continue to prove that when you deliver what consumers want and need, you can win with those consumers. So thank you all for making time for the call. We appreciate you being here. We've got a great start to 2026. Really proud of the performance that our teams are delivering. Our largest brands are performing well, enabled by structural advantage, strategies that are working and an incredibly scaled digital presence that will continue to grow over time. That's leading to growth and sustainable market share gains, all while we raise the bar for the future. Thanks so much. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Element Solutions Q1 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Varun Gokarn, Vice President of Strategy and Integration. Please go ahead. Varun Gokarn: Good morning, and thank you for participating in our first quarter 2026 earnings conference call. Joining me today are our CEO, Ben Gliklich; and CFO, Carey. In accordance with Regulation FD, we are webcasting this conference call. A replay will be made available in the Investors section of the company's website. During today's call, we will make certain forward-looking statements that reflect our current views about the company's future performance and financial results. These statements are based on assumptions and expectations of future events, which are subject to risks and uncertainties. Please refer to the earnings release, supplemental slides and most recent SEC filings on our website for a discussion of material risk factors that could cause actual results to differ from our expectations and predictions. Today's materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasure to introduce our CEO, Ben Gliklich. Benjamin Gliklich: Thank you, Varun, and good morning, everybody. Thank you for joining. Element Solutions started 2026 strong. We reported a record quarter yesterday that demonstrates ongoing success with our strategy of penetrating the highest value, fastest-growing subsegments in our addressable markets. The quarter's results are a product of work we've been doing for years in our labs at our sites and alongside our customers. It was enhanced by our strategic acquisitions of ESC and Micromax, those of which closed in Q1 and are off to a solid start as part of the Element family. The trends that drove accelerating performance at the end of 2025 continue to propel us forward. We delivered double-digit organic sales growth for the second quarter in a row and strong margin expansion, excluding the impact of pass-through metals, all while increasing investment in people, technology and plants to support customer growth. Sales in our Electronics segment grew 15% organically as activity accelerated across our supply chain in support of the ongoing AI infrastructure build-out. Technical requirements in data center, hardware and other high-performance electronics continue to increase, and our businesses provide critical enabling solutions across thermal management, power density and advanced packaging applications, to name a few. We're seeing volume growth in the highest-value categories across our end markets from leading-edge semi and high-end circuit board fabs to device assemblers and a strong pull for innovation to enable greater levels of device performance and manufacturing yield or throughput. This dynamic, combined with resilience in the higher-end mobile market led to double-digit organic net sales growth in all of our electronics verticals. Forecast from customers are increasing and innovation cycles are accelerating. This trend will continue, and we're increasing investments to better serve our customers, whether in inventory to support volume growth, additional manufacturing capacity for certain high-growth product lines or innovation to remain on the leading edge. Our investment in OpEx and CapEx is customer-led and supports durable growth trends. As a predominantly asset-light formulation business with low maintenance capital requirements, we're uniquely positioned to selectively target efficient investment ahead of industry inflection points. Our ongoing activity with Kuprion is an example of such an investment where we are in the midst of commercializing a differentiated new material to solve several emerging customer pain points. The pipeline for this capability continues to grow despite our limiting commercial activities to ensure the supply chain can keep up with demand. We've also expanded the areas of opportunity we serve through the acquisitions of Micromax and EFC. The results in the quarter and forecast for the year are tracking favorably to our expectations with both growing revenue organically this quarter by double digits. More importantly, we welcomed 2 highly capable deeply technical teams with the same customer-centric mentality that is the hallmark of ESI. Integration is on track, and the teams are settling well into our organization and energized by the opportunities that Element Solutions can provide them to better serve customers. Carey will now take you through our first quarter business results in more detail. Carey? Carey Dorman: Thanks, Ben. Good morning, everyone. On Slide 3, you can see a summary of our first quarter financial results. Organic net sales grew 10%, and constant currency adjusted EBITDA increased 21% year-over-year. Last quarter, we noted the timing of metal hedges related to tin and silver in our Assembly Solutions business, which negatively impacted Q4 2025 performance by several million dollars. In Q1 2026, we largely recovered that amount through sales of finished goods and higher metals values. Underlying year-on-year growth in adjusted EBITDA would have been in the mid-teens when excluding this benefit as well as the impact of acquisitions and prior period divestitures. Our results in Q1 include a full quarter of EFC and 2 months of Micromax ownership. Assuming we had owned Micromax for the full quarter, adjusted EBITDA would have been $170 million. Electronics organic net sales growth of 15% was broad based. Each of the segment's verticals grew organically by double digits. Our Specialties business grew 1% organically, driven by strong performance in the offshore energy vertical. Global industrial weakness continued this quarter as our Industrial Solutions business was flat year-over-year on the top line. Beginning this quarter, we are updating our definition of adjusted EBITDA margin to remove the value of pass-through metals sold in the period. We believe this change allows for a better perspective on the underlying value we are providing to customers, eliminates the noise for metal prices, volatility and margins over time and enhances period-to-period margin comparability. Pass-through metals revenue was $256 million in the first quarter of 2026 and $101 million in the fourth quarter of 2025. On this new basis, adjusted EBITDA margin improved 170 bps year-over-year to 27.8% this quarter. This improvement was primarily driven by mix with organic growth in higher-value product lines and partially offset by continued OpEx investment to support growth initiatives. Adjusted EPS grew 21% in the first quarter, largely reflecting the underlying demand improvement in our Electronics business and offset by higher interest costs associated with our recent acquisition activities. On Slide 4, we share additional detail on the drivers of organic net sales growth in our 2 segments. In Electronics, 15% organic growth was the strongest we have seen in this segment since early 2021 during the COVID recovery. We are benefiting from rising demand for products that address new challenges around power delivery, circuit density, thermal management and reliability in high-value applications. As a result, our Assembly Solutions business grew 12% organically with a sustained increase in the sales of high reliability alloys and engineered starter preforms to data center suppliers. At the same time, in the Consumer Electronics market, pace used for higher and smartphones continued to grow in the first quarter. Circuitry Solutions net sales improved 17% organically, with growth continuing to come from the high layer count server board market, where our differentiated solutions have great traction. We generated record quarterly sales in these product categories tied to high-performance computing and AI server builds. Beyond the data center market, sales were further supported by strong demand from suppliers of high-end smartphone components. Finally, our business is also benefiting from continued manufacturing investments in Southeast Asia, where we have a strong and growing presence. Semiconductor Solutions organic net sales grew 18% due in part to improved order patterns for power electronics products at legacy customers and growing momentum in the thermal interface products for high power consumption applications such as AI GPU and CPUs. We also experienced strong and growing demand for advanced packaging solutions. Revenue growth for these products was magnified in the quarter by the large increases in precious metal prices that are input to many of these solutions. Micromax, which we own for 2 months of this quarter is not included in our organic net sales growth calculation, but contributed roughly $65 million to reported sales in the quarter. We expect metal prices fluctuations to create volatility in headline sales for this business as roughly 2/3 of reported revenue is related to metals. Turning to our Specialty segment. Industrial Solutions was essentially flat in the quarter as demand for surface treatment chemistry was impacted by softer Americas automotive production activity, particularly with customers operating in Mexico. European automotive customers saw relatively stronger growth in the period against an easier 2025 comp. We remain cautious about our European industrial demand outlook. Our Offshore Energy Solutions business grew 15% organically as a result of strong volume growth and pricing. This quarter also benefited from favorable comparisons to the prior year period, which was unusually soft due to a few specific customer delays. Finally, EFC gases and Advanced Materials contributed $19 million of revenue in the first quarter. This was a record first quarter for this business, which is typically the slowest of the year for EFC, primarily on the back of strong demand from electrical infrastructure customers. The EFC team is executing at a high level. growing wallet share with existing semiconductor and space customers and winning new qualifications in both. We expect a strong run for EFC this year and into the future. Slide 5 addresses cash flow and the balance sheet. When our business grows, we typically need to invest in working capital. And higher metals prices compounded our working capital investment in the quarter. As a result, free cash flow was negative. The first quarter is always our slowest from a cash flow standpoint and the high level of growth in the quarter magnified this impact. We expect strong cash flow generation in subsequent quarters this year, assuming metals prices stabilize. CapEx in the quarter was $25 million, which is trending above our previously guided annual run rate of $75 million. I do recommend, there are excellent opportunities in front of us to invest in growth CapEx to support large, profitable commercial wins. We are taking the initiative to build incumbency and leadership in these areas. We are also continuing to invest in footprint consolidation and other efficiency projects where we see compelling returns. As a result, we now expect to invest between $75 million and $100 million in CapEx this year, which remains less than 3% of sales. Our expectation for other uses of cash unchanged for interest and modestly lower for taxes. Turning to the balance sheet. Our net leverage ratio at the end of the quarter was 3.4x and it would have been 3.1x assuming we had owned both Micromax and EFC for the full trailing 12-month period. We anticipate reducing leverage by approximately half a turn by the end of the year, assuming no further capital deployment. This strong balance sheet position should once again give us flexibility to act on opportunities if and when they arise. With that, I will turn the call back to Ben. Ben? Benjamin Gliklich: Thank you, Carey. We had a great start to the year. At the same time, geopolitical events have created a more complex macro environment than anticipated. We're seeing signs of inflationary pressure and expect increased variance in quarterly earnings driven by swings in metal prices. Further supply chain disruptions and the impacts to global demand resulting from higher energy prices creates risk for our suppliers, our customers and ultimately for us. That said, our organic acceleration in the first quarter, and in particular, the sources of that growth give us confidence in a strong year. Underlying demand in the high-end electronics market remains strong and the positions we've established in the fastest-growing, highest value niches of these markets should serve us well. As a result, we're raising our adjusted EBITDA guidance to a range of $665 million to $685 million for the full year. This range reflects the growth that we saw in the first quarter, combined with continued strength in Electronics and softer demand in Industrial Solutions. It also contemplates a less favorable FX tailwind than we expected a few months ago. We expect second quarter adjusted EBITDA in the range of $155 million to $170 million, with demand conditions sequentially similar to the first quarter and taking into consideration some risk from raw material and logistics inflation that we may not recapture immediately despite ongoing sourcing and pricing actions. We now expect 2026 adjusted EPS growth in the high teens on a full year basis. As we've demonstrated repeatedly in recent periods of uncertainty, we're prepared to react quickly to shifts in demand and cost. We have a variable cost structure and local teams that can rapidly respond to customer needs, and we're already taking action to preserve our profitability in certain business lines. Our diversified regionalized manufacturing footprint allows us to be nimble to accommodate dynamic trade flows. As was the case with tariffs last year, there may also be opportunities where our competition may not have the same flexibility, geographic breadth and access to capital that we enjoy. We're actively leaning into growth in 2026. The customer signal is clear. They're asking more from us and the potential rewards from the investments we're making are apparent, high-margin sales and long-term incumbency in fast-growing categories. Through our efforts to build research and applications development in high-leverage geographies like Southeast Asia or our expansion of Micromax capacity, we've proven the value of investing ahead of inflections. Our company is executing and our people are eager to capitalize on our attractive long-term growth prospects. Three final topics before questions. First, our portfolio has changed through acquisitions, divestitures, strategy implementation and end market evolution over the past 5 years. So we're holding a virtual Investor Day on May 18 to provide a deeper look into our businesses, introduce business unit leadership and share some of our emerging technologies, and we're looking forward to that day. Second, I'd like to express my deep gratitude to our Chairman, Martin Franklin, who is not standing for reelection to our Board at our upcoming annual meeting. He's been and will remain a great partner and mentor to me and valuable resource for our company going forward. You'll hear from him on May 18 as well. But in short, he remains committed to our company and invested in our success. Our nominated successor, Ian Ashken, has been on our Board for 13 years and knows our company and our people exceptionally well. I'm excited to welcome him to his new role. Finally, on that same note of gratitude, I'd like to thank all of our stakeholders for their continued support of Element Solutions and in particular, our talented, dedicated and growing team around the world working to support our customers and drive long-term value for our shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Bhavesh Lodaya with BMO Capital Markets. Bhavesh Lodaya: Congrats on the quarter. Can we dig a bit deeper into your 15% organic growth that you saw in electronics? How much of that is volume driven versus pricing or mix? And then it seems like you are seeing an improvement in your order books as well. How should we think about a continuation of this organic growth spending in the second quarter and the full year? Benjamin Gliklich: Yes. Great question, Bhavesh. Historically, the framework for organic growth in our business is volume versus price, meaning that most of the growth comes from volume as opposed to pricing actions. The exception to that is our offshore business. And other than metal price, which we've adjusted out when we look at organic growth, most of our growth in the first quarter has been volume driven. On the margin, there's been a mix benefit in our semi business and to a small extent in our circuitry business. But roughly, I would say this is a volume-driven quarter. As we look forward, what we've projected is for a continuation of these trends. And so our outlook is for a continued robust volume environment. We will have to take some pricing actions in parts of the business to offset some of the inflation that we've seen. But really, it's a volume story when we think about 2026. Bhavesh Lodaya: Got it. And then you're stepping up CapEx a bit to support growth that you're seeing with your customers. Can you talk about which product lines or regions these are in? And then looking at your deck, it also looks like you're looking at certain plant consolidation opportunities. It would be great to hear your thoughts on both of these aspects. Benjamin Gliklich: Yes, absolutely. So capital is going to both of those initiatives. On the electronics side of the portfolio, we're seeing customer forecasts increase rapidly. So especially our B2B customers who have longer-term visibility, they give us a forecast for what they expect to require over a 6- to 12-month period. And those are never particularly accurate. But in the past, it's been inaccurate in both directions. At the moment, they've been inaccurate in one direction. And so we're seeing a rapid increase in certain categories of demand and increase in forecasts that has us reconsidering our capacity equations. So obviously, Kuprion is something that we're investing heavily in, and we're accelerating some of that investment. There are a few other product categories in the semi assembly market, in particular, where we need to add some capacity. This is for global customers but in specific sites where we make those products. And by and large, most of our manufacturing is fungible, and we don't have significant capital requirements to expand capacity for blending. But in some of our engineered products, we do have some bottlenecks and we need to debottleneck and add. With regard to site consolidation, in our industrial business, we've been reducing our footprint over the past several years, and that's really long-term integration-related activity, and that continues at pace. And so we're in the midst of a large site consolidation project in one site in Europe that is requiring significant investment but driving productivity across the business. Operator: Your next question comes from Josh Spector from UBS. Joshua Spector: Congrats on a strong Q1. I just wanted to ask with the guidance here. I mean, obviously, you're flowing through the raise from Q1, but you're flowing through almost an additional $10 million that appears more back half weighted. So I mean, clearly, you have higher confidence. I was wondering if you can comment on where you're seeing that? And if you feel like you're getting a little bit of a longer lead time view around customer demand, which maybe helps you forecast a bit more or not. Benjamin Gliklich: Yes. Thanks for the question, Josh. As we said in our prepared remarks, we're seeing an acceleration. We saw an acceleration in the first quarter in the Electronics segment. Over the past 2 years, we've talked about how our business has migrated from consumer, which is more short cycle towards enterprise applications, which is longer cycle. And so we've got confidence in the durability of this acceleration in demand through 2026 from data center and associated investment. And so that's where that comes from. With regard to phasing, the back half is typically stronger than the first half, and we expect that seasonality to continue. We benefited in the first quarter from a metal price recapture from a stronger-than-expected MicroMax result, and we're still getting comfortable with the seasonality and lumpiness of that business, which speaks to why you've got this dynamic sequentially from the first quarter to the second quarter. But for the full year, our outlook is stronger from the electronics side of the business than it was when we gave our original guide. Joshua Spector: That's really helpful. And maybe just to follow up there on the points around some of the lumpiness and specifically MicromMax. I mean I think when you call out the impact in January, you extrapolate that, you're north of $80 million in that business. Obviously, that's much higher than what you indicated when you acquired it. Is that primarily the lumpiness in first quarter? Or maybe another way, if you could characterize kind of what you think the earnings contribution is at Micromax now versus what you thought a few months ago for the full year? Benjamin Gliklich: Yes. Good question, Josh. So it's dangerous to do that extrapolation math. The same thing that happened in our assembly business with metal prices where we got -- there was a lagging impact in Q1 from metal price fluctuation is the way to think about that January number. So that was a recapture of value from 2025. That said, it's a stronger result from an organic perspective, right? The MicroMax business grew in the double digits in Q1, which is higher than the long-term growth algorithm we would have expected from that business. And it speaks to this point that the entire electronics ecosystem is benefiting from the AI and data center build-out. It's not simply the semiconductor market or the circuitry market. And so we are expecting better contribution from MicroMax on a full year basis. And -- but we are still working our -- wrapping our arms around the seasonality to -- associated with it. Operator: Your next question comes from the line of Chris Parkinson with Wolfe Research. Christopher Parkinson: Ben, obviously, there have been a few changes in terms of the '26 outlook and the nice 1Q beat even without January MicroMax, the FX adjustments and so on and so forth. And obviously, it seems like you're integrating some of the global uncertainty for the remainder of the year. But given the -- what appears to be by all intents and purposes, the building momentum in several of your businesses that are benefiting kind of all the substrates of electronics, have you kind of increased your expectations for anything on whether it's MSI, PCB, any other kind of like fastest the electronics market as we progress the second half of the year? Are those metrics or kind of market dynamics similar to how you're thinking about this market just a few months ago? I'd love to hear your updated thoughts there. Benjamin Gliklich: So at this point, we're looking more at the subsegments of the market. We do believe that PCB growth will outstrip what was originally forecast entering the year, and you just see it in the results, right? Our circuitry business growing in the mid-teens this quarter is an indication of the continued robustness of that market. On balance, if there's one indicator that's better for us than forecast, it's the smartphone market, which we were assuming would be flattish this year. And our smartphone-oriented business grew in the mid-single digits this quarter. We did see weakness at the low end, but the high end was quite strong. And so the risk associated with memory dynamics and pricing, it is flowing through the smartphone market, but it hasn't been impacting us to a proportionate extent. And so that's a tailwind. PCB overall is a tailwind. And then there are the unknown unknowns associated with inflation and geopolitics, and we try to factor that into our guide as well. Christopher Parkinson: Got it. And just as a quick follow-up, I feel like it's a mandatory Kuprion and thermal interface update. I think everybody is aware that it's not a material contributor at all in 2026. But in terms of the customer receptiveness, how your conversations are going in terms of the commercialization process and trajectory for '27, '28. Perhaps you can just give us an update on how you're thinking about that and where you've been pleasantly surprised on what you still perhaps need to work on. Benjamin Gliklich: Yes. So Kuprion is different than the thermal interface materials that we call out in the CapEx slide, that's -- the thermal interface materials are another product that we offer. We're seeing huge demand from hyperscalers. But Kuprion is a very good story from a commercialization perspective. We have a small handful of customers who are working with the material and they're developing new applications and use cases regularly, so that's the good side. The note of caution I'd strike is just supply chain and our ability to meet demand. And so we are ramping up our investment to add capacity in order to satisfy the few customers who we are engaging with at this point in 2027 and into 2028. Commercialization is good. Supply chain is coming along, but we have work to do there. Operator: Your next question comes from the line of Mike Harrison with Seaport Research Partners. Michael Harrison: You talked a little bit about the impact that you're seeing from metal price volatility. I'm just curious if higher metal costs have led to any demand disruption? Is it leading customers to look for substitutes for more expensive metals? How are customers responding to this unusual volatility? And what could it mean? Do you view it as a threat or an opportunity? Benjamin Gliklich: Yes. So higher metal prices have not had an impact on demand as yet. Customers don't like that their bill of materials have gone up. The volumes that we're selling relative to the overall bill of materials for these high-end electronics are still small from a value perspective. And at the moment, they're operating with such a high level of activity and capacity that they're not really looking for substitution. Kuprion, to some extent, is a substitution by the way, copper instead of silver. And so we are working in a few areas, not just with Kuprion but with other thermal materials and attached materials to reduce the amount of silver to solve that customer pain point. But we have not seen that. On the other hand, we have smaller competitors who are running into cash flow issues because the value of their inventories with long payment terms are making it such that they're running out of capital and they're withdrawing from certain markets. And so that's a competitive benefit that we've seen from higher metal prices. Michael Harrison: Right. And then just to follow up. Obviously, we've seen this metal price hedging impact that hurt you in Q4. It helped you this quarter. Are you considering any changes just from an accounting standpoint to how you approach the metal pass-through, either internally or with your customers so that maybe you don't have to bear the hedging costs or maybe we can dampen further these earnings swings related to metal prices? Benjamin Gliklich: So in the fullness of time, we recapture the value, and it's it's the right commercial practice to allow for our customers to lock in metal prices in some cases. And for us not to wear the risk associated with those metal prices. So it's the right commercial decision. And periods of volatility like this are pretty infrequent. And so we're comfortable with the practice and don't expect anything to change. That said, we have changed our EBITDA margin definition this quarter to reduce the noise in our reported financials associated with metal prices. Operator: Your next question comes from the line of John Roberts with Mizuho. John Ezekiel Roberts: What would you estimate organic industry growth was this past quarter in Electronics? Benjamin Gliklich: That's a really challenging question to answer at this point, John. The data isn't out yet. I'm confident that our organic results are outstripping the overall industry because we are participating disproportionately in the fastest-growing vectors of the market. John Ezekiel Roberts: Okay. And do you have any updated thoughts on how the shortage of memory is going to impact your mix? As things progress here, you talked about a little weakness in low-end mobile devices, more strength in high end. Where else might you see the impacts across your portfolio? Benjamin Gliklich: I think, if anything, it accelerates the transition of our business away from Consumer Electronics and towards enterprise applications. That's where the highest value Electronics are going with the highest ability to pay. And that's a transition we were already on before this dynamic. John Ezekiel Roberts: Do you have a rough split, consumer versus enterprise, if that's the way you think of it? Benjamin Gliklich: We'll talk about that at our Investor Day in mid-May. Operator: Your next question comes from the line of Rock Hoffman with Bank of America. Rock Hoffman Blasko: I've seen some data points which seem to imply that smartphone shipments year-over-year growth make it a bit more challenged as we get through the rest of the year. Just curious if this drop is kind of baked into your guidance? Or do you expect to continue to skew more positive given your alignment to more premium smartphones? Benjamin Gliklich: Yes. Over the course of the quarter, the forecast did get worse from third parties around the smartphone market. What we saw in the quarter was that there's a real bifurcation between low-end and high-end device manufacturers and our business skews towards the high end. And so our business grew in the quarter despite the low end actually seeing a decline. So our going-in assumption for the year was smartphone units would be flattish. At the moment, the AI and data center dynamics are stronger than we expected, and that gives us room for the smartphone market to be a little bit weaker. But we believe we're insulated from that, given where we play. Rock Hoffman Blasko: Understood. And just as a follow-up, can you speak to the potential scale and timing of some of the ongoing pricing actions that you're implementing to offset some of these nonmetal raws? Benjamin Gliklich: Yes. So it's actually less nonmetal raws and more logistics and packaging. Those are our primary petrochemically linked inputs, if you will. And it looks different in different businesses and in different regions. Historically, when we've had these spikes, we've put in place surcharges. They aren't always immediate, so there's a bit of a lag, but we're able to recapture the value -- the potential value leakage. It's a dynamic environment and unmitigated. It's tens of millions of dollars of risk, but we expect to be able to mitigate most of it over the course of the year. Operator: Your next question comes from the line of Pete Osterland with Truist Securities. Peter Osterland: I just wanted to start by following up on the topic of inflationary pressures and supply chain disruptions. Are you seeing any signs of potential demand destruction in the industrials business? How, if at all, has your growth outlook for '26 in that business changed versus what it was 3 months ago? Benjamin Gliklich: So entering the year, we didn't have particularly high hopes from a market perspective in the Industrial surface treatment business. We were off to a better start than we expected across most of that business. But obviously, geopolitics has put a dampen on some of that -- on some of those green shoots. So on balance, our expectation is for weaker demand growth in the Industrial Solutions business. We're in an advantaged position given our scale and ability to continue to support customers and remain on the offensive from a market share perspective. But overall, that business' growth outlook is worse today than it was entering the year. Peter Osterland: Got it. And then just sticking with that segment, the offshore energy business. I understand it's a small piece, but high margin, just given some of the dynamics impacting the global oil market right now, are you seeing any increased interest or demand for this business at this stage? And following that 15% organic growth, what is sustainable going forward? And then what are you currently assuming for the year? Benjamin Gliklich: Yes. So in fairness, Q1 of 2025 was quite weak for the offshore business, and that 15% is benefiting from an easier comp. But this business is in really good shape at the moment. There's a bit of disruption from a demand perspective, given what's happening in the strait. But drilling activity is increasing. Drilling rates for vessels are going up, and the contracts are getting longer. Those are leading indicators for the business. So we see acceleration from a volume perspective. And this is a business where we have a pricing lever. And so we will get a price benefit as well. So it should be a good year for our offshore business, another year of high single-digit organic top line. Operator: Your next question comes from the line of Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: Really nice Q1. I was wondering if you were seeing any current constraints in the upstream or downstream electronic supply chain. And are you including any potential headwinds in your outlook, whether they're related to helium for the foundries or PCB availability or any other derivative impacts that may pop up? Any color on that would be helpful. Benjamin Gliklich: Yes. Thanks for the question, Jon. It is something that we're keeping an eye on for sure. There is risk there. Unknown bottlenecks that can emerge driven by disruption in the supply chain and raw material availability. By and large, similar to what we're seeing in the memory market, it's the low-end PCBs that would be first impacted because the marginal supplier there is going to be more impacted than the high-end suppliers. And so we skew disproportionately towards the higher end. So while I'm not dismissive of that risk, I think that our customer mix will be insulated from that exposure. Jonathan Tanwanteng: Got it. That's helpful. And then what are your EV versus total auto expectations for this year? It looks like EVs are picking up in several markets just related to the high gas prices. But maybe just help us understand your views between the subset and the total and how that's included in your guidance as well? Benjamin Gliklich: Yes. I don't know that we have a fine point on EV units versus auto units. Our EV exposed business has been outgrowing even EV units because we're taking share with power electronics. Interestingly, in the first quarter, the source of growth last year, which was Asian EV manufacturers were a bit weaker as some subsidies rolled off, and there was a bit of an easy glut over there. But our domestic customers saw really strong performance in the first quarter. And so overall, our EV business grew nicely in Q1, and we expect it to continue to grow healthily even if the mix there is a bit different than we expected entering the year. Operator: That concludes our question-and-answer session. I will now turn the conference back over to Mr. Ben Gliklich for closing remarks. Benjamin Gliklich: Great. Thank you, Angela, and thanks, everybody, for joining this morning. We're looking forward to speaking with many of you on May 18 at our Investor Day. Have a good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, everyone. My name is Bo and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's First Quarter 2026 Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Ryan Taylor, Vice President, Investor Relations. Please go ahead, sir. Ryan Taylor: Good morning, everyone, and thanks for joining us on the call. With me today are Jennifer Honeycutt, our President and Chief Executive Officer; and Sameer Ralhan, our Senior Vice President and Chief Financial Officer. Today's call is simultaneously being webcast. A replay of the webcast will be available on the Investors section of our website later today under the heading Events and Presentations. A replay of this call will be available until May 29. Yesterday, we issued our first quarter 2026 news release, earnings presentation, prepared remarks and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures. We hope you had the opportunity to review them last night. These materials are available in the Investors section of our website www.veralto.com under the heading Quarterly Earnings. Reconciliations of all non-GAAP measures are also provided in the appendix of the webcast slides. Unless otherwise noted, all references to variances are on a year-over-year basis. During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties including those set forth in our SEC filings. Actual results may differ materially from our forward-looking statements. These forward-looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward-looking statements, except as required by law. With that, I'll turn the call over to Jennifer, who will share a few brief comments before we open the floor to Q&A. Jennifer Honeycutt: Thanks, Ryan. We are off to a strong start in 2026, reflecting the effectiveness of the Veralto Enterprise System, the essential role of our products and services in customers' operations, and the resilience of our end markets. In the first quarter, we delivered approximately 7% total sales growth and 13% adjusted earnings per share growth, while continuing to invest in commercial execution, productivity and innovation. Looking ahead, we expect core sales growth to accelerate as the year progresses. Reflecting this momentum and our strong first quarter, we raised our full year adjusted earnings per share guidance to a range of $4.20 to $4.28 per share. Thus far this year, we have invested approximately $1 billion across 2 strategic acquisitions: In-Situ in our Water Quality segment and GlobalVision in our PQI segment, and also made opportunistic share repurchases. I'm excited to welcome our new associates from these outstanding organizations to Veralto. Additionally, we initiated a new cost optimization program designed to streamline our business and enhance operating efficiency. These actions underscore the strength of our free cash flow profile and our ability to create shareholder value through multiple disciplined levers. Going forward, our balance sheet remains strong, providing flexibility to pursue additional acquisitions and share repurchases. I'm proud of our team for a strong start to the year and for the actions we've taken to drive growth and continuous improvement as this year progresses and into next year. That concludes my opening remarks. And at this time, we are happy to take your questions. Operator: [Operator Instructions] We'll go first this morning to Deane Dray with RBC Capital Markets. Deane Dray: I really appreciate that innovation to release your prepared remarks after the close, makes things a lot easier to digest and go through the slides very thoughtfully. So what I'd like to do is start on Water Quality. And can we talk about the upside in core sales, certainly better than your peers this quarter. How much do you attribute this upside to Veralto's higher bias or higher mix in OpEx versus CapEx? And then just on the CapEx side, give us an update on Trojan and quote activity. Jennifer Honeycutt: Thanks for the question, Deane. Yes, we see strong and stable demand across both our muni and industrial markets. To your point, the Veralto products and services really sit within customer operations where the cost of failure is high for them, right? And using our equipment is part and parcel to ensuring public safety, public health and so on. So from a municipal standpoint, we see this really as a mid-single-digit grower with incrementally stronger growth in muni wastewater due to recycle, reclaim and reuse secular drivers. So we are seeing great uptake there. I would say on the industrial side, we see mid- to high single-digit growth there with strength in the common cast of characters around data centers. So that would include semiconductor, power and mining. And PMI trends have been positive here, right? So we feel really good about our water businesses, both across municipal markets and industrial markets. And that's, again, really on the back of being integral to that customer operating environment. Relative to your question around Trojan and UV, activity here in terms of quoting and bidding remains strong. This business has some nice bolt-on acquisitions that we've done here is with AQUAFIDES, and -- but I think it's important to remember, there's a little bit longer cycle business, right? So the bookings that we would see now would be shipping largely in Q4 2027. But great order book activity there on the back of the secular drivers I discussed. Deane Dray: Great. And just a quick follow-up. With reference to the muni outlook for '26, what are you assuming for kind of the spending growth? And if you can separate what that CapEx growth would be versus OpEx, larger equipment projects, that would be great. Sameer Ralhan: Deane, thanks for the question. With respect to the muni view that we have baked into the guidance, think of pretty steady from the analytics perspective. On the CapEx side, really, it's all driven by -- predominantly for us from a Trojan perspective. As you know, we are not in the majority in the CapEx cycle, we've had the OpEx cycle. So it's really pretty steady on both sides, Deane, as you kind of think about this thing. Steady in muni business going into analytics side, Trojan side really strong as Jennifer just laid out. Operator: We go next now to Jeff Sprague with Vertical Research. Jeffrey Sprague: Jennifer, I was wondering if you could just elaborate a little bit more on kind of the cost program, sort of the catalyst behind it, maybe some things here that you weren't able to do pre-separation, et cetera. Just -- and maybe a little more color on some of the levers you're looking to pull there. Jennifer Honeycutt: Thanks for the question, Jeff. Our cost optimization program here is just part and parcel to our continuous improvement mindset. We are always looking to drive continuous improvement, and this is really a natural evolution to make our cost structure more competitive in our journey to enhance EPS growth. This will really allow us to leverage kind of certain functional attributes across the enterprise that improve both our efficiency but also maintain our accountability within our decentralized operating model. So we will stay true to that decentralized operating model with the operating companies, retaining accountability and quick decision-making and service to their customers. But it's been a 3-year journey here, right? The first part of getting the business stood up was to reinvigorate the innovation and R&D engine, get the right commercial architecture going in our operating companies, which basically provide the operating room to do everything else. Secondly, we really focused on accelerating our capital allocation flywheel and have that going now with some strong strategic bolt-ons, creating significant long-term value and also with our share repurchase activity. So cost optimization was a natural next step, right? And we're really focused on simplifying our business processes to improve operating efficiency and further strengthen the competitive position. So some of these things you can't fully account for when you're part of a $30 billion enterprise. But from a timing perspective, this is really the right time for us to look at this sort of structural allocation of costs and make sure that we're rightsized for the size business that we are today and what will be scalable in the future. Jeffrey Sprague: And you didn't mention any benefits in 2026. We should expect this gearing up in '26 for things to flow in '27 and '28? Sameer Ralhan: Yes, Jeff. Most of the actions that we have laid out in this pretty detailed plan are oriented towards end of this year. So in Q4, you're going to see [ part ] of the actions. So we haven't baked any benefit from the program in 2026 in the guidance. You should expect roughly 50% of the run rate savings in '27 and full run rate in 2028. That's how you can model the savings. Operator: We'll go next now to Andy Kaplowitz at Citi. Andrew Kaplowitz: Jennifer, I think in your prepared remarks, you mentioned packaging and color within PQI, down high single digits as a nonrecurring impact in Q1. Maybe just give a little more color around that? What are CPG companies telling you? Are they worried at all about inflation? Or is it just really lumpiness? And that's really the explanation, and I do think you're still forecasting good growth for the rest of the year in PQI. Jennifer Honeycutt: Yes. So yes, it's a little bit tale of 2 cities here relative to the PQI story. At a high level, we see continued strong demand across our CPG customer base. And it remains steady in terms of our quoting and sales activity relative to coding and marking, and we've seen that for several quarters. Complementing that really is our digital packaging and ingredient solutions brought in here with the combination of Esko and TraceGains, which continues also to be strong, and we would expect that to continue with the addition of GlobalVision. GlobalVision obviously strengthens the value proposition here in terms of building a comprehensive workflow. When you look at Q1 here relative to packaging and color, as you noted, we do see sales down high single digits here, primarily due to the nonrecurring revenue, including sales of color testing and packaging inspection equipment. But this was really focused in a few discrete industrial end markets, so automotive, textiles, building materials, driven by housing market and so on. So that's where we're seeing some of the demand weakness. But certainly, going forward, we feel strong about incremental recovery here. And certainly, we don't see any changes relative to CPG demand, which would indicate our confidence in the marking and coding business continuing to be strong and, in fact, accelerate throughout the year. Andrew Kaplowitz: And then maybe the same kind of question on PQI margins. I mean, obviously, they've been at a high level for the last few years, but they've been a bit lumpy. I know mix matters, which I think you said is going to impact your Q2 PQI margin. But structurally, do you see PQI margin having the same opportunity that you have in sort of Water Quality and consistent with the long-term incremental margin framework you have? Sameer Ralhan: Absolutely, Andy. As you can look at PQI, right, on a sequential basis, we had a very nice improvement in the margins. Mix helps, but at the same time, some of the rollover from the tariff actions that we kind of talked about is going to roll off as well. So overall, if you kind of look at the opportunity in the second half of this year and moving forward into '27, absolutely, we see same level of opportunity. Operator: We'll go next now to John McNulty with BMO Capital Markets. John McNulty: Maybe just one on the water front. I mean, in particular, some of your competitors in the ChemTreat arena have put through some really chunky price hikes and/or surcharges, [ 10% to 14% ] for one, [ 8% to 14% ] for the other. I guess, can you speak to your thoughts on pricing and if you see a need for it at this point, just given what's going on from a raw material perspective around the Iran conflict? Jennifer Honeycutt: Yes. Thanks for the question, John. We take a disciplined approach to pricing within sort of all of our operating companies, but I think particularly you're referring here to ChemTreat. We -- by virtue of our 75% sales direct to customers, we've got a lot of customer intimacy and insight as to how to support their operations through this dynamic macro environment. And so we partner with them to achieve pricing that is going to offset the headwinds from rising costs, but we do this sort of very surgically. We feel that this approach has been disciplined in the way we execute it. It served us well to achieve that mid- to high single-digit core sales growth, and we've done this since the spin, and we would expect this approach to continue. John McNulty: And then maybe just a little bit of color. Given the challenging environment with inflation and at least in some cases, there may be a little bit of demand destruction. Are you seeing any interesting assets that maybe weren't available to you in the market now coming to the market? Or is it really just too early for that given what's been going on? Sameer Ralhan: Yes. John, maybe I'll take this one. If you look at it from the asset perspective, market conditions change, but we're always going to stay true to our market company valuation algorithm as we kind of look at all the strategic opportunities. Again, things do open up in these kind of market conditions, but it's too early to say at this point. But overall, pipelines look pretty active and pretty excited about the opportunities that are here in the near term for us. Operator: We'll go next now to William Grippin with Barclays. William Grippin: Just wanted to come back to the cost optimization plan that you've laid out here, I just want to make sure we're thinking about that correctly. Is that -- should we view that as sort of upside to your long-term margin expansion algorithm? Or does this sort of just keep you on track with that algorithm? Sameer Ralhan: Yes. Will, thanks for the question. The short answer is yes, right? If you look at our value creation algorithm, it's unchanged, mid-single-digit core sales growth with 30% to 35% fall-through. So from a modeling perspective, as you kind of start thinking about '27, '28, it is logical to assume that we will use the 30% to 35% fall-through on the core sales growth and then add the savings from the cost optimization program on top of that. So think of it as a step change in '27 and '28. As far as particular -- the exact details for '27, of course, we'll talk when we give that guidance. William Grippin: Perfect. I appreciate that. And then I wanted to touch on capital allocation here and just how you're thinking about the mix of that going forward. I think you've clearly executed on M&A recently as well as significantly ramped up the repurchase activity, and I think spent a pretty good majority of -- or a good chunk of the $750 million authorization. How do you think about that sort of going forward over the balance of the year, maybe into '27? And could we potentially see an increase in the authorization? Or maybe what would be a trigger point for that? Jennifer Honeycutt: Yes. Thanks for the question, Will. I think it's safe to say that we're going to continue to be disciplined here. We do have a bias for M&A relative to capital allocation. And I think you've seen that bias read through here with our $1 billion of capital deployed thus far in the year. The M&A engine is running well. And to Sameer's point, we've got active funnels on both sides of the house and engaged in several cultivation activities. So our bias will remain M&A. We think that's going to create the best long-term value creation over time, but we reserve the right, as you've seen, to utilize that capital when we see market dislocations relative to the business performance, and we plan to continue to take advantage of that. As far as whether that would be increased, that's going to be a Board decision. And in due course, we will take that on at whatever time it is appropriate. Operator: We'll go next now to Mike Halloran with Baird. Michael Halloran: A clarification on the early -- how does the cost-opt program layer between the 2 segments? Sameer Ralhan: Yes. If you look at the cost optimization program, Mike, it's pretty broad-based across both the businesses as well as corporate functions. Overall, I would say there's a little bit of more bias towards PQI, but it's pretty balanced across the company, if you think of it. Michael Halloran: Got it. And then just from a guidance perspective, maybe help me understand what you're embedding in terms of seasonality, end market improvement versus end market stability here. Is there any expectation for an acceleration in end markets as we sit here today? Or is it relatively normal seasonality as it plays out? And if you are assuming any acceleration in any areas that we should be thinking about specifically? Sameer Ralhan: Yes. So overall, as you kind of think about the end market dynamics, Mike, that we've built into the guidance, from a CPG perspective, pretty steady. Frankly, it tends to be less seasonal. Same for the global food and beverage markets. These are pretty nondiscretionary demand. So we expect the market and the demand to be pretty steady over here. Similarly, on the water side, I would say, is the muni side, as Jennifer said earlier, it's pretty steady that what we are seeing, given where we operate, we operate in the OpEx side of our customers. So the risk of failure is very high. So we are pretty well embedded in the high-value part of the workflows. So overall demand pretty steady. But in the second half, as you know, especially as we get into Q4, the comps get a little easier as well. So that kind of helps as you kind of think about the core growth. So sequentially, we should see core growth kind of moving up as we go through the year. Operator: We'll go next now to Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Just wanted to check on the Water Quality, just a number of drivers, including data centers. I'm just wondering if you could [ parse out ] how influential that data center contribution was to growth. I don't know how you want to do it, but maybe just talk a little more about that, please. Jennifer Honeycutt: Yes. I mean our water team had a fantastic quarter just in terms of execution, driving hard across the enterprise. Relative to sort of which markets are faster growers, we do see strong growth in data centers. But as a reminder, data center revenue is still overall a very small portion of our total sales in Water Quality. And so we don't spell out sort of market sizes, growth rate separately here publicly, but we will say that we're getting great traction here, a lot of uptake in demand, and that's benefiting essentially all of our water businesses. Andrew Buscaglia: And then M&A-wise, it certainly sounds like you're still interested in moving forward with capital allocation towards that. I'm wondering, we saw here on the treatment side, a move into the data center space a little bit more aggressively. Does that market interest you in terms of increasing -- maybe increasing in terms of the hierarchy of where your interests lie? Jennifer Honeycutt: Yes. I mean, I think you'll see us stay true to our algorithm of market, company and valuation. We like businesses that look like us, right? We like razor-razorblade businesses. We like being in the operating cycle of the customers' operations. And we find that this gives us long-term durability and good confidence in sort of the steady state that we've been able to create here. So I wouldn't say we're taking anything off the table here, but I do think there are profiles of companies that we like, and we will stay true to relative to those that create long-term advantage and allow us to apply VES to make them better. Operator: We'll go next now to Jacob Levinson with Melius Research. Jacob Levinson: I don't think we've touched on China yet. And I know some of your peers have had some challenges there on sort of the water infrastructure side of things. And I know there are different business mixes with your portfolio, but maybe you can just give us some color on how you'd characterize that market today, if there are any puts and takes around specific verticals? Jennifer Honeycutt: Yes. China continues to behave like a more mature market. Our China sales here in the first quarter were up low single digits. Generally, in line with the past couple of quarters, not really any material change to what we're seeing there. PQI did lead that growth with double-digit growth here. Now we've lapped some comps here, which make it a little bit easier to post some growth. Water Quality was down just slightly here, low single digits in China, and that is reflective of kind of the funding environment for municipalities with money still not flowing from the government to prop up that particular industry. So we continue to have opportunistic sales into industrial segments, still waiting for water funding to break loose here on the muni side in China but have strong opportunities that continue within PQI. Jacob Levinson: Okay. That's good color. And just a quick follow-up for Sameer. I think your tax rate has been going down a little bit over the last couple of years and just be helpful to understand how much of that is maybe just related to geographic mix or whether there's some planning activity you've been able to do over the last few years since the spin. Sameer Ralhan: Yes. Thanks, Jake, for that. If you look at the tax rate is definitely, we have made a pretty nice move from where we started from 24.5-ish kind of percent when we kind of spun off, now in the 20s. I would say, Jake, it's a balance, but I would say majority is skewed towards sort of the really great work by the tax team and from a planning perspective to get it to the right place. Operator: We'll go next now to Brian Lee with Goldman Sachs. Hearing no response, we'll circle back to Brian. We'll go next now to Andrew Krill with Deutsche Bank. Andrew Krill: I was hoping you could give us an update on tariffs. There have been a variety of updates from the Supreme Court ruling to changes in Section 232 rules and then also general cost inflation from higher oil. Can you give us an update how you're viewing the tariff headwinds and cost inflation headwinds this year and if that's changed at all versus last quarter? Sameer Ralhan: Yes. Thanks, Andrew, for that. If you kind of look at on the tariff side, there are 3 layers, right? The stuff that happened last year, effectively, we've taken the pricing actions, all the line moves have happened. Those things should start rolling -- impact of those should start rolling over as you kind of get into the second half. So we are pretty well positioned on that front. As far as the new Section 232 kind of stuff, we baked the impact of that on -- in the guidance that we provided. But overall impact as you can think about for us is actually much smaller. This is not like last year. If you kind of start thinking about the steel or aluminum kind of components into our products, it's pretty small. So those are -- the impact of those is pretty small for us. As far as the Middle East and the current conflict and the impact that you're seeing on the commodities on the oil side, again, baked into the guidance, at least based on what we see right now. But as you can imagine, some really active discussions with the customers on the pricing side, Jennifer touched on the ChemTreat side earlier, the impact that we're seeing on the chemicals and packaging side, that's kind of baked in. But overall, we're pretty well positioned as you kind of think about the rest of the year. It's pricing and there's a lot of productivity stuff as well part of it. Andrew Krill: Great. That's very helpful. And on a related note, just with price, is it still fair we should be thinking about the company realizing about 2% price or so? And I think PQI was trending a bit higher than Water Quality? Is that a reasonable approach still? Sameer Ralhan: Yes, that's a pretty reasonable approach. Just kind of think of the pricing 100, 200 basis points. But frankly, with the price increases that we did last year, we're still lapping those up and then we had further price increases as part of this year's cycle. So you should expect this year in aggregate to be at the high end of the range with PQI even exceeding that a little bit. Operator: We'll go next now to Brian Lee with Goldman Sachs. Tyler Bisset: Sorry about that. This is Tyler Bisset on for Brian. Just wanted to go back to the high-growth markets. You discussed how acquisitions of GlobalVision and In-Situ should help support growth here, but it was actually a little weak for both Water Quality and PQI during the quarter. So any reason for the weakness in the quarter? How do you expect growth to trend going forward? And then just, I guess, looking to 2Q, are you expecting any like material impact from the war in Iran? Sameer Ralhan: Yes. Thanks for the question, Tyler. I just want to make sure I get the question right. High-growth market versus GlobalVision, right, let's bifurcate those two. GlobalVision does not have any kind of a meaningful impact as you kind of think about the growth in the high-growth market side. High-growth market side, effectively, we grew in the low single digits but -- or rather, sorry, a slight decline this year, but Water Quality was down low single digits, really more on the impact that we saw in China. But overall, PQI is in a little bit of a low single-digit decline as well. So nothing material. Majority of the impact that you're seeing is more sort of timing driven, especially in Latin America, that's kind of driving that impact. But otherwise, we're pretty well placed. Jennifer Honeycutt: I would say as well, we've got a pretty big prior-year comp in India, right? We had that Q1 in India, it was about 20% last year. And we do see some impact here in Middle East, small portion of our overall revenue, but the sales there were down about 10%. Operator: We'll go next now to Josh Spector with UBS. Joshua Spector: I wanted to ask just about -- similar on some of the regional impacts here in PQI, I mean there's a pretty decent diversion between Europe and North America. I don't know if Europe was more impacted by some of the one-timer larger equipment sales? Or if it was something else? And if you could help what that looks like in 2Q, if any of that reverses at all? Jennifer Honeycutt: Yes. So relative to Western Europe, PQI had a really tough comp in 2025. They were up 10.3% last year. So and this is on the back of our recurring revenue model where 3 extra days matters a lot in the first quarter of 2025. So very, very high comps relative to prior year. I would say here in Q1, our marking and coding businesses grew core sales low single digits, right? And that's on the back of a pretty healthy, sizable comp prior year. We did see an offset here by delays in shipments of certain hardware lines in our packaging and color businesses, which we referred to earlier. But relative to sort of broad-based global CPG demand, we see it stable. We see it stable in Europe. We see it stable in North America, a little bit of a mixed bag in some of the high-growth markets largely because of a little bit of impact from, obviously, China, India. We've got some timing issues and then certainly the impact of Middle East and Africa. Joshua Spector: Okay. That's helpful. And I guess if I kind of flip that the other way. If I look later this year, you have 6% and 9% comps in North America in 3Q and 4Q. Are those going to be characterized as tough comps to go against? Or should we expect you guys to be able to grow on that level later this year? Sameer Ralhan: Yes, as you kind of get into the second half, you're going to see the growth despite the comps. In fact, I would say from the PQI perspective, the comps go a little easier as we get into Q4. Overall, since the demand -- given the demand dynamic that Jennifer just talked about on the marking and coding side from the CPG side, we feel pretty good about the second half of the year, and that's kind of baked into the guidance. So nothing sort of material deviation that you're going to see. Operator: And we'll go next now to Joseph Giordano with TD Cowen. Christopher Grenga: This is Chris on for Joe. The EPS guide moved higher, even though the operational framework looks to be -- appears to be largely consistent. Can you walk us through the specific bridge items that are driving the revision? And how much of that is operational versus capital structure below the line? Sameer Ralhan: Yes. Thanks, Chris, for that question. Overall, as you kind of think about the increase in the EPS guide. It's predominantly raised because of the operating stuff, the share buyback that we've done so far is already kind of baked in. Overall, what's kind of driving this thing is really a few things. The strength of Q1 and the way we are coming out in terms of the order books for -- out of the quarter and into April. Second one is we talked about the pricing, pricing at the higher end. So that's kind of giving us the confidence as we kind of think about the full year EPS. And third, I would say is, really the execution that we are seeing across the board in both the businesses and across the regions. So those are kind of really the things that are kind of driving. Otherwise, the demand patterns are pretty steady at this point. And given where we are now with almost 4 months behind, gives us more confidence on that front. Ryan Taylor: Thanks for the questions. This is Ryan. That concludes our question queue for the call. We appreciate everybody's time and engagement this morning and preparation with the earlier materials. As usual, I'll be available for any kind of follow-ups that might be necessary. Thank you so much for joining us. We'll talk to you next time. Operator: Thank you. Again, ladies and gentlemen, this will conclude today's Veralto Corporation's First Quarter 2026 Earnings Call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.
Operator: Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be a question and answer session. To ask a question, you may press star then 1 on the touch. As a reminder, this call is being recorded. It is now my pleasure to introduce F. Joseph Rein, Director of Corporate Strategy at Trustmark Corporation. Please go ahead. F. Joseph Rein: Good morning. I would like to remind everyone that our first quarter earnings release and the presentation that will be discussed on our call this morning are available on the Investor Relations section of our website at trustmark.com. During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission. At this time, I would like to introduce Duane Arthur Dewey, President and CEO of Trustmark Corporation. Duane Arthur Dewey: Thank you, Joey, and good morning, everyone. Thank you for joining us this morning. With me are Thomas C. Owens, our Chief Financial Officer, and Robert Barry Harvey, our Chief Credit and Operations Officer. We continue to build upon strong momentum from our earnings in 2025 and are pleased with our strong performance in 2026. Our results reflect continued loan growth, stable credit quality, and an attractive core deposit base. In addition, we experienced continued growth in noninterest income, while noninterest expense remained unchanged, reflecting our continued focus on expense management. In our presentation this morning, I will provide a summary of our performance and discuss forward guidance before moving to your questions. Now turning to Slide three, financial highlights. Our first quarter results reflect continued significant progress across the organization. Net income totaled $56.1 million, representing diluted EPS of $0.95 a share. This level of earnings resulted in a return on average assets of 1.2% and a return on average tangible equity of 12.58%. From a balance sheet perspective, loans held for investment increased $203.7 million, or 1.5% linked quarter, and $636.5 million, or 4.8% year over year. Our loan portfolio remains well diversified by loan type and geography. Our deposit base expanded $212.7 million, or 1.4% linked quarter, driven by seasonal increases in public deposits. Year over year deposits increased $631.8 million, or 4.2%, driven by growth in personal and commercial deposits. The cost of our total deposits in the first quarter was 1.63%, a decrease of nine basis points from the prior quarter. Our strong cost-effective core deposit base is a continuing strength of Trustmark Corporation's. During the first quarter, we repurchased $19.8 million, or approximately 477 thousand shares of stock, which represent 0.8% of shares outstanding at year end 2025. As previously announced, we have authorization to repurchase up to $100 million of Trustmark Corporation common shares during 2026. This program continues to be subject to market conditions and management discretion. Revenue in the first quarter totaled [inaudible], a seasonal decrease of 0.6% from the prior quarter and an increase of 4.2% from the same quarter in the prior year. Net interest income on a tax-equivalent basis in the first quarter totaled $163.5 million, which produced a net interest margin of 3.81%, unchanged from the prior quarter. Noninterest income in the first quarter totaled $42.3 million, up 2.7% from the prior quarter, and represents 20.9% of total revenue. Noninterest expense in the first quarter totaled $132.2 million, unchanged from the prior quarter and up $8.1 million year over year. Diligent expense management continues to be a focus for the organization. From a credit perspective, net charge-offs in the first quarter were $1.3 million, representing four basis points of average loans in the first quarter. The net provision for credit losses in the first quarter totaled $2.7 million. At the end of the first quarter, the allowance for credit losses represented 1.16% of loans held for investment. Again, very solid credit performance. We have maintained our strong capital position as reflected by our CET1 ratio of 11.7% and our total risk-based capital ratio of 14.37% as of 03/31/2026. The board declared a regular quarterly dividend of $0.25 per share payable 06/15/2026 to shareholders of record on June 1. Now let us focus on our forward guidance, which is on Page 15 of the deck. In January, we provided full-year guidance for 2026 as well as 2025 benchmarks upon which the guidance is based. This morning, we are affirming the guidance previously provided. We expect loans held for investment to increase single digits for the full year 2026 and deposits, excluding brokered deposits, to increase mid-single digits as well. Security balances are expected to remain stable as we continue to reinvest cash flows. We anticipate the net interest margin to be in the range of 3.80% to 3.85% for the full year, while we expect net interest income to increase mid-single digits. From a credit perspective, the total provision for credit losses, including off-balance sheet credit exposure, is expected to normalize, while noninterest income for the full year 2026 is expected to increase mid-single digits, as is noninterest expense. We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A, or other general corporate purposes depending on market conditions. At this time, I will open the floor for questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star then 2. The first question comes from Catherine Mealor with KBW. Please go ahead. Catherine Mealor: Thanks. Good morning. It was nice to see the guidance was generally unchanged. And just thinking about the margin, we are taking rate cuts out of our estimates generally across the board. It feels like your NIM guide is still for that to remain pretty steady in this 3.80% to 3.85% range. Can you talk about some puts and takes within the margin without rate cuts, maybe where you are seeing new loan yields and where you are seeing new deposit costs coming in? Just help us model that going forward. Thank you. Thomas C. Owens: Well, Catherine, this is Tom Owens. I will start. Catherine Mealor: Hey, Tom. Good morning. Thomas C. Owens: So yes, we, as you know, base our guidance on market-implied forwards, which now effectively have removed any further Fed rate cuts this year. And so I think the most simple way to think about it to start is you look at our guidance on deposit costs—we are anticipating a few basis points of decline here in the second quarter on a linked-quarter basis. We are also anticipating a similar magnitude of decline in loan yields. And then in the background, you have got securities yields which will continue to grind a little bit higher from the ongoing repricing of HTM securities. And so I think when you net that all out, you are probably looking at one basis point or so of accretion on a linked-quarter basis each quarter this year. We were at 3.81% in the first quarter. And so that gets you to the middle of the range, 3.83% or so. As far as puts and takes, I mean, if you look at the industry data, loan growth continues to outpace deposit growth. And so it has really remained a competitive environment for deposits. When you look at what will be driving most of the linked-quarter decline in deposit costs, we do have a bit more benefit we will get there from CD repricing. But then in the background, you have got sort of a countervailing migration for exception pricing on money market accounts, for example. So I think when you add all that up, we are talking fractions of a point probably in terms of which way we break on deposit cost, which way we break on loan yield, which way we break on net interest margin. Catherine Mealor: Great. And then just a bigger picture question. You had really great improvement in profitability throughout 2025. It feels like looking at your guidance for maybe more steady in 2026, but just on a bigger balance sheet as growth is improving. Is that the way to think about it? Or are there levers that you see where we can actually get the ROA and ROE moving higher this year? Thomas C. Owens: When you think about pre-provision net revenue, as we have guided in the past, mid-single-digit balance sheet growth with a stable to slightly expanding net interest margin should get a solid mid-single-digit PPNR growth. I know when you look at the headline in terms of what we have published—first quarter 2026 actual versus first quarter 2025 actual, for example—PPNR looks pretty flat. But there are always puts and takes in things like noninterest income. I will tell you that if you adjust for some lumpy items we had in the year-ago quarter and lumpy items this quarter, you end up closer to 3% growth year over year than down slightly. And when you include that, it winds up at more like a 5% growth in revenue. I would say the same thing on the expense side. We are probably doing better on the expense side than what you see looking at the numbers. We have made strategic investments in revenue producers, particularly in growth markets. I think if you adjusted out for that, you would probably be more in the neighborhood of 5.5% in terms of expense growth year over year first quarter. So that gets you closer to neutral in terms of operating leverage. Of course, we are trying to drive positive operating leverage, and that is part of those investments that we are making in revenue producers, particularly in our growth markets. So I think that is the lever ultimately that can drive greater profitability. Catherine, I am sorry, just quickly, one other somewhat of a wildcard in that mix is the mortgage business, where we have had pretty negative net hedge ineffectiveness over an extended period of time here. As the market adjusts, as rates adjust, etcetera, that is a wildcard in the mix. We cannot forecast it necessarily. It is difficult to pinpoint, but if the mortgage business turns around and/or the net negative hedge ineffectiveness is different than it has been in the past, that can make a fairly significant swing in noninterest income, which then, as you know, affects your question. So I just add that as a wildcard in the mix a bit. Catherine Mealor: Great. Yep. That is good. Thank you for that reminder. And congrats on your new role, Tom. We will miss NIM guidance from you going forward. Thomas C. Owens: Thank you, Catherine. I greatly appreciate that. Really excited about this next phase. Operator: The next question comes from Feddie Justin Strickland with Hovod Group. Please go ahead. Feddie Justin Strickland: Just wanted to stick with the noninterest income discussion. Specifically on the wealth side. I know equity markets were a little bit more of a challenge through quarter end. But can you provide any sort of update on what you are seeing so far just in terms of AUM and maybe an outlook for that line in the second quarter? Thomas C. Owens: I will kick in there, Feddie. It is dependent upon market appreciation, which dramatically affects revenue in both the trust wealth business as well as the brokerage side. Those are factors that are somewhat out of our control. But then you also add in new business development and the like, which is fairly solid. As we talk about our growth market initiatives that we have mentioned here in the last several calls, that includes the wealth management business, which includes adding new production talent in high-growth potential markets. We are optimistic there. We have seen improved production out of that side of the equation. The second part I would add is that we made a platform change last year in our brokerage business. We went from an LPL platform to a Raymond James platform. We, in the latter half of 2025, spent a lot of time focused on that transition and are now fully stabilized there, and have fairly solid expectations for improved performance out of our brokerage division. And a good chunk of that is managed assets. So that is a bit dependent on the market as well, but still we are expecting continued progress and stabilization on that side of the equation. So we are comfortable with the mid-single-digits guide but see some potential there. Feddie Justin Strickland: Appreciate that. Switching gears to capital, specifically on the share repurchase side. I think last quarter you talked about maybe looking at $60 million to $70 million worth of repurchases this year. You have done, I think, about $20 million so far. Should we expect any sort of change in the cadence of repurchases throughout the next couple of quarters? Thomas C. Owens: So, Feddie, this is Tom Owens. Yes, we were really pleased with our ability to deploy nearly $20 million via share repurchase in the first quarter while supporting over $200 million of loans held for investment growth, while maintaining our capital ratios—essentially very little change in our capital ratios on a linked-quarter basis. I would say that we kind of leaned into it, so to speak, in the first quarter, given the opportunity—the downdraft in bank stock prices. We liked the price. We feel good about that. I think it also demonstrates our ability to deploy that amount of capital via share repurchase and support robust loan growth. So I think if you think in terms of $20 million per quarter, or $80 million for the year, that is probably the high end, assuming that we continue to generate the same level of consistent loan growth. On the low end, I would probably mark that up a little bit. I think probably thinking $70 million to $80 million deployment for the full year. Feddie Justin Strickland: All right, great. Thanks so much. I will step back. Thank you. Operator: The next question is from Michael Rose with Raymond James. Please go ahead. Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Wanted to start on loan growth. Looks like you guys had a really good quarter of C&I loan growth—obviously some paydowns in some other places. If I annualize this quarter, it is about 6%. That would be the top end of the mid-single-digit range. So I guess what I am trying to figure out is the effects of competition and/or paydowns expected to maybe potentially slow the growth from here? I am just trying to understand maybe why in a seasonally slower first quarter, why we would not see that guide raised? And if we could just get a sense from you guys for production and paydowns as we move forward? Thanks. Robert Barry Harvey: Michael, this is Barry. Yes, as you can tell, we did have nice growth, especially in the C&I side, and it was very diversified in terms of the different growth industries that we saw, as well as the fact that on the CRE side, we were up $41 million. Really to the heart of your question, we did have a meaningful amount of maturities on our CRE book scheduled for the first quarter. A large majority of those did not occur, and they migrated either later in 2026 or out to 2027, 2028. So we do still have headwinds that we are going to have to deal with over time. But that is the key for us: the more spread out that we can see those payoffs coming, the better we are able to deal with them in terms of new production, new fundings, etcetera, throughout the year. So I think we are fully expecting—without any type of catalyst that would bring about a large increase in payoffs—that what we saw in the first quarter will continue throughout the year. And you will continue to see projects that need more time to fully stabilize to get the best price when they go to market to sell the project take that time. And then what you always see, Michael, is a lot of projects on the CRE side start off out of the gate with delays during the permitting, construction—they hit rock, whatever the case may be—and so there is a need for some additional time beyond just scheduled maturity, at least the initial scheduled maturity, for them to fully stabilize. And we are seeing that today. So we are hopeful that the payoffs—which will eventually come from our C&I book and CRE book—will be a little bit spread out, as they were during the first quarter, and push on into other quarters, whether it be 2026 or into 2027, 2028. Duane Arthur Dewey: Michael, meanwhile, as you noted and Barry noted, C&I production pipelines are strong. We continue to see opportunities across the full portfolio. C&I has been good. And then, as we have talked in the last couple of quarters, we continue to be focused on adding new production talent across the franchise. It is a little bit slower in the first quarter in terms of new talent, but we continue to focus in that area in high-growth markets. And so we are, as Barry suggested, with good solid pipelines, good solid new production, and continued production on the CRE space to offset some of the headwind from paydowns. That is what we are focused on achieving. Michael Rose: Okay. That is great color. Very helpful. Thanks for that. Maybe if I can just ask separately on credit. You did have a little bit of a tick up in NPLs. I think it was related to one loan. Just looking to get some color there. Looks like the reserve came down a little bit. So just was looking for any sort of updates in kind of past dues or criticized/classifieds that might have driven that allowance reduction? Thanks. Robert Barry Harvey: Yes. Our coverage moved up from 1.15% to 1.16% as far as the reserve is concerned. And the net provision, of course, as you know, is $2.74 million, and then on the funded side, we were $4.7 million. As it relates specifically to the one credit, it is a CRE project and it is the majority of the increase that we experienced in nonaccruals and of the change that we saw of the $12.3 million. The credit itself was substandard already; it just moved into nonaccrual. The situation is one of those where the borrower just does not see value, from their perspective, to continue to make payments based on the appraisal. There is a lot of equity in the project. We do have it impaired and reserved appropriately based upon that analysis of the valuation. In that particular case, there is an LOI in place. They have an LOI in place; it has not been converted to a PSA at this point. So there is always a chance that they are able to move the project out, and we will continue to work with the customer to determine what the best options are for the bank and for them. But it was not something that was surprising to us just given their set of circumstances. It was very specific to their set of circumstances. Along the lines of CRE, Michael, while they did not come to fruition during the first quarter, we are very encouraged by the fact that a lot of the potential paydowns that we anticipated might be happening in the first quarter on some substandard credits—we are encouraged that they will possibly come to fruition later in the year. So from that standpoint, we see more positive news in terms of more either upgrades or payoffs coming out of the CRE book than we do deterioration. Michael Rose: Thanks for that, Barry. Then maybe if I can just slip in one more, just following up on Feddie’s question on capital return. I know last quarter you guys talked about kind of organic growth and buybacks just being the preferred avenue for deployment. But any sort of updated or changed thoughts on M&A versus the prior ninety days? Thanks. Duane Arthur Dewey: No changes, Michael, really. We are still interested, as part of our strategic plan, to consider M&A for expansion purposes in key markets. I would say start of the year—very active. Lots of discussions up, down, and sideways. That said, I think with the war and related economic issues, etcetera, high gas prices, etcetera, it seems like there has been a lot of tempering of those discussions pending the outcome or pending some stabilization of things. And so we continue to focus on the organic strategy and continue to build relations out there, and would be very interested in that process. As I said, it is part of our strategic plan. But no real change in that thought process. Michael Rose: All right. Thanks for taking my questions, guys. Operator: The next question is from Gary Tenner with D.A. Davidson. Please go ahead. Gary Tenner: Thanks. Good morning. Duane Arthur Dewey: Hi, Gary. Gary Tenner: Hey, I had a follow-up on Catherine’s NIM question. Tom, comments about loan yields continuing to drift a little bit lower here—a little bit surprising to me. So I am just curious what the driver of that is. Do you have some higher-yielding loans maturing? And I am also curious kind of what the new production yields looked like in the first quarter? Robert Barry Harvey: I will start—this is Barry—and then let Tom weigh in. Just from the standpoint of what we see every day, and it is more specific to the CRE side than it is the C&I side, but we are seeing—those are all going to be for us—those are all going to be 30-day SOFR plus a spread. And we do see a little lower spread today than we have at some points in the past as it relates to those CRE projects, regardless of which type you are talking about. It is, of course, very competitive in terms of that marketplace. So when you think about stuff rolling off for us that was 48 to 60 months ago, those spreads to that 30-day SOFR were better than they are today, given what is going on in funding in the near term. And then a lot of times, Gary, when we do have payoffs scheduled on the CRE side, like everyone does, we do pursue those opportunities to refinance existing debt that we think makes sense and fits our parameters. And when you do refinance existing debt—to replace outstanding balances with outstanding balances—those are going to be priced a little less than your construction mini-perm was that you made four or five years ago. You had construction risk, you had stabilization risk; you are replacing that with something that does not have construction risk, does not have stabilization risk, when it is fully funded. And for that reason, it is priced accordingly. So you may be replacing something that had construction/mini-perm risk embedded in it—your spread is a little bit higher on those deals—than the ones you might replace it with when you are able to refinance a fully funded, fully stabilized deal away from somebody else, if that makes sense. Thomas C. Owens: Yes. And Gary, I would add: again, it depends on the mix—on the lumpiness or not—of maturities within a quarter, and then the mix of the maturities, floating rate versus fixed rate. Of course, you still have a bit of a tailwind on the fixed-rate loan side of those repricing higher. So it is very much mix dependent. And as I said in my comments earlier, we are getting down to dust settling here, so to speak, in terms of the aftermath of the last Fed rate cut. You look at some normalization or steepening of the yield curve—it is certainly helpful. Where we are trading now in terms of where fixed-rate loans are coming on the books versus fixed-rate loans paying off. So there is a lot at play there. But we are not talking about very substantial linked-quarter changes in loan yields or deposit costs. And as I said, a simple way to think about it is once we get past this quarter—relative stability here over the remainder of the year—with a very gradual grind higher in terms of NIM. Gary Tenner: Yeah. Appreciate that. That is great color from both of you. Then just—you mentioned a couple of times kind of leaning into hiring in the growth markets and, of course, this is not the first time you mentioned it. But I am just curious if you could kind of put some numbers around what you accomplished there in the first quarter and any kind of targets or expectations for the rest of the year? Duane Arthur Dewey: I can put it in context of new bodies added. I do not know if we can break it down that specifically in terms of production at this point, but I think we messaged to the Street in the third quarter it was 21 new production talent across our franchise. Fourth quarter was more like 13-ish new hires. And in the first quarter of 2026, it was in the range of seven new hires. The first quarter is a tough hiring quarter because bonuses are paid and so on. So we will be refocusing our efforts in that the rest of the year. But I do not believe we can really break it down—they are all still getting their feet in the ground and building their pipelines and so on. Like I was saying earlier, we are seeing a very solid build of pipeline here into the year. So we are seeing some positive shoots from those efforts. Robert Barry Harvey: Yes. You net that all out, Gary, and it is not meaningfully impactful for the full year in 2026 in terms of dropping to the bottom line. But the intent, obviously, is to be making the investment to bring the producers on board here in 2026, and then the return on that ramping up in future years. Operator: The next question comes from Christopher Marinac with Breen Capital Research. Please go ahead. Christopher William Marinac: Hey, good morning. Thanks for hosting us. Tom, I wanted to follow up on kind of net new deposit accounts, particularly in the commercial channel, as we see success with C&I. Should we see more deposit flows from that area over time? Thomas C. Owens: Yes, Chris. I do not have those numbers in front of me. But yes, we would certainly anticipate accelerated growth in commercial deposit accounts and nearby accelerated growth in commercial production for balances. I think I have a report here that I could look at pretty quickly. I mean, we have seen, Chris, acceleration. If you think in terms of year-over-year growth in average balances, we have seen really good acceleration in commercial deposit balances. If we were having this exact conversation one year ago, it would have looked something like a 1% to 1.5% decline in year-over-year first quarter commercial balances. Over time, that has steadily migrated more positive. Three quarters ago, that was closer to breakeven. Two quarters ago, it was plus 2%. And now in the fourth quarter and into the first quarter here, we are on the high side of 4%. So we have had steady acceleration of growth in average commercial deposit balances outstanding on a year-over-year basis, and it is absolutely our focus to continue that trend going forward. Christopher William Marinac: Great. Thank you for sharing that. And just a quick question on expense, operating leverage in general. Should we see further progress into next year? Just kind of curious how we translate these recent efforts into the future quarters? Thomas C. Owens: Yes. Our mindset coming into this year was—particularly considering two things: considering the investments we are making in revenue producers and the investments we are making in technology—our mindset coming in was if we have a breakeven year in terms of operating leverage, that would be doing a pretty darn good job. Both of those things coming in are clearly headwinds to us achieving positive operating leverage here in 2026. Again, the idea on both of those, whether it is investment in producers or investment in technology, is to generate returns on those investments and drive positive operating leverage going forward. Operator: Next question is from Stephen Scouten with Piper Sandler. Please go ahead. Stephen Scouten: Yes. Thanks, everyone. Most of my questions have been asked and answered. I just maybe had one follow-up around deposit costs. The quarter-over-quarter improvement that you are projecting in the slide deck, is that more indicative of incremental reductions you think from the CD repricings? Or was that more about kind of where you exited the quarter and the progression of deposit costs throughout the quarter? Thomas C. Owens: So, Stephen, this is Tom. Good question. As I said, I believe earlier, the majority of the benefit—the tailwind to NIM accretion—from the ongoing CD book repricing is now diminishing. And so that 1.60% guide that you see for the second quarter—that is basically where we are running currently. In fact, I think month to date, here in April, we are probably running at about 1.59%. We have had some favorable mix. So 1.60% reflects a couple of things. As I also mentioned earlier, you have got some ongoing repricing of exception money market accounts as we accommodate customers—warranted by the nature of the relationship and the profitability of the relationship—accommodating their request for higher rates. And then it has been our practice as we get further into the second quarter and into the summer months, we generally engage in promotional deposit campaign activity, which would put some upward pressure on deposit cost that counterbalances what is left there in terms of ongoing downward CD repricing. So again, that is why from my perspective I think the right way to think about it is, as we are coming into the second quarter, a bit lower loan yields, a bit lower deposit cost, and essentially relative stability from that point forward and a slow, gradual grind higher in net interest margin. And again, with the dust settling, we are talking one basis point or two. We are talking about a fraction of a basis point of which way they round—do deposit cost and loan yield both round in a favorable way or unfavorable way. So I think we are getting down to more relative stability in that regard. We came into the year with a very tight guidance range in terms of net interest margin, 3.80% to 3.85%, and we are maintaining that range. We continue to feel good about being, for the full year, somewhere right in the middle of that range. Analyst: Congrats. Thomas C. Owens: Okay. Thank you. Operator: Next, we have a follow-up question from Feddie Justin Strickland with Vavodi Group. Please go ahead. Feddie Justin Strickland: Hey. Just real quick. I had a quick follow-up on the M&A comment. I think you said up, down, sideways. Was that just a figure of speech? Or should I take that to continue to consider like an MOE-type transaction or even an upstream partner? Duane Arthur Dewey: Not going to commit one way or the other there, Feddie. As you have seen in the marketplace, there are all sorts of combinations happening—from larger banks to smaller banks—and so it is a pretty wide open field. That is not our focus. But the discussions out there are pretty significant across the board. Feddie Justin Strickland: Great. Thanks for taking my follow-up. Operator: This concludes our question and answer session. I would like to turn the conference back over to Duane Arthur Dewey for any closing remarks. Duane Arthur Dewey: Thank you again for joining us this morning. We look forward to catching back up at the end of the second quarter, and we will talk then. Thank you. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to Verisk's First Quarter 2026 Earnings Results Conference Call. This call is being recorded. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Verisk's Senior Vice President of Finance and Investor Relations, Ms. Stacey Brodbar. Ms. Brodbar, please go ahead. Stacey Brodbar: Thank you, operator, and good day, everyone. We appreciate you joining us today for a discussion of our first quarter 2026 financial results. On the call today are Lee Shavel, Verisk's President and Chief Executive Officer; and Elizabeth Mann, Chief Financial Officer. The earnings release referenced on this call as well, as our traditional quarterly earnings presentation and the associated 10-Q can be found in the Investors section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be available for 30 days on our website and by dial-in. As set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward-looking statements about Verisk's future performance, including those related to our financial guidance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings. A reconciliation of reported and historic non-GAAP financial measures discussed on the call is provided in our 8-K and today's earnings presentation posted on the Investors section of our website, verisk.com. However, we are not able to provide a reconciliation of projected adjusted EBITDA, adjusted EBITDA margin and adjusted EPS to the most directly comparable expected GAAP results because of the unreasonable effort and high unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA, adjusted EBITDA margin and adjusted EPS, including, for example, tax consequences, acquisition-related costs, gains and losses from dispositions and other nonrecurring expenses, the effect of which may be significant. And now I'd like to turn the call over to Lee Shavel. Lee Shavel: Thanks, Stacey. Good morning, everyone, and thank you for joining us. Today, I will provide a broad overview of our first quarter financial results, and then Elizabeth will go into more detail in her financial review. I will give some details on our innovation activity, including some recent AI developments. And finally, I will wrap up with highlights from our client engagement during the quarter. Turning to the results. Verisk delivered organic constant currency revenue growth of 4.7% with growth across both underwriting and claims and sustained strong growth of 7% in subscription revenues. Our focus on efficiency and cost discipline drove organic constant currency adjusted EBITDA growth of 5.9%, delivering 60 basis points of margin expansion. This growth was modestly ahead of our expectations and included the impact of the factors we previously communicated, namely the carryover impact of the very low weather activity, tougher compares from strong renewals last year and a work stoppage in a federal government contract. So while this quarter's performance is modestly below our typical growth levels, we have confidence that the resolution of these short-term factors and continued core growth momentum will result in a gradual improvement in revenue growth as we move through the year. Moreover, we expect 2026 to be another year of performance in line with our long-term growth targets. Last month, we hosted an Investor Day where we outlined our strategy to drive compounding growth by focusing on 4 key initiatives, specifically, strengthening strategic client relationships, expanding our proprietary and contributory data advantage, delivering a steady stream of innovations to the market, and expanding networks across our businesses. We also reiterated our growth targets for the next 3 years and provided detailed overviews for each of our key divisions. We truly appreciate that so many of you attended in person, or watched the live webcast, and would encourage others to look at the materials, which are available on the Investors section of our website. One hallmark of Verisk's business model is that we have delivered consistent growth across varying macroeconomic, geopolitical and insurance-specific operating environments. This is due to the mission-critical nature of our solutions, our scale-driven economic advantage and our diversified set of offerings across underwriting and claims and personal and commercial lines. Today, the insurance industry backdrop in which we are operating is healthy, yet evolving. 2025 marked one of the strongest underwriting results in years with robust industry profitability and near record low combined ratios, helped by unusually low catastrophe losses. With ample capital, carriers are shifting their focus from profitability to growth, resulting in more competition and softening pricing. This dynamic is most pronounced across the property lines, specifically commercial property. On one hand, this drives carriers to be more focused on cost efficiency. However, it is precisely in these types of markets that underwriting discipline and enhanced risk selection is a key focus for our clients, contributing to the need to be informed by the most complete and comprehensive data and analytics available. To that end, our level of engagement remains high, as our clients are turning to Verisk as a trusted partner in that pursuit. At Verisk, we are focused on supporting our clients with the most advanced data analytics and insights, and investing at scale in new technologies to help them better understand risk and navigate through these dynamic times. We are not only introducing new innovations to the market at a faster rate. But these solutions are more impactful as they address some of the industry's most pressing challenges with more timely and more frequent insights, and more efficiency and automation. As an example, within our underwriting data and analytics solutions business, we continue to enhance and strengthen our leading property solutions through our innovations using aerial imagery. By integrating this advanced technology we have innovated with more accurate property level insights at scale, namely our roof age and aerial imagery analytics solutions that address long-standing challenges for the industry. We have invested behind continuous data refreshment and have expanded our analytical capabilities, resulting in a product that offers better risk selection and faster underwriting. Client adoption has been strong with our enhanced aerial imagery offerings, growing revenue more than 30% over the last 2 years. We have additional innovations, which are slated for introduction this year, including wind and hail peril scores and remaining [indiscernible]. And within our anti-fraud business, our digital media forensics is an AI-powered solution that automates anomaly detection in photos and documents, a growing source of fraud risk for the industry. This innovation reinforces our position as a key partner in fraud analytics, and highlights our scale and ability to organically build new contributory data sets, to help the industry address a growing challenge. Through innovation, we are driving growth in a heavily penetrated business. And in fact, just this quarter, we on-boarded the sixth top 10 carrier to the digital media forensics platform. The changes to our go-to-market strategy, first implemented in 2024 and continued throughout 2025, and have enabled us to get ever closer to our clients, understanding their specific needs and delivering better service with high levels of client satisfaction. We are continuing to improve our client engagement with the addition of new sales leadership in our Claims business, added sales resources across the business and the expansion of our client strategy group, which focuses on our largest clients. We recently hosted two key client events, the Insurance Fraud Management Conference, or IFM, our signature anti-fraud event and the Verisk Insurance Conference, or VIC, as it is known throughout the industry. VIC is our flagship event, where we strategically engage various market participants to learn, network and explore the latest industry trends, innovations and Verisk solutions, that address the most top-of-mind industry dynamics. In fact, this year, 75% of respondents viewed VIC as a must-attend industry event. Both events attracted a record number of attendees from across the global insurance ecosystem, including presentative from the carriers, brokers, reinsurers, regulators and our channel partners. AI featured prominently across the education program with 23 sessions covering AI-driven product innovation and the role of AI across underwriting, catastrophe modeling life and annuities, specialty lines and core platforms. These sessions were the most attended, including hundreds of clients representing a wide range of scale from large global multiline carriers to regional and small carriers. In the [ solutions gallery ], the AI showcase focused on 5 workflow-based AI demos, reflecting how we're scaling practical AI in our underwriting, catastrophe and risk and specialty business areas. Demonstrations focused on showcasing solutions that embed AI directly into workflows, augment human decision-making, improve the usability complex data and reinforce Verisk's commitment to responsible regulator ready AI. I'd note in an [ A.M. Best ] report on AI and insurance released this week surveyed insurers identified data readiness as the top impediment to AI implementation even ahead of security and privacy. Companies are keenly focused on how they can partner with Verisk and capitalize on our robust and proprietary data sets through this significant technology transformation. I was particularly impressed with the engagement with our largest clients as they develop their AI strategies. In several instances, clients have included us in their own internal discussions to explore how we can integrate our data and capabilities into their AI strategies as a co-development partner. There has been a recurring theme that while AI can be powerful, it requires both deep industry knowledge and relevant data sets to be most effectively applied. Coming out of both events client interest and sales pipelines are robust and competitive win rates have been very strong. Additionally, we are experiencing a faster pace of trial and growing number of proof of concepts for our AI solutions. In fact, we already have over 20 follow-up meetings set up related to augmented underwriting. That said, in certain cases, we are seeing an extended sales cycle related to the more complex contracting to incorporate AI governance and compliance. We are also engaging with many of our large clients regulators and the frontier model companies on partnership opportunities to leverage our data and insights. A key focus for all parties is accountability, transparency, governance and protection of intellectual property. Based on our interactions with several frontier model companies, it is clear that they recognize the importance of leveraging not just proprietary data sets, but also deep industry-specific knowledge and established workflows, all of which [indiscernible] Verisk. For these reasons, as well as our focus on accountability, compliance and governance, Verisk was the winner of a competitive RFP process to be the strategic partner of a global insurance firm to support the creation of a next-generation digitally native underwriting entity. Verisk will contribute its established data, actuarial and analytics capabilities alongside a growing suite of AI-driven platforms and marketplace solutions to codevelop the operating model. This opportunity reflects continued momentum in commercializing Verisk's multiyear investments in agentic technologies, and expanded role in enabling innovation across the insurance value chain. And with that, let me turn the call over to Elizabeth for the detailed financial review. Elizabeth Mann: Thanks, Lee, and good day to everyone on the call. On a consolidated and GAAP basis, first quarter revenue was [ $783 million ], up 4% versus the prior year. Net income was $234 million, a 1% increase versus the prior year, while diluted GAAP earnings per share were $1.73, up 5% versus the prior year. The increase in net income and diluted GAAP EPS reflects solid operational performance and a lower average share count, offset in part by higher interest expense and a higher effective tax rate. Moving to our organic constant currency results adjusted for nonoperating items, as defined in the non-GAAP financial measures section of our press release, our operating results demonstrate continued growth across both underwriting and claims. In the first quarter, OCC revenues grew 4.7%, with growth of 5.3% in underwriting and 3.4% in claims. This quarter's performance, while below our typical level, was ahead of our expectations as we continue to drive growth despite the shorter-term headwinds that we have previously communicated, namely the carryover effect of a lower level of weather-related events, tough comparisons from strong renewals last year and the work stoppage in a federal government contract. The durability of our subscription revenues is the best demonstration of the ongoing health of our business and the mission-critical nature of our solutions. In the first quarter 2026, subscription revenues, which comprised 84% of our total revenues in the quarter, grew 7% on an OCC basis, compounding on top of a 10.6% organic constant currency increase from the first quarter of the prior year. These growth levels reflect the lower weather events as well as the negative impact of the work stoppage in the government contract. But otherwise, this quarter's subscription growth was broad-based, with out-performance from our largest subscription-based solutions. In [indiscernible] loss costs, we are driving strong price realization in renewals, as we continue to demonstrate to our clients the enhanced value created through our reimagined initiative. In the first quarter, we released 7 new client-facing modules and we anticipate a total of 25 releases for 2026, as we continue to innovate and enhance our core offering. We are also continuing to onboard new data contributors, both in core lines where we added 4 new carriers, as well as in our new excess and surplus lines contributory data program, where we now have contributions representing more than $15 billion in premium. Within catastrophe and risk solutions, we delivered another quarter of double-digit growth driven by the expansion of contracts with existing clients, competitive wins and the addition of new logos, including many clients that are new to catastrophe modeling. Specifically, we had key multiyear contract expansions in the quarter with 2 top carriers, as well as new wins in the casualty modeling space, where we are the provider of the industry's first probabilistic casualty catastrophe model. Client interest in Verisk Synergy Studio, our next-generation catastrophe risk platform is high as live previews have been well received. The release of our updated U.S. tropical cyclone model and the production release of Verisk Energy Studio remain on track, and clients are expanding their hosting relationships with Verisk in preparation for the launch of the platform. In anti-fraud, we are driving strong value realization in renewals as a result of our enhanced data insights and expanded ecosystem strategy. Additionally, new inventions, including claims coverage identifier and digital media forensics, which Lee mentioned earlier, are seeing strong client adoption, and we have a deep pipeline of opportunities. Within our [ Life ] business, we continue to deliver double-digit organic revenue growth driven by new client wins, as well as the expansion of relationships with existing clients. Recently, we closed our first combined Fast Insurance [ Bay ] deal with a major life and annuity carrier, demonstrating the synergistic value creation we can drive by combining these businesses. Our transactional revenues, which comprised 16% of total revenues in the quarter, declined 6.1% on an OEC basis. The primary driver of this decline continues to be lower volumes in property and restoration solutions due to low levels of weather activity. As a reminder, the first quarter of 2025 included a benefit from claims associated with Hurricane Helene and Milton. Additionally, softness in the personal lines auto business as well as a lower level of overage revenues in the property business also negatively impacted growth. Moving to our adjusted EBITDA results. OCC adjusted EBITDA growth was 5.9% in the quarter, while total adjusted EBITDA margin, which includes both organic and inorganic results, were 55.9%, up 60 basis points from the prior year. This level of margin expansion reflects the operational leverage of our business model, and our ongoing commitment to cost discipline, including global talent optimization, offset in part by increased investment in AI and technology. As is typical, we expect our expenses to ramp as we move throughout the year. Continuing down the income statement, net interest expense was $43 million, compared to $36 million in the prior year period, due to higher debt balances and higher interest rates. During the first quarter, we issued $1 billion of senior notes and entered into a $500 million term loan. We used these proceeds to fund the previously announced $1.5 billion accelerated share repurchase program. Of note, at the close of the quarter, we have $250 million outstanding on the term loan. Our current leverage stands at 2.4x debt to adjusted EBITDA, which is well within our targeted range of 2 to 3x. As we look ahead, we anticipate the run rate of quarterly interest expense to be higher than the first quarter 2026, reflecting a full period impact of the new [ debt issue ]. Our reported effective tax rate was 24.1%, compared to 21.6% in the prior year quarter. The year-over-year increase was driven by lower tax benefits from a lower level of employee stock option exercise activity. We continue to expect our tax rate to be in the 23% to 26% range for the full year. Adjusted net income increased 0.6% to $246 million, and diluted adjusted EPS increased 5.2% to $1.82 per share for the quarter. The increase was driven by solid revenue growth, strong margin expansion and a lower average share count. This was partially offset by higher interest expense and a higher tax rate. From a cash flow perspective, on a reported basis, net cash from operating activities decreased 12% to $390 million, while free cash flow decreased 17% to $326 million. The decrease in both cash flow measures was primarily driven by a tax refund collected in the prior year period that did not recur this year, as well as higher interest payments. If adjusted for last year's tax refund, both cash flow measures would have seen growth in the quarter. We remain committed to returning capital to shareholders. During the first quarter, we paid a cash dividend of $0.50 per share, an 11% increase from the prior year, totaling $66 million. Additionally, we initiated a $1.5 billion accelerated share repurchase program, which is expected to run at least through the second quarter. We also repurchased $126 million of stock through an open market repurchase program. In total, we retired 7.6 million shares in the first quarter of '26. We currently have approximately $1 billion remaining under our share repurchase authorization. Turning to guidance. We are reaffirming our outlook for 2026. More specifically, we continue to expect consolidated revenue in the range of $3.19 billion to $3.24 billion. Adjusted EBITDA is expected to be between $1.79 billion and $1.83 billion, with adjusted EBITDA margin of 56% to 56.5%. We continue to expect net interest expense of $190 million to $200 million, and our effective tax rate to be in the range of 23% to 26%. Taken together, this results in adjusted earnings per share for the year in the range of $7.45 to $7.75. A few things to note as you update your models. First, as we said last quarter, we expect the first quarter of 2026 to be a trough, both in terms of organic constant currency revenue growth rate as absolute dollars, and forecast a gradual improvement as we move through the year. Second, we continue to face tougher comparisons in the first half of this year as last year benefited from a strong subscription renewal cycle across our largest underwriting businesses. Third, all guidance figures reflect the impact of the divestiture of Verisk Marketing Solutions, which contributed $68 million in revenue in 2025 with little seasonality, and represents an $0.11 headwind to earnings per share. Finally, Specific to the second quarter, we remind you that the prior year quarter's reported margins benefited from a foreign currency translation impact, which contributed 120 basis points to margin, and which we do not expect to recur. A complete listing of all guidance measures can be found in the earnings slide deck, which has been posted to the Investors section of our website, verisk.com. And now let me turn the call back over to Lee for some closing remarks. Lee Shavel: Thanks, Elizabeth. In summary, we delivered a solid start to 2026 with organic revenue growth, expanding margins and strong cash generation, despite several temporary headwinds. The resilience of our subscription-based model, combined with disciplined execution and continued investment in high-return initiatives positions us well for the remainder of the year. We are excited about the growth opportunities ahead and have confidence in delivering a year of growth in 2026 that is in line with our long-term growth targets and compounds the solid year in 2025. We continue to appreciate all the support and interest in Verisk. Given the large number of analysts we have covering us, we ask that you limit yourself to 1 question. With that, I'll ask the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: In the prepared remarks, there was a comment on strong pricing realization on renewals. I was wondering if you could unpack that further. Can you talk about how the [ AWPs ] are impacting pricing, but also how you're getting pricing on the non [indiscernible] contracts? Lee Shavel: Sure, Ashish. So the way I would summarize that is both at our large client multiyear renewals, we have seen a consistent trend of our ability to achieve stronger price increases on an annualized basis for those multiyear contracts, as well as either similar terms or longer terms, reflecting the criticality of the data, the importance, particularly in this AI environment. And they have been averaging approximately between 4 and 5 years, which we think is a very strong indication of our role as a fundamental partner to what they're doing. So the comment reflects that, as well as our ability on the annual increases to secure [indiscernible] increases reflective of the greater value that we're providing through our Core Lines Reimagine initiative. And that's generally been in true across both of those levels. So hopefully, that unpacks a little bit the strength that we're referring to in those comments. Operator: Your next question comes from the line of Toni Kaplan with Morgan Stanley. Toni Kaplan: Lee, you talked in the prepared remarks about clients wanting to use your data and capabilities in their internal AI strategies, which makes a lot of sense given your proprietary data. I was hoping you could talk about how you see the monetization model for that type of situation. Could you be net neutral in selling your data versus selling a whole software solution? And I guess, does selling just the data limit your ability to cross-sell if they're not using your interface? Or no because you'll still have salespeople trying to upsell those clients anyway, and so you're just as well off? I know you want to partner with these clients to try to maximize the value. So just wanted to understand the puts and takes of monetization of the different models and situations. Lee Shavel: Toni, I think the monetization opportunity for us is going to be rooted in the fact that the application of AI [indiscernible] come from client developed solutions, frontier model companies, our integration of generative AI, or agentic AI, all driven off of that -- off of the data sets that we are providing on a structured, clean industry-wide basis. I was very reassured to see in the [ A.M. Best ] report that I referred to that there was a consistent observation that data readiness [ and ] its ability to integrate with AI is one of the biggest challenges that the industry faces. And individual clients facing legacy system issues and utilizing that data, even within their own data, creates that natural partnership opportunity for us to deliver that data and connect it to this technology in a way that allows them to achieve more value because the data is more [indiscernible]. It's broader, it's an industry data that will enable us to give them more value for the data that we provide. So I start with that foundation. We think that it will also encourage more use of our data within specific data sets but also across our related areas in underwriting claims in cat modeling and the models. So I think that will encourage more use. And then our monetization strategy, I think, will consist of both realizing more value through our pricing arrangements, as well as at the outset opening up new specific data utilization for AI applications that are specific purposes that we are adapting our data to that are driving value realization from our clients. So I think in the near term, what we are seeing is our clients have moved on an experimentation in an exploration phase in 2025 to realizing that integrating these data sets into what they're doing and their functions is going to create value, but they need that greater data [indiscernible], better data quality and partnership between us their objectives and technology providers, both on the Frontier AI model companies, as well as in some cases, the infrastructure or policy administration system partners. And we are working with each of those entities. And I think that will create both near-term opportunities as we begin to implement that as well as longer-term opportunities from a pricing standpoint for the data. And I -- this is certainly going to evolve over time as the industry experiments and experiences what's possible here. Operator: Your next question comes from the line of Jeff Mueler with Baird. Jeffrey Meuler: There was a comment, Lee from you in the prepared remarks about extended sales cycles for some AI solutions. I just want to make sure I'm understanding what you're trying to convey there correctly. Are you trying to insert any incremental caution relative to your prior commentary on how revenue should develop for you over the balance of the year? Or is this just all about governance and compliance of AI solutions, in a -- of a disruptive tech and a risk-focused industry, or anything on if the competitive set is broader after you go after those opportunities or anything like that? Lee Shavel: Yes. Jeff, what that reflects is, as we are pursuing these specific AI opportunities. And even the -- our existing contracts, AI is an element where both our clients and we need to be thoughtful about intellectual property, the issues related to that privacy issues associated with that. And so it has added an additional complexity in negotiating and adapting our contracts to those specific purposes. And so I think we have seen in these larger contract renewals, we're having to spend some more time working our way through these issues. I think that, that will improve over time for us as industry standards on dealing with these issues improve. And I think that the other advantage that we have in that regard is that we are very used to dealing with issues on data governance, security, privacy issues, given the trusted role that we have with our clients' data. And I think we will be in a better position to resolve those issues because, in many ways, there are extensions of the trust [indiscernible] -- the data governance components that we have around it. So what I am -- what we are signaling is this is an element that is taking a little longer to work through. It goes hand-in-hand with the new opportunity and with what we are seeing is a growing pipeline of opportunities, which is the case, it may take a little longer for us to work those through from a contractual standpoint as we feel this out. So yes, there is a little bit of caution, but it relates to, I think, this growing opportunity and what it represents for us longer term. Operator: Your next question comes from the line of George Tong with Goldman Sachs. Keen Fai Tong: You mentioned expectations of gradual improvement in organic revenue growth moving through the year. Can you provide some color on the cadence of improvement taking into account factors like weather, property underwriting overages and subscription renewal timing? Elizabeth Mann: Yes, happy to. Look, we indicated that we expected 1Q to be the trough, and we continue to expect that with improvement from here. On a reported revenue standpoint, I think we can expect a steady build to the full year amount that we gave in our guidance range as the year progresses. Some of the headwinds that we talked about from a year-over-year perspective will persist into that second quarter. So you could still see from an OCC perspective, the second quarter falling below our long-term guidance range. That's just a function of the year-over-year impact still of the headwinds we talked about in the second half of 2035. The core of our business remains strong. And so as we move past that year-over-year impact, we expect the underlying strength and health of the business with the strength of our subscription revenues to [ reemerge ]. Operator: Your next call comes from David Motemaden with Evercore. David Motemaden: Elizabeth, I believe you had mentioned that you added 4 new carriers to the core lines contributory data set. I'm wondering, to the extent you can share were any of those among your top 10, or top 25 carrier relationships? And more broadly, as carriers deploy some of their own [ AI underwriting ] assistance [ in ] AI tools. Have conversations changed around the value of continuing to contribute to Verisk's -- contributory data ecosystem? Elizabeth Mann: We continue to see strength on the engagement of the contribution from carriers, both large, small. But I'm going to ask my colleague, Saurabh Khemka to add color into that. Saurabh Khemka: Yes, absolutely. As Elizabeth mentioned, we continue to see strong engagement with carriers both large and small on the value of contributing data to our industry data set. And -- we mentioned the [ E&S ] data is a great example where we have new contributions both from large and small carriers around a new data set because we were able to provide some benchmarks that they didn't have previously. So we continue to see that engagement the 4 carriers that we mentioned are part of that overall 100 new contributors that we mentioned as we launched Reimagine, and they're just kind of flowing through our systems now. Operator: Your next question comes from the line of Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to go back to, kind of like, the channel conversation on the AI product front. It sounds like a lot of options here. You have, kind of, AI native products that you're building yourself. Maybe some co-development work and potential partnerships with the frontier model providers. I'm just curious, as you think about all those different paths, what is the -- is there a difference in monetization potential between them? Is there any preference in terms of channel taking into account scalability, or pace of adoption, or how much investment is required to get that off the ground? Just trying to figure out, to the extent that one of those paths becomes a more common consumption of your assets, if that has any impact on the fundamentals? Lee Shavel: Andrew, the -- I think the most important aspect from our perspective is making certain that we are responding to what our clients' preferences are and needs. And each client is going to be different. There are some of our clients that are actively engaged with some of the frontier models. There are others that have been exploring those partnerships and have come to us in that one instance that we referred, and selected us to be their partner in developing their underwriting agentic solution. There are clients at a very high scale level that are developing their own AI applications and working with us to integrate our data into it. We have smaller companies that have been very engaged in utilizing the AI solutions that we've implemented into our products. So I think our primary focus is in making certain that we can be as responsive as possible to the variety of approaches and needs that our clients are taking. I think from a scalability standpoint, I think each -- we've been pleased so far that we've been able to adapt our data sets relatively easily into these AI applications. And one reason for that is that a lot of this investment has been made first in the natural standardization and of the migration of our data sets into the cloud, which has facilitated that access. We already provide standardization as a function of what we do. But [ thirdly ], our ability to adapt prior to this to more API-driven access to our data sets has facilitated our ability to tie that to MCP, or model context protocol applications, that have been the primary channel for agent applications and even [ more ] language models. So we -- I would not say at this stage, that we see differentiation in the scalability of that opportunity. We do see a variety of applications that our clients, or channels that they're pursuing. And our data fortunately has the flexibility to be easily adapted and applied to a wide range. And I wouldn't say that we see a preference at this stage. Operator: Your next question comes from the line of Manav Patnaik with Barclays. Manav Patnaik: Lee, you talked about, I think, what was noticeable to me [indiscernible] more impactful innovation at a faster rate. And I'm just curious like how much of that gets absorbed as part of your value pricing strategy that you have, as opposed to driving new incremental revenue could, I guess, at Investor Day, you reiterated your long term from the way you were describing this, it sounded like it could be incremental? So I'm just trying to parse that out, if that makes sense. Lee Shavel: Yes. Manav, I would say that the balance -- the greater balance of that is applied to developing new revenue opportunities for us because those innovations are creating a distinctively incremental level of value that may not have occurred before. And when we were talking about, for instance, aerial imagery, those are new analytics that provide [indiscernible] or improved outcomes to our clients that they otherwise wouldn't have access to before. So if we think of it as something that is separate and additional to the loss cost data, or the [ prometrics ] data, or the 360 value data on restoration costs. These are new applications that provide incremental value. Similarly, the digital media forensics is -- while providing an anti full solution, this is something that is being applied to those digital images. So it's a similar model, but it is something that is incremental to the overall purpose. So I would say the significant majority of that focus is in developing new sources of revenue rather than just enhancing the existing value of what we already have. Operator: Your next question comes from the line of Jeff Silber with BMO Capital Markets. Jeffrey Silber: You talked a bit earlier regarding a contract renewal and embedding the different aspects of AI into the negotiations. I'm just curious, I know from a market perspective, we've seen, I guess, what you called the past normalization of net written premium growth. But your clients are still under a lot of pressure focusing on profitability. Are you seeing any changes either put back on price increases or lengthening of sales cycles because of that specific item? And how are you addressing that? Lee Shavel: Jeff, I'd have to say we aren't seeing that. And that's not the primary driver. And in fact, notwithstanding the -- some of the net written premium softness, I do think that the profitability that we've seen in terms of significantly improved combined ratios for the industry is creating a level of profitability that, on the one hand, is -- creates, I think, an opportunity for them to invest a little bit more heavily in technology, coming at a time where there is more demand for data and analytics and AI to be applied to it. And I think generally, the market has been -- or our client set, the industry has been leaning into technology, naturally AI and with the recognition that clean, structured accessible data sets are going to be important to that. I think that has been a dimension that has supported our contract negotiations and renewals with them. And the fact that we have our largest clients in a variety of recent renewals over the past -- over the past 12 months who have recommitted to long multiyear contracts, I think, is a demonstration of the importance of that data and its value even in this industry of technological change, and adaptation, as well as a softening premium market. These dynamics [indiscernible] adoption and the utilization of technology in many ways, supersede of the year-to-year fluctuations in the overall market. Operator: Your next question comes from the line of Henry Hayden with Rothschild & Co Redburn. Henry Hayden: We were hoping for an update on the cross-sell environment that you're seeing, specifically as it relates to how adoption of digital modules from existing solution upgrades is trending? Are you seeing an acceleration uptake as you sort of work through the client base? And what's the current state of penetration of that? Elizabeth Mann: Yes. Thanks for the question, Henry. We are seeing a strong environment with a lot of interest and engagement in our new products. But we talked about the engagement that we saw from clients at VIC and the pretty active pipeline of trials, POCs, engagement and new subscriptions on the new products. So we continue to be happy about the cross-sell opportunity and [indiscernible] to provide that value to the clients. Lee Shavel: And Henry, if I could add a dimension to that. I think there were two levels that this is operating for us. One is because of a better strategic dialogue that we've had with our clients that has improved, we have seen improved in individual product cross-sells as we're better able to speak to the strategic value, or the return on investment of our products at that strategic level. But the second dimension is that our clients have been more engaged in working with us to understand how we can integrate data sets and product functionality across that. And so building and working towards more enterprise-oriented solutions that tie our products together to meet some of their specific goals. I think we're excited about the opportunities of doing more of that across the industry. Operator: Your next question comes from the line of Curtis Nagle with Bank of America. Curtis Nagle: Great. Just, maybe [indiscernible] one for me. Just in terms of the shape of the year-end growth. What is the expected contribution from the new [indiscernible] modules that you're continuing to feather in, versus, say, just the impact of some of the easier comps in the second half of the year? Elizabeth Mann: Thanks. Yes, I think it depends on how you look at it. So from a year-over-year comparison, that will be driven -- the improvement over the balance of the year will be driven by the easier year-over-year comps. But as we said, we expect [indiscernible] in reported revenue. The forms rules [indiscernible] business as our largest business will be contributing to that. I think we mentioned it as a driver of subscription growth in this first quarter. So that will persist. But all of our businesses are showing a pretty strong subscription outcome. So that will build over the course of the year. Operator: Your next question comes from the line of Kelsey Zhu with Autonomous. Kelsey Zhu: So going back to AI. Where do you see [indiscernible] margin or top line opportunity brought by your own AI investment? And any thoughts around sizing that top line margin outside from AI would be really hopeful. I know you've talked about aerial imagery, digital forensics. Any other incremental revenue or cost opportunities you want to highlight here that weren't previously available in the pre-AI world? Elizabeth Mann: Yes. Thanks, Kelsey. We've been talking about the AI opportunity on our new products, and we see that continuing to build. From a material impact standpoint, we haven't sized it on the top line. We still continue to think of it as a long-term opportunity. On the margin, we do see -- we are seeing the benefit of efficiency and productivity on our software and development teams, on our data ingestion and others. We're also, at the same time, investing in the new technology and in our data to build the AI ready and the MCP solutions that we're excited about. So I would say for the time being, we see it as a push on the margin and is embedded in our guide of gradual margin expansion for the year. Lee Shavel: And I guess, perhaps to add another dimension to this [ and just ] answering it broadly because there are a lot of applications. But I think if we think about where it can be most impactful. And we look at what the industry is trying to achieve, one of their top objectives is increasing productivity. Whether it's for an underwriter, or an agent, or a claims professional. And that's where I think we can accelerate and support that productivity objective. It's an area where in other parts of our business when we have been able to demonstrate productivity improvement, for instance, with a claims adjuster, or a claims estimator that demonstrates real value for them because they can accomplish more faster, that becomes a clear path to value realization and our ability to participate in that value realization. So I think, if we think about that broader opportunity, if we can support that activity, applying our data to it, integrating those data sets, and we're improving that productivity for that -- for that client, then I think that supports value realization in terms of the longer-term contracts that we enter into and demonstrating value in a similar fashion to what we've also been able to realize demonstrated by the stronger subscription growth that we've been able to achieve because of our Core Lines Reimagined initiative. That was digitizing a lot of the data, improving their access. We've heard it directly and indirectly that that's improved productivity. And I think AI will be an extension, potentially an acceleration of that opportunity, which then supports our ability to capture value through that message. So that's a very broad answer, but I think that captures what we see as the primary opportunity for monetization on our front. Operator: Your next question comes from the line of Alex Kramm with UBS. Alex Kramm: Lee, you mentioned this, I think, underwriting platform that you're developing with 1 client, not sure to what degree that was disclosed already. But can you maybe flesh out what exactly you're doing there? And obviously, like the revenue model there. Is this just a one-off with one client [indiscernible] this becoming more of an industry utility over time? And are there opportunities to do something similar with other [indiscernible], obviously? Lee Shavel: Yes, Alex. So this is a -- it is a one-off specific to this customer. But I think it's indicative of our clients' broad objectives to think about how they can restructure their processes and integrate different data sets. And so specifically, as we discussed in the call, the project is to work with them on restructuring, reimagining their underwriting process. Integrating a range of our data sets as well as agentic technologies that we are providing on the underwriting side to be able to improve the efficiency and the effectiveness of that underwriting process. And that came after an RFP of a large number of potential clients some from the technology side, some from the software side, some from the AI side. But it was our familiarity with the process our data governance elements, and they're comfort with our knowledge and expertise on it that drove it. So it is specific to the needs of that client and what their objectives are. And that's, I think, a reflection of the stronger strategic dialogue that we've had with a variety of our clients, as well as our expertise. But I would also [indiscernible] as something that we're hearing from a range of our clients and something that I could see us doing with a much larger number of our clients. Operator: Your next question comes from the line of Jason Haas with Wells Fargo. Jason Haas: Can you talk about the moat around your underwriting data analytics solutions business? And what prevents your competitors or largest customers from using AI to recreate this data? And I know there's a lot that goes into it, but could you could talk about some of the major data that's in there, and [indiscernible]? Lee Shavel: Yes. Jason, I'm going to hand this over to my colleague, Saurabh Khemka, who runs all of our underwriting businesses to address that. Saurabh Khemka: Yes, Jason. So let me talk about a few things. First, a lot of our data sets are proprietary to us, whether it's contributory or self source. So that is an element of moat. The second, what we do with the data is analytics that our normalization, or looking at data across our platforms, which is, again, something that is unique to us. The third thing I'll say is our experience and our focus on risk segmentation. So taking that data and creating analytics that life -- [indiscernible] segmentation for our clients is a differentiator for us. I mean, we've talked about aerial imagery today, we went from roof age to roof condition to specific wind, and [ hail perils ], and now looking at remaining life for. These are all new segmentation. And then finally, we are the trusted providers. So when we think about how we standardize and the scale at which we standardize when we go to regulators, we're able to offer our turnkey solution to our customers, which is a filed analytics that they can use very easily. So that describes a broader way is kind of the moat that we have. Operator: Your next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Apologies if I missed this earlier, but just wondering if you can talk about the sustainability of the subscription OCC revenue growth. [indiscernible] still a little bit to 7%, but just wondering if you can talk about, if we can see a sustainable growth in that high single-digit range? Elizabeth Mann: Yes. Thanks for the question, Scott. We do continue to see sustainability of that subscription growth rate. We talked about the fact that we had double digits in the year ago cycle, and that level may not itself be sustainable, but where we are is amply continuing and continues to be strong. As we talked about some of the subscription outcomes we saw in the first quarter not just in one business, not only in our [ forms rules and loss cost ] business, which continues to see the benefit and strong retention and even extending terms and improved pricing based on Core Lines Reimagine, but also strong subscription growth across our portfolio in the Catastrophe and Risk Solutions business, in the Property and Restoration solutions business as carriers continue to see the value and the AI enhancements driven on the solutions. So we really see strong engagement across our portfolio and the investments that we're doing on those products, driving good outcomes and good conversations with the clients. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning. My name is Michelle, and I'll be your conference operator. At this time, I would like to welcome everyone to ADP's Third Quarter Fiscal 2026 Earnings Call. I would like to inform you that this conference is being recorded. [Operator Instructions]. I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead. Matthew Keating: Thank you, Michelle, and welcome everyone to ADP's Third Quarter Fiscal 2026 Earnings Call. Participating today are Maria Black, our President and CEO; and Peter Hadley, our CFO. Earlier this morning, we released our results for the quarter, our earnings materials are available on the SEC's website and our Investor Relations website at investors.adp.com, where you will also find the investor presentation that accompanies today's call. During our call, we will reference non-GAAP financial measures which we believe to be useful to investors and that exclude the impact of certain items. A description of these items along with a reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. I'll now turn it over to Maria. Maria Black: Thank you, Matt. This morning, we reported another strong quarter of results with revenue growth, margin expansion and EPS growth all coming in ahead of our expectations and reflecting the significant progress we are making across our strategic priorities at a pivotal time for our industry. Before we get into the details of our performance, I want to share a few thoughts on why this is a defining moment for human capital management and why I am so excited to be leading ADP in the AI era. HCM is about helping companies manage the workforce infrastructure that makes business possible, whether you're a Fortune 500 company or a small local business, that has always been our driving mission and it has never been more critical than it is today. As AI adoption continues, businesses will only face greater workforce complexity. AI is redefining the very nature of work and how we collaborate while increasing regulatory interest around privacy and data protection. And fortunately, that's exactly where ADP thrives. We execute with precision when it matters most. In terms of rapid chain and disruption, businesses need the compliance, accuracy and trust that ADP delivers at sale. Through economic cycles, shifting labor trends and waves of technological transformation, we have confidently met every moment by investing in R&D, evolving [indiscernible] our clients and raising the bar for what HCM can deliver. ADP was the first in HCM to deliver automation, move to the cloud, provide a mobile app and create an online marketplace, we believe it's our job to lead the industry in innovation. And now we're doing it again with AI. For us, success means leading the way in a trusted service-driven and AI-powered HCM and setting the industry standard for accuracy, compliance and partnership around the world. Our performance this quarter shows how we're executing on that. Before I discuss our strategic progress, I'd like to review some key highlights from our results. We delivered solid Employer Services new business bookings growth in the third quarter. Results were particularly strong in international and compliance solutions. Our insurance and retirement services offerings also continue to contribute to growth in our small business portfolio. Both our employer services retention rate and our overall client satisfaction levels reached new record highs for a third quarter. This strong performance is the result of continued progress across our 3 strategic business priorities. I'll start with what we are doing to lead with best-in-class HCM technology. AI makes HCM more important, and we believe it unlocks tremendous value and opportunity for our industry that plays out in 2 ways. First, while AI excels at prediction and efficiency, it can't execute critical high stakes HCM functions with a level of accuracy and consistency required. Because at the end of the day, payroll isn't a software function, a commitment to the people who showed up and did the work and there is no room for error. Second, AI has added new layers of complexity for our clients as they manage their payroll, workforce management and regulatory compliance. These functions are rapidly evolving. And now more than ever, [indiscernible] will need a trusted HCM partner who can decode the puzzle and reliably deliver its critical services. I also want to be direct about something analysts and investors are rightly focused on. AI is changing both work and the workforce. And with our business grounded in all aspects of payroll and beyond, we are working on answers every single day. Our research with the Stanford Digital Economy lab shows that AI is reshaping work at the task level. While this could lead to job displacement in certain task areas, we expect other new job categories to be created in this tech confirmation. What we know for navigating through economic cycles and labor market shifts and the data we've gained along the way is that even as workforces change, the work of managing them, paying them accurately and keeping compliant doesn't go away. AI is shifting how work gets done, but that doesn't eliminate the need to manage it and managing a workforce through disruption [indiscernible] HCM more complex. We are not immune to shifting employment trends, but we are built for the world they represent. What differentiates ADP's approach is that our AI is built in the very core of how we orchestrate, govern and execute HR and pay processes, grounded in regulatory logic, operational data and decades of expertise. This goes far beyond chatbots or surface layer automation that can enhance the user experience. It's about delivering real-world outcomes where accuracy and auditability are nonnegotiable. For example, in January, we launched ADP Assist agents that apply advanced intelligence to real workforce challenges for us payroll and HR. These persona-based agents think, plan and act with you an oversight, they are designed to handle routine tasks so people can focus on high-value strategic work that requires judgment expertise, creativity and connection. And since that launch, we've already seen meaningful results. Our ADP assist payroll agents have saved an average of 30 minutes per payroll. Our ADP assist tax registration agents have helped businesses maintain compliance and avoid penalties and interest on late tax filings. Our Smart Actions search has reduced clicks and time spent by around 80% for common HR actions. And those are just a few examples. We are continuing to accelerate this work, roll out new ADP assist agents and look for more opportunities to make work easier. ADP Lyric HCM is also saving time and effort for our clients. One senior HR leader at a supply chain firm shared that the AI tools within Lyric have significantly reduced the number of steps in the recruiting process from 23 down to just 8 by providing advanced candidate in size. Another client, a global holding company used [ Lyric ] to replace more than a dozen disparate systems, which enabled a 71% leaner payroll operations model and that's just the beginning. In March, we further expanded our GenTech AI ecosystem through the ADP Marketplace, our industry-leading open platform where clients connect to ADP solutions with third-party applications across the HR and workforce technology landscape. We launched a dedicated space within marketplace for carefully selected AI agent from our partner companies that give HR teams intelligent support across the employee life cycle and all agents are aligned with ADP's principles on safe and responsible AI. Our approach is also earning external recognition. ADP was ranked #1 in HR on Fast Company's most innovative companies list, and run powered by ADP held its position as a top-ranked small business product by G2 for the second consecutive year. I want to congratulate our entire team on these well-deserved achievements. Our second strategic priority is to provide clients with unmatched expertise and outsourcing solutions. I'll speak to 3 structural advantages that together position ADP to deliver on this priority and lead the HCM industry through its AI transformation. The first advantage is our data AI is only as good as the data it's built on, and ADP has the industry's strongest workhorse data foundation built over nearly 77 years. We pay 1 in 6 workers in the U.S. and moved $3.3 trillion in the U.S. in fiscal '25. We capture payroll, HR and compliance on for more than 1.1 million clients and 42 million workers globally across roles, industries and geographies, giving us incredible insights into the workforce and its emerging trends. This advantage will continue to compound for our data and AI capabilities over time and will further widen the gap between ADP and our competitors. The second advantage is our domain expertise. Every ADP assist agent is grounded in our unmatched institutional knowledge from decades of hands-on experience with companies of all sizes. Our deep understanding of HR processes, workflows, exceptions and regulatory nuances is built into the very architecture of our products, services and systems. Our service model delivers human expertise and guidance alongside high-impact technology, pairing AI-driven efficiency with expert judgment and automation with accountability. And as AI drives regulatory change and fragmentation, we have a true structural advantage. Let's consider the current landscape. So far this year, more than 200 HR-related compliance laws have been enacted in the U.S., including several governing the use of AI. This June, the EU transparency directive will take effect and employers continue to face increasingly complex and sometimes conflicting requirements across local, state and federal jurisdictions on issues ranging from pay transparency to lead policies. But as I mentioned before, this is exactly where we thrive. Since AI entered the mainstream, ADP has operationalized an accelerating wave of changes. And when the regulatory environment accelerates as it is now, our clients will coalesce around the partner they trust to get it right, a fact that has shown up in our consistently strong retention. This has earned expertise the kind that comes from pioneering an industry and leading the way through disruption. We are also focused on using AI to sharpen our expertise. We have continued to scale the deployment of additional [indiscernible] AI capabilities across service operations through the zone, our proprietary end-to-end solution that transforms our client-facing teams engage, serve and support clients across the full life cycle. As of March, 20% of the total service population was on the own platform, and we expect to reach over 40% by the end of fiscal '26. Several high-volume service teams, including SBS and Wisely are operating at full utilization, which means GenAI-enabled workflows are becoming embedded in our standard service operations and helping our teams create value through a more seamless experience for our clients. The third advantage is the trust in our brand, Clients have relied on ADP for the most essential HCM processes for decades because we consistently deliver through change and complexity. In the age of AI, trust is more important than ever, and we are deepening trust every day through our commitment to ethical and responsible AI development. Finally, we remain focused on our third strategic priority, benefiting our clients with our global scale. ADP supports clients across [ 130 ] countries and 67,000 ADP associates deliver compliant HCM solutions, local expertise and trusted relationships to more than 1.1 million clients every day. We connect directly to tens of thousands of government entities, tax authorities, regulatory bodies and banking institutions globally. Our final mile ecosystem is extremely difficult to replicate and becomes even more important as the regulatory landscape becomes more complicated and fragmented by country, state, city, town and municipality. Large businesses already recognize how hard it is to get this right. We just recently secured several new enterprise clients, including one of which has tasked us to deliver a 30 current payroll transformation. These clients trust ADP for these complex processes because we understand what's required in each country, we have the infrastructure, and we can flex to support their exact needs. AI is changing work and the workforce. We know there will be new regulations, new workforce models and new risks. AP is purpose built for this challenge. We bring together the regulatory discipline, data integrity, process intelligence and human guidance required to productively incorporate AI into [indiscernible] critical HCM. That's why the world's leading organizations choose ADP as their partner for a rapidly changing world of work. I would like to take a moment to thank all our associates worldwide for their exceptional service and performance as we continue to advance our strategic priorities in the age of AI. Every result we report every client we serve and every innovation we launch starts with them. We said at the top of the call that this is a defining moment for HCM. I believe that deeply, and we know just as deeply that ADP is strongly positioned to capture the opportunity ahead. And now I'll turn the call over to Peter. Peter Hadley: Thank you, Maria, and good morning, everyone. I will start by providing some more color on our third quarter results, and we'll then update our fiscal 2026 outlook. This morning, we reported strong third quarter results that included 7% revenue growth, 80 basis points of adjusted EBIT margin expansion and 10% adjusted EPS growth. These results were all ahead of our expectations, and we are adjusting our full year guidance to reflect this performance as well as making a few other changes, which I'll detail. One thing worth noting before I get into the numbers. The margin expansion we achieved reflects disciplined investment. We are funding our AI transformation across our products, internal tools and service delivery while continuing to deliver on our financial commitments. This discipline is intentional, and it shows up in the results. I will focus on our Employer Services segment first, where I'll cover both our results and our updated outlook. ES segment revenue in Q3 increased 7% on a reported basis and 5% on an organic constant currency basis with favorable FX contributing close to 2 points of revenue growth. As Maria shared, ES new business bookings were solid in the third quarter, and our pipelines were healthy at quarter end with ongoing macro uncertainty and given the typical importance of our fourth quarter, a range of new business bookings outcomes remains possible. Accordingly, we are maintaining our 4% to 7% full year growth guidance. Driven by our strong ES retention performance in Q3, we are improving our guidance range by 10 basis points and now forecast ES retention to be flat to down 20 basis points for the year. ES [ pays ] per control growth remained at 1% for the third quarter and our updated outlook calls for about 1% growth in fiscal 2026. Client funds interest revenue increased by more than we anticipated in Q3, driven by 9% growth in our average client funds balances. We are increasing our full year average client funds balances growth forecast to about 6% and are continuing to expect an average yield of approximately 3.4% for the year. As a result of our revised expectation for balances growth, we are increasing the midpoint of our fiscal 2026. Client funds interest revenue forecast by $25 million to a range of $1.34 billion to $1.35 billion. We are also raising the midpoint of the expected net impact from our extended investment strategy forecast by $25 million to a range of $1.3 billion to $1.31 billion. We also now expect overall ES revenue growth of 6% to 7% for the fiscal year. Our ES margins increased by 130 basis points in Q3, driven by operational productivity improvements that we are realizing across our business as well as the contribution from cline fund interest revenue growth. The investments that we are making in AI, in service tools and in product innovation are yielding meaningful productivity improvements in our business, allowing us to reduce our cost to serve, while at the same time, enhancing our clients' experience. As an example, our continued investment in our RAM platform, along with the AI-powered tools that were deployed to support our more than 900,000 small business clients have enabled an 8% year-over-year reduction in client contacts in fiscal Q3, our busiest quarter of the year. These outcomes help us drive faster margin expansion and a better client experience, as shown by our continued record client satisfaction and retention results. The good news is that while these outcomes are becoming more meaningful and are now starting to manifest more noticeably in our financial results, we believe that the opportunity in front of us is substantial. We are only in the very early innings in terms of what this can yield in terms of a superior client experience as well as business growth and financial benefits for ADP. Turning now to the Total PEO revenue increased 7% in the third quarter, with PEO revenue excluding zero-margin pass-throughs, growing 5%. Stronger PEO new business bookings growth helped offset some continued softening in PEO pays per control growth in the quarter keeping growth in average worksite employees at 2% for Q3. We continue to forecast fiscal 2026 average worksite employee growth of about 2%. We also saw continued strong growth in gross payrolls as well as higher Sui revenues, both of which contributed to the uptick in peer revenue growth in the quarter. Following the strong revenue performance in Q3, we are increasing our full year revenue growth guidance to 6% to 7% and raising our PO revenue, excluding zero-margin pass-throughs, growth outlook to 4% to 5%. [ ES ] Margins decreased 120 basis points in Q3, driven mainly by 0 margin pass-through growth, higher SUI costs and higher selling expenses. Putting it all together, we are increasing our fiscal 2026 consolidated revenue growth outlook to 6% to 7%, and raising our adjusted EBIT margin expansion forecast to 70, 80 basis points. Our full year effective tax rate burden of around 23% is unchanged. And finally, we are increasing our fiscal 2026 adjusted EPS growth forecast to 10% to 11%, which continues to be supported by share repurchases. As we look ahead to fiscal 2027, I also wanted to share a few early thoughts. First, we were pleased to increase our adjusted EBIT margin expansion guidance in fiscal 2026. While it is still early in our planning process for fiscal '27, we remain very focused on continuing this acceleration when it comes to margin expansion as we realize further productivity benefits from our AI transformation. Second, as a result of our laddering strategy, we remain positioned for continued tailwinds from our client funds portfolio as anticipated reinvestment rates remain above the average yield of our maturing securities driving overall yields expected on the portfolio above fiscal 2026 levels. And finally, you will have noticed a meaningful increase in our share repurchase activity during this fiscal year to date. We expect to continue share repurchases at or above these elevated levels across the balance of this year and throughout fiscal 2027, absent major changes in the market backdrop. I would like to emphasize that this elevated buying is in addition to our long-standing commitment to growing our dividend and to the levels of investments that we are making and will continue to make in our business to best position us for success in the future. We remain laser-focused on driving growth in our new business bookings and maintaining strong client satisfaction and retention levels while at the same time investing in our products, our people and our AI capabilities to deliver sustainable revenue growth, margin expansion and shareholder returns over time. Thank you. And I'll now turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Bryan Bergin with TD Cowen. Jared Levine: This is actually Jared Levine on for Bryan today. I wanted to start in terms of the implied 4Q guidance. I know you're not guiding FY '27 at this time, but anything to call out in terms of using that implied 4Q revenue growth rate as we think about FY '27 growth year? . Peter Hadley: Thank you for the question. Yes. Look, I mean, we guide to a range of outcomes. So the guidance that we've increased our revenue guidance. We're very happy with that increased our margin guidance and our EPS guidance. I think there's still a lot to do in the fourth quarter with respect to bookings, with respect to retention in the PEO. So we're not really going to be more precise than the ranges we shared, but we feel confident with respect to our trajectory going into the fourth quarter and exiting the fiscal year. Probably the one thing I would note would be we benefited by a little over 1.5 points of FX in the third quarter in ES segment I'm talking about. We're expecting that to moderate a little in the fourth quarter, so a little bit less benefit from FX on the revenue side, should help the margin profile a little bit because whilst it's a revenue tailwind. It's a little bit of a headwind from a margin perspective. So that's really, I guess, the only specific point I would call out with respect to being different to Q3, but we feel confident with our guide and our exit point. Jared Levine: Understood. And then good to hear about the record 3Q Employer Services retention rate. Can you dig into if that was broad-based or specific any areas and kind of where you still see areas for opportunity to improve that retention rate? Maria Black: Yes. Jared, it's Maria. And equally as pleased with the with the result in retention. It exceeded our expectations and we raised the full year guide as a result of that, and we feel that overall, it was broad-based strength. The notable improvements that we saw across international compliance, enterprise, small business, really saw strength in return and services. It actually hit a new quarterly record for us. So it was broad-based strength. We're really pleased with what we're seeing. I think it's a direct reflection of the investments we've made into product, the investments we've made into service and how we engage with our clients, some of the things that we discussed during the prepared remarks. So really pleased with the result in retention. Operator: Our next question comes from Mark Marcon with Baird. Mark Marcon: Congratulations on the strong results. I'm wondering if you can talk a little bit about the bookings. You didn't change the forecast range for the year, and it's still relatively wide with 1 quarter to go. Can you just discuss a little bit about what you're seeing with regards to the bookings in the third quarter and year-to-date? And specifically, any areas that you're seeing really good results in, in terms of the various segments? And also, to what extent can you give some commentary in terms of whether or not you're still seeing kind of a 50-50 mix in terms of bookings as it relates to upsells versus brand new logos? And then I've got a follow-up. Maria Black: Okay. Thanks, Mark, and good to hear from you. Happy to comment on the overall demand environment and bookings. So first and foremost, we were very pleased with what we saw with respect to bookings in the third quarter. We built on the momentum that we had the first couple of quarters, the first half of the year. So pleased with where we sit heading into the fourth quarter. But as always, we have a lot to get done in the fourth quarter. I'll get back to that. I think the strength that we saw specifically in the third quarter was anchored in some of the areas that I mentioned, international. That's a highlight for us. Obviously, there's a lot happening in the world. So pleased to see the strength in international. Excited to see the strength in compliance. I think that speaks directly to some of the commentary I made around the infrastructure and Final Mile and the connectivity that we have. That business is the business that connects a lot of these things to the infrastructure of how payroll actually gets done in the world. also saw strength across our small business portfolio in the additional, call it, beyond payroll offerings of insurance and retirement services, which again speaks to kind of the strength that we're seeing in the down market. So overall, really pleased with the third quarter with respect to the overall performance. I would say, as we head into the fourth quarter, there's always a lot to get done. We left the range relatively wide, as you mentioned. I think all of those options are outcomes for us. The sensitivity of it, if you will, is around $20 million, $21 million per percent. So if you imagine, 8,500 sellers, which is about what we have that are at the ready with all the right products, a stable backdrop from a demand perspective, all the right incentives, everybody is excited to execute about throughout the fourth quarter with good solid pipelines, but we have a lot to get done as we always do at this time. To answer your question around the 50-50, it's exactly the same. So it's about 50% that comes from new logos and 50% that comes from anything, call it, beyond payroll or additional business. So that's the -- that's what we have as a backdrop, and we're pretty excited with what we need to get done in the fourth quarter. Mark Marcon: That's excellent color, Maria. And then with regards to the financials, One, you mentioned how AI is taking you more efficient. And I couldn't help but notice that the R&D or the program costs were relatively flattish despite the nice increase in terms of revenue. And I'm wondering if you can talk a little bit about some of the efficiencies that you're gaining across the board from AI and particularly in terms of new product development and the tools that you might be employing there, both in terms of reduced expenses, but also speeding up the development process. Peter Hadley: Thank you, Mark. Yes, look, I think the R&D cost line, just to be clear, has obviously the usual accounting treatment. So again, there's capitalization, there's amortization and so on and so forth. "I'm not sure what you're looking at, but at least quarter-to-quarter or sequentially then one may not move that much. We have a continued investment. We also allocate within priorities. So we've certainly pivoted more of our spending in R&D towards AI initiatives, be it on the product side to benefit our clients as well as on the efficiency side. So there's a range of different things. Some of the expense also is carried in operations where where we're spending and investing to deploy the zone, our proprietary service built on Salesforce technology that's rolling out AI infused and certainly helping. And then we have other examples [indiscernible] I'll give you one example that in addition to what we mentioned in our prior remarks. So in India, it's also year-end in India at March 31. We actually had a reduction. We do a lot of work for our clients, validating tax advantage sort of allowances and the receipts. We actually deployed AI this year for the first time, reduced the core volumes by 35% in the year-end process, also reduced the labor by 35%. That was deployed against that sort of manual but very necessary compliance efforts. So it's really a broad-based thing. We certainly have pointed our investment dollars in the direction of AI as well as the usual spend that we like to do to bring best-in-class products to market. And I wouldn't necessarily be too much into the sequential nature of the R&D program cost line in the P&L. Some of that can be accounting and some of that can be reallocation of dollars either within R&D or between R&D and operating costs. Operator: Our next question comes from Jacob Smit with Guggenheim Securities. Jacob Cody Smith: Can you provide an update on your traction in the quarter? And just in general, with [indiscernible] unique architecture compared to with standard across legacy HCM platforms. Are we seeing Lyric open up new use cases or customer segments that weren't really serviceable before? And also on a related note, we've heard from enterprise customers that Lyric is being deployed in some cases as the best-of-breed payroll and compliance layer Lyric alongside, these existing HCM platforms. Can you just talk about how prevalent that buying motion might be whether that's expanding the addressable market beyond pure displacements? Maria Black: Yes. Thanks, Jacob. I appreciate the questions around Lyric. As always, we are incredibly excited about the momentum of Lyric. We didn't call it out in the bookings commentary, but certainly pleased with what we've seen in terms of the pipeline build and the execution on Lyric, call it, year-to-date, had a couple of examples, obviously, in the prepared remarks on the impact of AI within Lyric and some of the things that we're solving for, for clients. So to address the traction, I would tell you, our clients are equally as excited. We're excited. You see this front and center just this quarter. We had our annual rethink event, which is our enterprise customers on a global scale, getting together to really talk about how they're solving for things like global payroll global time. We also had our meeting of the minds meeting just a couple of weeks ago in Orlando, which is about 2,000 of our Enterprise lines in the U.S. getting together. And I will tell you that Lyric is, for sure, gaining the momentum and attention of analysts clients is the architecture. You mentioned the architecture. It does create new use cases. The way that we have it deployed with the ability to be position management base as well as traditional base does create an architecture that's incredibly flexible, it's dynamic. That's why it's resonating both with the analysts and the clients, not just because it's modern and new and have AI in the side, but very core the engine and how it's architected allows for the flexibility and dynamic way to manage work and how work happens today, and that's start what I am busy talking about with our clients, which is how do we solve for this new future work, how do we lean into how they're actually running and operating these businesses and Lyric does that it fits squarely into that. So it is opening up new dialogue, new conversations with our clients, I suppose, new addressable use cases to use your language. I think in addition to that, as you [indiscernible] our global time story, which really came about through the Workforce software acquisitions. So you think about Global time, global payroll as well as global HR. There is this ability to plug these things, call it all together as we go to market in addition to, by the way, having global service, and that's unique for ADP. So again, it's changing the conversation with those clients who are looking to us to solve for this new world of work that we find ourselves in. So we're really excited about where Lyric is taking us both from a narrative perspective, and a pipeline perspective, but also from an addressable market perspective. And there are use cases where we can deploy Lyric in new and unique ways, that are gaining traction and more to come on that probably as we head into '27, but really excited to the places that it's taking us and it's definitely changing the conversation in the market. Jacob Cody Smith: And just a quick follow-up, too. As Lyric bookings ramp in the large enterprise, how are you thinking about scaling implementation capacity over time, whether that's investing internally or potentially working with system integrated partners in the future? Maria Black: Yes. Jacob, I'm so glad you asked because I left out that part, which is an important piece. The answer to the question is both. So we are scaling internally. But we also have this ability to go to market with system integrators in a more meaningful way than we have in the past. So we've had relationships, both with mid-tier system integrators as well as call it, the more global system integrators. Certainly, we've learned a lot from the acquisition of Workforce Software as they've been partnered deeply with many system integrators, think the likes of Accenture, and we also have relationships with others, be it UI, KPMG, et cetera. But we're really excited to continue to build out, especially as it relates to this marriage between global payroll and global time and our ability to put that together with the systems integrator that's also working with that client to solve in real time for the future of work. So a big piece of our strategy, really excited to see where it leads us. Operator: Our next question comes from Dan Dolev with Mizuho. Dan Dolev: Maria. I think Peter, great results. Congrats, well deserved. I wanted to ask about, I know there was a question about AI and R&D, but more about -- I think your competitor mentioned that there was some difficulty selling software modules. I just want to see from your perspective how this looks? I think last time we talked about it, there was no problem whatsoever. Just wanted to sort of check the box on this one. Maria Black: Yes, it's a great question. I'm not sure who entirely you're referring to. But certainly from our end, based on our pipelines and our results and again, spending times with our clients, both at the rethink event as well as our meeting of the minds event. I would tell you that software is alive and well, especially core function type of companies, and that's exactly where HCM fits in. Again, not knowing the nature of the type of company that you're referencing. That's not the case of our vantage point as it relates to HCM. Again, the way we see it is we see the future of work as one that is AI infused and AI really powering workforce, but that doesn't take away the need to actually manage this year orchestration of paying people and keeping them compliant. And so while it's reshaping the work really at the task level, and that's the research we were doing with Stanford that we see the need to ultimately manage work is actually becoming more complex, not less complex. I would say HCM is very different than that. And obviously, the value of getting all of those things right is actually increasing. So the more complex it's becoming the more valuable it is for us to do exactly what we're doing. I think the other part is in line with that, it's really about having the highest levels of standards, ethics, the need for accuracy, security, and also this idea of auditability because in the world of HCM, be it payroll and the ecosystem that defines payroll or the rest of the HR benefits and all the ecosystems and connectivity that we have to -- whether it's government entities or carriers, the room for error and big or just good enough like it doesn't exist. Payroll needs to be 100% accurate, 100% of the time. And so that's a big differentiator, I think, specifically for HCM, which kind of leads me to I guess, the last point, which is that we were kind of built for this, right? So if you think about us in the 77 years, we've been doing this for our clients navigating through economic cycles, transformation cycles the world of work and all of the stuff is making things more complex. And we have the background, the trust, the data, the deep domain expertise in our products and services, but also the expert people to help our clients through this. I have to tell you, when I was at the meeting of the minds, and I know it's the case for one of our events this week as well in the mid-market. We're celebrating clients that have 50 years of tenure with ADP. And I think that's a direct reflection of, as I said on the prepared remarks, like earned expertise, clients are turning to us at this pivotal time to help them navigate this. I'd say HCM is alive and well, definitely a core function and not something that can be replicated easily by any of these new entrants, if you will. Dan Dolev: Well, we agree. Congrats. Operator: Our next question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Just thinking about the outlook revision up and the good results here. Can we go through quickly the attribution of what's driving the change the outlook? It seems like it's higher balances, some improvement in retention is the majority of it? Did I catch that? I just wanted to make sure I covered the -- we covered that. Peter Hadley: Yes. Thanks, Tien-Tsin, for the question. Yes, we're very pleased to increase the outlook. I think part of that is obviously the strong performance that we've delivered in Q3. The balance growth, we've increased our balance growth there. We see solid sort of underlying revenue growth opportunity in both PEO and and in Employer Services exiting Q3 going into Q4. Some of that is retention. As you mentioned, some of that is the pace per control lift in terms of our guide that we made for Employer Services. And another piece I just wanted to mention is price. So the last couple of quarters, we've been talking about looking our goal to achieve around 100 basis points of contribution from price, I'm pleased that our outlook actually is reflected a little increase in that. So expecting more like 130 basis points from price. And I think that is positive, not only obviously for our financials, but when I compare that with our client satisfaction scores and our retention scores, both at record levels. Our offering is resonating the tools, the products that we're deploying resonating, and there -- where we're able to achieve value for that through our pricing. So there's a number of levers, all more or less working in the same direction, as I mentioned in one of the earlier questions. The only thing that we see softening a little bit going into Q4 is the contribution from FX, which was a little larger than we contemplated for Q3. We're not conflating the same level of contribution from FX to our revenues in the fourth quarter. Tien-Tsin Huang: Okay. Perfect. We're going through that, and then the pricing is definitely emerging that you're able to see more value. Maybe just my somewhat related to that, just thinking about competition and bookings. I think Mark asked about it well. But any change in competitive intensity? I know there's a lot of focus here on some of the starts and maybe some of the more AI native or digital native companies. Any change there, Maria, that you're seeing? I know your bookings is reaffirmed, which is great. We'd love to get a little more on what's going on in the ground. Maria Black: Yes. So it's a great question. I certainly understand the nature of it. I think with respect to any new type of entrants and [indiscernible] and in term of anything that would have entered the market in the last, I don't know, a quarter or 2. I wouldn't say we're seeing anything new and exciting there that's increasing levels of pressure or competition. I would say it's always competitive, especially, by the way, in the back half of the year. So certainly, Q3 represents a big bookings quarter for us. Q4 represents a big bookings quarter for us. And since we kind of set the tone in the market for HCM, it's always competitive this time of year. And there are lots of very formidable competitors out there. But I wouldn't say that there's anything to call out that's changed. Certainly, there's some noise with certain companies that are potentially, I don't know, going public, some were going private [indiscernible] emerging. There's always some of that. There's always incentives being put in the market. By the way, we're putting incentives in the market. But I would say the to me, as somebody who's had a front row seat to the competitive landscape for decades, I would tell you, it feels pretty normal, if you will. It's highly competitive. We show up well. We show up well with good products, good service, incredible distribution, an incredible ecosystem around us and that distribution accountants brokers SIs and certainly, the investments we're making. So I would say -- and I could go through each one of the markets, but I would say it's relatively competitive, which is exactly the type of sport we like to play. Operator: Our next question comes from Scott Wurtzel with Wolf Research. Scott Wurtzel: Just one for me. The commentary, I think, on ADP assist. It was great to hear, but I think more broadly now that you've had some of these products and AI features in the market for some time now. What is sort of the overall feedback that you've been hearing from clients regarding these products? And is there anything potentially more on the AI front from a product perspective that clients are looking for? Maria Black: So I'll start, and certainly, Peter, if you have anything to add. I would tell you, Scott, that the feedback is incredible. I cited a couple of examples. I probably could have gone on for 30 more off the top of my head. In terms of use cases, the impact that it's making. I think it speaks volumes. You see it in the client satisfaction. You see it in the retention, and you also see it now in our efficiency and our results. And so I think there's a lot to be said for the work that we've done over the last 3 years. I think we were quick to organize. We've been able to infuse AI throughout the entire organization, whether it's on the go-to-market motion, it's in the product, it's really across the entire enterprise, how we build the products. So I think feedback from the clients is meaningful when they start seeing the impact of workflows being changed and then becoming either more efficient or saving time. And so I think it's also, though, exactly what they would expect of us. And the good news is, I think we're only just scratching the surface. So as we continue down the road map of the ADP assist overarching umbrella across each one of the HCM film, and we continue to change workflows continue to build more efficiency into how we service our clients or how they're being experts at our clients are able to engage in the work that they're doing. We're pretty excited about the feedback thus far, but there's there's a lot more where it's coming from and a lot more that we can bring to the clients, and we look forward to doing that throughout the coming years. Operator: Our next question comes from Jason Kupferberg with Wells Fargo. Jason Kupferberg: So obviously, still a lot of debate in the market about how AI could impact seat-based revenue models. I think ADP has said in the past, a 1% change in pace per control impacts ES revenue by about 25 bps. So can we infer from that, that only about 25% of the ES business, excluding float is priced on a per employee per month basis? Or is there more nuance to it. And then just on the PEO side, I think the revenues are more tied to client head count there. But maybe if you can clarify all that with some numbers, that would be really helpful. Peter Hadley: Thanks for the question, Jason. No, on the employee services side, we have a higher propensity or proportion, if you like, of our revenue that you see this than 25%. So in the down market, it's actually lower than that or about 80% of our revenues are base fee. We have other revenue models in the downmarket in Retirement Services, for example, Insurance Services is more of a commission model on our -- on insurance premiums that we sell. We have asset-based revenues as well as participant-based revenue in the down market. In the mid-market and the upmarket, though, we were much more, if you like -- we're much more seat-based models. We do have the revenue streams, implementation and project services and so on that we are much more attributed to the seat-based model. In saying that, we feel like there's -- it's a value-based price approach that we've always taken. So again, the value we confer is not necessarily linear with the number of employees the client has. We're providing compliance. We're providing people getting paid a good experience being moved. So again, I think we have opportunities should the need to araise, we're not seeing need arising in the data at the moment with respect to pivoting the model in whatever way would make sense for us and our clients, should that be the case. I would say it's more indirectly an employee-based model or a seat-based model. The predominant billing model we have in the PEO is the percentage of payroll. So obviously, the number of employees can influence the percentage of payroll that so can wage levels, wage inflation, obviously, some of the pass-through revenues, like taxes and workers' comp and things like that. So really, I would say the PEO model probably is less directly exposed to to the seat-based pricing mechanism than maybe the mid-market and upmarket of the ES space. Jacob Cody Smith: Okay. So that's good color. And I wanted to just come back on bookings. I know we're reiterating the guide here. It feels like the tone qualitatively all year has been consistently just wanted to get your take on relative confidence in kind of the lower end versus the higher end of the 4% to 7%. I know it can kind of come down to the wire during the last quarter of the fiscal year, but just how you're feeling about that with 2 months to go? Maria Black: [indiscernible] You would have guided differently, but I think all of those options are on the table, if you will. But we feel good about pipelines. We feel good about the incentives. We feel good about the sellers, the ecosystem, the products, the backdrop, HCM backdrop seems stable. So I think we're excited to see how this fiscal year ends, but we're certainly at the ready and executing against it. . Operator: Our next question comes from Ramsey El-Assal with Cantor Fitzgerald. Ramsey El-Assal: Congratulations on some solid results today. The PEO segment margins came in a little bit below our model. And you mentioned a few drivers. I think one of them was higher selling expenses. What does that mean exactly in this context? Is it like concessions to new clients or higher incentive for your sales staff? Just trying to figure out sort of what that is and what it implies. Peter Hadley: Thanks for the question, Ramsey. Yes, there was probably 3 things that went on in the PO with respect to margins this quarter. One of them is higher selling expenses. I'll get to that. The other is the SUI revenues came in stronger than we were expecting, and we were pleased to see that given what it represents in terms of wage base and so on, but it comes at a lower margin. The third piece, which is maybe less noticeable as we had positive -- some positive reserve releases in the workers' comp reserves for indemnity, less positive than the same time last year, which produced a little bit of margin drag in the in the PEO. But back to the selling expenses, the real reason why the selling expenses were higher was, we had a really strong quarter in terms of sales. So again, that creates -- there's a variable cost model with respect to selling, and we had a strong quarter, as Maria alluded to earlier with respect to PO sales, so that brought additional selling expenses -- the pays petrol, as I mentioned in my prepared remarks, continued to soften a little bit in PO. It was solid in ES, softened a little bit in the PEO. That is a margin revenue that sort of goes away. So when you put the combination of the higher sales, which generate higher selling expense with the with the pace per control situation, you see a little bit of erosion in the margin net -- on a net base in addition to the SUI and in addition to the workers' comp reserve releases being slightly lower this year than what they were last year. Ramsey El-Assal: Got it. I have a follow-up. I mean international has been a bread spot in the business for quite some time. Is there a way to accelerate that strategy? This is something you've commented on in the past, but maybe via M&A. Could you kind of press the gas pit a little bit on international to bolster further? Peter Hadley: Yes, great question. It's certainly something we look at. We do quite a bit of small, I guess, small deals, but quite a bit of M&A. We've acquired a number of our partners in our [ Silego ] network over the years, including some more recent ones in Mexico, in the Nordic countries. We have that piece. We also have workforce software, which was, as Maria talking about earlier, is a global time offering, not just at the [indiscernible] offering, albeit it was a U.S. company, but it had presence in places like Canada, the U.K., Australia and so on and the product hunts in many occasions across the world beyond on where that company had presence. Is there more opportunity to do M&A. Yes, I believe so. I think it's a question of finding the right fit, and we have people that are studying the market, and we obviously have contacts with many companies out there. And as and when we find one that would be additive to our model and accretive to our opportunity, ADP, we will certainly look to pursue that, but nothing to nothing to [indiscernible] or announced on the call. Operator: Our next question comes from Dan Jester with BMO Capital Markets. Daniel Jester: Maybe a 2-parter on ADP Assist. So your first one is, I don't know if you shared this in the prepared remarks. Have you made any comments about sort of uptake repeat usage, engagement levels with the customers that have access to it. And then the second part of the question is you commented about the payroll agent saving a lot of time, smart actions saving a lot of time. As you roll more of these out, how do you view out sharing some of the value from the time savings that these agents are providing? Maybe this ties to Peter's [indiscernible] about price but sort of any comments on that would be very helpful. Maria Black: Sure. Thanks, Dan. Really excited about the progress we're making across the ADP Assist portfolio and innovations, if you will. And I think we are seeing that uptake in terms of clients, and we're definitely seeing -- I think you asked about repeat clients. I would tell you, as often is the case in many of these AI tools that we will engage in. Once they get started, they get, call it, hooked on continuing to process improve and engage with these tools. And so you definitely see those that, engagement like the smart actions and the Smart Search come back time and time again and kind of pick up where they leave off and continue to work and that's exactly what would be expected of these tools, and I think they're bringing the intended value. And certainly, our clients are looking to us to continue to innovate across each one of these films of the HCM domain to make the workflows easier and to make things better for them and better for us. And that's really how we think about it. I think it's showing up well in things like retention and bookings and efficiency. Peter cited some stuff around the places that we have these tools deployed internally at ADP and what it's yielding in terms of efficiency in our small business and wisely, and we will continue to see that. And certainly, we see that at the client side as well. In terms of how we think about it from a price perspective, I think Peter made the comments earlier in terms of our value-based pricing, I think that's what we're always solving for. So we're not really looking at this as a discrete usage type of fee at a piece by piece level. We really look at it as core in the fabric of how we operate and how we deploy our products to our clients. And I think it shows up in things like margin and efficiency. I think it shows up in bookings. I think it shows up in retention, and that's kind of the way we think about sharing this opportunity with our clients. I don't know if you have anything to add there, Peter. Peter Hadley: No, I think it's important to recognize, like the -- in everything we do in this area, we're looking at where is the value and how should that be attributed. So again, whether this is through specific pricing, whether that's through general pricing base, whether it's through revenue share models, we have -- Maria was talking about in the prepared remarks the market, this agent program that we've just launched as well as our own internal efficiency and cost savings. For us, it's less about, I guess, how do we specifically price, that's certainly important. But ultimately, what is the value created, what is the appropriate allocation of that between ourselves and our clients and monetizing that, taking advantage and monetizing that for mutual benefit. That's really what we think about it. And there's probably a laundry list, I guess, of different scenarios, which we don't have time to go through today in terms of how we do that. But I think you can rest assured that we feel strongly about capturing the value that we're conferring through pricing and other mechanics as well as, obviously, what I was talking about on the efficiency side, that is certainly a bottom line savings that go to our EBIT numbers as well as likely will be fueling our further and future investments in this area. That's really helpful. Daniel Jester: And then just as a follow-up, actually, is on the marketplace. And maybe just philosophically, maybe give us an update on sort of partner versus build it yourself for these third-party agents and ultimately, are you ambivalent whether a customer uses your build agents or a third-party agents? Or how should we think about that evolving over time? Maria Black: It's a great question, Dana. And I would start by saying we are not ambivalent. The way we think about it is always putting the client first. So it's really about the client and how do we solve for them and make their world easier that's what led us to be verse to launch an ADP Marketplace. It is the largest HCM marketplace. We have over 800 integrated solutions across the globe actually as well. So we've expanded the footprint in the last year or so. internationally, and it's really about providing those clients the choice and the ability oftentimes to connect their systems and their views on their workforce, their views on things like compliance, their views on whether it's time. So it's not an ambivalent, it's really quite the opposite. It's really about putting the client first and extending our capabilities to meet the clients' needs and demands. And that's exactly what the marketplace does. What I was excited to share during today's call was also our approach with respect to doing that in a secure and ethical data way in this new world of AI. And so we have AI agent kind of partitioned off inside of our ADP marketplace to make sure that they're operating the right way for our clients in conjunction with us, and that's really exciting as we think about, again, clients that are navigating all of these things across the HCM landscape to do the right thing for their employees and their workforces and how we can show up there and make that work for them as an imperative piece to our strategy. Operator: Thank you. This concludes our question-and-answer portion for today. I'm pleased to hand the program over to Maria Black for closing remarks. Maria Black: Thanks, Michelle, and thank you, everyone, again, for your interest and for joining us. As you probably heard throughout the call today, I believe deeply in the world of work. I believe everything that it represents all the beauty and human connection and what work means to people. And I also believe that this is a defining moment for our industry for human capital management. The leaders need to lead at this time and need to lead in this world of work, and that's exactly what the leader is doing. That is what we are doing. That is how we show up today for our insight is how we show up today for our stakeholders with our results. So I'll end with where I ended the prepared remarks, which is that every single result, every single award, every single client, that's an extension of us and our culture that we serve and every innovation that we're bringing to the market it starts with our ADP peers and our ADP associates. And I couldn't be more proud and grateful to represent us today. So thanks for the time. . Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Good day, and welcome to the Silgan Holdings First Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Alex Hutter, Senior Vice President, Strategy and Investment Relations. Please go ahead. Alexander Hutter: Thank you, and good morning. Joining me on the call today are Adam Greenlee, President and CEO; Philippe Chevrier, EVP and COO; and Shawn Fabry, EVP and CFO. Before we begin the call today, we would like to make it clear that certain statements made on this call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore, involve a number of uncertainties and risks, including, but not limited to, those described in the company's annual report on Form 10-K for 2025 and other filings with the Securities and Exchange Commission. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements. In addition, commentary on today's call may contain references to certain non-GAAP financial metrics, including adjusted EBIT, adjusted EBITDA, free cash flow and adjusted net income per diluted share or adjusted EPS. A reconciliation of these metrics, which should not be considered substitutes for similar GAAP metrics can be found in today's press release and under the non-GAAP Financial Information portion of the Investor Relations section of our website at silganholdings.com. With that, let me turn it over to Adam. Adam Greenlee: Thank you, Alex, and we'd like to welcome everyone to Silgan's first quarter earnings call. Our first quarter results displayed the resilience of our business and the power of our diverse portfolio and continue to demonstrate the unique value of our critical packaging products and the strength of our long-term customer partnerships in the market. . Our teams executed well during the quarter and adapted to dynamic operating and market conditions. We're pleased to have delivered first quarter results that were at the high end of our estimated range and we remain confident in our outlook for the balance of the year despite the evolving macroeconomic and geopolitical environment. Our results in defensing and specialty closures were consistent with our expectations entering the quarter despite significant weather events in North America that impacted both our and our customers' production and volumes during the quarter. We delivered another quarter of double-digit organic volume growth in our fragrance and beauty products as a result of our market-leading innovation and customer partnership model. We continue to outperform the market in these high-value strategic growth products. And with the Weener portfolio now fully integrated, and the power of the combined innovation engines of our legacy business in Weener, we see ample runway to continue to deliver organic growth well in excess of the market for many years to come in this business. Our metal containers business started the year strong with volume 2% higher than the prior year as pet food products increased by 11% over the prior year by facing a more difficult year-over-year comp with the prior year quarter up 6% year-over-year. Consumer demand for our customers' market-leading pet food products continues to grow at a mid-single-digit rate as our mainstream wet pet food products serve the fastest-growing segments of the pet food market for cats and small dogs. The strength we experienced in pet food in the first quarter was partially offset by the expected impact of pre-buy related volumes for fruit and vegetable markets. In Custom Containers, our team continued to prove the value we provide as an innovative partner of choice in the unique small and medium run length portion of the market we serve. And our results were consistent with our expectations entering the quarter. As expected, our Custom Containers volumes were below prior year levels as customer destocking from the prior year carried into and concluded in the first quarter of 2026. In addition, we continue to lap the volume impact of our cost reduction activities in 2025, which should become less impactful as we move through the quarters in 2026. We are pleased to have started 2026 on a positive note, and our business remains on solid footing as we move into the second quarter and look ahead at the second half of 2026. While much has changed in geopolitics since our last earnings call and the economic landscape is less certain to deliberate construct of our portfolio of products and end markets, our long-term partnerships with our customers and our low-cost global manufacturing footprint continue to uniquely position Silgan to outperform through all stages of the economic cycle. Turning now to our outlook. We are raising our 2026 earnings estimate to reflect the operational outperformance in the first quarter and our volume expectations for the remainder of the year remain largely unchanged. We continue to expect Dispensing and specialty closures organic volume mix to grow by a low to mid-single-digit rate in 2026 driven by mid-single-digit growth in our dispensing products. Our Metal Containers volumes are on track to grow by a low single-digit percentage, driven by mid-single-digit growth in pet food and stable volumes in human food. We continue to expect our custom containers volumes to be comparable to prior year levels as destocking in first quarter and the exit of business to achieve cost reduction goals in the prior year weigh on first half volumes, while second half volumes are expected to grow as new business ramps up. Our teams remain laser-focused on executing our plans for the year and the opportunities that lay ahead for the company in both the near and longer term, and we are confident in our ability to execute on our plan. With that, Shawn will take you through the financials for the quarter and our estimates for the second quarter and full year 2026. Shawn Fabry: Thank you, Adam. As Adam highlighted, we reported another quarter of strong financial performance in the first quarter of 2026. With results coming in towards the high end of the expected range due to strong operational EBIT performance and favorable interest expense, which was partially offset by higher corporate expense. . Net sales of $1.6 billion increased 6% from the prior year period, driven primarily by the contractual pass-through of higher raw material costs, mostly in our Metal Containers business and favorable foreign currency translation. Total adjusted EBIT for the quarter of $152 million was 4% below the prior year with higher adjusted EBITDA in our Metal Container segment offset by lower adjusted EBIT in the dispensing and specialty closures and Custom Container segments and higher corporate expense. Adjusted EPS of $0.78 decreased $0.04 from the prior year period due to lower adjusted EBIT and a higher tax rate, which was partially offset by lower interest expense. Turning to our segments. First quarter sales in our Dispensing and Specialty closures segment increased 2% versus the prior year, primarily as a result of the pass-through of higher raw material costs and foreign currency translation of 6%. The which was partially offset by lower volume and less favorable mix. Volumes in the quarter were adversely impacted by severe weather events that curtail production are in our customers' production facilities, which also caused an adverse impact on the mix of products sold. As expected, first quarter dispensing and Specialty Closures adjusted EBIT was below the prior year levels, in part due to the year-over-year impact of the benefit of selling through prior year inventory in an inflationary environment in 2025 and as compared to the headwind of selling through higher cost inventory in 2026 for steel, food and beverage products in Europe. The strong growth in dispensing products for fragrance and beauty markets were offset by the adverse volume mix and cost impact of severe weather during the quarter in North America. In our Metal Container segment, sales increased 15% versus the prior year quarter as a result of the contractual pass-through of higher raw material costs, principally related to steel and aluminum and higher volumes of 2%. Our volume growth in the quarter was largely the result of higher volumes for pet food markets of 11% as we continue to experience strong growth in this category. As expected, volumes for fruit and vegetable markets were below the prior year levels as a result of prebuy activity in the fourth quarter of 2025 as certain customers purchased ahead of anticipated raw material inflation in 2026. Metal Containers adjusted EBIT was comparable to the prior year quarter as higher volumes for the pet food market were partially offset by the adverse mix impact of lower volumes for the fruit and vegetable markets due to the prebuy. In custom containers, our results were largely consistent with our expectations as sales decreased 10% compared to the prior year quarter as a result of lower margin business exited due to a planned footprint optimization to achieve the previously announced cost reduction goals and the continuation of destocking activities that concluded during the first quarter of 2026. Custom Containers adjusted EBIT was below prior year levels as a result of the lower volumes. Turning to our outlook for the second quarter of 2026. We are providing an estimate of adjusted earnings in the range of $0.92 to $1.02 per diluted share as compared to adjusted earnings of $1.01 in the prior year period. Second quarter interest expense is anticipated to be in the range of $50 million with a tax rate of 25% to 26%. From a segment standpoint, second quarter dispensing and specialty closures adjusted EBIT is expected to be comparable to the prior year period, with higher year-over-year volumes largely offset by significant inflation in the quarter. Based on the current resin market, we are expecting approximately $50 million of incremental cost in this segment during the quarter related to the inflationary pressure from the Middle East conflict, which is anticipated to impact adjusted EBIT by approximately $10 million in the second quarter. Metal Containers volume and adjusted EBIT is expected to be below prior year levels as mid-single-digit growth in pet food products is expected to be offset by a normalization in the seasonal or in patterns for the fruit and vegetable markets. as the segment reverts to a more typical volume pattern following several years of volatility related to one of our customers. This normalization is expected to be predominantly impact the timing of orders between the second and third quarters. and does not impact our expectations for volumes for the year. Custom Containers adjusted EBIT and like-for-like volumes are expected to be modestly above prior year levels in the second quarter. For the full year 2026, we are increasing our estimate of adjusted EPS by $0.03 to the range of $3.73 to $3.93 as compared to $3.72 in 2025 to reflect the strong operational EBIT performance in the first quarter. This estimate includes corporate expense of approximately $50 million as increase -- an increase of approximately $5 million from our prior estimate, which is offset by lower anticipated interest expense of approximately $200 million. Our 2026 estimate of adjusted EPS continues to factor in an expected tax rate of approximately 25% to 26% and a weighted average share count of approximately 106 million shares. Our updated 2026 adjusted EPS range now exceeds the prior record level of adjusted EBIT and adjusted EBITDA achieved in 2025 at the low end of the range. From a segment perspective, low to mid-single-digit percentage total adjusted EBIT growth in 2026 is expected to be driven primarily by a mid-single-digit percent increase in dispensing and specialty closures, adjusted EBIT and a low single-digit percent increase in adjusted EBIT in the Metal Containers and Custom Containers segments. The volumes in 2026 are expected to grow by a low to mid-single-digit percentage in dispensing and specialty closures driven by a mid-single-digit increase in dispensing products. Metal Container volumes are expected to grow by a low single-digit rate as a result of mid-single-digit growth in products for pet food markets, which represent more than half of the segment volume. Custom Containers volumes are expected to be comparable to the prior year on a reported basis and above prior year levels on a like-for-like basis, excluding restructuring impacts. As lower first quarter volumes, primarily due to destocking activities are expected to be offset by growth in the subsequent quarters. Based on our current earnings outlook for 2026, we are confirming our estimate of free cash flow of approximately $450 million, which includes CapEx of approximately $310 million. With that, we'll open the call for questions. Margo, would you kindly provide the directions for the question-and-answer session. Operator: [Operator Instructions] We will take our first question from George Staphos with Bank of America. Bradley Barton: This is Brad Barton on for George this morning. I was just wondering if you could -- looking at your M&A pipeline, just discuss how you're reviewing the pipeline. And relatedly, when you view candidates, can you discuss how you assess their capital and cash intensity relative to Silgan? Shawn Fabry: Yes. Thanks, Brad. Appreciate the question. So I think as you think about silicon, one of the real strengths of the company over time has been capital deployment. Really nothing has changed regarding our approach to capital deployment or how we evaluate M&A. So one of the key hurdles that every acquisition that we the value it has to clear is the other opportunity of buying back stock or paying down debt. We continue to look at our opportunities on a cash-on-cash return basis over a long period of time that factors in all the opportunities for the business, the capital that the business will require any advantageous tax situations and the like. So nothing has changed about our return hurdles as well. I think as you think about the M&A pipeline, we've said now for a number of quarters that the M&A pipeline remains active. We see a number of opportunities or assets that could be coming to market that would fit nicely in our strategy where we have been building out a portfolio of higher-margin, higher growth businesses in the dispensing and specialty closures laying money now. We look at everything that's rigid packaging for consumer goods. But I think that's kind of how you should think about our M&A pipeline and the way we look at M&A. Operator: We'll take our next question from Matt Roberts with Raymond James. Matthew Roberts: I have a couple of questions on the volume outlook. Sounds like not many changes there, but just a couple of puts and takes by segment. Maybe I'll knock them off here all in a row. Maybe on Metal Containers. I believe you called out timing any impact from weather [indiscernible] or fertilizer availability that could impact the pack season or what you're hearing from customers heading into 3Q on that or if it's still too early. And then on dispensing and specialty closures. First, Fragrance and beauty continues to see good gains. Are you seeing any impact from export out of Europe or shipping constraints or or ask given limited exposure, but anything from the lower duty free travel or no impact there? And then lastly, on beverage, how did that perform in on a same-store basis without new contracts and anything you're seeing there in April into the summer season. Adam Greenlee: Sure, Matt. Thanks for the questions. Maybe just kind of taking them up in the order that you went through them. So for Metal Containers, really the timing issue that we talked about is the simple fact that one of our large fruit and vegetable customers now is in new ownership hands and the profile of that credit essentially is different than it has been. So you should probably think about those products being shipped and consumed and products being filled closer to the time that the product is packed in the field. So I think as we've talked a long time, our manufacturing philosophy of Silgan is we basically make hands all year long, particularly for the pack products. And we sell them kind of 2Q, 3Q and Q4, and this is just moving the timing more to Q3 where products are picked and filled from the crop perspective. So no change whatsoever to the full year with that customer and how that has played out in 2026. As we then move over to our Dispensing and Specialty closures segment, the organic growth in Fragrance and Beauty has been terrific and it's been strong and has been strong for quite a while now. The pipeline is very very full and the opportunities are in front of us. I think we're winning simply because of our innovation in our customer partnership model. And as we've talked before, that's a much longer developmental cycle than maybe some of our other products, call it, in food and beverage or personal care. So here it is 2026, and we're talking about product launches for certainly known product launches for '27 and developmental ideas in '28 and beyond. So pretty good line of sight into how that business is going to continue to perform for us. Obviously, with the conflict in the Middle East, there is potentially an impact on some luxury business. But we don't think it applies in our customer. I don't think it applies to to the products that we sell in fragrance and beauty. We're a little bit on the lower end of the luxury scale. And I think one of the great ideas here is that our customers through the pandemic were able to identified find new ways to reach their consumers. So particularly those duty-free and travel consumers, tourism consumers that you referenced. What we found is those consumers are continuing to buy the product, whether they're traveling or not. They've found avenues to continue to consume those products. And then finally, on the side, Q1 performance right in line with expectations. You're right, we did have a new contractual win this year that has already been commercialized. That is part of our volume outlook for 2026. But I would say, again, on the beverage side, I think we talked about this a little bit last time, a fairly muted outlook from our perspective on market performance. We're taking a conservative view on the market, adding in our contractual volumes and that's what's embedded in our guidance for '26. We're not really at all subject to needing the market to grow in order to hit the guidance that we put forward. Operator: And we'll take our next question from Michael Roxland with Truist. . Niccolo Piccini: This is Nico Piccini on for Mike Roxland. Just to start out, I think last quarter, you mentioned that Vainer is positioned to grow ahead of peers and then take kind of outsized portion of new product launches. Just wondering how that performed in 1Q, highway to perform versus peers? And what does the backlog look like for 2Q? And then how can you measure that as performance against peers and kind of tell with certainty that you're actually gaining shares? . Adam Greenlee: Sure. It's an interesting question. I think, Nico, what I would say is it's the combination of Vainer with our dispensing especially closures business that that drives kind of the commentary that you referenced. So really, it's the combined portfolio now including Weener. And I think I -- the area I'd probably point you to directly is is fragrance and beauty. And we've had tremendous success in fragrance and beauty. We've delivered another quarter in Q1 of double-digit growth. I feel confident that we're winning a higher percentage of the new product launches that are in the market and have been now for a couple of years in a row. So I think that's how we really determined that we are continuing to garner a larger percentage, larger share of that market. To be clear, we are not at all competing on price. This is about innovation. This is about partnership and helping our customers get new creative and innovative products into the market well into the future. again, my comments from the last question were we're already working on commercializing '27 product launches and developing '28, '29 product launches right now. And that's that is a core component to how we're going to continue to grow out the business with our, I'd say, market-leading innovation pipeline in those products. Niccolo Piccini: Got it. If I could just do one follow on here. You called out some incremental opportunities for long-term growth in customer tenders, I think, both with new and existing customers. Can you provide a little more detail on that, maybe if you can quantify how that could impact the P&L or just some additional details on those wins. Adam Greenlee: Sure. And I think maybe just going back, we did exit a facility in 2025 as we were exiting some lower-margin business. And I think as we've talked historically, the exit of volume doesn't always line up perfectly with the new volume coming on to replace it. So I think what you see in '26 is we've had really good success in the marketplace. Those volumes will be commercialized over the back half of the year. And that's when you sort of see the inflection point on a like-for-like basis where volumes turned positive in the back half of the year. Operator: And we'll take our next question from Gabe Hajde with Wells Fargo Securities. Gabe Hajde: I wanted to ask about some of the health care applications that you guys have in the market. I think you kind of talked about over a medium term 3- to 5-year basis trying to 2x that business. Anything that you can talk about that's been commercialized this year, maybe where capacity utilization sits or growing into some capacity that you've added in the past couple of years? Adam Greenlee: Yes. Look, it's a core focus of where we're going, a big part of the growth profile of our dispensing and Specialty closures segment going forward. we've had tremendous success in our nasal and acholic applications, and we see really good growth in both of those specific target areas. We've invested, as we've talked in the past, Gabe, to support that volume growth. And we're seeing the growth that we expected right now. So I think we had talked, call it, a $200 million health care business at one point and it's closer to $250 million now as as we look into the rest of 2026. So we're getting the growth that we had targeted. And again, it's really focused on nasal and ophthalmic applications. And I would say, Gabe, the application opportunities continues to expand within kind of that nasal and ophthalmic frame. Gabe Hajde: Got it. I guess, dimensioning what '26 could look like. Going back to the M&A question, there was obviously some reports out there pretty public about a competitor over in Europe. . My question is less about that specifically and more about by scale. That would have been a fairly large transaction. I know you can't dictate timing when the when these things come available, but pushing the balance sheet a little bit. Can you just talk around appetite for that? And maybe as you fill through some of the other opportunities, is there anything out there that strikes you as a similar size and scale or that was probably on the high end of what you'd be looking at? Adam Greenlee: Well, sure. Obviously, we're not going to comment on any rumors. And I think what we'll say has been consistent with kind of where we've always been. I mean I look at the scale of the company today versus maybe 10 years ago, Gabe, and it's in a much different position just simply because of the profitable growth that we've added to the business. And I look at the Weener acquisition, roughly just round numbers, $1 billion acquisition where we actually did lever up and went outside of our target leverage range with a very clear plan to get back to that target leverage range within 15 months. and we executed very well and delivered that target. So $1 billion acquisition on top of Silgan and being able to get back within our leverage guidance within 15 months is a pretty impressive feat as far as I'm concerned as far as how the company has evolved over time. So we like acquisitions of all sizes and scale. I think with WestRock, with Albéa with Weener, we did go outside of our targeted range, but we've always had the ability to utilize the free cash flow of the business to delever quickly. And that's really more of the important point. I think what our businesses have shown is a tremendous ability to integrate and bring on board the acquisitions that we've executed upon. And I think what our team here at our corporate group has done has shown a real core competency in navigating the M&A landscape. And I think we -- I'll say it again, I think we are advantaged in many ways as we look at assets and properties in the space. and we're excited about the opportunities that still sit out there in front of us. Gabe Hajde: Perfect. No, look, execution has been really solid the past 10 years. Operator: Our next question comes from Hillary Cacanando with Deutsche Bank. Hillary Cacanando: So based on the double-digit volume growth in the fragrance and beauty segment, it seems like consumer remains bifurcated. Is that what you're continuing to see? Just talk about how other patents in the DSD segment like personal care and home care products have performed. Adam Greenlee: Great. First of all, Hillary, welcome to the call. So it's nice to hear from you on the first call, so welcome to the space. . Sure. Look, fragrance and beauty, we do think there continues to be evidence of a cashed economy. And I think Silgan is a great example of where that plays out because of the diverse nature of our product portfolio. So fragrance and Beauty, you're right. I mean that's a luxury item. And I think the high-end consumer continues to do fairly well. And those purchase patterns with double-digit volume growth in those segments continue to to show tremendous strength. Maybe on the other end of that K-shaped economy that we've talked about, you have the consumer that is more focused on value and is making decisions at the point of purchase. And I think you can look right at our food can business. And again, when you think about the consumer, the food can typically is targeting. It's it's for folks that are looking for the greatest value to deliver the highest nutritional content for the low cost. And that's what our food can products allow our customers to do for consumers. So I think the low-end consumer is more focused on value and stretching those dollars and the food can, I think, plays a really important part in that dynamic. So we see the K-shaped economy continuing to play out. Hillary Cacanando: Okay. So how about in your like home care, spray, aerosol, the cleaning spray, any impact there since it's kind of, I would say, less -- not as elastic, I guess? Adam Greenlee: Yes. I think it's a really good point. And I think you look at our portfolio of products, and it's the vast majority of our products are consumer staples. We consider them to be nondiscretionary. I do think, in fairness, there are pockets of strength and pockets of some slight weakness, but you would expect that across a diverse portfolio like ours. So I think it's more about the consumer staples that we support our customers with that really are more protected than the discretionary spend items that consumers are dealing with. Hillary Cacanando: Okay. Got it. And then just on -- in the pet food category, doing so well. We've heard all your peers pounding their pet food performance. So are you seeing any competitive pressures there with everyone trying to increase their pet food business? Adam Greenlee: Well, I think for me, as I look at our metal container business, and obviously, that was a large part of that. So much of this business is under significant long-term contracts that historically, we stayed out of the fray of the market. As it relates to wet pet food specifically, we are heavily overweighted to that segment. So I think with our largest customers, continuing to grow and drive the growth in that category. Obviously, we continue to win and increase our volume in that market I think on maybe some of the private label side, there's other opportunity for smaller growth for some other folks. But we're really focused on our largest customers driving that volume again, and we are focused on caps and small dogs and the portfolio of products that we take to market. Operator: We'll take our next question from Ghansham Panjabi with Baird. Unknown Analyst: Actually Josh Westley on for Ghansham. Maybe just piggybacking off of Hillary's question there, just maybe focusing more so on your CPG end markets. And just on a high-level basis, do you guys get any sense that they're shifting philosophy at all from kind of the volume emphasis that they were talking about at the beginning of the year, right? Just given the context of pricing for them across the board has been very high for year basis. Again, they started switching towards more constructive volume commentary at the beginning of the year. Do you think they're going to kind of revert back to maybe pushing pricing just in context of the inflationary backdrop we're in? Or will they kind of stick to this volume dynamic just because of the pricing that's been in the past? Adam Greenlee: Yes. Very good question. I think that certainly, as we came into the year, volume was the focus, and I think there was more promotional and price activity supporting volume growth. I think with the conflict in the Middle East and the impact on inflation, I think we're still in now in deep conversations with our customers, trying to understand exactly how they're thinking about the rest of the year. But I would say, even up through early part of April, promotional activity was still pretty good for most of the products that we were looking for. And then I think how that ultimately relates to Silgan, it's back to the comment I made earlier. I mean, really we looked at market growth in a fairly muted lens for 2026. So we're not expecting significant growth in markets to support the guidance that we've given. We've added kind of our contractual wins to our volume outlook. But outside of that, we're expecting pretty muted volume trends across the markets that we serve. Unknown Analyst: Okay. Great. That's super helpful. And then maybe just if I can sneak in one more, just on the input cost inflation component. Obviously, a lot of that is resin and you have contractual pass-through mechanisms there. But how are you thinking about the inflation specific to maybe some other derivatives such as energy, freight, coatings for cans, et cetera. Can you quantify that impact? And can you also remind us, too, is that pass-through contractually as well? And if not, how do you plan on offsetting that? Adam Greenlee: Sure. Well, maybe I'll just start with kind of reminding everyone I'm still in sourcing strategy. I mean what we like to do is as we like to buy raw materials. We like to manufacture and we like to sell all within one geography. So you take some of the global influence out of of the relationship with our customers. So I think that's an important point to start with. You're right. I think resin costs are probably the biggest item here to address. And we talked a little bit about it in Shawn's comments earlier. And I think just for the inflation we're anticipating is something around $50 million in our Dispensing especially closure segment. I think the net impact of that inflation with our lag pass-through is going to be something like $10 million. So I think it's embedded in our guidance. As we talked about earlier in the year, we planned for more unknown risk in 2026. So it really doesn't change our guidance. We're able to absorb that and still maintain our guidance. And then I'll maybe pass to Shawn to talk a little bit about how we manage through the other inflation that we're experiencing as well. Shawn Fabry: Yes, sure. So you specifically asked about freight and energy. I'll start with freight. Freight is a relatively small spend for us, it's under 3% of our cost of sales. Most of the freight in this business is FOB. So from that perspective, it doesn't really apply on the inflation side. And what's left is predominantly pass-through-based different formulas, fuel surcharges, things like that. So we don't see a lot of exposure on the inflation side for freight. Similar comment on energy. It's again, a relative -- you think it might be larger than what it is, but it's still around 3% of our cost of sales. We have an active hedging program in place, and we're well hedged for the balance of the year. So we don't see much risk there for 2026. And if inflation does kind of linger here towards the back half of the year, we'll address that inflation with our customer base in the 2027 renewals. So no real impact on either of those categories, I'd say modest headwinds, if anything. Operator: And we'll take our next question from Anthony Pettinari with Citi. Bryan Burgmeier: This is actually Bryan Burgmeier on for Anthony. I appreciate the detail on dispensing and resin costs that you provided there, is that $10 million drag in 2Q something that you would expect to recover in kind of 3Q or 4Q. Can you maybe just kind of remind us the timing of these pass-throughs. Just trying to frame, I guess, like rising resin costs versus raising the 2026 outlook seemingly with most of your assumptions unchanged . Adam Greenlee: Yes. I mean, look, I think the rapid kind of unprecedented inflation that we've seen in resin is specifically what we're talking about. I think as you look at the indices for the remainder of the year, there's expected to be some stability kind of mid to late here and then potentially depending on the resolution to the conflict in the Middle East, some recovery to lower cost of resin. But that's relatively unknown at this point. So we're not anticipating that anticipating that happening. . I think as we think about the net impact of that $10 million, I mean, I think it's not ideally recoverable in Q2 or Q3. I think as we're thinking about it today, is resin markets decline in the future, that's when that recovery would ultimately happen. So it's going to be spread over a longer period of time, and I would not anticipate that probably starting but more potentially Q4 and well into '27 as we think about the resolution of the conflict in the Middle East. Bryan Burgmeier: Okay. Got it. Got it. Yes, just following up, maybe curious if there's anything that's maybe been better than expected, that allows you to offset that $10 million drag. Maybe it's the 1Q result. And then just in the press release, I think you mentioned you're now expecting custom containers EBIT to be up year-on-year when I think last quarter was kind of flattish year-on-year. So just curious what kind of drove that change in view? Adam Greenlee: Yes. I mean, look, I think our businesses continue to perform at a very high level. We had a very strong start to the year. And for the most part, as we look at the balance of the year, nothing has really changed from our expectations. You mentioned Custom Containers. It is we continue to win in that market, and we continue to commercialize new volume. And that's really what's driving the growth in the back half of the year for Custom Containers. But I think as we came into the year, again, sort of muted market assumptions. So a lot of stuff can happen, and we think we've factored that into our guidance for the year. So with really nothing changing as far as our portfolio of consumer staple products, we're very confident in the remainder of the year and importantly, the performance of each of our businesses as we go forward. Operator: We'll next go to Daniel Rizzo with Jefferies. Daniel Rizzo: So with Weener fully integrated. I mean, is it -- can you provide color or just kind of some sort of numbers around what kind of revenue synergies you might see over the next 2 to 3 years? Or I mean, what the runway is and how we should think about it? Adam Greenlee: Well, I mean, Dan, yes, so it is fully integrated. You've got that innovation engine that we continue to talk about. And it's really difficult to say does that come from Weener or from our dispensing group. I think I would say, look at the growth rate that we have from a longer-term perspective on this segment. And that's what supports that growth rate. Is this very powerful innovation engine combining our business with Weener. Daniel Rizzo: Okay. And you mentioned a couple of times about the muted beverage environment, which I understand, but what could trigger just some acceleration, I guess, improved consumer confidence? Or what would -- I guess you have to wait for your customers. So how should we think about that as something that can provide some upside maybe in the back half of the year and into 2027. Adam Greenlee: Well, I think for us, first quarter was essentially flat in the beverage business and right in line with our expectations. So again, we are not expecting a tremendous amount of growth. I think if the market grows that'd be a great thing, and that would be upside for our company, but that's not what's embedded in our current guidance to the midpoint. . Operator: Our next question comes from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Congrats on the strong results. I guess I'm just curious on the volume side, would you attribute a portion of some of the growth to customers kind of trading down from towards maybe food can and some other of your products. Maybe you can just kind of comment on the bifurcated customer trends that you've seen in the past. I mean are you seeing growth kind of continuing at the high end and the low end and maybe the middle kind of weakening? Or how would you describe kind of the consumer environment out there? Adam Greenlee: Yes. I think maybe to summarize it, I would say, yes, we continue to see that bifurcated consumer I think you have some strength at the high end of the consumer portfolio. And I think you also have strength for us in the lower end consumer as well. I think the middle range consumer, what I would say is it's been relatively stable. And I think that's because of the portfolio of consumer staple products that we supply. And again, our feeling of a lot of our products being nondiscretionary for that middle part of the consumer. But going back to that high-end consumer, I mean that's right where our fragrance and beauty product set and delivering another quarter of double-digit organic growth in that -- in those market it is really important to us, and I think reflects the high-end consumer doing it really well and the high-end consumer continuing to put those dollars to work. I think when you look over at our Metal Containers business and think about food cans for a minute, you get that consumer, again, it's looking to a value play for nutrition. And we think we've got a wonderful vehicle to get nutrition to the folks that are stretching dollars that need it most. And we think that's a bit of what's driving our strength in our Metal Container segment as well. So we see it. And I think that middle consumer is struggling a bit. But with our consumer staples portfolio of products, we're protected to some degree. Arun Viswanathan: And then just on the pricing side. So obviously, there is some inflation going through. I guess maybe you can just describe potential for demand destruction. I know that the question was asked about CPG companies wanting to not necessarily just yet pushing price. But do you see that -- foresee that happening, especially with potential increases in tariffs including on the tinplate side, but then also on resin as it relates to your closures business and custom containers. How do you see kind of demand destruction playing out here? Adam Greenlee: Yes. I think it's very early to try to make a final decision on that inflation, the level of inflation and how it's getting passed through to consumers. I think maybe a couple of things I would give you is just with the construct of our portfolio, we can look back and talk about what happened during maybe CCOVID as an example, where there was significant inflation, particularly in metals that was passed through to consumers, and we did not see much of an impact to demand. I think in some of those more discretionary items. That's where you do see some general impact from pricing activities that do impact volume, but I continue to firmly believe that our metal containers business is incredibly well positioned for that scenario if it plays out that way. I think the high-end consumer has shown for the entirety of our time and owning the Dispensing Systems business, shown an ability to continue to acquire and purchase the products at the high end of our product portfolio. So again, I think it's early, but I would say we've got a pretty good degree of confidence that history is not a bad example of what may happen if that situation plays out that you described. Operator: And we'll next go to Anojja Shah with UBS. Anojja Shah: My question is about the guidance this year. And just walk through the quarter on a year-over-year basis. it seems like you'll be down 4% on the EPS guide in the first half, which is, of course, understandable with the Middle East situation. But on a year-over-year basis, the guide implies a 10% increase in the second half, so quite a big swing from the first half. And I know we talked a lot about it already on this call like new wins, pass-throughs other positive factors. But maybe just to put it all in one place, can you frame out the top couple of drivers of strength that you expect to see in the second half that would let you hit the midpoint of your guidance? Adam Greenlee: Sure. Maybe just kind of going to the segments and trying to look at a high level, I would say, something of specialty closures, we're continuing to win and another quarter of double-digit growth in Fragrance and Beauty in Q1. We're expecting full year growth in the mid-single digit kind of range for dispensing and specialty closures product. So it is new wins and its commercialization of new wins. And we're not expecting tremendous growth on the food and beverage side. So it's really driven by the high end of our portfolio that continues to show tremendous strength. On the Metal Container side, I think it's mostly related to the timing impact that we talked about with one part of our portfolio in fruits and vegetables that that those customers are going to be buying the products more when they are harvested and filled. So we've got a shift from Q2 to Q3. that is impacting our metal containers business. Again, to be clear, no change on the full year outlook for metal containers. And then finally, in Custom Containers, again, we continue to win in that market. So contractual wins that are being commercialized in the second half of the year, versus a prior year that had some destocking activity associated with it, particularly in custom containers, I'd say, a little bit in DSC last year as well. But I think those are maybe the top drivers to to why we're comfortable because we've got pretty good line of sight into all of those items as we look at the back half of the year. Shawn Fabry: Anojja, the only other thing I'd add is if you look at the cadence of earnings through last year, the first half was incredibly strong. I think both live up 17%. And then a lot of the headwinds that we faced materialized in the second half of the year. Some of those were self-inflicted like destocking impact in the fourth quarter. So that -- I think just as you look at a year-over-year comp, when you're talking about 10% growth year-over-year, that impact as well is [indiscernible]. Anojja Shah: Yes, that's very helpful. And then in the release, you called out a severe weather volumes in the first quarter, but you were confident you would get it back later in the year. Was the point -- I'm just surprised that those orders weren't permanently displaced. Was the point that those orders are coming back? Or is that new wins in that segment were sort of offset later in the year? Adam Greenlee: Well, I think the general consensus is those orders will ultimately get refilled because it's not only impacted our business, it impacted our customers' production as well. I think the challenging part for some of those high-value dispensing items that we're talking about specifically is that order books are full. And lead times are -- I don't want to say stretched, but lead times are longer than for some of our other products. So really, the next time that we and our customers have open filling capacity probably get to into Q3. So yes, I think it will eventually be recovered in the course of the year, but it will not be recovered in Q2. Operator: And we'll next go to George Staphos with Bank of America. George Staphos: Congratus on the progress so far. So you may have already covered this. If you have, apologies. Any sense, Adam, in terms of whether there's any prebuying affecting any of the volumes in your business as much as you're passing along the inflation that you're feeling? And might that be an issue in terms of why lead times are stretched. Second question, I'm not really sure necessarily whether the products themselves would lend themselves to this because it's more high end. And that seems to be doing well for you in relation to answering some of the other questions earlier in the call. But the inflation in resin, is that causing any of your customers on at Beauty in fragrance to be considering other structures, other compositions that you'll need to deal with in terms of your business. It sounds like if I want to check on that. And then the last question again, maybe this came up already. You raised the guidance a little bit, that's terrific. But given the uncertainty, why even do that at this juncture, what do you want us to take away from your outlook for the business that even with the headwind you feel comfortable taking the numbers up a few percentage points. Adam Greenlee: Thanks, George. For prebuy activities and impact, it's something we're watching very closely right now is given how much inflation that we're talking about. And so we're deep in conversations with all of our resin-based customers and think we have a pretty good understanding of what those activities are. We have not seen any yet. And we're working with customers to try to figure out the best path forward through these inflationary times. And so I think all of that is captured within the guidance that we've given for Q2. The lead time question. I think what I'd say there, George, is that's just more of a product mix perspective, right? I mean we're talking about 9, 10, 11 parts sprayers that are a much more complex manufacturing system and assembly profile than maybe kind of our flat cap beverage closures as an example. So our lead times are typically longer anyway. And so I don't want to say our lead times have gone out. It's just lead times are a bit longer in the order book is essentially full for Q2. So that's when we'll see the recovery of those weather-related impacts. Maybe on the high-end product, the luxury end of our fragrance and beauty products as well with inflation. I'd just remind you that our product is a very small percentage of the cost of those products that consumers are purchasing at the luxury and premium level. So obviously, we're making our customers aware of the inflation. They understand that. But I think in the grand scheme of thing, that inflation is relatively small compared to the overall cost of that product. So no, we are not seeing any look to diversify or change the product or anything at all. It's with the strength that they're seeing. It's just -- it's continuing on the path that we've already laid out. Shawn Fabry: And George, I'll just answer the question on the change in the full year forecast. Yes, we did increase our guidance about $0.03 for the full year at the midpoint. That's really about the operational beat on the unit line for the first quarter that we see holding for the balance of the year. Also some on the corporate expense side, it's a little bit higher in the quarter, primarily due to corporate development activities that we incurred. So we are calling that up about $5 million for the year. And we're also seeing favorable movement on the interest line. We had some -- versus our expectations. We were a little better in the quarter. So we're moving that down from $205 million to $200 million. primarily driven by some global treasury management initiatives we did. And also we did do an amendment to our credit agreement that improved our pricing for the go-forward period. Operator: [Operator Instructions] We have no further questions over the phone. I'd like to turn the call back over to our speakers for any closing remarks. Adam Greenlee: Great. Thank you, Margo, and thank you, everyone, for your interest in the company, and we look forward to reviewing our Q2 results in late July. Operator: Thank you. And this does conclude today's call. We thank you for your participation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Virtu Financial First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Matthew Sandberg, Head of IR and FP&A. Matthew, please go ahead. Matthew Sandberg: Thank you. Good morning, everyone. Our first quarter 2026 results were released this morning and are available on our website. With us today on this morning's call, we have Aaron Simons, our Chief Executive Officer; Cindy Lee, our Chief Financial Officer; and [ Joe Molluso ], our Co-President and Co-Chief Operating Officer. We will begin with brief prepared remarks and then take your questions. First, a few reminders. Today's call may include forward-looking statements, which represent Virtu's current belief regarding future events and are, therefore, subject to risks, assumptions and uncertainties, which may be outside the company's control. Please note that our actual results and financial conditions may differ materially from what is indicated in these forward-looking statements. It is important to note that any forward-looking statements made on this call are based on information presently available to the company, and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report, Form 10-K and other public filings. During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA and adjusted EBITDA margin. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP. We direct listeners to consult the Investor portion of our website, where you'll find additional supplemental information referred to on this call as well as a reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials with an explanation of why we deem this information to be meaningful as well as how management uses these measures. With that, I'd like to turn the call over to Aaron. Aaron Simons: Thanks, Matt. Good morning, everyone. Again, just like very brief remarks before Cindy goes over the detailed results, and we move to Q&A. But just wanted to highlight that our first quarter results show that we're executing on our plan to grow through investing in our infrastructure, acquiring top talent and expanding our capital base. Following that plan in the last 7 months, we have added over $500 million in new trading capital and maintained a return on our total capital in excess of [ 100% ]. Our results for the first quarter were among the best in Virtu's history, aided by an operating environment, which was even more favorable than the fourth quarter of last year. Within the context of that environment, all of our businesses performed well. customer and noncustomer market making as well as execution services. We've provided additional perspective on the quarter in our detailed financial supplement, and we'll be answering your questions shortly. First though, Cindy Lee, our Chief Financial Officer, will review the financial results for the quarter. Cindy Lee: Thanks, Aaron. Good morning, everyone. For the first quarter of 2026, we generated adjusted net trading income, or NT, of $12.9 million per day or a total of $787 million. This was the highest quarter total ever for Virtu. Turning to our segment performance. [ Market Making ] reported ANT of [ $10.4 million ] per day for Q1, [ Execution Services ] reached $2.5 million per day for the quarter and $2.1 million on a trailing 12-month basis. This is the eighth consecutive quarter of increased total [ NTS], An indication of the substantial progress we have been noting within the VES business. This performance reflects the investments we have made in technology, our focus on client acquisition and the expansion of our product offering. Both of our operating segments benefited from generally favorable market conditions and strong execution by our team. Our profitability this quarter was robust. We generated $521 million in adjusted EBITDA, representing a 66% margin. Adjusted EPS was $2.24. For the last 12 months, we recorded $1.6 billion in adjusted EBITDA, a 66% margin and the $6.66 in adjusted EPS. These numbers all represent high since early 2021 and an all-time quarterly high in case of adjusted EPS, underscoring the operating leverage inherent in our business. On Slide 7 of our supplemental materials will provide a summary of our operating expenses. Our first quarter 2026 cash compensation ratio was at 22%, which was within the historical range. The increase in compensation expense reflects our continued focus on retaining and acquiring top talent across the organization, particularly in [ trading and technology ]. Turning to capital. our invested capital stands at $2.6 billion as of March 31, while generating an average return of 107% on the capital over the past year. We will continue to expand our capital base, strengthening our infrastructure and deploy capital where we see the greatest opportunities, all while maintaining our quarterly dividend of $0.24 per share. We will now take your questions. Operator: [Operator Instructions] Your first question comes from the line of Patrick Moly from [indiscernible]. Patrick Moley: Congrats on the strong quarter. I think the environment across the board was very good, but you guys seem to outperform that. So I was hoping maybe you could just level set with us and talk about where you saw the most opportunity in the quarter. And then maybe with with ANTI up where it is the highest level on record, how should we think about the sustainability of that in this environment? Joseph Molluso: Patrick, it's Joe. You're right. The environment was very robust, as I think you noted. And I think we did outperform. It's difficult to kind of pinpoint growth since we've had this growth pivot. It's across the board. And I think for the last couple of quarters, our focus has been on growing the firm. But that means a lot of things across the board in a lot of asset classes and a lot of geographies. And it naturally includes growth and investment in asset classes that maybe we were historically less focused on, but we want to accelerate growth in. But it's hard to pinpoint, right? So I think in the past, we've talked about crypto we've talked about options, right? But our growth -- we want to make sure that it's understood, the growth plan isn't limited to a handful of narrow areas, it's really broad-based and focused on a lot of different areas. And it includes all the things that we've been talking about, capital includes personnel. It includes investment in technology, et cetera. Patrick Moley: Okay. And then I mean, was there -- anything you can share in terms of asset classes, where you maybe saw outsized growth this quarter? I can think of maybe the metals market, we saw a lot of activity, especially among retail in the earlier part of the quarter. So anything there that you can share on asset classes? Unknown Executive: We made the point last quarter to remind the world that Virtu's performance is not solely based on retail investor participation, which, by the way, remains strong. So the customer [ Market Making ] business has done very well. But I think we saw continued outstanding performance and growth in what we call [ prop Market Making]. And the headline volatility in the quarter, obviously, from exogenous events contributed, but there's also a lot of underlying growth in trades and investments that have been made over a long period of time. We want to get away from talking about specific areas, but I think it's pretty obvious in the quarter, if you look at just the volatility in the world and what's been going on that, that was a good environment, that was helped by our continued investment and everything else we've been talking about. Joseph Molluso: Yes, maybe I'll just add one like instead of -- and I guess it's hard like quarter-over-quarter, the environment, as we pointed out last time is the most important variable. But it's not like we found some new trade or something took off. Really what I tried to highlight in the introductory remarks was you should think of this as what would have happened in the counterfactual world where we didn't add $500 million of new trading capital. Our P&L would not have been what it was in the first quarter. right? I'm not saying it's a one-for-one difference, right? But it definitely was a huge factor. And so going forward, the idea is that in any environment, we should outperform where we were before with lower capital. Patrick Moley: Okay. So maybe just if I could sneak 1 more in here, just a bigger-picture question. I think it was just a few quarters ago, you said you were looking to target about 10 million a day in ANTI through the cycle, and that was kind of the longer-term goal for the business. So how should we interpret this quarter? Do you feel like we're kind of at that point where we can -- we're sort of building toward this $10 million a day through the cycle? And if not, what still needs to be done to kind of get us to that, please? Aaron Simons: I mean the honest answer is we don't know. I mean, the trailing return on capital was over 100%. I don't think we always achieve that through like a multiyear cycle. So at [ points ] in the cycle where it's less than 100%, you can back into how much capital we might need to make 10 million a day. But in environments like this, then we need much less and we make more than 10 million a day. Joseph Molluso: Yes. But through the cycle, at the point, Patrick, is the key point in that discussion, and it makes it, it is what makes it difficult to say where we are. I think, as Aaron pointed out and I think as I pointed out in earlier calls, when we talk about goals and trading capital of $4 billion, that factors into that goal. But it's more than that. There have been a number of investments in personnel, in people. Recruiting environment for Virtu, I think is very good. The investments in technology being stepped up, all contribute to that, right? So you need all of those things together to execute on that. And I think in the past, we've used terms like the medium term, like a 3-year time horizon kind of being something that when forced to give a view is something we feel comfortable giving to you. Operator: Your next question comes from Dan Fannon at Jefferies. Your line is open. Daniel Fannon: So I wanted to just talk about what you've been doing. Obviously, you talked about $500 million of incremental capital. Can you also talk about the hiring if there's -- where you've been focused, where you are do you think in terms of the goal of what you're looking to expand and invest in internally? Aaron Simons: Yes, sure. So there's definitely a number of areas where we're trying to hire people. So definitely, people that are in the sort of like continuum of trader to quant to researcher type role, we're trying to hire a lot of engineers, software developers. That takes time because we have a very high bar for quality, but we're trying to kind of do that as quickly as possible. We have made a few key senior hires in the last 6 to 7 months that have started, and they're going to have an impact on the business, hopefully, in short time frame. But it is a longer-term [ expansion ] as well. I think this year, we hope to get our headcount close to 1,100. I don't -- we don't have like an exact number. It's more about just having a sufficient number of people to do a certain level of quality work that we need done. But definitely for the foreseeable future, we're going to be pretty aggressively hiring. Daniel Fannon: Great. That's helpful. And then just in the context of that, and obviously, the revenue environment that you're operating in, how to think about expense growth would be helpful in the context of way you're thinking about either cash compensation versus previously and/or growth in the kind of more fixed cost base to support new asset classes, new personnel, all the things you're investing in. Unknown Executive: Sure. So I think we have given some guidance on the compensation ratios. And the first quarter accrual sort of reflects where we want to be. Obviously, when you have a great quarter, it's much easier [ and ] the percentage looks lower. But as we've highlighted last few quarters, like we have been adjusting that up slightly because we are trying to attract the best talent in the business, and part of retention is competitive compensation. But I think we are at that level. And you can see that it doesn't really affect the ratios or the EBITDA margin all that much, especially when you have a great quarter. As far as like the infrastructure investment, I mean, yes, we are going to do incrementally more of that. But already, our business has a very heavy capital expenditure profile. So I'm not sure it's going to be like so immediately obvious in the expense tables. I don't know, Joe, if you want to add? Joseph Molluso: No, I think that's exactly where we are. We you saw the comp accrual is quarter as a nominal number, certainly looks outsized compared to the past. But as Aaron said, we want to hire the best people and pay them best-in-class. So that is -- that reflects it. So Dan, if we have a comp accrual or if we have a comp ratio that creeps up in the future, even in a a really robust environment or even in a median environment, that will be deliberate and intentional and in our view, will be a good thing, right? If you see that. It will mean that the growth plan is being executed on and we're creating value for shareholders, but -- and we're just paying people market comps or better than market comps. Operator: Your next question comes from Alex BeGoldman Sachs. Your line is open. Alexander Blostein: Yes, there we go. I'm sorry about that. So a bit of a nuance question, but when we look at the trends in cost of trading sort of like kind of [ BC and payment Florida flow ] and things like that, in the quarter, it seems to show a pretty meaningful divergence in the [ market making ] business. Those are down. Obviously, the trading results are up. So maybe just a little bit more granularity of what drove that? And what I'm trying to get to, I guess, is are we starting to see some incremental benefits of internalization or things like that, that could make sort of the flow more profitable for you guys? Or is this something else went on this quarter that sort of boosted the net trading numbers in from that perspective specifically? Aaron Simons: Thanks, Alex. The answer is all of the above. when the flow characteristics were attractive this quarter. And in addition, again, I'd go back to the answer on it's not just a retail machine, although the business -- that business had a great quarter. And again, the flow was very attractive, I think, leading to some of the things you're talking about. But also a reminder that the business is not wholly dependent on retail and is pretty diversified, both globally and by asset class on the [ market-making ] side. So depending on the sources of that noncustomer [ market making ] P&L, you could get divergence in brokerage clearing exchange as a percentage of the gross number. I'm not sure I'd read anything permanent or long term into it. I think, over time, we're always looking to lower execution costs, we're always looking to internalize more to the extent we can and optimize. But some of that is environment dependent as opposed to just us getting better and better. Alexander Blostein: Yes. Understood. It's just the absolute divergence, not so much the percentage, was very notable. [ One was up a lot the other down ]. That's it. Okay. And then, obviously, we don't want to get into a habit of calling every month, but there's been quite significant change in the backdrop this April versus last year's April and obviously, over the last couple of months. So any color you guys have on how the environment is unfolding so far in the second quarter, both on the retail side and just broadly would be super helpful. Unknown Executive: Look, and you started your question with the correct answer, which is we really don't do this month-to-month. My only comment to you -- well, I'd say two things. One is key perspective, right? So we had an all-time high here. And that, as Aaron said, is helped by the robust environment. Just because it's more muted, I think you said in your note, doesn't mean it isn't a very good environment. And we're only 1/3 of the way through it. But you can see the headline numbers, while not in terms of some of the numbers in the first quarter, are still very good from any perspective. So that's point 1. Point 2 is we haven't talked about execution services. But if you look at the momentum in that business over the past 2 years, it has grown through the cycle, truly grown through the cycle in a number of different environments, and there's a tremendous amount of momentum there. There's client wins, there's multiple products kind of being tied together across clients. So we're looking at that as a continued growth engine as well. And that business has a tremendous amount of momentum. Operator: Your next question comes from Kenneth Worthington at JPMorgan. Kenneth Worthington: I want to go back to sort of Patrick's question to get a better sense of how the investments that you've made contribute to the capacity to profit over a cycle. And Aaron, you mentioned invested capital is up 20%. You've added headcount, you've invested in technology. you sort of implied that there's a multiplier on the 20% growth in invested capital. How do we think about that multiplier? Is it something like 1.1? Is it 1.3? It doesn't seem like it's something like 0.9. How do we think about that multiplier over a cycle? Joseph Molluso: Ken, I think what Aaron was stating was that the ANTI, the adjusted net trading income we achieved in this quarter would not have been achieved, had we not increased our capital. I'm not sure there was any implication of a multiplier around around capital. If anything, there will be a multiplier in a good environment, but it all comes out in the return. That's it. We put the returns -- the original purpose of that return slide was to demonstrate that we're a services business and not a kind of risk business. So I'm not sure I'd read anything into any statement about a multiplier. What I'd say -- I'd just repeat, capital is fungible, right? We're not we can't parse or bifurcate the new capital and the old capital. But I think what we are saying is that we are able to earn more because we had a bigger capital base, because there were greater opportunities. And it's important to remember that our capital is nimble, that we remain flexible and agile with it, and it goes where the opportunities are. Kenneth Worthington: Okay. Okay. Fair enough. And maybe as we think about new asset classes like predictive markets and tokenized markets, sort of what do you see as holding more promise for Virtu? And where are you thinking about focusing investments there? Aaron Simons: I mean it's hard to say. I think we're kind of ready to be -- to trade in any market, any exchange. And it's really about where the volume goes. Tokenization might be slightly easier just because to the extent things are linked to an underlier that we already trade, it's very easy for us to value and we know the trade very well. Whereas in prediction markets, like we don't have any expertise predicting like geopolitical events. But it really depends on volume, to be honest. Operator: Your last question comes from Michael Cypress at Morgan Stanley. Michael Cyprys: I was hoping to dig in on [ execution services ] and hoping you could elaborate and unpack some of the drivers of the momentum that you're seeing across the [ execution services ] business. And if you can just remind us as well the top revenue contributors under the hood there and how that's evolved over the past couple of years. and how you see that mix and contributors evolving as you look out over the next couple of years. Joseph Molluso: Sure, Michael, this is Joe. I'll take that question. As I said, the business has a tremendous amount of momentum. The business has grown through the cycle. It has been a multiyear process since we acquired [ ITG ] around a common technology platform, emphasizing [ the ] penetration of these products through the customer base. I think what we inherited and what we bought was a very siloed organization. And I think [ Steve Cavoli ] and the team there have done an amazing job of tying together a global client list that is as blue chip as it gets. There is the same client list that any -- that your firm will have. We service -- and we service them through products that we consider best-in-class, whether it's the [ Algo ] suite or whether it is the [ analytics ] platform or the [ EMS Triton ], right? So I think that it's a business that's evolved that is the technology is really paying off, and that is increasing client penetration, right? And the margins have improved. The business has been rationalized. Again, we don't break out down to the EBITDA line for -- by business. When we bought [ ITG ], it had a mid-teens EBITDA margin that is -- think of something that is best-in-class now that is a multiple of that. in terms of how that business has performed. So I think it's just a lot of work, a lot of blocking and tackling and a great sales effort kind of tying together a diverse product offering across geographies and across different types of products to an incredible blue-chip client list. Michael Cyprys: Great. And then just a quick follow-up question on AI, clearly, very quickly advancing. I was hoping you could talk about how you see the opportunity for a agentic AI and if you could elaborate on how you're using generative and maybe even a genetic AI today across the organization. How you see that evolving? What are some of the use cases? And if you're able to quantify any sort of the benefits that you're seeing? Aaron Simons: Sure. I'll answer that. So I mean, I think like most other companies right now, we're definitely taking a look, doing exploratory things. We do believe that with the right sort of focus and setup, it can really be a productivity enhancement for our software developers. But at the same time, our company is really built on a code base and we employ excellent engineers to maintain it, and it's something that is really beyond the capability of current tools to think about it at a high-level reason about and design. So in our environment, introducing a bunch of technical [ debt ] of AI-generated slop is really never going to be in our business plan. But that being said, pairing high-quality engineers with a tool that can just kind of execute it beyond human speed and do sort of like boiler plate [ grudge ] work, assist and explanations, we're definitely trying to use that internally. And I'd say it's a little early yet to determine the productivity impact, but I expect in the coming year or 2, it will have a material impact and maybe we'll have a little bit more to say. Michael Cyprys: And if I could just sneak in a quick follow-up on that. Just curious, what impact you see across the competitive landscape from these advances in AI and agentic AI? Aaron Simons: Well, I mean, as we said in the previous call, I think the term AI is pretty overloaded. And if you just want to talk about statistical modeling, that's been a big part of competitive landscape for trading businesses for 30 years on Wall Street, and this is just like another iteration with novel advancements in models and hardware availability. I have zero insight as to what other people are doing with "agenetic AI". So I don't really feel like I can give any color there. Operator: Your next question comes from Craig Siegenthaler at Bank of America is open. Craig Siegenthaler: Hope you're all doing well. First question on risk management. Given the strong results, can you guys hear me okay at that going a little bit [Technical Difficulty ] Yes. Let me changing to the speakers. So can you hear me okay? Aaron Simons: Yes, yes. . Craig Siegenthaler: All right. Good. So given the strong results, we were curious, how do you quantify the changes in risk management that Virtu has been taking in the [ market making ] business over the last few quarters? Aaron Simons: I don't think there's been any change in risk management. I got it. if you're asking the elevated P&L was the result of us taking on more risk and things we weren't doing before, the answer is no. Craig Siegenthaler: Okay. And Aaron, any way to quantify that? Aaron Simons: In terms of? Craig Siegenthaler: Well, in terms of how you guys look at.. Joseph Molluso: Yes. No, I think that's the answer, is that based on how we look at risk, no, the answer is the risk profile of the firm has not changed materially. Craig Siegenthaler: Got it. I think that was, Joe. Thank you, Joe. It is -- One follow-up here. Some of your market-making peers operate a hedge fund in parallel to the core business. I'm curious, why Virtu doesn't look at doing that, that could provide a whole new revenue source for the company? So just wondering how you think about that potential strategic initiative. Joseph Molluso: That is a tough one, Craig. I'm not sure which competitors you're referring to. We're a public company, obviously, and we pay -- maintain a dividend. I think you might be referring to some competitors that have been around a long time, are bigger and maybe have retained personal capital in the firm that they use to make investments or have a side-pocket hedge fund. We haven't contemplated Virtu asset management lately, but we'll talk a few years from now and see, okay? It's -- I don't want to be misinterpreted, we're not currently contemplating anything around beginning a hedge fund. Aaron Simons: I guess like another way to think about it, and this is again something we've highlighted on previous calls, at the moment, our business is very high sharp [ but ] capacity constrained. So acquiring a bunch of assets, we wouldn't really have a productive use for them. And in order to deploy them, we probably have to put them in far lower sharp strategies, and we already have difficulty explaining the variance in our earnings quarter-to-quarter. So I think it would just make the problem much worse. Joseph Molluso: Yes, you asked about risk management, and we don't have an infrastructure in place to really manage a [ Sharp 1 type 2 ] hedge fund setup. Craig Siegenthaler: Got it. And listen, I think some of your peers sit at [ Ellis Susquehanna, ] their hedge fund strategies are different than the market-making strategy. So I don't know if capacity is really an issue for them. Aaron Simons: Well, [ Citadel ] is a great firm, but they began as a hedge fund. So that's a different evolution of the firm. . Joseph Molluso: Well, I think you're right, right? But that's not our expertise. We don't hire a bunch of long-short [ guys ] and give them a risk allocation and say, good luck to you. Like we run highly automated electronic market making strategies backed by statistical research. That is capacity limited at the scale we're talking about. . Operator: This concludes our Q&A session. I will now turn the call back to Aaron Simons, CEO, for closing remarks. Aaron Simons: Nothing really, but thanks, everyone, for joining, and thanks for the questions, and we'll talk to you next quarter. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning. My name is Cynthia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen First Quarter 2026 Earnings Call and Business Update. [Operator Instructions]. Today's conference is being recorded. Thank you. I would now like to turn the conference over to Mr. Tim Power, Head of Investor Relations. Mr. Power, you may begin your conference. Tim Power: Well, thank you, and good morning, and welcome to Biogen's First Quarter 2021 Earnings Call. During this call, we will make forward-looking statements, which involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a comprehensive list of risk factors in our SEC filings, which we encourage you to review. Our earnings release and other documents related to our results as well as reconciliations between GAAP and non-GAAP results discussed on this call can be found in the Investors section of biogen.com. We've also posted the slides to our website that will be used during the call. On today's call, I'm joined by our President and Chief Executive Officer, Chris Viehbacher; Dr. Priya Singhal, Head of Development; and Robin Kramer, our Chief Financial Officer; Alicia Alaimo President of North America will also be joining for the Q&A section of the call. We'll make some opening comments and move to the Q&A section and to allow us to get through as many questions as possible, we kindly ask that you limit yourself to one question. And I'll now hand the call over to Chris. Christopher Viehbacher: Thank you, Tim. Good morning, everyone. So we've had a very strong start to the year. And I was thinking about where we have been as a company in 2023, we had just completed 4 years of declining revenue and profit. And since then, we've been able to pretty much stabilize the business. And -- that's really been a huge amount of work by all of our teams. And the interesting thing about this business is it's not enough to just trim some cost, and we did have to cut some excess cost. But one of the things that we have really been doing is going through every single line of the P&L and thinking about are we investing for growth? Because you do have to invest in this business. You cannot save your way to prosperity. And so there's been a lot of really careful thought about how do we invest for growth, be it in research and development or in commercial. And as Robin has talked about in the past, we actually have shifted a lot of costs. 90% of our commercial costs were really behind the MS portfolio in 2023. And by shifting that to our growth products, I think one of the things you see here on the first slide is that the growth products are now generating $850 million in the first quarter, and that's up 12%. And the 12% is actually even a little bit of an understatement because SPINRAZA declined slightly. Now SPINRAZA declined mostly because of the timing of shipments and there was a one-off event last year on VAT, I think, in Europe somewhere. But remember, timing of shipments is a big thing at Biogen. Out of the 15,000 patients on SPINRAZA that we treat every year, about 9,000 are ex U.S. And in a lot of countries, we only ship once or twice a year into those countries. So it tends to be lumpy by nature. What is good news is the new high dose SPINRAZA. As you've seen, this has now been approved in the U.S., and we already have patients on the new dosage regimen. But it has already been approved in Japan. It was the first country to approve the high dose. And then Europe, and we're getting a lot of positive feedback from those countries where it's been launched. Not only is this going to be significant in terms of competitiveness in a highly competitive area. But we're also seeing some anecdotal reports of switch backs. In this market, whenever you have one of these devastating diseases, efficacy is really paramount. And I think the high dose really should help us have an edge on the efficacy front in this market. So we're very happy to see the growth products growing like that. We look to our major opportunity with LEQEMBI and as you know, over the past few years since launch, a lot has been done to try to improve the care pathway, make it easier for both physicians and patients. And the IQLIK is really is fundamental to that. Last year, we had the approval for the maintenance indication -- and you'll see numbers where we have significant numbers of patients who are continuing on after the first 18 months regimen to remove the plaques and going on to to maintenance. We have a PDUFA date of May 24 for the induction subcutaneous. And again, we see this as an opportunity to facilitate the care pathway, improve patient convenience and improve our competitive profile versus [ Gasuma. ] So that's the business, the Biogen business is doing well. And now on top of that, we are the proposed a pellet acquisition. We haven't yet closed, but -- and so we're limited in what we can say. But obviously, this expands our commercial growth portfolio. There are 2 marketed products. And I'll just remind everybody that this is 1 molecule. It has 3 indications, and it has 2 brands. And as I talked to a number of investors on SYFOVRE, there is this focus on ophthalmology. And what I think a lot of people forget is that geographic atrophy is really an autoimmune disease. And it is caused by the formation of lesions as a result of [ Averen ] immune activity. And what we're really trying to do with geographic atrophy is to prevent the growth of these lesions. So when people start talking about visual acuity, that's probably going to be very difficult because the eye tends to adjust around these lesions. And what really is the goal of treatment is to prevent progression of the disease, which could potentially lead to blindness. And so I think there's a lot that we need to do in terms of thinking about how we really position this drug and where the benefit is. Empaveli is an enormous benefit to us. we have greater conviction every day on felzartamab, and we look forward to seeing the first data and hopefully that -- those data will realize our aspirations for this product. But if you went back 6, 7 years ago, nobody was interested in nephrology. And now really with the advent of the FDA acceptance of proteinuria as a biomarker, a lot of companies have come into this space. IGAM is obviously the biggest market in this -- and so as we think about recruiting for felzartamab and our prelaunch activities, you're finding that you've got a lot of companies out there that are recruiting in nephrology. I mean, Vertex is, Vera is just to name a few, for example, -- and so within the belly and with the addition of the Appellate team, -- we have a whole team ready to go in nephrology, and we'll be present in the nephrology offices, building those relationships, going to congresses now with a marketed product, not a future product. And so we believe both in the growth of Empaveli, but what that can do for a whole nephrology franchise at Biogen, and we're pretty excited about that, I have to say. And I think all the conversations that we've been having with the Apellis team leading up to a potential integration. I think there's -- first of all, there's an incredible talent in the Palace team. But I think it's also fair to say that within Biogen, I think we can probably bring more resources to really support those teams. And I don't see a big inflection in SYFOVRE, for example, but I do think -- there is an opportunity for growing product there. And I think, as I say, Empaveli within a broader nephrology franchise, that could be a game changer for Biogen in the future. So as we look at this, -- we do expect the acquisition to be accretive in 2027. And when you look out over the next few years, this materially increases Biogen's EPS outlook. And if I turn to the next chart here. Now don't get your micrometers out here and try to measure these arrows here, this is meant to be illustrative of where we think this is going. If we just take what Wall Street thinks Biogen is going to do, I can't say that we would be happy with that, but that's what's out there in the public domain. It's roughly flat through 2030. Now when you look at what appellate can do is this allows Biogen to start growing now is our belief. And then the pipeline starts to read out. We've got a lot of data readouts already starting this year and consecutively over the years. And as one investor told me said, I get this. before we had a pipeline coming on a flat business. Now I see a pipeline coming on a growing business. And I think that's the fundamental difference in what the Apellis acquisition does for us. And we're still going to continue to do business development. In all of this, we just acquired the China rights for felzartamab that's an important market for IgAN, but China is a big important market for us. And Biogen has been relatively small in China. China is the world's second biggest pharmaceutical market and so felzartamab and acquiring these rights not only just to acquire the worldwide rights for PELSA, but also really to build our business in China. So again, we continue to invest in growth, but I think a lot of the investments, a lot of the work that we have done over the last 2, 3 years is now coming to fruition. And at least this is the vision. Now we are very conscious of the fact that business 10% is strategy, execution. And so we need to now execute as a team to bring all of this, but at least this is the aspiration that we have for our company. With that -- let's talk about that pipeline, and I'll pass it to Priya. Priya Singhal: Thank you, Chris. This was a very strong quarter for Biogen from a development standpoint, with meaningful progress across both our marketed products and our late-stage pipeline. Starting on the left-hand side of the slide, you can see the continued progress in supporting our marketed portfolio. First, the U.S. approval of high dose SPINRAZA represents a meaningful advancement for people living with SMA and reinforces Biogen's leadership in the category. Additionally, in Alzheimer's disease, new real-world data for Leqembi show strong treatment persistence with nearly 80% of patients remaining on therapy at 18 months and almost 70% at 2 years. We believe that these data underscore the importance that patients and HCPs attribute to ongoing treatment of this progressive disease, extending beyond just amyloid block reduction. Turning to the right-hand side, we presented important new data that reinforce the potential of our late-stage high conviction pipeline. New data from Salanersen demonstrate durable benefit over 1 year in children previously treated with gene therapy, highlighting the potential for high efficacy with 1 yearly dosing. Importantly, the first patient has now been dosed in the pivotal STELLA-1 study evaluating Salanersen in treatment-naive T-symptomatic infants. At the same time, we continue to build confidence in Litifilimab, where we presented positive Phase II data from the ongoing Phase II/III AMITA study in SLE. All of this progress reinforces our confidence in our late-stage pipeline. And as you can see from this slide, we don't expect to wait long for that potential impact. This year marks the start of a multiyear registrational data flow that includes multiple programs and extends through the end of the decade. We believe these data, as you also heard from Chris, will continue to strengthen our growth outlook. And importantly, as previously reflected, we have several data-related inflection points in 2026. We -- as you know, we have a PDUFA date coming up for our Leqembi IQLIK initiation next month. We also have readouts from our pre-proof of concept pipeline, where we continue to pioneer and address key scientific questions that could benefit patients. Our registrational readout cycle begins later this year. And over the next 18 months, we expect to see SLE and CLE data from all the Phase III studies of Litifilimab as well as readouts from the first Phase III study of FELZARTAMAB in AMR and the Phase III study for ZOREVUNERSEN in Dravet syndrome. I believe this is a very exciting time for the Biogen pipeline. I would now like to turn the call over to Robin for an update on our financial performance. Robin Kramer: Thank you, Priya. I'd like to start with key highlights from our strong first quarter 2026 results. Total revenue was $2.5 billion, up 2% year-over-year with GAAP diluted EPS of $2.15, up 31% year-over-year and non-GAAP diluted EPS of $3.57, up 18% year-over-year. We're pleased to see our growth products continue to perform well generating $851 million of revenue, up 12% year-over-year. Our growth products, which includes VUMERITY, generated more revenue in first quarter of 2026 than our remaining MS products. We also maintained our cost discipline while supporting our late-stage pipeline development and product launches with approximately $1.1 billion of non-GAAP core operating expenses in the first quarter of 2026. As a result, we generated $594 million of free cash flow in the quarter, allowing us to further support the business and invest in future growth, including the expected appellate transaction. which we believe represents a capital allocation opportunity that will further bolster both our top line and bottom line growth prospects and therapeutic areas aligned to our immunology and rare disease strategy. I'll speak more about the transaction in a few moments. I'll now turn to our revenue performance for the quarter, starting with our growth products. LEQEMBI market revenue was $168 million for the first quarter of 2026, up 74% year-over-year. We saw a continuation of sequential market growth in key markets, including the U.S., Japan and China. In China, we saw strong uptake with Q1, reflecting continued demand growth and sequential revenue benefited from completing the drawdown of inventory in Q4 2025. LEQEMBI remains the market leader by total patient share in the U.S., Japan and China. -- and we look forward to next month's U.S. PDUFA date for IQLIK initiation. SKYCLARYS saw sequential global patient demand growth with first quarter 2026 global revenue of $151 million, representing 22% growth year-over-year. For SKYCLARYS, U.S. revenue was impacted by the inventory dynamics we discussed on the Q4 2025 call with moderate growth in demand, Outside the U.S., we continue to see demand growth as we continue our SKYCLARYS launch. SKYCLARYS is now available in 35 countries and we continue to expect SKYCLARYS growth to come from ex U.S. as we advance the launch. Now turning to the highlights of our key P&L items for the quarter. Non-GAAP R&D expense in Q1 2026 was $480 million, with the increase year-over-year, reflecting investments in our Phase III clinical programs including felzartamab and Litifilimab and do phasing of spend within the year. Non-GAAP SG&A expense in Q1 2026 was $600 million with the increase year-over-year, reflecting planned prelaunch activities supporting lupus and nephrology, direct-to-consumer advertising for VUMERITY and ZURZUVAE and due to phasing of spend within the year. First quarter 2026 GAAP and non-GAAP effective tax rates were 15.4% and 15.3%, respectively. The year-over-year decrease was due to favorable impacts from a foreign tax settlement in vesting of certain share-based awards, partly offset by the increase in U.S. taxation on foreign earnings in 2026 under the one big beautiful bill app. And as we previously announced, we recorded approximately $34 million of acquired IP R&D in the first quarter of 2026, related primarily to our [ AltiGen ] and Alloy transaction, resulting in an approximately $0.20 on per share impact to GAAP and non-GAAP EPS. As a reminder, in the first quarter of 2025, we recorded $165 million of acquired IP R&D associated with the upfront payment to Therapeutics as part of our collaboration for ZOREVUNERSEN for the treatment of Dravet syndrome in all the territories outside the U.S., Canada and Mexico, resulting in approximately $0.95 per share impact to GAAP and non-GAAP EPS. This strong commercial execution, coupled with disciplined financial management drove continued robust free cash flow performance. We generated $594 million of free cash flow in the first quarter of 2026 and exited the quarter with $4.7 billion of cash and marketable securities and $1.5 billion of net debt. With the Apellis transaction expected to close in the second quarter of 2026, we plan to fund the transaction with $3.6 billion of cash from the balance sheet and $2 billion from bank borrowings. Given our expected strong cash flow generation, we expect to repay the $2 billion in new borrowings by the end of 2027. Given the dynamic policy environment, we have updated the slide we first provided you this time last year. We continue to believe the structure of our U.S. manufacturing footprint, supply chain and overall business model position us to be potentially more resilient to macroeconomic factors and policy uncertainty. Currently, based on potential tariffs as announced to date, we do not expect to see a material impact to our business in 2026. This information does not reflect the impact of the pending acquisition of the Apellis. Turning now to guidance. Our overall belief in the strength of the underlying business is as strong as when we guided in February. We also continue to believe it's important to make investments for growth. In addition to the roughly $0.20 EPS impact from the acquired IPR&D charges we incurred in Q1, we also expect to incur $145 million or an $0.80 EPS impact of acquired IPR&D charges in the second quarter. Specifically, the TJ Bio transaction for felzartamab rights in China, which further enhances our nephrology franchise and gives us worldwide rights to felzartamab is expected to comprise $0.55 of the EPS impact. As Pria noted, we also achieved the first patient dosed in STELLAR 1, our pivotal Phase III Salanersen study, triggering a milestone in the second quarter, which results in approximately $0.25 of EPS impact. Turning to some key considerations for this updated guidance. You can see that our expected business outlook and underlying assumptions, including our revenue outlook remained consistent with our prior guidance. As I mentioned earlier, we expect roughly $600 million of contract manufacturing revenue this year to be phased as roughly 2/3 coming in the first half of the year. We expect Q2 core operating expenses to be roughly consistent with Q1. It remains our objective to be disciplined on costs as we continue to invest including supporting the programs that we've been bringing into our pipeline through business development. Please be sure to review this slide and our press release for other important full year 2026 guidance assumption. And finally, a few points on the expected impacts from the Apellis transaction. The transaction is not yet closed, so we won't provide consolidated guidance today. That said, we do plan to provide 2026 guidance inclusive of the Apellis when we report second quarter results following the transaction's close. We can say today that we believe we will be getting 2 best-in-class commercialized medicines that enhance our growth portfolio. We believe Syfovre and Empaveli will contribute meaningfully to our top line growth in the near and long term. We expect approximately $120 million to $130 million of impact to our non-GAAP and other income expense line in 2026 driven largely by financing and foregone interest income. We expect that our strong combined cash flow generation will provide us with the opportunity to delever by the end of 2027 and that the transaction will be accretive to non-GAAP EPS in 2027. We believe this transaction represents an attractive use of capital that will further bolster both our top line and bottom line growth prospects in therapeutic areas aligned to our immunology and rare disease strategy. With that, I would like to pass the call back to Tim to open us up for questions. Tim Power: Thanks, Robin. Can we go to our first question, please? Operator: [Operator Instructions]. Your first question comes from the line of Brian Abrahams with RBC Capital Markets. Brian Abrahams: Congrats on the quarter. As we look towards the upcoming BIIB080 data, I'm curious to your latest views on like what kinds of signals you'd be looking for there to move forward? And how much would that be impacted by your expected potential to further improve the administration form there? Christopher Viehbacher: Priya? Priya Singhal: Thanks, Brian. Just stepping back, BIIB080 is an antisense oligonucleotide. It addresses tow and aims to reduce call -- and we've seen that in prior trials, an extracellular approach using an antibody has really not worked. And so that's where the ASO approach is differentiated. We believe it could target both intracellular and extracellular tell. We did see cloud reduction in our Phase Ib was a small trial, which is very encouraging, which prompted us to get to a proof-of-concept study. And that is what the Celia readout will tell us. because we -- this is a pioneering effort and what we're looking to see is whether reduction of now leaves to and translates into a clinical benefit, specifically on cognition. But as we do that, we're exploring several doling regimens, several treatment frequencies. So we'll be looking at the totality of data. We're expecting the data sometime midyear and I think our goal would be to look at the data and then communicate it and present it at upcoming forums. So that's the plan. Brian Abrahams: And on the dosing regimen? Priya Singhal: Yes. On the dosing regimen, I'd like to say that really, the trial enrolled very quickly from an [ Infratil ] perspective. We recognize that if this actually translates into a medicine we would be considering other options. So we are looking at other options of delivery. These are in preclinical and research and we recently acquired Alceon as you know, and that gives us another potential avenue to explore if and as we continue with implicit delivery. Operator: Your next question comes from the line of Andrew Tsai with Jefferies. Lin Tsai: So as we think about your other catalysts for 2026, just wanted to ask on LITIFILIMAB actually in the filing strategy. Would you guys consider filing for SLE right away if both Phase IIIs were positive later this year? Or would you wait of to wait to file after the older do file 1 or 2 NDAs. And then if just on SLE study hits that big, but the other 1 was trending, would you still file in that SLE? Priya Singhal: Thank you, Andrew. We are excited about the potential for LITIFILIMAB. We have 2 Phase III trials in SLE. We expect them to read out this year, we accelerated the second trial and we are really doing well on our CLE trial. We expect that to read out early next year. Now with regards to the filing strategy, we don't usually comment on it, but I'd like to say that we think that this would be a package as of now, and we'll communicate more as this kind of the studies read out. Secondly, whether if we saw one positive trial and one negative trial, I think, again, we'd be looking at the totality of data, but there is precedence for that. with the other product in the field. So we don't think that, that, by itself, it would be a showstopper. We remain very encouraged and we are very pleased with the breakthrough designation that LITIFILIMAB got for CLE earlier this year. And we also just presented data from a second Phase II that was positive in CLE. So we continue to be optimistic. Operator: Your next question comes from the line of Geoff Meacham with Citi Geoffrey Meacham: Chris, you mentioned you're still looking at BD opportunities even post Apellis. Maybe just help us with how maybe you rank external innovation versus investments and internal R&D and SG&A, obviously, post the appellate you need to make investments to get that -- to get the growth profile going? Christopher Viehbacher: Yes. So I think -- thanks, Geoff. We we feel, as we have said in the past, I think we're feeling very good about our late-stage pipeline. -- lupus, I think, could be quite a significant franchise for us because in addition to LITIFILIMAB, we also have a partnership with UCB on dapirolizumab, and we have -- we'll be taking the marketing lead in the U.S. and Japan. On that product. And of course, we have some other assets in early-stage development coming along for lupus. The whole nephrology franchise, I think, is going to be quite significant for us as well. And then obviously, we have appellate. So as we look at BD, I would say, really that most of what we're going to be focusing on is early stage development and research because that part of the pipeline is quite thin. We have strengthened that with a few collaborations, particularly in immunology with [ Banca and Dara ] for instance, last year and the partnership with Citi and there's some other ones in there. So we're looking at really building the next generation of growth. I think if we execute well and we can bring everything and the pipeline does come through, this should be a company that can grow well into the 2030s. And what we need to really be thinking about is what comes after that. So that's where, as I say, the early stage research stage pre-IND and perhaps Phase I is where the focus is going to be. I think on M&A, we would probably be more opportunistic. I don't think there's any particular need at that point to do that. But I guess we'll keep an eye on, but we're not going to be doing the search. So over the last 2, 3 years, I mean, we have had a very systematic search and felt that we wanted to do M&A. I would say with the Apellis transaction and with the pipeline, we don't see the same need to be as proactive on that front. Operator: Your next question comes from the line of Michael Yee with UBS. Michael Yee: Going back to BIIB080. You guys had downsized the study from 700 patients. I think you ultimately had targeted or ultimately about $400 million and why is the cut expenses to get a signal. Can you just remind us, given the context of wanting to be thoughtful about expenses. What type of trend it would make sense for you to push forward, but on the other hand, when you come out with the data, if you don't think there's a really strong trend that you'd be pretty clear about that and would therefore signal to Street that we don't plan to invest there. Maybe just add some color to that, Chris, or Priya, help us understand in terms of the disclosure and how we should be thoughtful about it. Priya Singhal: Thanks, Mike. I think just stepping back, yes, we had designed the original CELIA trial with a larger N and I think it was our Phase Ib trial readout that gave us the confidence to redo the power for that study and redesign that trial. And so we feel quite confident that the trial is adequately set up to give us an answer on really testing this very important hypothesis because we already saw the tau reduction in Phase Ib and now we're looking for the transition of tau reduction to clinical efficacy. Just as a reminder, the primary endpoint of the trial is CDR summer boxes, which, as you know, is a validated end point, but we are looking at a few different doses and 2 treatment paradigms, quarterly as well as 6 monthly. So we'll be, again, looking at the totality of that to see if we can isolate a signal of clinical efficacy. And I think we'll be very disciplined in how we look at that. The way we've really changed that over several years now is that we think about our go/no-go criteria well ahead of data readouts and this data readout is expected midyear. So you can expect that we'll be looking at that data very carefully, but with really being very disciplined about what the next step is. because that is what this proof of concept is designed for, if and how we get to Phase III. Christopher Viehbacher: I think one of the interesting here is that, again, there's just no precedent here, right? And designing the study, I think, it would be fair to say, we basically looked at what we did with amyloid trials, right? We've got the 18-month follow-up. We're looking at a similar population because that's the only thing we know. So we're going to be discovering an awful lot in this study. Certainly, you want to see the right reduction in tau and tau pet results will be important. And then obviously, can you see some movement on cognition. That would be important to be able to advance. Does that have to be statistically significant? Does that have to be a certain percentage. I think that's where the totality of information is going to be while we feel relatively confident in being able to reduce the tau, nobody knows how long you have to reduce the tau for to get a benefit on cognition. And -- when you think about the progression of plaque, that is a longer onset and tau is a shorter onset. So we don't really know exactly who the right patient population is going to be. That might be the same as amyloid might be different. And that's why we've said from the outset, this is a pioneering study. And we and the whole medical academic community are going to learn from that. The bar doesn't necessarily have to be that high. But I think we do have to see some signs that give us -- obviously, hope that this would have a clinical benefit. Operator: Your next question comes from the line of Salveen Richter with Goldman Sachs. Salveen Richter: On LEQEMBI, could you update us on the adoption and use of blood-based biomarkers and whether you're seeing patients who completed to some less switch to LEQEMBI maintenance? Christopher Viehbacher: Maybe Alisha, you like to take that one? Alisha Alaimo: Sure. Blood-based biomarkers have been growing almost at the same clip as that we've been seeing in the past over 20 which we know they've had really rapid adoption. However, haven't typically been used for confirmation solely. But what we are seeing, there is a PCP pilot that is going on right now, as you know, with Biogen and Eisai, and we do have early indicators that from that pilot, we're seeing a higher usage now of blood-based biomarkers in the PCP than what we do to who do not have that pilot running. So we're showing that once we educate, they are doing it more and more. Also more importantly, recently, CMS did add that blood-based biomarkers can be used as a confirmation when you go into their database, so when you go and use the drug, you can actually get it reimbursed. I know last year, that was a big question that physicians had and now that has also been put into place. So I believe, moving forward, we are going to see that blood-based biomarkers will be used more and more for confirmation what they are today. The adoption will be a little bit slow, but awareness is extremely high. So I do think the more that they use it, test and try it, the more they'll be used for confirmation. When you move towards something the question that you asked about [ Casein ] in this first quarter of the year is when you'll expect to see the tranche of patients that started on Cassina that are now hitting their 18-month mark. And so quarter 1 is when you will see the patients now typically stopping the product. and for us to start getting the feedback. I can say that physicians are asking what do we do? -- some patients. And if you look at market research, patients in general, who are in either of the products want to stay on product, there is a fear of coming off. and having a decline in their cognition. And we do have several accounts that are looking at how do they switch them to LEQEMBI, as you know, we cannot provide data on that because we don't have data, but we do have physicians that are looking at, can we switch them to maintenance or to subcu maintenance of LEQEMBI. Operator: Your next question comes from the line of David Amsellem with Piper Sandler. David Amsellem: So high-level question on SYFOVRE. If you can talk to it. I know the transaction hasn't closed. But can you comment at a high level on evolving competitive dynamics, particularly with other agents that are in development that are focused in terms of their primary outcome measures on visual acuity as opposed to lesion burden. So help us just understand how are you thinking about where SYFOVRE is going to fit in this evolving landscape. And ultimately, what kind of data you can point to regarding the product regarding its impact on visual acuity. Priya Singhal: Thanks, David. So just stepping back, I mean I think SYFOVRE indicated for geographic atrophy. This is a very highly prevalent irreversible and progressive disease that leads to blindness. I think the median time point is about 6, 6.5 years. And the gold standard for assessing efficacy has been lesion growth. And I think that is where SYFOVRE has very compelling data, 42% statistically significant reduction in lesion growth. that's kind of at the time of launch. But subsequently, Apellis has also presented 5-year long-term data that shows that you can actually slow down progression by 1.5 years. That's obviously really meaningful in that time frame of 6 years. I totally agree that there is competitive dynamics here. I think with either way, that's on the -- the other product that's on the market, it targets C5, which is upstream of C3, which is the target for SYFOVRE. And we haven't really seen that long-term data as of now. from [indiscernible]. But moving into what's on the horizon from a competitive landscape, I think we are seeing more targeting of C5 again. That's one. The other is that with Annexon, we haven't seen that the Phase II data were very persuasive. And actually, it did not impact geographic atrophy lesion growth. which we believe is the standard, gold standard. And Chris mentioned the lesion growth is really important to focus on eventually the best corrected visual equity would be impacted. But at the outset, that's not really the goal because the I adjust to peripheral vision. And that's an important aspect to kind of keep in mind. And when we saw the data from Annexon, this was obviously a very important aspect of our diligence, we saw that actually the BCVA for placebo really went down, and therefore, the drug arm looked good, but I think it remains to be seen. With regards to Regeneron, I know that's competition as well, also target C5 and it's systemic, and it's a combination. So we believe they're also Syfovre because it's targeted to the eye, it really enables that tissue delivery, which we believe is really important. And Regeneron, the proof of concept still has to come. So we'll wait for that. But we do know that Soliris actually with a very similar mechanism of action failed in Phase II in GA. So I think a lot to watch out for, but we feel really that the IFB data are compelling, and it's going to be a very huge effort for us from an educational, medical, scientific leadership to make the case on why it's important to treat now. Christopher Viehbacher: Yes. And I think is from a commercial point of view, the fact that SYFOVRE has 5-year data creates sort of a data moat here. this is a progressive, slowly progressive disease. And people want to have confidence in the safety and how this also develops over time. So I think it's going to take quite a long time for any competitor actually to generate the same level of data that is going to be necessary for the confidence of physicians and patients. Operator: Your next question comes from the line of Paul Matteis with Stifel. Paul Matteis: Great. And congrats on a great quarter. A couple of other just quick hits on SYFOVRE if I may. As it relates to just thinking about spending on that franchise over the next few years, how are you at least qualitatively right now thinking about synergies and leveraging existing capabilities with also the reality that GA may still be a pretty promotionally sensitive market that could require things like ETC. And then maybe just any quick thoughts on the prefilled syringe, your level of optimism there and how meaningful that could be? Christopher Viehbacher: So Alicia, you have a lot of work in this space. Alisha Alaimo: Yes, I'll take that question. Thank you. first, I can say that we've met several of the leaders over at Apellis, and I want to say that I'm very impressed with that team and with the leadership that they actually have. Many of those individuals have had the ophthalmology background for quite a long time and know the space very well. So I will say they've done a very good job and a tremendous job, especially with the vasculitis cases that came up early on on handling that, and I think they're doing a very nice job today. When we look at this market and see the opportunities that it has, it is a very large market. It's 1.5 million patients, as you know, only 20% are treated. And there is a really significant unmet need for this patient population. And this launch has sustained growth in injections and in patient growth. And so we believe there is a very large number of patients who are untreated. There's around 500,000 that currently sit in these targeted physician offices that this team currently calls on for GA. And in our experience, when you have a product that slows progression activating the patients and creating urgency with these HCPs is critically important. And therefore, we know moving forward, we will need thoughtful education, very strong messaging and an explanation as to why there is a strong value to slowing this progression. With that being said and knowing that we obviously do not -- we have not closed the deal yet. We know that activating these patients will be critical in this space because when you go in and ask for something, you typically get it. So we do know we will be spending money on DTC and TV ads, as you know, they did run TV ads for 2 quarters, and they did stop those TV ads. I think that would be something that we'd be looking at once we close the deal because educating these patients will be critically important. We'll also be looking at the messaging for how they're able to handle this in the office. We have no idea up into the space, how much time have they had to spend on vasculitis versus actually being able to compete hand-in-hand in these offices. And thirdly, I think that they are going to benefit greatly from our patient services and also from this machine that we've had the luxury of building over the last 7 years. If you really take a step back and look at Biogen, especially in North America, we've launched 7 products over the last 7 years in completely different spaces, which means we've created this dynamic engine that has been able to support the launches across all of the TAs that we now have. Therefore, we believe, going to your question, we will find synergies and a lot of the headquarters capabilities that we will bring to them that maybe they have not been able to invest in. We're also going to look at where they currently spend money that maybe we could reallocate to some of these other areas that we believe will drive the growth. And we're going to be able to do a great analytics in understanding which tactics they're using now they think are working and which ones we might be able to tweak moving forward. I also have an understanding that they might have a wish list of things they'd like to do, maybe they haven't done so far for the launch. And so we are going to be looking at all of that with them. and believe with Apellis and with Biogen, both of them together will be much stronger than either one of them alone. And so I know my teams are very excited about welcoming them into North America. And we're looking at giving specialist SYFOVRE a lot of support, so they feel like they have everything they need to succeed in this space. Operator: Your next question comes from the line of Mohit Bansal with Wells Fargo. Mohit Bansal: Congrats on all the progress. So would love to understand high-dose SPINRAZA helps with switching and persistence as a new offering, do you think it can stabilize the franchise or even grow at this point? Would love to understand how you're thinking about it. Christopher Viehbacher: You want to take that from North America, Alisha? Alisha Alaimo: Is the question specifically about SPINRAZA or SPINRAZA high dose? Christopher Viehbacher: High dose? Alisha Alaimo: High dose. Okay. Well, first of all, I'll say that I'm sitting in the same boardroom, I was sitting in when we had a patient advocacy group, and I pitched to a couple of executive committee members that we had feedback from patients that they wanted more. And you fast forward to today, we all of a sudden have SPINRAZA HD. So first and foremost, I will say this is 1 area of the business, which I have never seen in my career. Where this patient community is smart, they are savvy. They know exactly what comes out, when it's coming out, and they will make those requests prior to any approval in the market. So when you look at what has happened, the SPINRAZA HD has been out less than a month. I will tell you that 20% of my patient base have already have start forms in to go and SPINRAZA the high dose. We also have patients that are switching from competitors and patients that are adding on to Zolgensma. So for the U.S. organization specifically, I do believe that high dose, which we've had a pretty stable business so far. -- with SPINRAZA, and my team has done an excellent job with SPINRAZA 12 mg, but we do believe high dose now has a new opportunity for us, and we are seeing great interest in high dose from not just patients but also physicians. And so we're off to a great start. Hundreds of start forms have been submitted and I think that this is going to be very positive as we transition from SPINRAZA high dose and hopefully one day Salanersen. Robin Kramer: Maybe, Chris, I can cover ex U.S. similarly, we had the approval ex U.S. in Europe, and we're seeing similar traction, particularly in Germany with roughly 20% of the patients converting over to high dose. So off to a really strong launch in Europe as well. Christopher Viehbacher: I think when you think about high dose, you think about also the being able to potentially replace the intrathecal injection coming along? And then obviously, Salanersen, I think, Priya, can say we've had our first patient dosed in the Phase III study here. I think this is a franchise that is going to be durable and can grow over time as we introduce these things that make it easier. Now I talk to physicians around the world when I go visit our affiliates. And every time they talk about someone who has switched off SPINRAZA, there's always a tone of regret in their voice. It generally is because of intrathecal fatigue, but they have the regret because they know that in their view that this is the most efficacious drug. And I think the HD now gives them even more reason to defend the efficacy -- and I think, again, with the Alteon device, we hopefully can eliminate some of the intrathecal fatigue. And certainly, by the time we get Salanersen, that's expected to be a once-yearly intrathecal and that should also help with the administration. But these are -- it's amazing to hear the emotion of physicians. These are children who are now going to school who would have died years before. And this is just one of those amazing medicines that Biogen has come up with that has had such an impact on health care for, particularly in the pediatric population. Operator: Next question comes from the line of Evan Seigerman with BMO Capital Markets. Evan Seigerman: Congrats on all the progress. I'd love to drill down a little more on the strength we saw with SKYCLARYS. Can you walk me through some of the drivers of this? I know it's been a lumpy product. But is this traction something we should really start to think through later in the year? And kind of what are some of the drivers there? Christopher Viehbacher: Don't you start with the U.S., and then we can talk about X. Alisha Alaimo: Yes. So for SKYCLARYS, which you saw for the quarter is with the $72 million year-over-year, it was a 4% growth quarter-over-quarter, it was down. And it was down because the inventory was built at the end of Q4 last year. And then fast forward to Q1, if you look at the amount of buying weeks, Q1 has 2 fewer buying weeks than the prior quarter. If you look at patient demand, our patient demand was right on par -- it's just we had a little bit of lumpiness with the inventory. Now the second thing, though, just to remind everyone is where the U.S. is at launch, is we are now at the launch phase where we are going out, we are using our patient finding our next best action in the field where our reps every week receive a list of all the different offices they can go visit because we believe the patient is there, and then they go on the hunt. With that being said, now the majority of our patients are coming from doctors who will only ever write on prescription ever for Friedreich's ataxia. These patients tend to be slower progressors and they're much older than what we had predicted when we first launched the product. And so it will take more time as we find them. But the good news is, is that we are finding them and they are going on product, but it does take time from finding the patient when they finally put in their script. Robin Kramer: In ex U.S., actually, our revenue in the quarter exceeded the U.S. for the first time from SKYCLARYS as we continue to execute on the launch there. in Europe and starting in Latin America. So we do see from a demand perspective, demand increasing ex U.S. and expect that to continue as we continue the launches. And as I mentioned earlier, it's already available in 35 countries. Christopher Viehbacher: In ex U.S., we have a little different strategy. So we've -- as Alisha said, it's really finding the patients. So as we found the patients, we have put them on drug and they're on early access programs while we negotiate reimbursement. So as we get reimbursement, you'll start to see the revenue suddenly flow through. But it might be lumpy because we can switch potentially several hundred patients, all at once from being a 0 revenue patient to a full revenue patient. We have -- right now, we have not only rent more revenue, but we've had now for some time, more patients outside the U.S. on drugs and insight. Just as I say, they haven't been fully reimbursed. And that's progressive. And we're now seeing really the rollout and potential reimbursement in Latin America, for example. Operator: Your next question comes from the line of Alexandria Hammond with Wolfe Research. Alexandria Hammond: Another on BIIB080, what's the potential in other telophase. And as a follow-up, what will be the most important biomarker from the upcoming Phase II results in terms of informing next steps beyond Alzheimer's? Priya Singhal: Yes. Thank you. This is an area that we are discussing quite deeply. We know the high unmet need in primary tauopathies. And what we've seen in terms of our reduction with BBA at least in our Phase Ib trial was very encouraging. I think we would be looking for tau reduction and we would be looking for other details, I mean, regions of the brain and such, and that would inform our strategy on whether we would continue to think about doing more work in primary tauopathies. But yes, it remains high on our list of evaluations and potential possibilities. Operator: Your next question comes from the line of Terence Flynn with Morgan Stanley. Terence Flynn: Just one on FELS for me and AMR. Obviously, you called out the acquisition of the China rights for $100 million and then some pretty significant back-end loaded milestones. So just thinking through what this means for the broader commercial opportunity maybe both, not just in China but also in -- on the global basis and how you're thinking about that relative to consensus. Christopher Viehbacher: Yes. Again, I think as you look at kidney disease, a lot of this there have not been treatments for it. And there's a whole alphabet soup of these things, right? You've got IC-MPGN, you've got AMR, you've got PMN. You got C3G and I think it takes -- it's hard to actually even to come up with sometimes the epidemiology. I can tell you on the MPGN for Empaveli, it's actually not very clear exactly what the what the actual underlying epidemiology is. So it's hard for, I think, investors to really assess some of these. What we do know, for instance, on the MR is we just take that there are about probably 11,000 patients. And if you actually look at the price of IgAN, it certainly if you look at it with the latest Otsuka price in IgAN of about $350,000 a year, you're looking at a total addressable market north of $2 billion, somewhere between $2 billion and $3 billion, in fact, right? And there hasn't been any treatment there in the past. And certainly, the Phase II data, although small numbers, showed a remarkable 80% resolution of AMR. And then you've got MDI, which is sort of a cousin of AMR. SP530023306 That adds another 5,000 or 6,000 patients, and we've just initiated a trial in MVI. IgAN is obviously going to be a significant market, particularly in Asia. And I think there's 2 things where we see competitiveness. When you start looking at any autoimmune disease and pre can speak more to this, but you really want to think about where are you in the whole immune cascade. In most cases, if you're treating an autoimmune disease, you're trying to suppress the immune system. They don't really want to do that any more than you have to. And so having something that is close to the actual disease cause, I think, is going to be relevant. And that's where we think CD38 is a huge advantage of really acting on the plasma cells and the NK cells. But the other is really the durability of treatment. And IgAN, we showed in a Phase II that after 9 infusions that we still had durability of treatment after 18 months. And that that says that maybe we're doing something here that looks more disease-modifying than other agents. But Priya, you should probably weigh in here you since you're much more expert than I am on this. Priya Singhal: I think you covered it well Chris. We're really excited about the first readout of felzartamab. We expect this in 2027. And really, it's stepping back is -- it's targeting the CD38 positive plasma cells. -- which we believe are a key source of the pathogenic autoantibodies. And the readout is really a biopsy readout, which is also very objective. So we're excited about this. Tim Power: Great. I think we've got time for 1 last question. Maybe that's the last one, please. Operator: Your next question comes from the line of Jay Olson with Oppenheimer. Jay Olson: Congrats on the quarter. Can you talk about the real-world treatment persistence of LEQEMBI that was presented at ADPD with regards to -- how do you expect the subcu version to further impact treatment persistence? Priya Singhal: Thanks, Jay. So overall, there's a question -- there has been a question lingering out there, whether after reduction on clearance of blocks, you continue to keep patients on an anti-amyloid therapy, specifically 1 like LEQEMBI, which has a dual target of the soluble toxic species as well as block reduction. We've shown extensive data in prior meetings on the benefits of keeping patients on therapy. This again is a progressive disease. Once neurons die, you cannot recover them. And we've shown that fluid biomarkers actually come back within less than 6 months. And then although the plant comes back much slower. So that's one piece. I think the real-world evidence data is compelling because it shows that patients and neurologists actually want to continue to stay on therapy. That, I think, is the powerful reflection of that data. And this continues to be really, really important for us. Now we are waiting -- we already have subcutaneous maintenance, which again makes it simpler and offers patients optionality on staying on therapy. But with subcutaneous initiation where we'll get an outcome from the FDA next month, we continue to remain very optimistic about how this could inflect in terms of the patient journey. And then finally, I'll just add a point about our presymptomatic trial of HEAD345, which is still to read out in 2028. And we'll see about that readout. We think it's going to be an important landmark trial in the field. But what becomes important with subcutaneous of getting accepted is that there could be an interchangeability, which could be very relevant in the presymptomatic population. So again, we believe that this is going to be a very important inflection point. Tim Power: Thanks, Priya. Thanks, everybody, for joining the call today. We've got more questions to reach out to me or [indiscernible]. Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Cognizant Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] it's now my pleasure to turn the call over to Tyler Scott, Senior Vice President, Investor Relations. Tyler, please go ahead. Tyler Scott: Thank you, operator, and good morning, everyone. Welcome to Cognizant's First Quarter 2026 Earnings Call. I'm joined today by Ravi Kumar, Chief Executive Officer; and Jatin Dalal, Chief Financial Officer. By now, you should have received a copy of the earnings release and investor supplement. If you have not, copies are available on our website, cognizant.com. Before I begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors. Reconciliations of non-GAAP financial measures where appropriate to the corresponding GAAP measures can be found in the company's earnings release and other filings with the SEC. With that, over to you, Ravi. Ravi Kumar S: Thank you, Tyler. Good morning, everyone. Thank you for joining us. We delivered a solid first quarter with revenue growth in the upper half of our guidance range, expanded adjusting operating margin and strong bookings growth. I believe our work to become the world's permanent AI builder is resonating, demonstrated by our first quarter performance. Looking at the quarter's highlights. Revenue grew 3.9% year-over-year in constant currency, led by strong performance in North America and driven in part by the ramp of recently won large deals. From a segment standpoint, Financial Services grew more than 10% year-over-year in constant currency, driven by strong demand across banking and insurance clients. Q1 bookings grew 21% year-over-year. We signed 7 large deals with TCV of $100 million or greater, including 1 mega deal valued at more than $500 million. Importantly, we continue to drive profitable growth as adjusted operating margin expanded year-over-year for the fifth straight quarter. Adjusted EPS of about 14% year-over-year was ahead of revenue growth. And we just announced a definitive agreement to acquire [ Atria ], a global IT managed services provider and a specialist in AI infrastructure build-out with deep expertise in managing data center infrastructure, enterprise networks and digital workplace technology. Upon closing, we believe [indiscernible] will add a critical layer to our AI Builder technology stack. We achieved these results against a softening demand environment. Market conditions have become more complex since the start of the year, and we expect the impact from heightened macroeconomic uncertainty to persist in the near term. However, while clients are appropriately cautious about making large investments in this environment, they recognize AI's transformative potential and the value of strategic partners. This transformative potential is reforcing our industry's first principles, which underpin our evolving posture as an AI builder. The industry's first principles were born out of an enterprise reality. Technology was so transformational and complex that companies needed help with optimizing the use of technology to meet their business objectives. IT services companies emerged to solve these problems at scale and over time, helped create many of the greatest business architectures over the last 50 years. With AI, the fundamentals are shifting. Software is penetrating deeper into enterprises and our clients now expect more value and measurable outcomes. The old fundamentals are still relevant, but there must be reforge for a new reality. Cognizant has already embarked on this transition, which demands four significant shifts that redefine the role of IT services firms. First, we are evolving towards owning the full stack of capabilities required to design holistic bespoke AI systems from a system integrator to an AI build. Second, we are reimagining our talent moving away from the traditional pyramid towards interdisciplinary teams that operate at the intersection of domain operations and technology. Third, we are shifting our economics from labor base to outcome-based models that align our success directly with our clients. Our combined fixed price and transaction-based portfolio has continued to grow in proportion over the past 3 years, reflecting our ongoing focus on driving nonlinear revenue opportunities. And finally, we are evolving away from simply delivering projects to underwriting operational results for our clients at scale, taking full accountability for the business impact we create. Last quarter, I talked about the velocity gap the gap between massive AI infrastructure spend and the business value realization. And our Cognizant's mission is to be the AI builder who bridges this gap. Our AI builder stack is the connectivity tissue that translates our strategy into measurable client outcomes. It combines our proprietary methodologies and the science of context engineering with a curated ecosystem of strategic partners and our own differentiated platforms and IP. Our vision is to reimagine enterprise operations, rebuild workflows and break functional silos to unlock AI native ways of working. We aim to do this by bringing human effort and Agentic capital together in a managed governed and a client contextual delivery model. Some of our pioneering clients have started to progress from AI productivity to unlocking new experiences, products and services. Platforms are key to our AI builder stack. Fueling our platform strategies, our award-winning AI Labs, which was awarded 3 new patents, bringing its total number of patents to 65 in the U.S. and the 88 globally. Our AI lab continues to sense the future and partner closely with our clients, platforms and products group, and solutions teams to translate frontier research into industry relevant use cases. To complement our internal investments, we launched the Cognizant innovation network, a new corporate investment arm that will back early-stage AI start-ups. We plan to initially focus on investments in AI, data, cybersecurity and cloud technologies and portfolio companies will gain direct access to Cognizant's deep industrial expertise and its enterprise client base, creating a powerful ecosystem for mutual growth. We are progressing towards the AI builder vision through our 3-vector strategy. AI-led productivity, industrializing AI and identifying the enterprise. To date, we have well over 5,000 AI engagements across 3 vectors, up from approximately 4,000 exiting December. Beginning with Vector 1, we are addressing a multitrillion dollar opportunity of AI-led productivity across several value pools by helping clients, building classical software in new ways, accelerate software development, eliminate technical debt and modernizing legacy systems. Our differentiated approach to autonomous software is rooted in engineering-led productivity powered by leading strategic partnerships like Entropic Claude, Google Gemini, Microsoft [indiscernible] and copilot Davin and open AI codecs. This approach has enabled nearly 40% of our code to be AI assisted. Cognizant platforms play a critical role in scaling these productivity [ grains ] by accelerating software development with Flow source, reverse engineering legacy code using agent-based capabilities through Sky grade and automating incident management with neuro IT operations. A great example of our platform strategy at work is with one of the nation's largest health companies where we now underwrite the integrity of their claims process. Our AI solution automates the validation of over 54 million provider contract updates annually, directly reducing revenue leakage and solving a problem that was previously intractable at scale. Some of the early value pools in Vector 1 where we are seeing client momentum are related to legacy debt takeout, like mainframe modernization, SAPs for HANA migrations, autonomous software engineering, digital workplaces and autonomous infrastructure services. For example, we are working on a highly complex true blue field as for HANA transformation at a global scale, focused on modernizing the enterprise core for the North American global pharma leader. What really sets this project apart is our use of a customized AI accelerator that automates both business and IT data validation, replacing a fragmented manual process with a scalable audit ready and a robust solution significantly cutting validation time and effort. For a leading European telecom operator, Cognizant delivered an AI-powered Oracle cloud ERP transformation, unifying finance, procurement and supply chain on a single cloud-native platform, achieving 25% faster time to market and 40% faster deployment through agentic AI and automation. And with Daimler Truck, we will use Cognizant WorkNEXT to transform and modernize its global workplace services. Our multiyear partnership aims to leverage artificial intelligence and automation to enhance workplace operations across their global factories and offices. As our AI productivity capabilities mature, we are increasingly applying token metering at a project or an individual level to provide early insights into usage patents model management and optimization of infills costs. Vector 1 continues to be a primary driver of our large deal momentum. And as a result of the cost savings and shared productivity generated in Vector 1, we're starting to see increased velocity in Vector 2 and 3 opportunities. Let me share some examples. In Vector 2, as we integrate enterprise AI into enterprise landscapes, platforms provide the foundation to move AI from proof-of-concept into production at enterprise scale, managing the full agent life cycle with neuro AI engineering and context engineering. This spans several areas, including data engineering, AI, foundry, cybersecurity and integrating AI into the infrastructure and cloud stacks. As an example, with data engineering for a leading U.S. health care client, we deployed an AI-based data validation system to optimize the distribution of pharmaceutical shipments. The solution uses predictive models to validate data before dispatch reducing downstream errors in the logistics chain and improving reliability across its operations. One of the value pools we see in Vector 2 and a key element of our AI builder stack is context engineering. Cognizant's approach to contract engineering is to build native work graphs by going deeper into how humans work, make decisions and navigate exceptions in their daily business processes. We're also applying context engineering at a top wealth management firm with an advanced proof of concept where AI agents are being designed to work alongside financial advisers handling routine interactions and back office tasks so that financial advisers can focus on client-facing activities. Finally, in Vector 3, we are accelerating development of our AI native products to unlock new agentic labor pools across vertical and functional domains and into core operations. The value pools in Vector 3 are significantly expansive opportunities across business operations of enterprises to embed Agentic capital for productivity, experiences and new services. In health care, for example, we are developing agentic solutions that accelerate and improve the accuracy of prior authorizations to support better patient outcomes. Additionally, we are building on our TriZetto product portfolio in a strategic partnership with Palantir to advance an outcomes-based intelligence platform that embeds AI-driven decisioning directly into health care operations. We're also sensing a broad structural shift as AI moves beyond digital workflows to governing physical systems and environments and infrastructure. This is accelerating the convergence of physical AI agent AI and governed enterprise intelligence enabling autonomous operations across sectors. Cognizant is investing in the architecture platforms, partner ecosystem and industrial domain expertise for physical AI. Business operations-led offerings are central to this evolution. We're expanding AI-enabled services across sales, finance, marketing, service operations, horizontally and health care financial services and banking operations on the vertical stack. Examples include the recent launch of autonomous customer engagement with Google to support outcome-based human AI workforce models across industries and the combined value proposition of TriZetto and Palantir to identify health care operations. Across all 3 sectors as the importance of platforms grows, we are evolving our commercial models towards fixed and outcome-based pricing, enabling Cognizant to recognize the added value of assets, IP and accelerators that we bring. This is an important pillar of our first principles, shifting our economics to managed services and outcome-based models. Consistent with the shift, we delivered 2.5% and 5% increases in trailing 12-month revenue and adjusted operating margin per employee, respectively. We are beginning to see the emergence of AI infused rate cards where pricing reflects a blended model of human effort and digital effort with several clients, we are exposing tokenized rate cards that prices work along a continuum from fully human-led discovery to hybrid to increasingly autonomous agenetic delivery. This model is intended to turn our outcome-based economics into a true partnership that aligns value creation with shared results. Execution across the sector requires the right organizational structure and a powerful innovation and talent. This brings me back to another important element of our first principles, reimagining talent away from the traditional pyramid and towards interdisciplinary AI-augmented teams. To fuel the shift, we have launched an integrated AI skilling stack for our entire organization. It begins with our AI Builder career program, which maps every role at Cognizant to a future-ready AI family, job family with defined pathways and targeted learning plans aligned to how [indiscernible] evolving. This is powered by Cognizant and SkillSpring, our new AI native learning platform designed to redefine learning in the AI era and cultivate AI-ready talent at scale for our associates and our clients and progress is being tracked for each associate's personal AI fluency dashboard. A real-time context engineered view of AI readiness across various dimensions, including AI skills and proficiency, training and certification, AI tools and token uses innovation and project experience. To enable us to execute on these principles with the speed and the agility of the market demands, we are initiating a new program called Project LEAP. This program is designed to accelerate our transformation to the operating model of the future by funding investments in our AI capabilities and partnerships, integrated offerings and platforms, reshaping productivity and upskilling our workforce. By fostering a workforce that is AI-enabled and equipped with future-ready skills, we aim to create a more agile, scalable and cost-effective operating model. Even as we make these changes, we are continuing to invest in growth through acquiring new talent. We hired around 20,000 freshers in 2025 and plan to hire a greater number in 2026, providing a strong pipeline of future talent aligned to how work is evolving and shaping a broader pyramid with a shorter path to expertise. The LEAP program reinforces our commitment to be in the winner circle of revenue growth and supports our journey of expanding margins. To conclude, I want to leave you all with this. Our conviction in the long-term opportunity emerging with enterprise AI adoption has never been stronger. In our industry, the real work happens inside complex systems across legacy environments, regulated processes, global teams and mission-critical operations. Large enterprises do not transform overnight. The undeniably need trusted partners who understand their systems, context, risks and people. And that is the role we intend to play as an AI builder, bridging the gap to enterprise value. To win, we must move fast and stay agile, which is exactly why Project Leap is so critical. We are reforging our first principles, enabling an AI Era future operating model, equipping our go-to-market teams across the 3 vectors. Adopting new engagement models to deliver value to clients and adopting talent through a blend of digital and human effort. We remain confident the portfolio and capabilities we are assembling can drive sustained progress towards Winner Circle performance including top-tier growth, consistent margin expansion and EPS growth outpacing revenue growth. Before I turn the call over to Jatin, I want to thank our associates for their dedication, our clients for the continued trust and our shareholders for your confidence as we strengthen our foundation to create for durable long-term value. Jatin Dalal: Thank you, Ravi, and thank you all for joining us. As Ravi noted, our first quarter results demonstrate that our AI builder strategy is resonating in the market. In Q1, we delivered revenue growth in the upper half of our guidance range basis points of year-over-year adjusted margin expansion and adjusted diluted EPS growth of 14%. First quarter bookings growth of 21% was 1 of our strongest in recent history. This performance demonstrates our focus on execution and our ability to deliver value for the clients. As Ravi mentioned, the market remains complex but the dynamics are not universal and vary by industry. Financial Services is benefiting from robust investment cycles, while policy changes are creating regulatory uncertainty in key areas of health sciences. In production resources, trade policy uncertainty and supply chain disruptions remain realities. That said, broadly speaking, we believe the shifts we are seeing in client demand play to our strengths. And we remain confident in our position as a strategic partner to our clients as they navigate a complex macro environment and the rapid pace of AI innovation. Now moving on to the details of the quarter. In Q1, revenues of $5.4 billion grew 3.9% year-over-year in constant currency, driven by a ramp of large deals across our North America region and Financial Services segment, along with the strong performance in the U.K. We have seen increasing demand for our AI and analytics services. driven by AI readiness and innovation budgets. Growth also benefited from revenue from third-party products associated with our integrated offering strategy, and inorganic contribution from our 3 cloud acquisition. By segment, Financial Services led with over 10% year-over-year growth in constant currency balanced across banking, financial services and insurance customers. We saw both healthy discretionary spending and sustained large deal momentum driven by North America. Health Sciences performance remained resilient. Growth was negatively impacted by approximately 300 basis points year-over-year due to a lower revenue from third-party products associated with our integrated offering strategy. Excluding this impact, services in health sciences grew at a similar level to the company. Products and Resources was stable despite headwinds from macro geopolitical and trade policy uncertainty. We continue to see emerging client demand in areas such as predictive supply chains, agent commerce and hyper personalization. Use cases where AI has the opportunity to create real differentiation. Physical is an early stage but fast-moving category, and we are positioning ourselves to capture this opportunity as client adoptionaccelerates. Within communications, media and technology, our revenue with technology customers continues to grow. AI adoption is driving demand for engineering, modernization and platform services. In the comms and media sector, the environment has been more measured with added pressure from client-specific dynamics tied to strategic shifts at a large customer. In Q1, segment growth was driven by revenue from third-party products associated with our integrated offering strategy, which contributed approximately 10 percentage points of growth. Turning to bookings. We delivered another strong quarter of large field bookings. We signed 7 large deals, each with TCV of more than $100 million in Cuba, including 1 mega deal with TCV in excess of $500 million. On a trailing 12-month basis, bookings grew 11% and represented a book-to-bill of 1.4. Annual contract value was flat as deal duration increased in the quarter, reflecting large deal mix and continued softness in smaller discretionary projects. Our pipeline remains healthy and broad-based. We continue to see strong demand for cost takeout, vendor consolidation and AI-led services. Moving on to margins. Q1 gross margin decreased by 80 basis points year-over-year, reflecting impact of our integrated offering strategy and increased compensation cost. We remain very focused on driving gross margin improvements over time. This is an important objective of the project lead program. First quarter adjusted operating margin of 15.6% increased by 10 basis points year-over-year. Our ongoing focus on operational efficiency and benefits from the Indian rupee depreciation helped to more than offset the impact of our integrated offering strategy M&A investments and increased compensation costs. Now to additional details on EPS, cash flow and capital allocation. First quarter adjusted EPS was $1.40, up 14% year-over-year. DSO of 84 days increased 3 days sequentially and year-over-year. First quarter free cash flow was approximately $200 million, impacted by a larger bonus payout this year and in line with our expectations and typical Q1 seasonality. During the quarter, we returned about $600 million of capital to shareholders through share repurchases and dividends. We ended the quarter with cash and short-term investments of $1.5 billion or net cash of $949 million. Now turning to guidance. For the second quarter, we expect revenue to grow 3.2% to 4.7% year-over-year in constant currency. This includes approximately 150 basis points from our recently completed acquisitions, including a partial quarter contribution from Australia that we just announced. Our second quarter guidance includes a more cautious near-term view of discretionary spending based on recent global events and trends. Our full year revenue guidance is unchanged at 4% to 6.5% in constant currency. The macroeconomic environment remains dynamic, and our guidance reflects a range of outcomes. We expect large steel ramps and 2 full quarters of Astra contribution to be meaningful second half drivers. At the midpoint, we assume some improvement in discretionary spending in the second half of the year compared to our Q2 assumptions. Our strong bookings momentum, along with 1.4 book-to-bill ratio give us confidence that we are winning in the market. Our full year guidance assumes recently completed acquisitions will contribute approximately 150 basis points to revenue growth, reflecting contribution from both CreeCloud and Austria. Beyond this, our M&A pipeline remains healthy and active, and we see a number of interesting opportunities that are consistent with our AI builder strategy. As always, we'll be disciplined and deliberate but remain well positioned to act if the right opportunities emerge. Now a few more details on Project Leap. This is an important initiative to accelerate our path to a more agile and AI-enabled operating model of the future and improving our cost of delivery. The program is expected to deliver savings in 2026 of approximately $200 million to $300 million with a full year benefit in 2027. We anticipate approximately 2/3 of the savings generated by Project LEAP will be directly reinvested to support future growth across integrated offerings, AI capabilities and partnership and roughly 1/3 toward upscaling our workforce, all while maintaining an active and strategic M&A posture. The expected savings generated from the program, net of investments are enabling us to raise our 2026 adjusted operating margin guidance range to 16% to 16.2% and which represents 20 to 40 basis points of year-over-year expansion. This is on the top of 50 basis points of margin expansion we delivered in 2025 and in line with our long-term aspiration to expand margins. As part of this program, we expect to record costs of $230 million to $320 million, which substantially all incurred in 2026. This consists of $200 million to $270 million of employee severance and other personnel-related costs and $30 million to $50 million of other charges. This cost will be adjusted in our non-GAAP financial measures. As Ravi noted, we will hire more recent college graduates this year than last year. Our free cash flow conversion guidance for the full year remains 90% to 100% of net income. Tax rate guidance is unchanged at 25% to 26%. In our expected weighted average dilutive share count is approximately $473 million, down slightly from our prior estimate due to the pace of repurchases in Q1. This leads to EPS guidance of $5.63 to $5.77, representing 7% to 9% growth. For 2026, we still expect to return approximately $1.6 billion of capital to shareholders, including $1 billion towards share repurchases and the remainder towards our regular dividend.Finally, we continue to make progress and advance on our evaluation of potential primary offering and secondary listing in India. We remain committed to acting in the best interest of our shareholders and will provide updates as appropriate. To close, we are delivering on our commitment to stay in the winner circle. In Q1, we grew revenue at the top of our large cap peer set, posted our strongest booking growth in recent history, expanded adjusted operating margins and delivered double-digit earnings per share growth. While the macro environment remains uncertain, our momentum is clear, and we believe we are winning in the marketplace. With that, we'll open the call for your questions. Operator: [Operator Instructions] Our first question today is coming from Jason Kupferberg from Wells Fargo. Jason Kupferberg: So bookings, a clear highlight this quarter. Wonder to see if you had any color on how much of the bookings were new versus renewal, anything on ACV growth how that looked in the quarter? And just given the fact that there has been a little bit of softening on the discretionary side, it sounds like in certain verticals. I wanted to confirm, Jatin, if I heard you correctly, that the midpoint of the '26 guide now assumes a little bit of improvement in discretionary spending in the second half. Maybe you could just elaborate on that a little bit? And then I have a follow-up. Jatin Dalal: Yes. So Jim, we don't exactly break out new versus renewal. But this year -- I mean, for the quarter, it's been very healthy. And I would say the growth, especially of the large deals is driven by the newer opportunity in either existing customers or the new customers. Ravi Kumar S: In fact, just to add to Jatin, this is the second quarter in a row, we've had robust bookings. The new proportion is as healthy as it was in the past. In fact, the top 7 deals, which are more than $100 million, 1 mega deals, more than $500 million a 70% increase in TCV on the large deals. I think it's been a good quarter for bookings, 2 quarters in a row. This is probably the highest bookings growth we have seen since I've been on board 3 years ago, since 3 years. Jason Kupferberg: Okay. Okay. And there was some commentary from one of your large competitors last week talking about AI resulting in increased competition, more pass-through of productivity gains to clients. I mean, you guys have been talking about that pass-through and the AI assisted coding for a long time. But are you seeing competitors broadly engage in any additional level of contract pricing that you might characterize as a rational? Ravi Kumar S: Yes. [indiscernible] the way I see it is, unlike in the past, where pricing was determined by the unit price, which is billings equivalent. The race now is about the number of units and how well we could deliver with lower number of units for the same output for the same outcome. And that is based on how much productivity you can derive out of AI usage in your software development cycle. So we feel very confident because 40% of our software development cycle is assisted by AI. We have infused AI into our rate cards. So when we are up for a consolidation opportunity, we seem to be in the winner part because we are able to share the productivity and also keep it for ourselves. In fact, a bit to date is actually very healthy over the last 3 years, the means we have been working on. So we seem to have got this work rhythm of autonomous software engineering, as we call it, and we seem to be doing well. So I wouldn't -- I mean there is productivity sharing with clients, but you're going to see that as an opportunity to win more and you will see that as an opportunity to create more momentum for ourselves. So that's how we are seeing it. Now that's on the old stuff. On the new stuff, there is in Vector 2 and vector 3, as I call it. It is new work. We also see unlock of legacy modernization, which is not consolidation. It is actually net new business which kind of got locked because customers were not willing to pay that much to modernize the legacy. Now they're actually throwing that in the mix. And that is actually a business case of how much they spend to how much they could potentially spend using AI to modernize it. So while there is price pressure on it, I would say it's an opportunity not to look at labor costs. It's an opportunity to look at -- how much of the number of units you could optimize using AI. Jatin Dalal: Yes. And Jason, to your earlier question on the visibility of second half and how do we see our guidance range. Let me break it down. So definitely, the environment around us, the macro has significantly more uncertain than what it was in the beginning of February. And therefore, I mentioned in my opening remarks that there are a range of outcomes which are possible across the guidance range for the full year. What gives us confidence for the second half are essentially 2 things: the large deal wins that we have had in quarter 4 and in quarter 1, which continue to ramp up and will reach its full potential -- their full potential in starting June, July. And therefore, that's one lever. The second is acquisition like Estia will come full on stream from quarter 3 standpoint, it would be a partial revenue in quarter 2. So these are 2 additional sort of drivers for a stronger second half than assumption than what it is. As I mentioned, the midpoint does assume a little better discretionary environment than what we assume for quarter 2, which is sort of impacted by the current environment, but we remain confident as we walk through the rest of the year. And finally, we have had very strong bookings for quarter 1, which means we are mining in the marketplace even as in the uncertain environment, customers are choosing Cognizant as a partner of first preference. And that is what helping us continue to lead in this environment with the sense of Velocity and confidence. Ravi Kumar S: Also a lot of large deal transitions, which are happening now between quarter 4 and quarter 1 will start to unlock in quarter 2 and quarter 3. So this is literally production capacity already in there, we are not making the money we are incurring the cost. Now as the transitions get over, we start to accrue the dollars. So that's actually another tailwind to our journey in the second half. Operator: Our next question today is coming from Jim Schneider from Goldman Sachs. James Schneider: I was wondering if you could maybe kind of unpack the comments you made earlier, Ravi, around the token usage that you're seeing in terms of token metering and also some of the productivity or benefits you're starting to deliver. Just wanted to clarify 2 things. One is, are you seeing with the increased sort of productivity on units delivered to your customers. I would have thought that you would be seeing if you're keeping some of that benefit for yourself, a little bit better margin leverage as a result of that as you're getting some revenue growth? Or is that being masked by the start-up cost on longer-dated outsourcing deals you just kind of talked about in response to your last question. And then separately, I was wondering if you could maybe address how you expect sort of the token usage to sort of play out in terms of how you build customers? You talked about AI type rate cards -- but are token costs being directly billed through to clients today in terms of time and materials contracts. Ravi Kumar S: Great question. Great question, both of them. Now let me first get to the second one. Token metering is a reality, both at a project level and at an individual level. We have token metering for fixed price programs as well as for time and material. For fixed price programs, we have the opportunity to reduce the cost and keep the margin with us. For new deals we do this kind of links back to the first question, we actually have the opportunity to outpace the productivity we give to our clients and therefore, keep it with us. A bit to date over the last 3 years is very healthy. So I'm very excited about the fact that has leverage for margin accrual in the future. Of course, it has start setup costs, which we have to establish at the start. So there is an upfront cost attached to it, but there is downstream savings. On time and material, tokenized rate cards. We are starting to see a pattern. I'll give you 1 example. One of the rate cards. I am establishing, which is a template we're taking it to the street is A0 is completely human effort. A1 is effort, which is done by humans verified by AI. A2 is effort effort delivered by AI, verified by humans. A3 is autonomous digital labor. Now when clients do this, you could meet the capacity they have bought from a frontier motor company like Anthropic or open AI directly. In which case, we are responsible for the human effort and the clients are responsible for the digital effort. But clients have started to see that they are not able to optimize the digital efforts. So some clients are coming back and saying, you know what, why don't you take care of the human and the digital effort. You open the tap on compute, you open the tap on Ms. and you deliver the service, and we don't want to manage the economics. Already, we're talking about AI ops, AI FinOps. You manage the economics and digital labor or human level, it doesn't matter. In fact, 1 of our -- 1 of our research papers talks about a cognizant cognizant unit of measure, which we call it as -- it's equivalent to the function point measure, which is equivalent to what we do in digital labor. So effectively, this is evolving. We are ahead on the curve both to take the accountability of digital and human labor for ourselves or if clients want to take the accountability for themselves. So time and material comes in 2 forms. I could take care of digital labor and human labor. And I could take the sizing and the economics of digital labor and create throughput for our clients. This is something evolving and some clients are already proposing this. And on fixed price deals, of course, we want to share that productivity with our clients. So that's how we are seeing this. And it's not far off when we're going to see rate count for this rate card, which is digital and human label put together more mainstream. As we go forward. And that gives us an opportunity to actually deliver both human and digital labor through the books of Cognizant. We already have arrangements with the fronter model companies to do that. One is to take care of our developer community, which uses it, but also for client work, which we can deliver. Jatin Dalal: Jim, I'll quickly cover the question on gross margin. Essentially, we -- in Q1 was an investment mode a little bit on gross margin across 3 different dimensions. The first was surely, the investment in the bench. And if you see, we have grown sequentially in headcount, and we have grown year-over-year in headcount. And as we have continued to hire the fresh college radiates into the mix. We have invested a little bit of utilization. So that's 1 reason why gross margin is lower. The second, we spoke about this integrated offering. We -- every time when the industry sees a new element of service delivery coming to customers, they expect service provider like cognition to act as a system integrator. And to that extent, you see that you have a higher element cost as part of this integrated service offering that you have, and that has been slightly higher in quarter 1. And -- but that's an investment because you almost always see a significant follow-through revenue coming through services when you anchor yourself through that early offering. And third is the salary increase that we gave on first of November, so there is a 1-month impact sitting there. So a combination of these 3 factors have led to a slightly lower gross margin in -- in our earnings call as well as through the quarter, we spoke about the volatility that would probably see as a result of this investment in quarter 1, but we are confident that the number will continue to improve through the course of the rest of the year. the project ambition is to really drive significant cost savings through cost of delivery model. And that should also help the gross margin as we execute for the rest of the year. Operator: Next question today is coming from James Faucette from Morgan Stanley. James Faucette: Appreciate all the color and detail today on current conditions, et cetera. I'm wondering if you can talk a little bit about what you're seeing in terms of valuation and how you're thinking about the price of acquisitions that you're looking at, particularly as you seem to be looking to add incremental capabilities to the Cognizant base? And I'm just thinking about how we should think about your commitment to spend, what portion of free cash flow and the impact on the inorganic contribution on a go-forward basis? Ravi Kumar S: I mean I'm going to ask Jatin to add. This is a phenomenal time to create value from M&A in line with our reforged first principles, which is about having a platform player, managing business on outcomes versus effort and AI enabling our offerings. So if you put all of that together, we have some exceptional opportunities in the market. We also have the ability to anchor this on new pillars in the mix, which will give us expansive opportunities. So we are we are not doing this in a tactical way. We are doing this in a very strategic way of filling the boxes for being an AI builder. That's what our -- this is. Just to give you a sense, today, the 1 we announced does data data center build-out services, workplace services, AI infrastructure build out services and network services. So it's Atria is a phenomenal opportunity to anchor a complementary piece of work, which is which is attached to the infrastructure services where Cognizant is delivering very well. So where will we anchor this. We'll anchor this on platforms, on outcome-based models. In fact, Atria delivers work on per user basis, not on effort. I mean they do workplace services. They also do data center build-outs in an outcome-based model. So we think that's a unique opportunity. If there are platforms in the market, we're going to evaluate and look for it because the platform play will allow us to go through -- go to the outcome model, transaction-based pricing and outcome-based pricing. In and around set -- in and around TriZetto, we see a ton of opportunity. I mean, our TriZetto business now is growing much, much faster than what I saw in 2023 when I came on board. And it is highly profitable. And health care has a strong moat, a defensible mode. So we are actually we're actually looking for layering it around. In fact, one of the reasons why we partnered with Palantir is to create the opportunity to drive the health care payer control points for medical loss ratio performance and payment integrity and real-time cost intelligence and network performance and all of that. So we have specific areas where we think we want to do M&A, which will substantiate our endeavor to be a platform company and an outcomes-based company in the AI era. And we also believe it will uniquely give us an opportunity to create durability of our earnings. So that's how we are seeing it, and this is a good time for a value player. So we are continuing to -- we have a very healthy pipeline. We'll continue to evaluate value assets, which are available in each of these pillars I just spoke about. Jatin Dalal: And just from a capital allocation standpoint, you know we generated $2.5 billion of free cash flow. Last year, we returned close to $2 billion to shareholders and roughly $500 million, $600 million or $700 was invested into 3 clouds, which technically closed beginning of this year, but was announced in 2025 -- this year, again, $2.5 billion, we have committed $1.6 billion to be returned to the shareholders $1 billion by share buyback and $600 million or in dividends. Of which we have now used about $600 million from the remaining $1 billion for Asia. And we have, therefore, sort of fuel in the tank, and we have a very healthy balance sheet to leverage in a very attractive opportunity [indiscernible] James Faucette: That's great. And I just asked that you guys have been really front-footed, both in terms of like your own development. prioritizations and how you're trying to implement AI. And then I think your commentary just now on how you're looking at acquisitions and some of the benefits that they provide further bolsters that view. What types of customers are you seeing either generally or what kind of characteristics do they have that are willing to engage with you and kind of match your march forward right now? Where are you seeing the best traction? And where should we look for examples of success patterns? Ravi Kumar S: Yes. I would say -- I'll just highlight quick themes. Financial services is at double-digit growth, very, very excited about it. Not only are they doing Vector 1, they're innovating new products, new services. Vector 1 is more productivity led and are willing to experiment with us. In fact, 1 of the things I mentioned in my earnings script is about opportunity with management company to apply a genetic on their wealth advisers so that they could deliver more innovative products. So financial services is right up there. The second I would say is consolidation opportunities. Consolidation opportunities, I mean, every customer, every Fortune 500 Global 2000 company has a huge set of providers. This is a -- I mean, they have accumulated they've created a big network of providers over the last 25, 30 years. This is their opportunity to consolidate and get some productivity benefits. We are on the front of it, and we are winning a lot of it. So that is the second. The third I would say is unlock of -- the third value pool, I would say, is unlock technology debt. I have great momentum on mainframe modernization. Just to give you a sense, 1 line of mainframe code used to cost $10 to refactor to new age, say, new edge software it now costs $150. So we have a unique opportunity to unlock. And this opportunity didn't exist before because fiber knowledge was missing, there was cost, financial cost to modernize, and they were legacy skills were missing. Now all of that is out of the window. So if you unlock that, that is trillions of dollars. So we're seeing that as a good team. Then there is operations-led AI. I mean that's why my DPO business is close to double-digit growth because operations of enterprises are going to be embedded with this new software, which operations didn't have a chance -- and if I have to pick specific areas, customer service is the top area where we are seeing this. Employee Services is the second area we are seeing and then traditional areas like financial systems and legal systems. These are places where we historically didn't see a lot of classical software embedded. So we're starting to see that. One of the things I highlighted in my earnings script is physical AI. I mean it's a leap frog for traditional industries with physical manifestation to actually invest into digital enhancement of physical objects and we're seeing quite a bit of that. So I think we are at that inflection point now. to take productivity and create elasticity of consumption of software, classical software and use new software, which is written around the neural networks, to an expansive opportunity in enterprises and integrate the 2 and reinvent and reimagine businesses. I mean this is -- this is a fabulous opportunity for system integrators to be those builders. And I'm actually more optimistic than I was before on the opportunity in front of us. Operator: Our next question is coming from Tien-Tsin Huang from JPMorgan. Tien-Tsin Huang: Great. Just want to ask on Project LEAP, if that's okay, just the offensive or defensive nature of it? What prompted it, the scope of it and what outcomes we can expect in the short and midterm from Project LEAP. Ravi Kumar S: I'll kick off, and I'll get Jatin to add. I mean, we have a mental -- a frame of what our future operating model looks like, and I'm pretty confident that operating model is we are on the journey to get to the operating model, LEAP is to make sure that we get there fast. It's our opportunity to resize our pyramid with a broader parameter. That's why we're hiring more school graduates, more early careers. And short on the height of the pyramid so that you get to expertise much faster. That's our model. It is margin accretive because the more you brought on the pyramid the more you could deliver the services in a more AI native way, if I may. The second important thing is this allows us to invest into the platforms AI enabling the enterprise and tokenizing the enterprise, as I call it. It allows us to do that. So we have measured the savings. It is in the range of $200 million to $300 million this year, and this is partial because we are already in the middle of the year, and we have couple of months to complete this process and probably 3 to 4 months of impact. So it has a much higher impact next year in 2027. So not only are we rightsizing the pyramid. And remember, we're also seeing our future offerings are not effort-based, they're outcome-based, more and more. I mean, we'll see a mix of it in the transition. So when we get to that new operating model quicker, we are going to seize these opportunities faster and we'll be we'll be having a more optimized operating model. And we will have a kitty for investing into our future. So that we can seize the opportunities ahead of others. We also said in our Investor Day that we will have an expansive margin trajectory, which is what we intend to. I mean last year, 2025, we did 50 basis points in spite of the M&A and the investments -- this year, we have upped our margin guidance to 20 to 40 basis points increase from 10 to 30. So we are constantly on that trajectory to keep increasing our margins keep delivering productivity to our clients and be in the winner circle of growth. So this allows us to do all of this in a quicker, faster way. We get to that future operating model, which we have in [indiscernible] Operator: Our final question today is coming from Surinder Thind from Jefferies. Surinder Thind: Ravi, can you expand upon the last point of -- what is the benefit of showing margin improvement in the current environment relative to your ability to invest. Why not just maximize every dollar of spend maybe broaden the spend across what I would call more of a VC type strategy where you take more bets because the pace of change is accelerating -- and so as you try to build and adjust the model like. Ravi Kumar S: I think you're spot on. If you look at it, we're going to save $200 million to $300 million this year, which is just a few months. And you know in 2027, we have a much bigger opportunity. But we're investing back the rest of the money to generate growth opportunities and be agile enough in the market to generate more growth opportunities. So you're exactly right. So we're investing more into growth and we are contributing some into our expansive margins. So the idea of doing this is growth and be in the winner circle. Operator: Thank you. We've reached end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments. Ravi Kumar S: Thank you so much for listening to us. I mean we're very excited about our quarter 1 performance. Very excited about the bookings momentum we've had and the tailwind we have for the rest of the year and, of course, are anchored to the AI opportunity and getting their fast with the LEAP program and keeping our thesis of being in the winner circle from growth, expansive margins and EPS growth being higher than revenue growth. That's our endeavor, and this will allow us to create sustainable durable earnings for the future. Operator: Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.