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Operator: Good day, and welcome to the Community Bank System, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note that this event is being recorded, and the discussion may contain forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates, and projections about the industry, markets, and economic environment in which the company operates. These statements involve risks and uncertainties that could cause actual results to differ materially from the results discussed. Refer to the company’s SEC filings, including the Risk Factors section, for more details. Discussion may also include reference to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the company’s earnings release. I would now like to turn the conference over to Dimitar Karaivanov, President and CEO. Please go ahead. Dimitar Karaivanov: Good morning, everyone. I would like to first highlight a very recent recognition our company received. Last week, we were named CenterState CEO Business of the Year with over 50 employees here in Central New York. This is one of the most prominent recognitions in Central New York. I believe it is a great illustration of the activity, commitment, visibility, investment, and impact we are having, and the results we are about to discuss come in no small part due to all of the above. A major thank you to all of our teams across banking, insurance, employee benefits, and wealth management. Great things are happening in Upstate, and great things are happening in our company. Now on to results. We are off to a very good start in 2026. Organic growth is visible across all of our businesses. New business efforts, combined with the benefits of a supportive interest rate environment and market values, resulted in 9% total revenue growth. Our balance sheet, as always, is a source of strength for us and our clients, with excellent liquidity and credit metrics. Expenses and return on investments remain a focus. All in all, 17% growth in operating diluted earnings per share compared to last year’s period is a result we feel very good about. Focusing on each specific business: Banking and Corporate is benefiting from organic growth, expanding margin, and our recent branch acquisition in one of the most attractive markets in the Northeast. A 29% bottom-line improvement year over year is peer-leading. Market share gains have been and will continue to be the main source of growth for us. Employee Benefit Services is expanding at the expected pace of mid- to high-single digits, and we are starting to see some tangible results of our recent investments. Insurance Services had a difficult comp from last year due to the timing of contingency payments, which, as a reminder, came in during 2025 versus our typical pattern of most in the second quarter. This, however, has not changed our expectations for overall insurance performance during the year. Wealth Management Services also experienced mid-single-digit revenue growth and high-single-digit bottom-line growth, in line with our expectations. In summary, we did have a very good start to 2026. Organic activity is strong. Targeted inorganic discussions are active across all of our businesses. We have excellent capital and liquidity and look forward to continued strong performance throughout the year. I will now turn the call over to Mariah Loss for the financial results. Mariah? Mariah Loss: Thank you, Dimitar. Good morning, all. As Dimitar noted, the company’s first quarter performance was strong. Including acquisition expenses, GAAP earnings per share of $1.08 increased $0.15, or 16.1%, from the first quarter of the prior year, and increased $0.05, or 4.9%, from linked fourth quarter results. Operating earnings per share and operating pre-tax pre-provision net revenue per share were record quarterly results for the company. Operating earnings per share were $1[inaudible] in the first quarter as compared to $0.98 one year prior and $1.12 in the linked fourth quarter. First quarter operating PPNR per share of $1.10 increased $0.21 from one year prior and increased $0.03 on a linked-quarter basis. These record operating results were driven by a quarter-over-quarter decline in operating noninterest expenses and a new quarterly high for net interest income. The company’s net interest income was $134.7 million in the first quarter. This represents a $1.3 million, or 1%, increase over the linked fourth quarter and a $14.5 million, or 12.1%, improvement over the prior year, and marks the eighth consecutive quarter of net interest income expansion. The company’s fully tax-equivalent net interest margin increased 6 basis points from 3.39% in the linked fourth quarter to 3.45% in the first quarter, driven by lower funding costs. During the quarter, the company’s cost of funds was 1.2%, a decrease of 7 basis points from the prior quarter, primarily driven by lower deposit costs. Operating noninterest revenues increased $3.2 million, or 4.2%, compared to the prior year’s first quarter and decreased $3.2 million, or 3.8%, from the linked fourth quarter. The increase in operating noninterest revenues compared to the prior year was reflective of increases in Banking, Employee Benefit Services, and Wealth Management Services noninterest revenues, partially offset by a decrease in Insurance Services noninterest revenue due to changes in the timing of collections of contingent commissions revenue. Operating noninterest revenues represented 37% of total operating revenues during the first quarter, a metric that continuously emphasizes the diversification of our businesses. The company reported a $5.0 million provision for credit losses during the first quarter. This compares to $6.7 million in the prior year’s first quarter and $5.0 million in the linked fourth quarter. During the first quarter, the company recorded $133.0 million in total noninterest expenses, a decrease of $5.5 million, or 4%, from the linked fourth quarter and an increase of $7.7 million, or 6.2%, from the prior year’s first quarter. The decrease from the prior year’s fourth quarter was due in part to seasonal factors and the absence of certain one-time items described last quarter, as well as acquisition expenses associated with the Santander branch acquisition. $3.9 million of the increase in total noninterest expenses from the prior year was attributed to salaries and employee benefits, primarily due to the incremental costs associated with acquisitions and de novo bank branches opened between periods, along with the impact of annual merit-based increases. Occupancy and equipment expenses increased $2.2 million from the prior year’s first quarter, driven by incremental costs associated with the opening of 15 de novo bank branches and three regional headquarters, along with the seven branches acquired from Santander in the prior year’s fourth quarter. Additionally, acquisition expenses of $0.4 million were incurred in 2026 associated with a pending acquisition of ClearPoint Federal Bank and Trust. Ending loans increased $181.4 million, or 1.7%, during the first quarter and increased $710 million, or 6.8%, from one year prior, primarily due to organic growth in the overall business and consumer lending portfolios. The company’s ending total deposits increased $978.1 million, or 7%, from one year prior and increased $483 million, or 3.4%, from the prior year. The growth in total deposits during the first quarter was primarily reflective of seasonal inflows of municipal deposits. The increase in total deposits over the past twelve months included the $543.7 million of deposits assumed from the Santander branch acquisition. Moving on to asset quality, the nonperforming loans ratio decreased 4 basis points and the net charge-off ratio increased 2 basis points from the linked fourth quarter, while both the 30- to 89-days delinquent ratio increased 5 basis points from last quarter, aligned with typical seasonal trends. The company’s allowance for credit losses was $90.2 million, or 81 basis points of total loans outstanding, at the end of the first quarter, an increase of $2.3 million during the quarter. The increase was primarily attributed to reserve building in the business lending portfolio reflective of organic CRE growth. The allowance for credit losses at the end of the first quarter represented 7x the company’s trailing twelve-month net charge-offs. Looking forward, we believe the company’s diversified revenue profile, strong liquidity, and historically good asset quality provide a solid foundation for continued earnings growth. With that, the financial expectations we provided earlier this year for full-year 2026 remain consistent. That concludes my prepared earnings comments. We will now open the call for questions. Operator, please open the line. Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. We will pause momentarily to assemble our roster. The first question comes from Steve Moss with Raymond James. Please go ahead. Steve Moss: Morning, Dimitar and Mariah. How are you guys doing? Nice quarter here, and maybe just starting on the loan side—good commercial loan growth. I am just curious where you are on the pipeline. I apologize if I missed it. Just curious for color on that aspect of the loan book to start. Dimitar Karaivanov: The commercial pipeline is in excellent shape. I think it is actually the highest it has been and meaningfully higher than last year at this time. Of course, there is uncertainty as to timing and pull-through, but right now activity is very good and it has been building. We have had a little bit fewer payoffs than we did last year so far, and you all know that impacted us meaningfully last year. So right now, we are in pretty good shape. Steve Moss: Okay. And then on the auto side, strong quarter there. I know you were upbeat on it. What are you seeing going forward in terms of pricing and where it could go for the rest of the year? Dimitar Karaivanov: A reminder: the RFPs for us are really a function of pricing and overall market demand because we do not do anything as it relates to credit—that is set with fairly constant credit parameters. As long as they fit in the credit box, then the question is where we are on pricing. We entered this year with a little bit more of an aggressive stance, expecting rates to trend down over time. I think we gained a bit more market share than last year. We learned our lesson last year—we were down meaningfully in the first quarter in that business—and this year we did not want to start deep in the hole. Activity is strong, demand is okay, pricing is now a little bit better than it was at the beginning of the year. Our goal for that business continues to be mid-single digits. Steve Moss: Got it. And then on the fee side, you mentioned the contingent piece more in the second quarter. As I look back, it looks like that contingent benefit you typically get is about $1.5 million to $2 million in the second quarter. Is that about fair? Mariah Loss: Yes, that is in the range. Steve Moss: And just one more on expenses. Good to see where they came in. Updated thoughts on the cadence of expense growth throughout the year and where you are looking for things to land? Dimitar Karaivanov: Our guidance stays intact on that side. Year over year we are running just above 6%, and that includes the impact of acquisitions from last year. As we get into the latter part of this year and we are comparing truly apples to apples—in terms of the de novo expansion last year and acquisitions—I expect that rate to trend lower from 6%. It will be within the range; we are going to drive it as low as we can. Our goal is not to spend money; our goal is to make money, and that will continue to be a focus for us. Operator: The next question comes from David Conrad with KBW. Please go ahead. David Conrad: Good morning. You had really good NIM expansion this quarter, but I thought it was interesting that investment yields actually went down 4 bps. Maybe refresh us on your NIM expectations for the year and talk about how the portfolio balances may be used to pay down borrowings or fund loan growth. Where do you expect those securities balances to go? Thank you. Mariah Loss: NIM did outperform our Q4 guide as we expanded 6 basis points in Q1. This is the result of strong loan growth, ongoing repricing efforts, and a steeper yield curve than in recent quarters. Looking forward to Q2, we expect 3 to 5 basis points of expansion. We will continue to capitalize on loan and deposit efforts and fully realize the late-2025 cuts. Note that Q2 NIM will be partially aided by an FRB dividend. In terms of the overall portfolio, if we have the opportunity, we will pay down borrowings, but we see a steady state for now. We are pleased with how our book looks at the moment. Operator: Thank you. The next question comes from Manuel Navas with Piper Sandler. Please go ahead. Manuel Navas: Hey, just a follow-up on the NIM discussion. So is the expectation for loan yields to be flat to up? And then deposit cost performance has been excellent—any more room for it to come down, or do you have to shift toward acquiring deposits within the de novo branches? Can you talk about deposit costs going forward? Dimitar Karaivanov: Good morning, Manuel. The environment continues to be more supportive on the asset side, so the trajectory for margin will be predominantly driven by assets. There will be quarters like this one where you absorb some of the hit on the asset side while repricing deposits. For us, being flat in loan yields in the quarter, having absorbed 2.5 cuts essentially, was pretty good. Going forward, given where new production is—right around 6%—and where the back book is—around 5.68%—that should give you 30-plus basis points to work with as we continue to reprice the book. On deposits, we have active deposit management across the board and pulled through as much as we could this quarter. If there are no additional cuts, there is more limited opportunity, but another couple of basis points is possible. Also keep in mind that in the second quarter we will be sitting on more liquidity for the first 45 days or so that is municipal-related, and those tend to be higher-cost deposits, so there are natural ins and outs of deposit costs depending on municipal flows. Manuel Navas: Appreciate that. Shifting over to capital deployment, you had a little bit of a buyback this quarter. Can you talk about your appetite there and any updated thoughts on M&A—key businesses versus whole bank? And could we have a checkup on the de novos? Dimitar Karaivanov: We generate a fair amount of capital, and we are fortunate to have four businesses to allocate it across. Our first priority is always organic growth across those businesses. For the bank, that is tied to balance sheet growth; for the other businesses, it is more in the expense base where we are making investments. We continue to have active and very targeted discussions across all businesses on the inorganic side. Historically, for us that has been singles and doubles—a string of pearls—in our nonbanking businesses. On the bank side, we tend to like things we can meaningfully grow and expand, creating returns for shareholders, which also tend to be on the smaller side. We prefer to use cash; sometimes we may have to use stock, and sometimes we will buy back that stock if we use it for an acquisition. The buyback this quarter was opportunistic—to clean up some equity dilution and also take advantage of disruption in the stock price during the quarter, knowing where company earnings are projected to be versus the market price at a moment in time. We will continue to be opportunistic. On a projected forward P/E basis, our stock looks attractive versus historical measures and the overall index, so we think it is reasonably attractive to look at when there are moments of disruption. Operator: The next question comes from Matthew Breese with Stephens Inc. Please go ahead. Matthew Breese: Good morning. Thinking back to strategic initiatives—taking market share in some of the more economically vibrant areas in your footprint—could you give us an idea where we are on that priority and where you have made the most progress, whether it is Rochester, Buffalo, Eastern Pennsylvania, New Hampshire? And then maybe some thoughts around local investments, whether it is chip manufacturing or otherwise, and whether you are starting to see any tangible impacts yet. Dimitar Karaivanov: We have been on a multi-year journey of revamping the organic capability of the company. It started before I joined and included the de novo in Albany, which was very successful, and we then recreated the same approach in Central New York and in Western New York. What is really encouraging is that growth this quarter and the past quarter was broad-based across every single one of the regions. We have had past quarters where the diversification shows up as strong performance in Pennsylvania, Western New York, Syracuse, and New England at different times; lately it has been consistently broad across markets. We feel very good about our opportunities, people, talent, reputation, and brand—things that are hard to replicate. It is not pricing or structure; it is the hard things we have focused on. In terms of Central New York, the major project here is underway. This is a long-tail event that will play out over a decade plus. Tangible things are starting to show up: around 4,000 workers will be on-site soon—transient workers who may not open accounts with us but will consume goods and services in our markets, helping our customers. Then we will see more permanent populations around these facilities—not just Micron, but suppliers, onshoring from Canada and other markets. As a ballpark over multiple years: if you compare the size of the Central New York investment in chips/advanced tech manufacturing to similar investments across the country relative to local GDP, Central New York’s impact is roughly 250% of local GDP. It is very large, and over a long time horizon. Matthew Breese: I did not realize it was that large relative to local GDP. On the ClearPoint deal—is that closed yet, or when is it expected to close? And during the quarter, were there any other notable fee income business line acquisitions that did not get an 8-K? Dimitar Karaivanov: No additional fee income acquisitions in the quarter. As it relates to ClearPoint, both parties are prepared to close—we have everything lined up and it is a straightforward execution with low risk, with limited conversion, technology, or people impact. We are still waiting on regulatory approval. That could be any day, or it could be later—we do not know. Once received, we will be prepared to close shortly after. Matthew Breese: Last one from me. On expenses—in the press release you mentioned use of AI. How and where are you using it, and any notable applications that have saved money or helped on the revenue front? Dimitar Karaivanov: We have been on this journey for about two years. Credit to our retiring director, Sally Steele, who pushed us to be more front-footed back in 2024. Our goal has been to continue to scale without necessarily growing the expense base and headcount—shifting lower-value activities away from people and focusing them on high-value activities. I agree with Alex Karp’s view that AI’s impact needs to be transformational—doing five times as much at half the cost. Until I can point to that outcome definitively and tie it to margin, we will be quieter publicly and continue working in the background. Operator: To ask a question, you may press star, then 1 on your touch-tone phone. The next question comes from Manuel Navas with Piper Sandler. Please go ahead. Manuel Navas: Just want to jump back in. The expense level is seemingly annualizing below your full-year guide. Where are some of the increases across the year as you invest in your businesses? Dimitar Karaivanov: A couple of things to consider. There are fewer days in the first quarter, and additional payroll days in later quarters can be a meaningful add. We also expect continued opportunities for talent acquisition or maybe smaller tuck-in acquisitions that we will ultimately try to absorb with minimal cost, but along the way they might produce some expense. Medical is a swing factor as well—we had a pretty good quarter in medical costs, and that could reverse quickly. A couple of million dollars can be an easy delta in a quarter and move the reported growth rate meaningfully. Mariah Loss: To add to that, we are staying consistent with our guide—4% to 7% expense growth, mid-single digits, with full-year dollars anywhere between $535 million and $550 million, averaging about $135 million a quarter. Core expense came in under $133 million in Q1, so we are on track within those guardrails. We are diligently reviewing spend to ensure investments are focused on growth—talent acquisition, business acquisition, technology, and occupancy. Manuel Navas: Two specific modeling questions. What is the FRB dividend benefit in the second quarter that you expect? And what was the repurchase price on the buyback—you said you were opportunistic; trying to gauge your appetite. Dimitar Karaivanov: On the buyback, it was in the low sixties. As it relates to the dividend, we will follow up with you separately. Operator: Again, if you have a question, please press star, then 1. This concludes our question-and-answer session. I would like to turn the conference back over to Dimitar Karaivanov for any closing remarks. Dimitar Karaivanov: Thank you, everybody, for joining us for our first quarter. We look forward to speaking with you again in July. Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Omega Healthcare Investors, Inc. First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I will now turn the conference over to Michele Reber. You may begin. Michele Reber: Thank you, and good morning. With me today is Omega CEO, C. Taylor Pickett, President, Matthew P. Gourmand, CFO, Robert O. Stephenson, CIO, Vikas Gupta, and Megan M. Krull, Senior Vice President, Data Intelligence and Government Relations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, potential transactions, operator prospects, and outlook generally. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company’s filings with the SEC. During the call today, we will refer to some non-GAAP financial measures, such as NAREIT FFO, adjusted FFO, FAD, and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles are available in the quarterly supplement. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega Healthcare Investors, Inc. I will now turn the call over to C. Taylor Pickett. C. Taylor Pickett: Thanks, Michele. Good morning, and thank you for joining our first quarter 2026 earnings conference call. Today, I will discuss our first quarter financial results and certain key operating trends. First quarter adjusted funds from operations, AFFO, of $0.82 per share and FAD, funds available for distribution, of $0.78 per share reflect strong revenue and EBITDA growth principally fueled by acquisitions and active portfolio management. Our dividend payout ratio has dropped to 82% for AFFO and 86% for FAD. Our exceptional first quarter results reflect our high-quality capital allocation throughout 2025 and 2026. We continue to find and close RIDEA transactions while still allocating meaningful capital to SNF facilities and UK care homes. We expect our capital allocation and active portfolio management will drive significant future AFFO and FAD growth. Our active portfolio management is highlighted by our planned and partially completed second quarter sales generating $480 million in proceeds. We expect the redeployment of this capital will result in approximately $0.03 of annual AFFO and FAD accretion. I will now turn the call over to Matthew. Matthew P. Gourmand: Thanks, Taylor, and good morning, everyone. We have spoken in previous calls about the team’s focus on creating shareholder value by growing FAD per share on a sustainable basis, and we saw this focus continue to bear fruit in the first quarter, as our FAD per share increased 9.5% over the same quarter last year. This along with a robust pipeline of investment opportunities gave us comfort to be able to increase the low end of our AFFO guidance, moving the midpoint up by $0.02 to $3.22. At the same time, our first quarter investments reflect the breadth of our capital allocation focus. We invested in both triple-net and RIDEA structures, in skilled nursing, seniors housing, and long-term care real estate across the United States, the UK, and Canada. And we closed on our equity investment in Sabra’s operating company. In addition, we are in the process of selling a portfolio of 18 CommuniCare assets for $480 million. Vikas will provide additional details around the sale. However, from an overarching perspective, it was about putting assets into the hands of strong stewards at a price that made sense for each party while also enhancing our credit with CommuniCare. While we would not expect to see this be a core element of our capital allocation strategy, we will continue to evaluate our portfolio and work with our operating partners to find innovative ways to both protect and enhance shareholder value over time. Finally, I would like to thank the team who continue to work tirelessly to execute on our vision as well as our operating partners and their staff who work every day to look after some of the sickest and most frail members of our community. Without them, none of this would be possible. I will now turn the call over to Vikas. Vikas Gupta: Thank you, Matthew, and good morning, everyone. Today, I will discuss the most recent performance trends for Omega Healthcare Investors, Inc.’s operating portfolio, including an update on Genesis, additional detail on our strategic sales, Omega Healthcare Investors, Inc.’s investment activity year to date, and an update on our pipeline. Turning to portfolio performance, core portfolio coverage continues to trend in a favorable direction. Above average coverage levels with our trailing twelve-month operator EBITDAR coverage for our triple-net and mortgage core portfolio as of 12/31/2025 at 1.58x, compared to our third quarter 2025 reported coverage of 1.57x. This represents the highest coverage in our portfolio in over a decade and reflects the combination of a relatively favorable operating backdrop combined with our active portfolio management, where we have focused on strengthening the lease credit across our portfolio. The Genesis bankruptcy process continues to move forward, with a few notable events having taken place in recent weeks. In March, we committed to fund up to $26.7 million, or one third, of a new aggregate $80 million DIP loan. As of the end of the first quarter, we have funded our $25 million of the initial $75 million advance. Proceeds from this new superpriority DIP financing are used to fully repay the original DIP loan and to fund working capital needs. Additionally, the debtor has been advised that 101 West State Street has submitted a qualified financing commitment as required by the asset purchase agreement. The closing date, which can contractually be extended to the end of the third quarter, is conditioned on several factors including receipt of regulatory change-of-ownership approval. We anticipate that 101 West State Street will assume our Genesis master lease and our DIP loan and term loan will be paid off from the consideration received by the debtors at close. We remain confident that our term loan is fully collateralized based on the underlying collateral and the ascribed value of the Genesis estate. These assumptions, along with all elements of the bankruptcy process, are subject to further developments and events in the bankruptcy proceeding. As Taylor and Matthew mentioned, we are in the process of a strategic sale of 18 CommuniCare assets located in Maryland and West Virginia for a contractual purchase price of $480 million and a rent discount at a blended 7.7%. Subsequent to quarter end, 12 Maryland facilities were sold; we expect the remaining 6 West Virginia facilities to be sold in the second quarter. While asset sales are not typically a core component of our capital allocation strategy, the strong pricing offered for these facilities combined with the improvement of our credit with CommuniCare presented an opportunity to realize significant value for our shareholders. Turning to new investments, our transaction activity for 2026 started strong, with $326 million in new investments year to date. Similar to previous quarters, these transactions varied in size and asset type, demonstrating our ability to continue to develop, underwrite, and close accretive transactions in our core asset classes. We continue to support the growth of existing and new operators in the U.S. skilled nursing space and UK care home space, as well as expand our new senior housing RIDEA portfolio. As Matthew said earlier, our primary goal is to allocate capital with a focus on growing FAD per share on a sustainable basis. During 2026, Omega Healthcare Investors, Inc. completed a total of $251 million in new investments not including $13 million in CapEx. These new investments included the previously announced purchase of 9.9% of the equity interest in Sabra’s operating company, the $109 million acquisition of 13 Georgia skilled nursing facilities, and a $10 million investment in an Alabama senior housing RIDEA transaction. Our other first quarter investments included the purchase of a UK care home for $7 million and $27 million in real estate loans. The weighted average yield on these leases and loans was 10.9%. Subsequent to quarter end, we closed $75 million of additional investments. We purchased two Indiana skilled nursing facilities for $33 million and three senior housing facilities in Rhode Island for $42 million. The skilled nursing facilities will be leased to a current Omega Healthcare Investors, Inc. operator at a lease yield of 10%. The senior housing facilities will be operated by Omega Healthcare Investors, Inc. and managed by a third-party manager via a RIDEA structure. Turning to the pipeline, our pipeline includes both marketed and off-market opportunities in the U.S. and UK. A large component of these opportunities are U.S. senior housing assets that will be structured and operated using our new RIDEA platform. As mentioned previously, we have built out our infrastructure at Omega Healthcare Investors, Inc. with an experienced team of investment professionals that are finding deals that meet our investment criteria and then coupling them with proven third-party managers who we believe will deliver on those underwritten expectations. We continue to pursue deals that will achieve IRRs in the mid-teens range. In addition to senior housing RIDEA deals, we are aggressively pursuing both U.S. skilled nursing and UK care home deals. In the UK, we have built out our team to help find off-market transactions and quickly evaluate opportunities with existing and new operators in order to continue deploying meaningful capital through both triple-net and RIDEA structures. I will now turn the call over to Bob. Robert O. Stephenson: Thanks, Vikas, good morning. Turning to our financials for 2026, revenue for the first quarter was $323 million compared to $277 million for 2025. The year-over-year increase is primarily the result of the timing and impact of revenue from new investments completed throughout 2025 and 2026, annual escalators, and active portfolio management. Our net income for 2026 was $159 million, or $0.47 per common share, compared to $112 million, or $0.33 per common share, for 2025. Our adjusted FFO was $260 million, or $0.82 per share for the quarter, and our FAD was $247 million, or $0.78 per share, and both are adjusted for several items outlined in our NAREIT FFO, adjusted FFO, and FAD reconciliations to net income found in our earnings release as well as our first quarter financial supplemental posted to our website. Our first quarter 2026 adjusted FFO and FAD were both $0.02 greater than our fourth quarter AFFO and FAD, with the increase primarily resulting from incremental net income from $585 million in new investments completed during the fourth and first quarters, and revenue from annual escalators of $2 million. These were partially offset by income related to $53 million in asset sales and $88 million in loan repayments over the past two quarters, resulting in a $1.4 million reduction to our first quarter adjusted FFO and FAD, as well as the impact from the issuance of a combined 7.7 million common shares of stock and OP units over the past two quarters to fund the new investments. Our balance sheet remains incredibly strong. Our debt is well laddered, and we have significant liquidity. At March 31, we had $425 million in borrowings on our credit facility. However, we also had $26 million in available cash and assets held for sale which we expect to sell for approximately $480 million. Additionally, we have over $1.5 billion in available capacity on our $2 billion revolver, with our next scheduled debt maturity not until April 2027. At quarter end, our fixed charge coverage ratio was 6.3x and our leverage remained flat at 3.5x. We are excited as our balance sheet and cost of capital continue to position us to accretively fund our active pipeline. Turning to guidance, as we press released yesterday, we narrowed our full year adjusted AFFO guidance to a range between $3.19 to $3.25 per share. This is a $0.02 increase over the midpoint of our February guidance. I would like to take a moment to highlight a few of the guidance assumptions we outlined in our earnings release. Our guidance includes the impact of new investments completed as of April 27, and does not include any additional investments not outlined in our press release. It includes the impact of scheduled loan repayments and expected asset sales. Of the $159 million in mortgages and other real estate loans that are scheduled to mature in 2026, it assumes $65 million will convert to fee simple real estate and that the balance will be repaid. Additionally, $224 million in non–real estate-backed loans at 03/31/2026 are expected to be repaid throughout 2026, which includes approximately $159.5 million in Genesis loans. The 18 CommuniCare facilities and assets held for sale are expected to be sold for $480 million. Our Q1 rent related to these facilities totaled $9.2 million. The high end of the range in our guidance includes, but is not limited to, timing or potential extension of loan repayments and asset sales, additional cash from Maplewood as well as other cash-based operators, and G&A at the lower end of the guidance range, just to name a few. Our 2026 adjusted FFO guidance does not include any additional investments, asset sales, or capital market transactions other than what I just mentioned or that was included in the earnings release. I will now turn the call over to Megan. Megan M. Krull: Thanks, Bob, and good morning, everyone. With the budgetary season well underway in most states, we continue to watch for any signals of state reactions to the OVBBA as it relates to long-term care. As expected, things have been relatively quiet, with most meaningful discussions not expected until sometime next year. On a separate note, over the last year or so, Medicare Advantage has come under scrutiny due to allegations of upcoding, high denial rates, delayed payments, and cost savings not keeping pace with expectations. Last week, bipartisan legislation was introduced in Congress, applauded by industry associations, which addresses just these types of concerns. While I noted last time that Medicare Advantage represents a relatively low portion of our operators’ business, the momentum behind fixing these issues is important to our industry, as similar issues arise in managed Medicaid. Indiana, for instance, which implemented managed Medicaid back in 2024, has decided to unwind that program specifically for the long-term care population in nursing homes for very similar reasons that we see in Medicare Advantage. We applaud these efforts to deal with these fundamental structural problems head on to ensure that our payment systems align with the needs of this frail and vulnerable population. We will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press star then the number one on your keypad. And if you would like to withdraw your question, press star 1 again. We do request for today’s session that you please limit to one question and one follow-up. Your first question comes from the line of Nicholas Joseph with Citi. Your line is open. Nicholas Joseph: Hi. This is Marlon for Nick. Could you please elaborate on the rationale behind the CommuniCare asset sales and whether or not they are indicative of broader conditions in the Maryland and West Virginia markets? Vikas Gupta: Thanks. Matthew P. Gourmand: Hi. Yes. The primary reason for the disposition was opportunistic. We had an opportunity to sell assets and enhance our credit with CommuniCare. We were able to get a bid that we thought was fair to both parties. I think a little bit of it is a reflection that these are both relatively hot markets right now. Both Maryland and West Virginia are markets that people are looking to acquire in, so we took advantage of that to a certain extent. But I do not think you can expect us to be doing this as part of the core business. Occasionally, we will look to divest assets. In this situation, we were also able to enhance our credit, so to the extent that we can continue to do that, we will. But as we look out through 2026, I do not think you are going to see any large dispositions like this happening in the next few quarters. Operator: Got it. Thank you. Your next question comes from the line of Richard Anderson with Cantor Fitzgerald. Your line is open. Richard Anderson: Thanks. Good morning, everyone. So when you think about your external growth strategy through all the different layers you mentioned—SHOP, skilled, and care homes—can you talk about your comfort level on the initial yield? How low on the initial yield spectrum are you willing to go if you have line of sight into a reasonable IRR over the long term? Thanks. Matthew P. Gourmand: Yes. I do not think we have a number. I would encourage internally not to see this as a competition to see how low we can go. I think it is more really about trying to find the long-term opportunity. If there truly is a situation today where there is a lot of low-hanging fruit that we can fix immediately, I do not think that there is an element necessarily we ascribe to the lowest we would go. I think we really have to look at (a) what the long-term opportunity is and (b) the visibility around that. Obviously, we would be less reluctant to take a swing at things where there is a cost saving that we know a better manager can operate. I think situations where you are looking at a facility that maybe has very low occupancy and historically had low occupancy—relying on a paradigm shift in that occupancy is probably a level of naivety that we would not underwrite to. But it is contingent on the opportunities that present themselves and the risk-adjusted return that we assign to that. Richard Anderson: Right. So when you think about value add—like a low initial cap rate concept—do you think it would be like a 50/50 split in terms of what you are looking at today relative to a more stabilized entry level? Matthew P. Gourmand: It depends on what the market presents us, Rich. What you are finding right now is the stabilized assets that have the most stabilized margins, high occupancy, relatively newer vintage—they tend to be coming in at lower yields but without that upside. So from that standpoint, we have been fortunate enough to find stuff that is, you know, stabilized 7%, 8%, 9% that we think, with a relatively easy lift, we can take into the double digits. But I do not think that we are going to be looking at the true stabilized assets with a 7% where you are relying predominantly on rate increases to exceed costs to drive that growth, because occupancy and rate, to a certain extent, are already fully baked in. So from that standpoint, I think that most stuff we are going to be looking at is what we would say is value add. Richard Anderson: And then my second question is on RIDEA. Will you take that show on the road a little bit in terms of looking at opportunities in the UK with the RIDEA mindset? Vikas Gupta: Yes. This is Vikas. We actually are looking at a few opportunities right now, so it will become part of our strategy in the UK going forward. Richard Anderson: Thanks very much. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Your line is open. Michael Goldsmith: Good morning. I am here with Dustin Hasbey. Thanks for taking my question. Maybe sticking with CommuniCare—we estimate the cap rate was roughly 7.7% based on a contractual rent, but maybe it was a little bit lower given the EBITDAR coverage and assuming the rent is renegotiated. Is that right? And then also, why do you think the private market for U.S. SNFs is so competitive right now? And is the best path forward for Omega Healthcare Investors, Inc. to focus more on other segments until the competition cools for the SNFs? Thanks. Matthew P. Gourmand: Your math is correct, so you get an A for that. And yes, I think right now the competition has been strong for a number of years. I think a lot of people are looking at this as a long-term secular play. That is part of the reason we really like the space. Ultimately, there has been no net new supply for over a decade in this space. Most states have some sort of restriction on new supply. To the extent that an operator is getting in today, even with, let us say, a mid-6s yield, if they believe that occupancy is going to continue to improve and that they can run these facilities well, the operating leverage that exists within the business alone can move this into the high-single and low-double-digit yields over time for them. And then they have the opportunity once these buildings are stabilized to finance them to HUD, which is obviously relatively low-cost debt. So while there is a strong bid in the market, we do not think it is an irrational bid. We just think that it is reflective of the long-term secular plays that exist, and one of the reasons we are not looking to sell prodigious amounts of our skilled nursing. In terms of opportunities, yes, we are seeing less of them, but we are still seeing select opportunities. I think we are not going to rule out or stop looking at skilled nursing. We are just going to continue to remain very disciplined and look for opportunities that align with what we are trying to achieve from a FAD per share growth standpoint. Michael Goldsmith: Got it. And as a follow-up, noticed another quarter of healthy investing volume for your new SHOP segment. Maybe provide some color on the economics of that Rhode Island portfolio. Does Omega Healthcare Investors, Inc. take more of a hands-off approach to its SHOP operations given it is still a small segment, or are you in the process of building out a data platform and other standard operating procedures related to SHOP? Vikas Gupta: Yes. So this Rhode Island deal falls right in the category of everything we have been about in our SHOP world. We are underwriting to stabilized mid-teens IRRs, and it just follows all the protocols we have been saying. We use our data, underwriting, our entire team to get around it, so it is just a typical RIDEA deal—value add in our book. Matthew P. Gourmand: And then the other thing I would add is you are right—obviously we do not have the level of experience or sophistication of some of our peers who have devoted years and significant amounts of money to rolling out various different technologies and have experience on that side of things. I think our attitude right now is we spend an awful lot of time both hiring people internally who have great experience in this space but also developing relationships as a team to understand really strong operators. Our attitude as of now is we are hiring them because of their expertise, and for us, given our relative lack of expertise in the space, to start second-guessing them straight out of the gate would probably be naive at best. So while we obviously, by our very nature, are extremely focused on what they are doing and seeking to learn from them and understand from them, I do not think we are in a position to necessarily tell them how to run their businesses at this point in time. That is effectively what we are hiring them to do on our behalf. Michael Goldsmith: Thank you very much. Good luck in the second quarter. Matthew P. Gourmand: Thanks. Operator: Your next question comes from the line of Julien Blouin with Goldman Sachs. Your line is open. Julien Blouin: Thank you for taking my question. I wanted to touch on the level of competition you are seeing in the transaction market, specifically in U.S. senior housing or RIDEA structures. We are seeing a lot of capital flowing into this space, so just wondering if you are finding it increasingly more difficult to achieve the mid-teens IRRs you are targeting. Vikas Gupta: Yes, it is competitive. As you know, there are a lot of players in this space now. But as Matthew mentioned, we are looking at a lot of value-add product, and we are finding it. The team is going out there, we are reviewing transactions, and if it fits, it fits. At the same time, everyone has its own underwriting criteria, and for what we are looking for, we continue to find assets. Julien Blouin: Okay, great. And then back to the CommuniCare sale—clearly a strong cap rate just on current rents, but even if we were to assume a resetting of rents to something like your average EBITDAR coverage of 1.5x, that would mean an even lower cap rate, I guess. What kind of buyer is this? Is it a buyer that really sees the potential to change management of the assets and improve operations? Is that a key part of their play? Matthew P. Gourmand: I cannot speak to what their business plan was behind that. What I can tell you is they are long-term players in the space, highly established, like to own the operations and the properties. And I think that their belief is kind of as we spoke to earlier, that there is a 20-year secular play here and that the price that they paid for these assets today, in 10–15 years’ time, may actually look like a bargain given the fact that there is no new supply coming online in most states. So they are an established, reputable player. Beyond that, I cannot speak to what their plans are for the business. Julien Blouin: Thank you. Operator: Next question comes from the line of Omotayo Tejumade Okusanya with Deutsche Bank. Your line is open. Omotayo Tejumade Okusanya: Good morning, guys. I wanted to talk a little bit about Medicare Advantage. We have seen a bunch of healthcare providers report over the past week—UnitedHealth, Humana—all talking about CMS Medicare Advantage and the rollout of these value-based care systems. Some seem to be adopting really well; others are struggling. How do you see this impacting skilled nursing referrals from hospitals over 2026–2027, and does it change anything? How do you expect skilled nursing operators to react to these value-based programs infiltrating the system, so to speak? Megan M. Krull: Like I said last time, Medicare Advantage is not a huge piece of our business. It definitely has less penetration in the skilled nursing space than it does in the general Medicare population. At this point, there is not much in the way that it impacts our operators other than there are certain areas that have higher Medicare Advantage penetration. Sometimes those rates are materially lower than Medicare, and sometimes that means taking a Medicaid resident might make more sense than taking a resident at Medicare Advantage rates. As an industry, I think there is a big push to get those rates up to more reasonable numbers. And like I said in my talking points, there is legislation last week to deal with some of these other issues that are going on, like the high denial rates, where typically you might have a high denial but then if you push back it will get approved. You should not have that type of thing going on. Value-based care is a big thing and something to watch for all of us. Ultimately, we try to partner with the most sophisticated operators, and that plays into their game plan really well. Omotayo Tejumade Okusanya: That is helpful. And then just occupancy trends—the past few quarters have kind of stagnated. What may be happening there? Is it still changing with shift mix? How do we think about that given the backdrop of aging U.S. demographics and limited new supply? Megan M. Krull: I do not think there is any read-through over a few quarters as to what occupancy is doing. The demographics are here and coming, and ultimately you will see that needle move. When you look at our performance, the coverages provide ample coverage for our rent. We are good with where things are, and we expect to see occupancy increase in the next year or two. Omotayo Tejumade Okusanya: Thank you. Operator: Next question comes from the line of Nicholas Philip Yulico with Scotiabank. Your line is open. Next question comes from the line of William John Kilichowski with Wells Fargo. Your line is open. William John Kilichowski: Good morning. Thank you. My first question is just on the transaction market. Earlier, we talked about the competitiveness of SHOP, but I would be interested in the competitiveness of the SNF landscape today. There has been a vacuum of REIT capital and some other capital moving from skilled nursing into SHOP. Are you finding it incrementally any easier to transact in the SNF space given the money that is moving over, or is it still heavily competitive? Vikas Gupta: The short answer is heavily competitive. We were able to find an off-market larger deal that we did in the first quarter, but it is competitive, and a lot of that is coming from the family office space still. Otherwise, we are just not seeing a lot of trading at this time that we like and that fits our investment criteria. William John Kilichowski: Got it. Very helpful. And then my second one for you is that we have got Governor Tim Walz legalizing alcohol in SNFs in Minnesota. What are we thinking for new build-outs—speakeasies or local pub vibes? Vikas Gupta: Is this Medicaid reimbursed? Are non-tenants going to be allowed in? Matthew P. Gourmand: I do not think that is necessarily something that we are looking at right now. Obviously, we have a history of partnering with operators who evolve no matter what the operating backdrop is, even if that includes the use of things previously prohibited in the facility. I suspect that our operators will thrive no matter what the circumstances are. William John Kilichowski: Got it. Thank you. Operator: Next question comes from the line of Nicholas Philip Yulico with Scotiabank. Your line is open. Elmer Chang: Hi. Good morning. This is Elmer Chang on with Nick. Sorry about that earlier—my phone dropped. My first question is on recent senior housing RIDEA communities that you have been acquiring. As you further build out that platform, I know it is dependent on opportunities that may be closer to stabilized assets, but how should we think about underwriting NOI upside to earnings for those recent acquisitions? Matthew P. Gourmand: It is tough for me to be overly precise. Thankfully, we are a $14 billion company and we have put a couple hundred million dollars out. So from that standpoint, I do not think it is going to move the needle that much near term. If you are looking generally at the idea that a blended yield between 7% and 9% coming out of the gate on these things is reasonable, you will not be too far off. Then, hopefully, that will meaningfully improve over time. But given the relative size of it right now, if you are in that ballpark, missing or exceeding expectations is probably going to be limited given the relative size. Elmer Chang: Got it. Thank you. And second, going back to the planned CommuniCare sale, what assumptions in terms of initial yield and future growth are driving your estimates for $0.03 of accretion to FAD that you expect? And how much of the $480 million is going to be reinvested, or maybe already in deals under LOIs or under contract? Matthew P. Gourmand: We went back and forth on what the number was. I wanted to say $0.04 because, technically, putting it back to work at a 10% gives you three and a half pennies, and that rounds up, but we decided to be conservative. So the numbers probably are in the low 9%s in terms of what we are saying. I still think we are going to expect to deploy capital in the 10%s, but that is the math around it. In terms of LOIs, we are not going to talk too much about what is in LOIs today, but this is an interesting market right now. In seniors housing and skilled nursing and care homes, you are seeing probably more appetite and more players than we have seen in well over a decade. This is clearly a space that is exciting people and creating interest, and as a result, there are more competitors out there. But we still, as we look out in the portfolio, see significant opportunities across all three platforms. From that standpoint, I do not want people being confused that just because it is a competitive market that we do not think the pipeline is going to be robust for us over the next 24 months. We are just going to have to be more selective, more creative sometimes in our structuring, and be on the road, quite frankly, finding more off-market deals through relationships. From that standpoint, I think we are in a good place going forward, but nonetheless, it is competitive. Elmer Chang: Thank you. Operator: Next question comes from the line of Michael Albert Carroll with RBC Capital Markets. Your line is open. Michael Albert Carroll: Thanks. I wanted to circle up on the Sabra equity deal. I know that there is a minimum yield to that transaction. It looks like the initial yield is coming in a little bit higher than that. Should we assume growth at a high single-digit to low double-digit rate each year, given the organic growth outlook you are starting to see in skilled nursing facilities and maybe as you layer on new acquisitions and Sabra can continue to grow externally? Is that a good ballpark to think about the growth outlook that that equity investment could potentially generate? Vikas Gupta: This is Vikas. Let me answer that a little differently. As we have said before, you are speaking of our Sabra investment. It is a private company, so we cannot release financial information for them, but we are very happy with our investment to date. It is beating expectations, and we are getting returns slightly above what we thought we would get. Sabra plans to keep growing and they think like us—good, smart transactions that are accretive. We plan that there will be further growth here above our underwritten expectations. Michael Albert Carroll: That is helpful. And circling back on Maplewood, has there been any discussion to transition that Maplewood investment into a pure RIDEA contract? I know that Omega Healthcare Investors, Inc. still gets a lot of the upside given how it is struck in the net lease side, but does it help to simplify that agreement? Vikas Gupta: To be honest, that is what we are doing right now. We see it as a RIDEA asset now, so we do not see the need to do that. We thought about it from time to time, but right now, we are truly treating this like our RIDEA asset. All of the cash flow comes to Omega Healthcare Investors, Inc., and the team receives promotes for hitting certain cash flow hurdles. At this point, we do not see a need for a structural change. Michael Albert Carroll: Great. Appreciate it. Operator: Next question comes from the line of Juan Carlos Sanabria with BMO Capital Markets. Your line is open. Juan Carlos Sanabria: Hi. Good morning. On building out the team in SHOP or RIDEA, how should we think about that? Is that more on trying to source opportunities, or inclusive of building out asset management capabilities? Vikas Gupta: Again, the answer is all of the above. We have hired a lot of smart people to help us step up our investment criteria and underwriting abilities, to go out there and find more relationships. For example, we have boots on the ground in the UK now to find off-market transactions for us. Additionally, both on asset management and accounting, we have hired a good bit of people to help us manage our transactions after they close. Juan Carlos Sanabria: And then there is some news about litigation and some punitive damages awarded to victims, where the REIT was held culpable—at the time it was Colony Capital, not DigitalBridge. Thoughts there, and does that change the calculus at all or make you more hesitant on these transactions potentially in states like California where it is more litigious? Megan M. Krull: I would like to think that was a one-off unique situation because REITs do not get involved in the operations and are not involved in the patient care. To hold a REIT accountable for care that they are not providing does not make sense. But we will continue to watch the various different areas and make sure that is part of our investment thesis. Juan Carlos Sanabria: Thank you. Operator: Next question comes from the line of Wesley Golladay with Baird. Your line is open. Wesley Golladay: Good morning, everyone. Quick question on how the SNF pipeline is evolving for the broader market. Are you starting to see more operators stabilizing assets and going directly to HUD? Vikas Gupta: This is Vikas again. To be honest, we are not seeing a lot of SNF assets trading at all right now. I think people are sitting on their assets and taking them to HUD. We have seen broken deals pop up from time to time, and I think we are going to start seeing more of those in the future. Wesley Golladay: For those, would you look to loan on those or buy them outright? Vikas Gupta: Buy them outright. Wesley Golladay: Thank you. Operator: Next question comes from the line of Vikram L. Malhotra with Mizuho. Your line is open. Vikram L. Malhotra: Morning. Thanks for taking the questions. You have had a nice pickup in FAD over the last several quarters. What are your latest thoughts on the dividend—pushing that higher? And, Matthew, you made a comment on focusing on per-share FAD growth. With all these different levers, where do you think that could trend from today’s growth? Robert O. Stephenson: Fair question. In terms of the dividend outlook, obviously it is a Board decision. But when you think about 2025 at $0.71 of FAD, Q1 this year at $0.78 of FAD, and all the same tools in place to replicate that type of performance, I would think by year end the Board is going to need to start conversations about our dividend. It really just comes down to the velocity of putting some of the capital back to work because the escalators are in place, the portfolio is stable, we have excess cash flow rolling into the balance sheet and into investments, and then you have the pipeline. It is just how fast we recycle those dollars. We will get there—whether it is 2026 or 2027. The tools are all there for us to perform at that level of growth. Operator: Next question comes from the line of Michael Lee Stroyeck with Green Street. Your line is open. Michael Lee Stroyeck: Thanks, and good morning. Maybe going back to the earlier question on UK RIDEA, does the competitive backdrop within the UK compare versus the U.S.? And has there been the same level of cap rate compression that we have seen in the States? Vikas Gupta: There are some new players in the UK. But through our relationships, we continue to find a good bit of deal activity that we can do at our current cap rates. We are still quoting 10%. Michael Lee Stroyeck: That goes for the RIDEA side as well? Vikas Gupta: Yes, that goes for RIDEA as well. A little bit of our RIDEA growth there will be through our current relationships. Same thing applies. Michael Lee Stroyeck: Got it. And then one question on Maplewood. Last quarter, you outlined high single-digit rate increases across that portfolio. Can you provide an update on how 1Q has progressed on that front? Vikas Gupta: The net increases were high single-digit increases, with both D.C. and New York being at the very high end of it. Michael Lee Stroyeck: Got it. Thanks for the time. Operator: Next question comes from the line of Farrell Granath with Bank of America. Your line is open. Farrell Granath: This is Farrell Granath. First, how do you consider the balance between triple-net with potential revenue upside baked into the contract versus a pure-play RIDEA, and how do you consider that in your acquisition pipeline? Matthew P. Gourmand: The Maplewood situation is kind of contrived from the background in terms of how the deal started. At the end of the day, there is an operating team and an operating company that have the rights to those operating profits if and when those profits exceed our rents. I do not think we would necessarily be looking to create that situation again. We have had situations where we have provided a lease with upside upon value realization, and that has worked reasonably well. A lot of that was our first foray into some level of participation in the upside. But now we have torn the band-aid off and gone full RIDEA. I think that is where our preference lies. At the same time, it is about creating alignment of interests with our partners. If someone else wants to participate in that upside and is willing to put capital in, we are open to creative situations—be they JVs, leases with upside, or some form of debt that can convert to equity over time. We are agnostic as to structure. We believe we have a strong underwriting ability and an ability to understand where value can be created, and as long as we see where value can be created and we can share in that value, we can structure the deal however it works for our operating partners and us. Farrell Granath: And on a similar vein, when selecting the operators themselves to enter onto your SHOP platform, how do you underwrite these operators in your selection? Do you focus more on scaled operators or those that are maybe smaller and looking to expand rapidly? Vikas Gupta: We are looking for experienced operators who have a proven track record, and they tend to be regional. They know those markets well and have performed in those markets before. It is a process—we interview several managers, and we pick the best one that fits those criteria. Operator: There are no further questions at this time. I will turn it back to C. Taylor Pickett for closing remarks. C. Taylor Pickett: Thanks all for joining us this morning. Please follow up with the team with any additional questions. Have a great day. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Hello and welcome. My name is Ellie, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Carpenter Technology Corporation CRS Third Quarter Fiscal Year 2026 Earnings Presentation Call. Please note that this call is being recorded. After the prepared remarks, there will be a question and answer session. If you would like to ask a question during that time, please press [inaudible]. Thank you. I would now like to hand the call over to John Huyette, Vice President of Investor Relations. You may now go ahead, please. John Huyette: Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology Corporation Earnings Conference Call for the fiscal 2026 third quarter ended March 31, 2026. This call is also being broadcast over the Internet along with presentation slides. For those of you listening by phone, you may experience a time delay in slide movement. Speakers on the call today are Tony Thene, Chairman and Chief Executive Officer; Tim Lain, Senior Vice President and Chief Financial Officer; and Brian Molloy, President and Chief Operating Officer. Statements made by management during this earnings presentation that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter Technology Corporation’s most recent SEC filings, including the company’s report on Form 10-K for the year ended June 30, 2025, Forms 10-Q for the quarters ended September 30, 2025, and December 31, 2025, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, when management discusses sales or revenue, that reference excludes surcharge. When referring to operating margins, that is based on adjusted operating income, excluding special items, and sales, excluding surcharge. I will now turn the call over to Tony. Tony Thene: Thank you, John, and good morning to everyone. I will begin on Slide 4 with a review of our safety performance. We ended the 2026 with a total case incident rate of 1.3. We continue to make progress as a result of targeted actions we have implemented across the organization centered on standardized work and disciplined safety practices. As always, we remain committed to our ultimate goal of a zero-injury workplace. Let us turn to Slide 5 for an overview of our third quarter performance. Carpenter Technology Corporation just delivered another record quarter, reflecting the accelerating demand across our high-value markets and our continued strong operational execution. This record performance is best understood through four key takeaways that highlight the strength, durability, and trajectory of the business. One, record earnings. In the third quarter, we generated $187 million in operating income, exceeding our previous record set in the second quarter by 20%. We have earned a reputation for setting meaningful financial targets and then exceeding them, and we did it again this quarter. The ability to increase earnings by 20% sequentially over what was a record quarter, and in a market that is still accelerating, must be recognized as superior performance. We are extremely proud of the Carpenter Technology Corporation team for their commitment to performance and their focus on continuous improvement. Importantly, these record earnings translated directly into another step-change in cash flow generation. In the third quarter, we generated $193.5 million in cash from operating activities and $124.8 million of adjusted free cash flow. Two, expanding operating margins. The SAO segment delivered an adjusted operating margin of 35.6% in the quarter, another new record for the business. This margin compares to 33.1% in the prior quarter and 29.1% a year ago. This meaningful margin expansion clearly demonstrates the impact of ongoing productivity gains, product mix optimization, and pricing actions. As a result of the expanding margins, the SAO segment recorded $208 million in operating income, an increase of 19% sequentially and another all-time record for this segment. Three, strengthening market demand. We see clear and accelerating demand signals across the aerospace and defense end-use market, reflected in both OEM production plans and order intake. Notably, bookings for aerospace structural materials continue to increase, up substantially this quarter. Remember, the submarket for aerospace structural material has been the most impacted by the OEM build rates. Therefore, increasing orders from our aerospace structural customers is a clear signal that the supply chain is accelerating the ramp to support the expected OEM build rate going forward. And four, pricing continues to be a tailwind. As I have said many times, pricing has been and will continue to be a tailwind for the business. Against a backdrop of strong demand, customers are prioritizing security of supply, and we are continuing to realize pricing that reflects the value we deliver. While no long-term agreements were completed in the quarter, several are currently in negotiation. These long-term agreements support attractive economics for us while providing our customers with the supply chain certainty they need, making them strategically beneficial for both sides. Now let us turn to Slide 6 and have a closer look at our third quarter sales and market dynamics. In 2026, we delivered strong top-line growth, with total sales excluding raw material surcharge up 10% year-over-year and up 11% sequentially, reflecting higher volumes and continued pricing strength. The higher volumes were the result of increased operating time, improved productivity, and increasing demand for aerospace materials, primarily in the aerospace structural submarket. Looking ahead, we expect continued productivity improvements and healthy demand across our core end-use markets to support further sales growth. Now let me review our key end-use markets starting with aerospace and defense. Sales in the aerospace and defense end-use market were up 13% sequentially and up 17% year-over-year. Our sales growth reflects accelerating activity across the aerospace supply chain as OEMs continue to push towards higher build rates. Let me give some color on what we see happening in the aerospace market. With backlogs of new plane orders reaching new records every quarter, Boeing and Airbus are ramping production. Notably, Boeing is now consistently producing 42 737s per month. As reported on their recent earnings call, they are poised to go to 47 per month this summer and have their sights set on 52 and beyond due to the growing demand. As a result, the supply chain is building confidence, and our customer order intake has been increasing. Even with the increasing orders, OEMs are still concerned that the supply chain is not ordering material fast enough. We agree. We have seen order intake increase significantly, but we know from experience that it is still not enough to support the desired ramp. Over the last three months, we have had customers reach out requesting urgent deliveries to avoid line shutdowns for specific applications. We also continue to have customers across engine programs telling us our material is needed sooner. The Boeing comment that inventories which had been helping with recent output are now coming down is significant, and it will drive urgency to yet another level. We expect this urgency will continue to spread throughout the chain as inventories run short, further tightening the market for our materials. Moving on to the medical end-use market, our sales were down 9% sequentially and 29% compared to the prior-year third quarter. On a positive note, bookings were up significantly in the quarter, supporting our expectation the medical end-use market will begin to recover and return to growth in the near term. In the energy end-use market, sales increased 32% sequentially and 44% year-over-year, driven by higher volumes supporting industrial gas turbine builds. The demand from our IGT customers, primarily driven by the growing energy needs of data centers, remains strong across multiple platform types and OEMs. Keep in mind that the production flow for the IGT material goes across similar flow paths as aerospace material. As a result, quarterly sales for IGT material can fluctuate due to order timing and production scheduling. Taking a step back, we are clearly operating in an accelerating demand environment across our highest value end-use markets. Combined with our differentiating capabilities and capacity, this positions Carpenter Technology Corporation for meaningful growth, both in the near term and over the long term. Now I will turn it over to Tim for the financial summary. Tim Lain: Thanks, Tony, and good morning, everyone. Start on the income statement summary on Slide 8. Starting at the top, sales excluding surcharge increased 10% year-over-year on 15% higher volume. Sequentially, sales were up 11% on 10% higher volume. The improving productivity, product mix, and pricing are evident in our gross profit, which increased to $251.8 million in the current quarter, up 25% from the same quarter last year and up 15% sequentially. Selling, general and administrative, or SG&A, expenses were $65.3 million in the third quarter, up roughly $2 million both sequentially and versus the same quarter last year. The SG&A line includes corporate costs, which were $27.3 million. This is up $1.1 million sequentially and up $2.9 million from 2025. For the upcoming 2026, we expect corporate costs to be between $25 million to $26 million. Operating income was $186.5 million in the current quarter, which is 35% higher than our 2025 and up 20% from our recent second quarter. As Tony mentioned earlier, this represents another record quarterly operating income result, breaking the previous record set last quarter. Moving on to our effective tax rate, which was 21% in the current quarter. This quarter’s effective tax rate was lower than anticipated, primarily due to discrete tax benefits associated with changes to the estimate for certain tax positions taken in the prior year. For the upcoming 2026, we expect the effective tax rate, excluding discrete items, to be about 23%. Finally, the earnings per diluted share were $2.77 for the quarter. Now turning to the next slide to talk about our cash generation and capital allocation priorities. In addition to the strong earnings performance, we generated meaningful cash flows driven by higher earnings and ongoing efforts to manage working capital closely, particularly inventory. To date in fiscal year 2026, we generated $364.9 million of cash from operating activities. This is roughly two times the operating cash flows when compared to the same period last year. The cash generated from operations more than supports the capital spending in fiscal year 2026. To date, we have spent $157.6 million in fiscal year 2026. This includes the annual targeted capital expenditures of $125 million as well as the brownfield capacity expansion project. As anticipated, capital spending ramped in our recent third quarter, totaling $68.7 million as activities around the capacity expansion project accelerated. A brief update on this project: The brownfield capacity expansion project remains on budget and on schedule. The construction phase is well underway, key equipment deliveries have begun, and the project team remains focused on not only completing construction and installation of equipment, but also preparing for activities to ensure a smooth start-up of operations. As we look to the balance of the year, we expect capital expenditures for fiscal year 2026 to finish at about $260 million. This is below the expectation we set at the beginning of the year based solely on changes in the estimates we made for the timing of cash spending related to the project. This does not change our outlook for the full project that we set out when we announced the expansion. With those details in mind, to date in fiscal year 2026, we have generated $207.3 million in adjusted free cash flow. We are increasing our outlook for free cash flow and currently expect to generate at least $350 million of adjusted free cash flow in fiscal year 2026. As we have said many times before, our adjusted free cash flow generation is important as it enables us to deploy a balanced capital allocation approach that includes investing cash in attractive and accretive growth projects like the brownfield capacity expansion and returning cash to shareholders. To that end, we continue to execute against our repurchase authorization and repurchased $133.9 million of shares in fiscal year 2026. This brings the total to $235.8 million spent to date against the $400 million authorization that we announced in July 2024. In addition to the buyback program, we also continue to fund a recurring and long-standing quarterly dividend. Finally, our ability to deploy capital is also supported by our healthy liquidity and strong balance sheet. Last quarter, we talked about the refinancing actions we took to strengthen both our balance sheet and liquidity. As of the most recent quarter end, our total liquidity was $793.8 million, including $294.8 million of cash and $499 million of available borrowings under our credit facility. Our credit metrics remain very strong, with our net debt to EBITDA ratio remaining well below one times. Altogether, we believe our strong balance sheet and outlook for significant cash generation position us well to fund continued growth and deliver significant shareholder returns. With that, I will turn the call to Brian. Brian Molloy: Thanks, Tim, and good morning, everyone. I will provide some commentary on each of our segments for the quarter. Starting on Slide 11 with our Specialty Alloys Operations segment. SAO delivered an exceptional third quarter marked by strong top-line growth, record margins, and another step-change in operating income performance. SAO’s performance was supported by continued improvements in productivity across our facilities, pricing realization, product mix optimization, and higher available uptime versus the prior quarter. Net sales excluding surcharge were $585 million in the quarter, up 13% year-over-year and 11% sequentially, with both comparisons driven by higher volumes. The growth was led by improving demand in the aerospace and defense market, as well as continued strength in energy, especially from IGT customers. Adjusted operating margin increased to a record 35.6% in the quarter, marking the seventeenth consecutive quarter of margin expansion and exceeding the prior record set just last quarter. Keep in mind, there are short-term factors that could impact what operating margins can be in any given quarter, most notably the mix of products. While quarterly margins can vary based on product mix, the underlying trajectory remains clearly upward, supported by our core structural drivers: productivity, mix, and pricing. As a result of top-line growth and expanding margins, SAO delivered operating income of $208 million in the third quarter, the highest quarterly result in the segment’s history and a significant sequential increase. The SAO team has clearly risen to meet the challenge and is operating at a high level across the organization, from the commercial team working with customers to provide solutions, to our production planning team optimizing our manufacturing system to ensure that the highest margin materials are prioritized across flow path, and to the manufacturing team, the backbone of our operations, improving productivity at each shift to ensure we consistently produce at high levels to meet the growing demand. But the SAO team is not content with our current success. We believe we can do better and are looking forward to continuing to demonstrate record-breaking performance. Looking ahead to the fourth quarter, SAO remains focused on sustaining this momentum by optimizing product mix for margin, closely managing production planning and capacity, and continuing to drive productivity and cost discipline. Based on current visibility, we expect SAO to generate operating income in the range of $24 million to $228 million in the fourth quarter, representing yet another strong step forward for the segment. Now turning to Slide 12 and our PEP segment results. Net sales excluding surcharge in 2026 were $90.6 million, up 17% sequentially and down 6% from the same quarter a year ago. The sequential improvement in sales was driven by increasing sales in aerospace and defense. Year-over-year, aerospace and defense sales were also higher but were more than offset by a year-over-year decline in medical sales in our titanium business. The softness in the medical market continues to be in certain titanium products for a specific set of medical distribution customers, which has had an outsized impact on our titanium business. As Tony mentioned in his comments, we are seeing an increase in bookings and are optimistic about a return to a growth trajectory in the medical market. Our teams in DiaMed continue to focus on what they can control, like productivity, equipment reliability, and overall consistency—very similar to the dynamics in SAO. More recently, although a smaller piece of PEP, a bright spot has been our additive business, where our material solutions continue to benefit from strong demand. The growing demand in additive is driven primarily by the aerospace and defense end-use market, where our value proposition for highly specialized products and capabilities supports our customers’ needs. PEP reported an operating income of $6.7 million in the current quarter, which is, as we expected, largely in line with our recent second quarter. We currently anticipate the PEP segment’s operating income for the upcoming fourth quarter to be in line with 2026. With that, I will turn the call back to Tony. Tony Thene: Let me close as I have the last couple of quarters with why Carpenter Technology Corporation is a compelling story for existing and potential shareholders. One, we have an enviable market position in the industry. We are at the beginning of a major growth cycle, especially in the aerospace and defense end-use market, with the accelerating aerospace build rates driving higher demand for our materials. A fundamental supply-demand imbalance in nickel-based superalloys will continue to tighten. Our leading capabilities are differentiated by stringent qualifications necessary to supply advanced materials for aerospace and defense and other key end-use market applications, and our world-class collection of unique manufacturing assets are difficult, if not impossible, to replicate. Two, we have demonstrated a commitment to a balanced capital allocation approach. As Tim noted, we have a healthy liquidity position and a strong balance sheet combined with an impressive cash flow generation outlook, with a long-standing dividend and a robust share repurchase plan. In addition, our strong performance enables us to invest in highly accretive growth projects that accelerate earnings growth but do not materially impact the nickel-based supply-demand imbalance. And three, we continue to deliver record financial results with a strong earnings outlook. We just completed another record quarter of profitability, driven by significant margin expansion in our SAO segment. It is important to keep in mind that we are delivering record earnings even at a time when the aerospace and defense market is at the beginning of this growth cycle. Today, we increased our operating income guidance for fiscal year 2026 that implies at least a 33% increase over a record fiscal year 2025. I do not know if anyone in our industry can say they have a stronger earnings outlook than Carpenter Technology Corporation. Looking forward, our current fiscal year 2027 earnings target is outdated and does not reflect our current earnings momentum. Further, with the demand environment accelerating, especially in aerospace and defense, we are confident our financial outlook will continue to improve beyond fiscal year 2027. We will provide an updated view, including fiscal year 2027 guidance, on our next quarter’s earnings call. Carpenter Technology Corporation checks every important shareholder criteria box. To date, we have created significant shareholder value, but we are only at the beginning of this growth journey. The best is still to come. Thank you for your attention. I will now turn the call back to the operator. Thank you. Operator: We will now open the call for questions. Your first question comes from the line of Gautam Khanna of TD Cowen. Your line is now open. Gautam Khanna: Hey, thanks. Good morning, guys. Just wanted to ask if you could comment on lead times—if they changed at all broadly—engine and other key submarkets. Also wanted to get a sense for what you think is possible with respect to increasing output. I know you guys are kind of 24/7 full out, but as we think about 2027 and 2028, outside of pricing, how much tonnage could grow over those couple of years? Thanks. Tony Thene: Yes, sure. On lead times, they remain fairly consistent quarter over quarter, but I do anticipate those starting to push out here in the near term. As you well know, we kind of cap lead times anyway based on our order activity, but I see those pushing out as we go over the next couple of quarters even higher than they are right now. Your second question is a really good one, and that is one of the reasons I alluded to the fact that we are producing record earnings when the aerospace market specifically is still accelerating. It is also the reason why we have noted a couple of times the order intake acceleration of aerospace structural materials. Because although you say we are operating 24/7, which is correct on specific process or production flow paths—particularly on the engine side—on some of the other aerospace submarkets, we are not. We have pockets of opportunity there because the structural market was not ordering. So we have a very nice opportunity from a volume standpoint in some of those submarkets over the next couple of quarters and over the next couple of years, as you stated. And I think Brian mentioned in his prepared remarks, we have done a tremendous amount of work on productivity—that just jumps off the page—but there is still a lot more to do there. So from a volume standpoint, Gautam, to summarize my answer, there is still a lot left in the tank for us. Gautam Khanna: Thank you. Appreciate it. Operator: Your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open. Scott Deuschle: Hey, good morning, Tony. For the transactional price increases that you mentioned in the press release, is that mostly referring to favorable transactional pricing for aerospace structural alloys, or are you seeing those transactional prices creep up more broadly across the portfolio? Tony Thene: Scott, remind me. I am not sure I specifically mentioned price in my prepared remarks. I talked about order intake increasing in that specific submarket. I will say that we continue to see pricing as a tailwind for us. Again, you know this very well, but if you see our price per pound potentially being flat, that is good news for our overall earnings because you see structural business being a bigger ratio of our total volume. That is good. It does have a relatively lower price point than, for example, engines. But if you look at aerospace in total, you will still see a positive trend there. So come back with a follow-up if I did not quite answer your question. Scott Deuschle: Okay, yeah, that is fine. And then has the frequency of expedite requests been increasing pretty steadily each month this year, or have those expedite requests been pretty erratic each month? Tony Thene: That is an interesting question. There is a feel that they are a little bit unpredictable from that standpoint, but we are getting those on a pretty regular basis. I think those are going to increase if history is any indication. As I said in the prepared remarks, we share the same sentiment as the OEMs, where they do not believe that the order intake, although increasing, is enough yet. There is concern from the OEMs that suppliers are not ordering enough material fast enough. We agree with that, and I think as that continues to step up, you will get more and more emergency orders. Also, as you all know, I really do not want to be in the emergency order business. I would like for all the customers to order at a nice, consistent pace so we can plan our facilities the best possible way we can. But I do see that increasing for us over the next couple of quarters. I think that is pretty well an absolute. Scott Deuschle: Okay. And then last question. Tim, can you say how much IGT revenues specifically were up in the quarter? And then can you give us an updated sense of how much of the energy mix is now IGT at this point, as opposed to oil and gas? Tony Thene: You see on that one slide, you showed the total energy that was almost 100% driven by IGT. Right now, IGT is dominating that space. Oil and gas is rather subdued from quarter to quarter. So IGT was the big driver of this quarter. Keep in mind also, a big increase in IGT—remember last quarter, I believe, you had a pretty material decrease, and that is just the order patterns of IGT. So I do not get too excited if I see a plus 36% because you had a big order come in; you could be minus 20% the next quarter. But over several quarters, we have seen significant and consistent increase in the IGT business. Scott Deuschle: Thank you. Operator: Your next question comes from the line of Josh Sullivan of Jones Trading. Your line is now open. Josh Sullivan: Hey, good morning. Hey, John—wanted to say congratulations, Tony, to the next phase here. Great job taking Carpenter to these heights. And to Brian, congratulations on the next leg here. Unknown Speaker: Thank you. Josh Sullivan: To follow up on the aerostructures question, Boeing made some comments that above 47 it would take a bigger investment on the supplier inventory side versus some of the previous jumps. When you talk about supply chain underordering, is it your sense that the supply chain is going to see that and tighten up in the near term, or do you think we need to be at above 47, as Boeing is talking about, to really see the supply chain react? Tony Thene: That is a really good question. In many ways, that is the million-dollar question—what is that last piece of information that drives that increased behavior? We speak regularly to our customers about that. I would say every month, you see more and more activity. I do not necessarily think that it needs to be 47 before you see a big jump in activity, particularly on the structural side, only because we have already seen a nice jump up. Now, it is not enough. Another really important point that I made there too, Josh, is where Boeing stated that they have basically exhausted their inventory. That is a key piece of information. Let us see how it plays out, but I do not necessarily think we have to wait for the 47 to see that next push up in orders. Let us see how it goes over the next 30 to 60 days. Josh Sullivan: Got it. And then relatedly, on the cash flow profile for Carpenter Technology Corporation—whenever that does happen and you start to see that order intake, is there any working capital build? I know you guys are out so far in your lead times, maybe not. Just curious when that bow wave does finally hit, is there any thought process on the cash flow profile, or should it be pretty consistent? Tony Thene: I will leave that one to Tim. Tim Lain: I would say it is pretty consistent, Josh, over time. We still think inventory is an opportunity for us. That would be the biggest impact, other than sales increasing and AR and days and things like that. We view all the work that is being done on productivity—inventory is an opportunity. So I do not see us investing heavily in inventory just to meet demand. Josh Sullivan: Got it. And then just one last one on more of the jet engine aftermarket bookings characteristics for the quarter—more aftermarket-related activity given the broader air traffic environment and maintenance market. Any comments you might have there? Tony Thene: Usually, Gautam asks me this question. Engines were up sequentially 24% in sales; year-over-year, 44%. So we still see very strong sales on the engine side. Fasteners were up 9% to 10% sequentially, about 20% year-over-year. We see good movement there. Orders were pretty much in line. We had a big quarter last quarter, and another big quarter this quarter in orders. As I have said before, I think you will continue to see that increase over the next couple of quarters. Josh Sullivan: Thank you. Operator: Your next question comes from the line of Bennett Moore of JPMorgan. Your line is now open. Bennett Moore: Good morning, Tony, Tim, Brian. Congrats on the quarter, and thank you for taking my questions. I wanted to come to defense and wondering if you have seen any uptick in defense-related orders since the onset of the conflict, and maybe if you could provide any color on where you might have more exposure within those submarkets—for instance, munitions versus jets, etc.? Tony Thene: It is a great question. We saw increased activity even in advance of the Middle East conflict with the Department of Defense wanting to revitalize and restock. Just as a reminder, as you start talking about different submarkets there, we are a supplier on many platforms: fixed wing, rotorcraft, naval, missile, armored vehicles. We are across multiple submarkets that are all very program specific. It is a more lumpy order pattern depending on the program. But we see this as a submarket that is going to continue to increase. In many ways, the impact of the conflict has not been felt yet. There could potentially be another push upward on orders just to do that replenishment. That is not always an immediate signal that we see through the supply chain. I think there is probably more to come on the order intake from a defense standpoint, which was already elevated and could go to the next level. Bennett Moore: Thanks for that context. I think this quarter’s buybacks were the strongest since the program started, and despite the Athens CapEx, the free cash flow outlook is improving. How might this impact any capital allocation decisions? Could we expect to see a relatively higher quarterly buyback run rate moving forward? Tony Thene: It is possible. It is a good position to be in. I think it is very important—and I said it in my prepared remarks, and it is critical to our shareholders—that we are going to stay balanced. We are going to have a repurchase program. We are working on our current brownfield—that is our focus. You should anticipate that balance being pretty close to the same going forward. That is how we are going to run the company. I have Brian sitting here right next to me, and he is shaking his head. That is exactly the way he feels as well. Bennett Moore: Understood. Thanks for the context, and best of luck. Operator: Your next question comes from the line of Andre Madrid of BTIG. Your line is now open. Andre Madrid: Tony, Tim, John, thanks for the question, and good morning. I wanted to dig into LTAs a little bit further. I think in the release you talked about, and in your comments as well, a willingness to further advance some of those LTAs. There are some that are in the works right now, really pushing for volume visibility and pricing consistency. Is that an indication that you think LTA mix might increase through the coming quarters and years? I am trying to figure out how that mix might evolve with where we are in the demand environment. Tony Thene: That is a good question. Total Carpenter—our percent LTA is in the 40% range. If you look at aerospace only, it jumps up quite a bit; you are in the low 60%. So 60% to 65% of aerospace revenue is under some type of LTA. Honestly, I do not see that changing a lot going forward. There are some customers that do not operate under an LTA based on their preference. What is changing is that customers who historically have been doing business with us under an LTA would like for those to be longer—of course. That is another data point to suggest that they also believe in the tightness of the market, and it is only going to get tighter. That is why they would like to have it longer. We work with each of our customers individually on what is best for both of us. At a high level, I do not see that percentage changing drastically going forward. Andre Madrid: Got it. Pivoting back to aerostructure orders—what kind of quantifiable color can you give there? I remember last quarter you said January month-to-date orders were higher than any month in ’25. Is there a similar metric you can give now to show where demand is for structures? Tony Thene: Without getting into specifics on all the submarkets, you had continued strong order demand for structural last quarter, and you saw a similar type of increase this quarter. So no pullback on the structural side. I think that is going to continue, and that is why we made the point that I do not think the order rate that is coming into us, although it is increasing significantly, is enough yet. Speaking on the structural side and those more distribution value-add customers, even though it has increased significantly, I think there is still a lot more to go there. Andre Madrid: That is really helpful, Tony. I will leave it there and jump back in the queue. Thanks so much. Operator: Your next question comes from the line of Samuel McKinney of KeyBanc Capital Markets. Your line is now open. Samuel McKinney: Hey, good morning. It sounds like some of that fiscal year 2026 CapEx has been pushed into next year. Could you give us a little more color on the reasons behind the delayed cash spend at the brownfield expansion? Tim Lain: Yes, Sam. You are right. We did defer about $40 million of the expected— we set a number for CapEx at the start of the year around $300 million. We are down, and that includes the annual $125 million of targeted CapEx in addition to the brownfield capacity. It is a pretty complex project. You make a set of assumptions on the activities that are going to happen, and then on top of that, you have to project what you think cash payments are going to be relative to different milestones and payment terms—again, a lot of variability. Throughout the year, we were looking relatively positive. We just finished Q3, and we had a good handle on what is going to happen in the next 90 days. It is an indication of the cash, not necessarily an indication of the progress on the project. The project is still on track from a timing and budget perspective. It is really just the timing of cash payments, which is why we reduced the estimate to $260 million for the year for CapEx. Samuel McKinney: Okay. Then I asked this because I know we all get asked about it on our end, and I know you said you would touch on it next call, but the release generally talked about continued momentum into next year. Did you give any thought to updating that existing EBIT guide range for next year given the commercial aerospace production momentum has clearly improved meaningfully since you gave that outlook last year? Tony Thene: It is a good question, Sam—did we give any thought to giving that update this quarter? Yes. We have a very detailed process. I can tell you at a high level what ’27, ’28, ’29, and ’30 numbers are. But I want to drive ownership down throughout the entire organization. We have a process that we do our first cut in the fall. We come back in the spring, and we do a bottoms-up cut of that again—where the commercial team does customer by customer, product by product; operations folks come in piece of equipment by piece of equipment—what the productivity rates are going to be. We are in the process of doing that right now. Brian and I both know what that number in ’27 needs to be, but I want the ownership of the people out on the shop floor that they are not only going to hit that number but exceed that number. I do not want to interrupt a process that has worked very well for us over the last several years. We will be wrapping that up here shortly, and then the next time we speak publicly will be the fourth quarter. You will get it in the fourth quarter. That is how we have done it the last couple of years. That works for us, and that gets buy-in from our entire organization. As I said in my notes, it is clear that the 2027 number as it stands now is outdated, and we will be doing much better than that. Samuel McKinney: That is completely fair. I understand. Thanks, Tony and Tim. Operator: If you would like to ask a question—your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open. Scott Deuschle: Tony, did I hear you right that jet engine revenue was up 44% year-over-year? And then was there any submarket within A&D that moved against you in a meaningful way to offset that? Tony Thene: I did say that. Total A&D was up 17%. You will have different pockets that were plus and minus a little bit. Fasteners were up as well. You had a really, really big structural sales quarter last quarter. This quarter, the structural distribution was actually down from a sales standpoint a little bit, but the orders were high. You know how that works, Scott—it does not always match up in that tight 90-day window. Scott Deuschle: Okay. That is helpful. Thank you. Operator: Your next question comes from the line of David Strauss of Wells Fargo. Your line is now open. David Strauss: Good morning. Thanks for taking my question. The incremental margins that you have been putting up ex-surcharge at SAO have been extraordinary—I think this past quarter, 80-some percent. It looks like you are forecasting or baking in something similar in Q4. How should we think about what might be more normal incremental margins for that business as the structural piece becomes a bigger portion going forward? Tony Thene: David, number one, welcome to the call. We appreciate you picking up coverage. I am going to get Brian involved here to give a high-level comment on operating margins, and then I can fill back in afterwards. Brian Molloy: As you have seen, we have delivered steady SAO margins, and we are very happy with the efforts of the commercial and operating teams to achieve the 35.6% this quarter. We have a strong performance mindset and action plans in place to continue to grow from here. Quarter by quarter, the margin expansion is not going to be linear. There are a lot of factors we mentioned in our prepared comments that can impact operating margins in any given quarter, but overall, we see a positive trend upward. I am not going to start forecasting quarterly operating margins, but I will say that my expectation is that 35.6% is not the ceiling. Expect the dynamics that are driving margins today to only get stronger in the coming years. Tony Thene: I would just add to that because you mentioned structural specifically, and that is a very good point. Certainly, as the market grows—and we want it all to grow—and you see that structural business get higher, that could have an impact. Now, just because something is at lower price does not necessarily mean it is a lower margin because it has a different process flow. We have been able to offset any of the mix movements with some of our other levers. Hopefully that answers your question. David Strauss: Yeah, that is helpful. And then on the price per pound discussion with regard to SAO, how do we reconcile flattish price—relatively flat year-over-year—with engine up so much year-over-year? My understanding is engine price per pound would be higher than structural and fastener. How do we reconcile that? Tony Thene: I do not want to get into a habit of giving price movement by every submarket, but it is a good question. Remember, we are about 65% aerospace. The number you saw was total CRS. You saw some higher sales in some of our non-aerospace markets that have traditionally a lower price. I will give you this: if you look at aero only, year-over-year, price was up almost 10%. That is the real driver. It is so mix dependent. As you see other non-aero submarkets increase in volume—a good thing for overall earnings—that could have a lowering impact on the overall Carpenter total price per pound. David Strauss: Okay. Got it. Thanks very much. Operator: Thank you. I would now like to hand the call back to John Huyette for closing remarks. John Huyette: Thank you, operator, and thank you, everyone, for joining us today for our fiscal year 2026 third quarter conference call. Have a great rest of your day. Operator: Thank you for attending today’s call. You may now disconnect. Goodbye.
Operator: Greetings, and welcome to the Mirion Technologies, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Linn, Treasurer and Head of Investor Relations. Thank you. You may begin. Eric Linn: Thank you, Maria. Good morning, and welcome to Mirion Technologies, Inc.'s first quarter 2026 earnings conference call. Joining me this morning are Mirion Technologies, Inc.'s Founder, Chairman and CEO, Tom Logan, and Mirion Technologies, Inc.'s CFO and Medical Group President, Brian Schopfer. Before we begin today's prepared remarks, allow me to remind you that comments made through this call will include forward-looking statements, and actual results may differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ are disclosed in our Annual Reports on Form 10-Ks, Quarterly Reports on Form 10-Q, and in Mirion Technologies, Inc.'s other SEC filings under the caption Risk Factors. Quarterly references within today's discussion are related to the first quarter ended 03/31/2026, unless otherwise noted. The comments made during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the appendix of the presentation accompanying today's call. All earnings materials can be found in the Investor Relations section of our website at mirion.com. With that, let me now turn the call over to Tom, who will begin on panel three. Tom Logan: Eric, thank you very much, and thanks to each of you for joining our first quarter earnings call. We are off to a strong start in 2026 with significant first quarter order generation. Orders are a bellwether for our business, and they increased 19% in the first quarter to $241 million excluding M&A-related growth. If we include M&A growth from Paragon and CertRec, orders increased 42% to $288 million. Order volume was notably diverse. Both segments saw meaningful growth, including our RTQA medical business, which faced headwinds in 2025. This is translating into noticeable expansion. Backlog now totals $1.1 billion, up 19% excluding M&A, or 38% including M&A. Our nuclear power end market within the Nuclear and Safety segment continues to lead the way. Nuclear power orders and revenue growth were derived primarily from existing reactors running today and small modular reactors, or SMRs. Paragon orders added another $43 million in the quarter. We continue to be impressed by the value created by the Paragon team. Given the nature of their solution set, they are truly the tip of the spear when it comes to momentum from the nuclear power installed base. The existing nuclear fleet is approaching middle age and reinvestment is critical to maintain and increase capacity through power upgrades. We will spend time this morning detailing progress on our large opportunity order pipeline, but let me tease the discussion by noting we secured $50 million of these large opportunity orders in Q1. Moreover, we won an additional $35 million in SMR-related orders in April. The rest of the pipeline remains intact and we continue to have high conviction on our right to win. The accelerating nuclear power demand we see is reflective of increasing market tailwinds. The momentum continues to compound and recent geopolitical events reinforce the need for onshore secure baseload energy. A decade ago, operators were focused on accelerated plant shutdowns with extreme capital rationing impacting OpEx and CapEx budgets. Today, they are focused on 100-year operating cycles as well as plant modernization, both of which profoundly impact capital spending plans. We see this most immediately in Paragon and CertRec, with a substantial follow-on opportunity for Mirion Technologies, Inc. instrumentation and controls, and digitally enabled radiation protection solutions. Note that this dynamic is robust and not contingent upon future assumptions about AI-driven demand growth. The limiting factor on AI growth is available compute which, in turn, is most profoundly constrained by energy availability. Further, note that greater than 80% of our nuclear power revenue accrues from the installed base. New nuclear projects represent upside with strong optionality tied to both SMR and utility-scale development plans. Panel four quantifies the impact of just a few recent notable nuclear power headlines, which reinforce the surging global demand for nuclear power. First, in the U.S., the Department of Energy's Uprise Initiative aims to boost existing nuclear power capacity by 2.5 gigawatts by 2027 and 5 gigawatts by 2029. Power demand is so strained that the DOE and utilities are rapidly accelerating capital deployment to deliver more nuclear output at existing plants. This is part of the administration's broader push to expand U.S. nuclear energy capacity from around 100 gigawatts today to 400 gigawatts by 2050. Additionally, the energy shock driven by recent geopolitical uncertainty has highlighted the risk of reliance on imported fossil fuels in many regions. This is sharpening the focus on energy security, onshoring, and decarbonization. Nuclear power is increasingly viewed as a core solution across all three priorities, especially with countries whose energy needs are becoming strained by a changing world order. In aggregate, these two headlines alone will add an estimated 8 to 15 gigawatts of nuclear power generation. Of this added amount, approximately 3 to 5 gigawatts are incremental to the U.S. market, underscoring the importance of our U.S.-based Paragon and CertRec acquisitions. It is also worth noting that U.S. utilities have committed $1.4 trillion in planned capital expenditures through 2030, a 21% increase from projections made just one year ago. Companies like Duke Energy are projecting over $100 billion in their planned five-year capital spend. NextEra is not far behind at approximately $94 billion. Each of these is an existing year-end customer. Panel five details Paragon's integration progress and first quarter financial contributions. Both the Paragon and CertRec acquisitions are positioning Mirion Technologies, Inc. to address the U.S. market at exactly the right moment. We made these acquisitions before the full scope of the existing fleet capital cycle was broadly visible to the market. The commercial synergy opportunities are coming into focus as utilities and the federal government are injecting capital into the operating fleet. As a reminder, we have content in every single reactor within North America and approximately 98% of the global operating fleet. The synergy opportunities are significant. For example, Paragon's products and engineering capabilities will allow Mirion Technologies, Inc. to expand our scope to better compete for power uprate and digital modernization projects. CertRec's regulatory and workforce software is a compelling solution for today's labor-constrained environment. This addition gives Mirion Technologies, Inc. a software and services revenue layer that compounds within our hardware footprint at every plant. These combined offerings mean Mirion Technologies, Inc. can now offer customers more integrated solutions that span laboratory instruments, safety and security systems, qualified equipment, radiation protection, and regulatory and workforce software. No competitor in the U.S. nuclear market has that breadth. These acquisitions will deliver revenue synergies, customer access synergies, and platform synergies at exactly the moment the market is asking for all three. We are already seeing this materializing in Paragon's financial performance. Paragon's first quarter revenue grew 45%, reflecting a broad-based increase in demand. This accelerating revenue is improving their operating leverage and helping to expand margin. We spoke with you last quarter about the planned cadence of integration efforts. We are pleased to report that we have identified additional synergy opportunities. Legacy teams are collaborating closely, and customers are eager to realize the benefits of a combined Mirion Technologies, Inc., Paragon, and CertRec entity. We are prioritizing the customer experience with joint customer engagements across strategic accounts. These collaborations are already resulting in incremental order wins. For example, we were able to utilize Paragon's existing relationships with key strategic customers to secure a significant order for legacy Mirion Technologies, Inc. products. This is an early example of what will become normal operating procedure for our combined companies. All of these data points are resulting in tangible benefits for Mirion Technologies, Inc., and this is most evident in our backlog illustrated on panel six. Back-to-back strong Q4 and Q1 orders are creating a step change in our backlog. After two years of nominal backlog growth, the nuclear dynamic we have been discussing is translating into tangible opportunities for our company. We have consistently reminded investors that it can take several quarters or years for orders to convert into revenue. But clearly the backlog is meaningfully expanding, which is the precursor to accelerated revenue growth ahead. Before I turn it over to Brian, panel seven summarizes progress continuing across the Medical segment. Our RTQA end market, which accounts for approximately [inaudible] of the segment's revenue, enjoyed promising activity. Recall, in 2025, we experienced several headwinds, both domestically and abroad. Encouragingly, we are beginning to see strengthening hardware activity while software activity continues to be a bright spot. In the U.S., we booked a sizable radiation-tolerant camera order tied to the Varian partnership. This is an important relationship with the leading OEM in the industry. We look forward to supporting this relationship and other key accounts with the kind of new product innovation that helped to secure this important order. In nuclear medicine, we remain on track for double-digit organic revenue growth in 2026. This will be our second consecutive year of double-digit organic nuclear medicine growth. Our market-leading position with key hardware offerings like dose calibrators and thyroid uptake systems makes us a critical supplier to the growing radiopharma ecosystem. In addition, we are broadening our international reach to capture infrastructure growth abroad. We believe our EC2 software platform will create growing opportunities across the radiopharmaceutical landscape from drug discovery through clinical administration. This opportunity will grow meaningfully as more targeted radiopharmaceuticals advance to the market. Lastly, dosimetry services remain a compelling business. This end market is a reliable franchise growing at GDP-plus through the cycle. Meanwhile, it consistently provides strong margins and remains an attractive recurring revenue platform. Our broader push from analog to digital offerings will continue, creating additional margin upside over time. As a side note, we are proud of the fact that the crew on the recent Artemis lunar mission wore a customized version of our digital dosimeters to monitor their radiation safety. More significantly, our digital dosimetry offerings caught the attention of numerous key nuclear power accounts, creating cross-sell opportunities to expand beyond a historically medically oriented business. I will turn it over now to Brian to walk through the financials. Eric Linn: Brian? Brian Schopfer: Thank you, Tom, and good morning to each of you on the call. I will continue the prepared remarks on slide eight outlining our financial performance. First quarter total revenue was $258 million, an increase of 28% versus last year's first quarter. Organic revenue growth was 3%, in line with our expectations and aligned with what we communicated in February. First quarter adjusted EBITDA was $54 million, or 16% better than last year. As foreshadowed back in February, margins contracted in the quarter, reflecting margin-dilutive M&A, one-timers in Q1 of the prior year, and a mix shift in the legacy Nuclear and Safety segment, mainly related to our sensing business. We utilized approximately $16 million of our $100 million share repurchase program in the first quarter to buy back approximately 700 thousand shares. This is consistent with last year's first quarter to offset the dilutive impact from our annual stock-based compensation program. We generated $11 million of adjusted free cash flow in the quarter. Q1 is historically our lightest cash flow generation quarter. Cash generation around our project business can be lumpy, and that is what we saw in Q1 with less project inflows than a year ago. In the quarters going forward, we have line of sight to a much more robust cash generation profile and better working capital dynamics. Lastly, as Tom outlined, orders in the first quarter were strong, with growth coming from both segments. Slide nine has the details. Order performance was the highlight of the quarter. Absent any M&A-related order growth, core orders grew nearly 20%, reflecting growth in both segments. Total orders, including a $47 million contribution from Paragon and CertRec, grew 42% in the quarter to $288 million. In Nuclear and Safety, orders grew across all three end markets: nuclear power, labs and research, and defense diversified. In nuclear power, growth primarily reflects two sizable installed base orders within the U.S. operating fleet, and a large SMR order. Within Paragon, we booked an incremental large order within the U.S. installed base. The approximately $35 million SMR-related order we were awarded in April will show up in the Q2 orders number. Labs and research orders grew primarily out of Europe despite comping against a $5 million DOE order from last year. One thing I would point out at Paragon is we saw strong DOE-related order activity in the quarter. Our DOE pipeline across the company is very strong. Lastly, defense and diversified orders grew in the quarter thanks to a radioactive waste handling order, which was part of our large opportunity pipeline. In the Medical segment, order growth primarily reflects the radiation-hardened cameras order within the RTQA end market. That gives us good backlog in that new product for the next three years. Slide 10 provides the latest update to our large opportunity pipeline. Two of the five large opportunity orders are Paragon-related. In the first quarter, we won the first part of an SMR order, part of a radioactive waste handling order in our defense and diversified end market, a Paragon large battery qualification order within the installed base, and a large medical order for radiation-hardened cameras from our RTQA business. Interestingly and importantly, both the RTQA and battery orders were not in our pipeline at year end, which tells you how dynamic the environment continues to be. Separately, in April, we were awarded the first part of another large Paragon SMR order. The rest of the pipeline remains active and continues to represent a significant opportunity for the company, including the remaining components of the three partial orders I mentioned. Before I dig into the quarter's financial results, let me spend a moment detailing the nuclear power end market on slide 11. Nuclear power orders, excluding M&A, grew 15% in the first quarter, including the large partial SMR order. SMR orders continue to impress. We booked approximately $15 million of orders in the quarter, followed by the $35 million large opportunity we were awarded in April. Momentum continues within this segment of nuclear power. Let us get into the quarterly financials beginning on slide 12. Consolidated first quarter revenue grew 27.5% to $258 million. Approximately 21 of the 27.5 percentage points of growth were attributed to acquisitions, primarily Paragon. Organic revenue growth of 3% was in line with expectations. Recall, on our February earnings call, we noted that we expected organic revenue growth to be in the low single digits for the first quarter. First quarter adjusted EBITDA was $54 million, or 16% better than last year's first quarter. Also, as foreshadowed on our February earnings call, adjusted EBITDA margins contracted. This was primarily due to the margin-dilutive impact from M&A as well as some mix impacts, coupled with one-timers in the legacy business. We expect to see margin expansion in the next three quarters within the legacy business, offset by Paragon. Adjusted EPS totaled 10¢ per share in the quarter. In 2026, we are now including stock-based comp in our adjusted EPS calculation. Last year's adjusted EPS would have been 8¢ per share using a similar methodology to the one put in place for 2026. We have an adjusted EPS reconciliation slide in the appendix that has the details for your model. Turning to the Nuclear and Safety segment on slide 13. First quarter revenue was $186 million, up 39%. Organic revenue was 2.6%, better than our expectations of flat year-over-year noted in February. A few things of particular interest in the first quarter. First, nuclear power-related revenue, excluding M&A, increased 4% versus last year. I would note that for the first quarter, we were comping 18%. We saw growth in both our installed base markets of North America and Europe, while this was offset by less new build revenue in Asia, mainly China and Korea. We still expect to see double-digit revenue growth in the nuclear power end market for the full year. Second, we are seeing SMR-related revenue accelerate. This accounts for 2% of total Mirion Technologies, Inc. revenue and is expected to increase to greater than 3% of total Mirion Technologies, Inc. revenue by year end. Third, we saw better-than-expected labs and research end organic revenue growth, thanks to strong performance out in North America. Fourth, in our defense end market, we saw higher NATO and U.S. military and civil defense revenue. As a reminder, the defense end market can be lumpy, but activity has certainly picked up. Adjusted EBITDA grew nearly $8 million, or 19%, to $47 million. As we have already discussed, Nuclear and Safety adjusted EBITDA margins contracted. Half of the contraction was M&A-related. The other half was mostly due to mix shifts inclusive of the sensing business, a number of one-timers in the prior year, and some mix more broadly within our North America business. Lastly, it is worth noting that we were comping over 300 basis points of margin expansion in Q1 2025, the largest of any quarter in 2025 for this segment. Now let us move to the Medical segment on slide 14. First quarter revenue was $72 million, up 5%. Organic revenue growth was approximately 4%, in line with the expected mid-single-digit organic revenue growth noted on the February earnings call. Our RTQA end market posted double-digit organic revenue growth driven by an easier comp lapping last year's ERP implementation headwinds, favorable software performance, and a month's worth of production from the large camera order we received. In nuclear medicine, we expect much of the organic revenue growth to occur in the back half of the year. Meanwhile, our dosimetry services end market posted a slight reduction in organic growth. This business had a difficult comp due to a large hardware order last year, which we have discussed before. Excluding this, our core dosimetry services organic revenue would have grown low single digits in Q1. Medical segment Q1 adjusted EBITDA was $25 million, or 6% better than last year. As expected, margins expanded in the quarter, reflecting operating leverage and pricing tailwinds. Turning to adjusted free cash flow on slide 15. We generated $11 million of adjusted free cash flow in the first quarter. The difference versus last year is primarily due to timing affecting net working capital. While net working capital was the largest use of cash in the quarter, we saw the structural enhancements we made to our balance sheet bear fruit in the quarter via the interest expense line. We remain on track for our full-year adjusted free cash flow guidance and believe Q1 marks a trough. We continue to see large opportunities for improvement in AR, inventory, and our project cash flows. More broadly, on 2026 guidance on slide 16, everything remains unchanged from our February earnings call disclosures, with the exception of a small adjustment to adjusted EPS to account for the one-time CEO retention grant of performance-vesting stock options disclosed earlier this month. Before we open the call to your questions, I will provide some details about second quarter expectations. First, on orders. Second quarter orders will be higher compared to the first quarter. We expect another quarter of strong order growth, where sequentially from Q1 to Q2, we expect to see 15% to 20% order growth. Consolidated second quarter organic revenue growth is expected to be in the low single digits. This is also the case in each operating segment. As a reminder, on the top and bottom line, we shipped quite a bit of product in 2025 into China before the tariffs went into effect, so this quarter has that as a headwind. Consolidated adjusted EBITDA margins should be relatively flat versus Q2 2025. Nuclear and Safety segment adjusted EBITDA margins should also be relatively flat despite the margin-dilutive impacts from the Paragon acquisition. Excluding Paragon's margin-dilutive impact, the Nuclear and Safety segment adjusted EBITDA margins are expected to expand. Regarding Paragon, we expect second quarter revenue to be slightly lower than the first quarter, but still posting double-digit revenue growth versus last year. We maintain our prior expectations of approximately 25% full-year revenue growth for Paragon, and we continue to expect low twenties EBITDA margins. Lastly, Medical segment margin should expand slightly. Recall, Medical segment margins in last year's second quarter expanded almost 300 basis points, so we are lapping another tough comp in that segment. With that, let us open the call to your questions. Operator? Operator: We will now open the call for questions. Thank you. We will now be conducting a question-and-answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary [inaudible]. We ask that analysts limit themselves to one question and a follow-up so that others have the opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from James West with Melius Research. Please proceed with your question. Tom Logan: Thanks. Good morning, guys. Morning, James. James West: Tom, you gave some macro comments in your prepared remarks, but I would love to hear a little bit of expansion there given I saw you in February, you were already pretty bullish, then, of course, we had the Middle East conflict, and the DOE has been very active, as you are well aware, in shepherding nuclear. I would love to hear if there has been, and I am sure there has been, but what you are seeing in terms of acceleration of kind of the nuclear buildout in the United States and also the nuclear renaissance that we are seeing more globally. Tom Logan: Yeah, James. So I think there are three important dimensions to it overall. Far and away, the single most important is the dynamic being experienced right now by the installed base, recognizing that today if you look at the American nuclear fleet, they are running at very high capacity factors, typically in the low 90% range overall. Globally, we just had recent statistics updated that last year, the global fleet ran at about an 82% capacity factor. And the bottom line is that a few important things have profoundly changed psychology for the owners of those assets overall. Firstly, as I noted in my commentary, only a few years ago, the posture was very defensive. Many nuclear power plants were operating at very thin margins or even negative margins, and there was a general orientation toward premature decommissioning of nuclear power plants, with an incredibly defensive CapEx and OpEx posture overall to minimize the attendant expense. What we are seeing now is the exact opposite. Given the fact that even with AI demand as it is today, the world simply does not have enough electrical generating capacity, and that will always be the constraining factor in any reasonable scenario overall. It has created a very compelling economic incentive for operators to fundamentally change the way they manage these assets. The biggest single impact is that even though we are seeing life extensions in the American market from 60 years of permitted operating life to 80 years, the majority of operators are really thinking 100. And so if you imagine the psychology shift going from a shutdown posture to one where I want to operate these assets for another 40 years, that profoundly impacts the solutions that they need to shore up these power plants. Most immediately, we see that in CertRec and Paragon through their various activities, which are essential for the daily operation of the power plant. But what we are seeing just beyond that is that there is a compelling need and a compelling opportunity to broadly upgrade instrumentation and control systems, which include in-core detection, neutron flux measurement, radiation monitoring systems, and reactor protection systems. And beyond that, there is a need to upgrade and consolidate and digitally enable radiation protection systems. And so we are beginning to see the leading edge of that demand right now not only in the American market, but broadly on a global basis. And this is just a—I cannot overstate how profoundly this impacts the overall opportunity set as it relates to the global operating fleet. But beyond that, clearly we are seeing a lot more action in advanced reactors, the so-called small modular reactors. We obviously see that in our order book, but more broadly, if you look at the leading players here, if we were to take the top 20 best-capitalized SMR plays with the highest level of technological readiness, we almost run the tables with that group in terms of our position of prominence, orders booked, and the level of engagement. So we are very bullish on that sector. It continues to move to the left, and most recently undergirded by the IPO of X-energy, which has traded very, very well over the last week. And then beyond that, you have the utility scale. You know, the activity that we have cited previously with Westinghouse, having plans to build 14 AP1000s internationally—nine in Ukraine, three in Poland, two in Bulgaria—an early commit by the Indians to build another six, potentially 10 additional AP1000s in the American market. Obviously, we will plan all of that. And then beyond that, you have EDF/Framatome, which has immediate plans in the near term to initiate three projects in France at Penly, at Bugey, and Gravelines. And again, given the strategic alliance we have with EDF/Framatome, we expect to play there. And then beyond that, it is Rosatom, it is KHNP/KEPCO, the Koreans, continued activity in China. So what we are seeing overall is also an acceleration in new build commits, and obviously, that bolsters the whole nuclear thesis for us. James West: That is very helpful, Tom. Thanks for that. And maybe for Brian, the medical business came in pretty strong this quarter. I know 2025 was a more difficult year with a lot of headwinds. Is this a one-off, or are the headwinds now behind us and we should expect this kind of performance from Medical going forward? Brian Schopfer: Yeah. I mean, look. We are to our guidance on the Medical side for the year. So from the beginning of the year to where we are today, I would say we have not changed any of the numbers, but I think we continue to be more optimistic in our viewpoints that this business has green shoots sprouting. We are still watching the Asian markets, which is where we have had many of our challenges, and the U.S. market. But our software business continues to perform well. Our services business continues to perform well. The order we got with Varian really kind of bolsters some backlog for this year and the next couple of years, and it is good business for us. So I would say we have not changed our guidance range, but I would say our confidence level is better than it was even three months ago. Operator: Our next question comes from Joseph Alfred Ritchie with Goldman Sachs. Please proceed with your question. Analyst: Hey, Joe. Morning. So the order/backlog commentary was really good, not just this quarter, but just the start to the second quarter. I was wondering if you can maybe just give a little bit more details. The $35 million SMR order is in there for Q2, but maybe some more details around that 15% to 20% sequential move that you expect in orders in the second quarter would be helpful. Thank you. Brian Schopfer: I think it is indicative of everything Tom actually just talked about, which is the nuclear market continues to be good for us. We are clearly expecting another order or few on the SMR side. Right now, the timing of those is always a little bit hard to predict. But that has to be in there for us to hit those numbers. But again, the order dynamics continue to play to our favor. I do not want to get into anything project-specific because these things move a bit. But I do think it is very constructive that the teams believe that we will see sequential order growth year over year. If you looked at last year, we were a little bit flat orders Q1 to Q2 as well. So this is obviously a step change there. Paragon extends to that as well. So I think the flywheel is beginning to spin. I think we are still early innings. Maybe one other comment, Joe. The other positive is last year, we saw the large orders all end in Q4. I think what people should focus on is we are seeing that much earlier in the year. One, that gives us revenue opportunity this year for sure, but much of these larger orders probably end up more in 2027 than 2026, candidly, from a materiality standpoint. But two, there is not a wait-and-see game on whether this is happening. This is going to happen every quarter. You are going to see some things tick off the box from that pipeline. And I think that is very constructive. I think it is healthy. And I think it does show that the dynamic is positive. And I would just reiterate something I said. I mean, two orders that were above $10 million that we booked in the first quarter we did not have in our pipeline at the end of the year. So I think that is very constructive about what else we are seeing. Tom Logan: Sure. The other thing I would tag in on is that Doug VanTassel, the CEO of Paragon, and I have been doing a systematic roadshow with chief nuclear officers spanning the American fleet. And I will tell you the dialogue there is incredible. And again, I cannot overstate the importance of the integrated Mirion Technologies, Inc. and Paragon sales team. The Paragon sales team—these guys are apex predators. They have a maniacal focus on customer satisfaction. And we are seeing that the added dialogue, the increased customer intimacy, is really opening the aperture as we think about the opportunity set both in the near term and the long term. Joseph Alfred Ritchie: Yeah. That is super helpful, and obviously Paragon is off to a great start for you guys. I guess maybe just my follow-on question, and it does actually segue well from what you just said earlier, Brian, regarding the backlog conversion. So it is really two questions. If you think about the guidance and how you set up the guidance for 2026, maybe just talk a little bit about the confidence you have in hitting the ramp and EBITDA as the year progresses. And then secondly, the backlog is now step-changing—how much visibility you are now starting to get into 2027 given maybe some of these things are a little bit longer cycle. Brian Schopfer: Yeah. I think a couple things. I think if we had a different viewpoint on our EBITDA/revenue guidance, we would have made a change in the quarter. That is what we have always done—as we see it, we call it. So I think we continue to be confident in our guide. I think as you think about 2027, I think 2026 is really a bit back-end loaded. That is clear because you have seen first quarter, I gave you guidance on second quarter. But I also think that plays into how we are starting to see and think about 2027 shaping up. I am not going to guide that now, but I think we are very constructive on what we are seeing beyond 2026. And I think that shows in the backlog. You are going to see—if you just do the math—backlog growth again in the second quarter. I think that sets us up well. Operator: Our next question comes from Andrew Alec Kaplowitz with Citigroup. Please proceed with your question. Brian Schopfer: Andy. Andrew Alec Kaplowitz: Maybe a bit of a follow-up on that. You did not change anything in terms of your line of sight on your expected segment revenue growth for the year. But in Nuclear and Safety, you started out flat as expected in nuclear power. So maybe just talk about the visibility toward getting back to double digits as you said you will. Do you basically have the order coverage given Q1 and your commentary on Q2, or do you still need to see some bigger nuclear power orders to reach that double-digit growth in 2026? Brian Schopfer: Yeah. I mean, look, I think the comp set gets a bit easier as the quarters go on the nuclear power side by quarter. Q1 was our large nuclear power comp for 2025. So I think that is one. If you look at the order—just even the large order dynamics and what we are seeing—it is definitely nuclear power heavy. So we continue to like double-digit growth in 2026 for nuclear power. And by the way, that is pre-Paragon double-digit growth. When you are talking about Paragon, where a lot of the revenue is nuclear power as well, we commented the DOE stuff—we are starting to see sprouts for sure. They had very good order growth there. We are talking Paragon 25% kind of organic growth for them if we owned them in 2025/2026. So I think we feel good about the dynamics happening within the nuclear power segment across both brands. Andrew Alec Kaplowitz: Very helpful. And then kind of similar in Medical, you did not change your expectation for RT in 2026, but you did mention green shoots in Q1 and hardware, and obviously the large camera order associated with Varian seems quite interesting. I think you announced a closer relationship with Varian maybe it was a year and a half ago or something like that. So maybe give us more color on whether RTQA now should see more opportunities with Varian and should see accelerating growth from here. Brian Schopfer: Maybe I will take it and you could chime in. I mean, look, it is the first quarter. I think we want to see how the year continues to progress. But again, that RTQA order was not on our radar six months ago, and so I think that gives us kind of added visibility. Let us get through the second quarter, which is our toughest comp by far in the RTQA business because of the China shipments, etc. But like I said to an earlier comment, I think we have more conviction around our Medical number today than we did even in February. Operator: Our next question comes from Tomohiko Sano with JPMorgan. Please proceed with your question. Tomohiko Sano: Hi, good morning Tom and Brian. Good morning. Thank you. I wanted to ask you about Paragon, which has shown strong contract wins and growth. Can you update us on integration progress, cultural alignment, and specifically any revenue synergies realized so far? And also, does the 30%+ adjusted EBITDA margin target for 2028 remain intact post acquisitions? Any color appreciated. Thank you. Tom Logan: Yeah. Let me start, Tomo. Firstly, on the cultural alignment, I think this was really a critical determinant in our ability to acquire Paragon to begin with because there is such a high degree of compatibility culturally between the two organizations. They are very entrepreneurial, very risk-on, very engaged, very motivated to build a great business. And cultural symbiosis between Paragon and Mirion Technologies, Inc. is extraordinarily high and, to a very gratifying extent, we are seeing that resonate in the early days of the integration, where the two organizations have come together broadly, very collaboratively. I think as we walk together on both sides of the table, we are all more excited about the art of the possible here—what we can do together and the goodness of fit overall. In terms of the synergy profile, generally our playbook is that our first standing rule is the Hippocratic Oath, which is first do no harm. And so we are very careful when we acquire a new asset to walk together, to learn from one another, to be very careful about identifying the opportunity set. But in the wake of that, priority number one is infrastructure. It is connecting the central nervous system of the company, standardizing health and welfare benefits, HR processes, IT, financial and accounting standards and processes, and the like. Immediately following that, the focus is on commercial synergies, recognizing this was the single biggest pillar in our investment thesis here. And as we stated, I think clearly that is paying off faster than we anticipated. We see a significant opportunity to enhance and increase the commercial leverage on both sides of the table, and clearly that is beginning to spill into backlog already. Beyond that, we have cost optimization, and beyond that we have the technological leverage as we embed the augmented capabilities of each organization into our R&D pipeline and really evolve how we are thinking about new product solutions and the enhanced technological building blocks that will go into that. So, in the near term, no, we are not calling out any specific cost synergies. But I would tell you our track record here is great. Maybe the best most recent example, just based on scale, would be the acquisition of Sun Nuclear, which we acquired in 2020. In that case, we took a great, vibrant company that had strong performance and we have added about 10 points of margin to that business since we have owned it. Clearly, our expectation is that Paragon will become accretive. Clearly, our drive and our motivation is to make that happen sooner rather than later. To be clear, that is a shared objective. It is not just Mirion Technologies, Inc. wants this and Paragon is reluctantly following. I think we are all in on driving toward this, and our goal is to make it happen very quickly. The final point is on the 30% EBITDA target by 2028, which we announced in our Investor Day a couple of years ago. We continue to stand by it. This year, I think we have guided 25% to 26% EBITDA margins. Obviously, we are trying to drive toward the upper end of that range. And if you accept that, that leaves a go-get of another four points of margin expansion over the next two years. Half or more of that we expect will come from absorption as we continue to drive greater volume against a largely fixed cost structure and one that inflates at a much slower rate than our pricing capabilities on the top line. If you look at the remaining two points, that final go-get is going to be driven by self-help. And here it is going to be continued improvement in procurement processes, conversion processes, continuing to rationalize our industrial footprint overall, improving pricing heuristics. But the big lever here clearly is going to be AI. We are investing very heavily in AI right now, which arguably in the near term, and this is reflected in our guide, is margin dilutive. But the rest of it is simply a choice. Anytime I want to, I can find the balance of that go-get. It is a decision entirely within our control organizationally. And again, given the enhanced capabilities that we see both for cost and efficiency improvements internally, but also in terms of evolving our customer-facing products, we are pretty bullish on our ability to get there. Tomohiko Sano: Thank you, Tom. And just one follow-up for your nuclear medicine business. Could you discuss the current sales momentum and outlook as well as the margin profile and the key drivers for both growth and profitability going forward, please? Brian Schopfer: That is a big follow-up, Tomo. But what I said in my prepared remarks is we thought the organic growth in that business would be a bit more back-end loaded. But this is another—this is a great margin story. We bought these three businesses and put them together between 2020 and 2023. I think we bought EC2. And even combined, it was a single-digit kind of EBITDA business that today is accretive to Mirion Technologies, Inc.'s margin profile. We continue to like our ability to expand margins there over time. New products are something we are working on. That is more a 2027 probably introduction than 2026. Operationally, we are very focused on procurement, continuing to streamline the workforce there, and our ability to grow is our number one priority. So yeah, we continue to like that business. It is a bit back-end loaded this year, but we continue to be confident in our ability to grow that business double digits. Operator: Our next question comes from Analyst with Baird. Please proceed with your question. Analyst: Yes, thank you. I wanted to ask about the green shoots in RTQA commentary. Brian, you started talking about the Asian markets in response to an earlier question. Just how are trends playing out in those markets specifically relative to your expectations? And are you starting to see the benefits of some of the actions you have taken there playing out yet? Brian Schopfer: Yeah. Again, I think I would characterize those as green shoots. We are seeing some positive momentum. I like what Mark and the team have done to set us on the right foot. It will take quarters to see this come to fruition. Those markets do not always move as fast. I think we are probably a little bit more optimistic about China. I think we are still a little bit hesitant on what we are seeing in Japan. But I think we have a good game plan, and we are absolutely moving forward. I think the order with Varian gives us some nice underlying stability in that RTQA. Candidly, that product line was not—you know, it is new—so that is all incremental growth year over year for us. And we continue to watch the U.S. market. I mean, I think we were pleased with what we saw in the first quarter. Again, software and services led the way, but our hardware business did better than what we expected in the first quarter. But we are not ready to move the numbers. I think we want to see a bit more production on that business. Analyst: Thank you. And then I wonder if you could give us a little more color on the $35 million April SMR order. That seems to be a pretty sizable order for an SMR, and you said there is more still to come. Is that across multiple SMRs or a higher revenue opportunity per megawatt with Paragon? Just any additional context you could share there? Tom Logan: Yeah. Quinn, it is with a single leading SMR player and it is supportive of, again, kind of the central nervous system of the power plant—supporting instrumentation and control. It is a nice win. We/Paragon have been working on this for quite a while. But again, when you look at the activity in this market overall, what we are seeing is a general movement to the left of the dynamics, particularly for these first-of-a-kind orders. And we continue to be more constructive on the market overall. We have highlighted previously that, based upon intrinsic scale diseconomies in specifically instrumentation and control, generally speaking, the revenue opportunity per megawatt of output of an SMR is quite a bit higher than it would be for utility scale. We have cited a loose estimate of about 60% higher on previous calls, and we continue to sustain that point of view. Brian Schopfer: Yeah. I would just say that the 60% was pre-Paragon. So we have not even done the math or guided to what the Paragon impact is. But you can see kind of the scale here. Operator: Our next question comes from Jeffrey Grampp with Northland Capital Markets. Please proceed with your question. Analyst: Good morning, guys. Brian Schopfer: Morning. Analyst: To circle back on Paragon here and hoping if you guys can elaborate a bit more on this tip-of-the-spear kind of language you position them as. I am curious, does that positioning give you guys a differentiated view or read into the growth potential underlying nuclear power that perhaps other offerings within legacy Mirion Technologies, Inc. maybe were not available to the company pre-Paragon? Or just any other commentary on what that kind of tip-of-the-spear position facilitates for Mirion Technologies, Inc. more broadly? Tom Logan: Yeah. I will take that one. So if you look at the legacy Paragon business, basically they have been in the business of keeping power plants operating. They provide critical spare parts which, in many cases, are no longer supplied by the original OEM. So in some cases, that means reverse engineering previously offered electromechanical components in a power plant. In some cases, it means taking a commercially available part that does not have a nuclear qualification—this could be a backup generator, a chiller, batteries, other components—and Paragon puts that through a very formal commercial grade dedication, which makes it a nuclear-qualified component. Beyond that, they also offer essentially a brokerage platform for available spare parts within the industry. Those three core activities, again, keep the fleet operating. They are a very, very critical supplier to the industry overall. And given the nature of this business, I think it is intuitive that the level of customer intimacy and dialogue has to be very high. And that latter piece is really the critical catalyst for the greater demand traction we are seeing overall with Mirion Technologies, Inc. products. Conversely, if you look at legacy Mirion Technologies, Inc. products, we have been focused on instrumentation and control through in-core and ex-core detectors, through neutron flux monitoring systems, through radiation monitoring systems, and also radiation protection in a variety of form factors, systems, and services overall. That platform or that historical offering has also been augmented by complementary capabilities that Paragon has in I&C. And so when you put these things together, firstly, because of the greater intimacy of the Paragon sales team, we are seeing a clearer, higher-resolution demand signal overall from the power plants compared with what we have historically experienced based upon a fundamentally different sales model at legacy Mirion Technologies, Inc. That is certainly elevating our view, elevating our level of bullishness as to what is happening in the industry. But beyond that, it also gives us much earlier dialogue about those complementary areas of overlap on that Venn diagram, particularly in instrumentation and control. So we are thrilled by this acquisition. We are thrilled to bring our two companies together. This is a great pickup for us. Operator: Our next question comes from Analyst with Evercore ISI. Please proceed with your question. Analyst: Hey. Good morning, guys. Just wanted to circle back on the backlog commentary as well. Obviously, Paragon is a little bit dilutive on the adjusted EBITDA margin this quarter. But just as we think about these new orders rolling in, how can we think about the margin profile within backlog currently? I mean, you kind of spoke to it, I believe, on the 2028 kind of target. But just want to kind of level set there. Brian Schopfer: Yeah. Thanks, Nick. Look, I would characterize the margins in backlog exactly as we would have expected and give us the ability to hit the numbers we are talking about. We definitely—and really think about our margin in backlog more as contribution margin versus what the base margin is. But I do not think there is anything too scary in there that we are worried about from a margin perspective going forward. The only maybe comment I would make is some of the project business can be a little bit lower margin, but I think the teams have done a very nice job really working hard to make sure that the incremental margin on those bigger projects actually benefits Mirion Technologies, Inc. over the long term. So we are focused on margins and we are focused on cash as it comes to these larger business projects. Operator: We have reached the end of our question and answer session. I would now like to turn the floor back over to Tom Logan for closing comments. Tom Logan: Ladies and gentlemen, we appreciate your time and attention this morning. We appreciate your support. Again, an important quarter for the company. We feel great about the order momentum. We continue to have confidence in our outlook for the year. We continue to have confidence in our drive toward the 30% EBITDA target. As I have noted, we built this company in an environment of very difficult headwinds and always found a way to grow the top line and add value in a way that outpaced the markets and the peer set in general. It is tremendously exciting right now to have not only tailwinds but generational tailwinds supporting the business overall. So we are excited to continue to show what we can do, and we will look forward to speaking to all of you on our Q2 call. Thank you very much. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Robert Wright: Good morning, and welcome to the Delek US Holdings, Inc. First Quarter 2026 Earnings Conference Call. Participants joining me on today's call include Avigal Soreq, President and CEO; Mark Hobbs, EVP, Chief Financial Officer; as well as other members of our management team. Today's presentation material can be found on the Relations section of the Delek US Holdings, Inc. website. Slide two contains our Safe Harbor statement regarding forward-looking information. As a reminder, this conference call will contain forward-looking information, as defined under the federal securities laws, including statements regarding guidance and future business outlook. Any forward-looking statements made during today's call involve risks and uncertainties that may cause actual results to differ materially from today's. Factors that could cause actual results to differ are included in our SEC filings. The company assumes no obligation to update any forward-looking statements. I will now turn the call over to Avigal for opening remarks. Avigal Soreq: Thank you, Robert. Good morning, and thank you for joining us today. I am extremely pleased with our strong execution in the first quarter. The quarter is a testament to our refining capability as demonstrated by, one, disciplined and successful execution of the Big Spring turnaround; second, continued progress on increasing our free cash flow profile through restructuring of our intermediation agreement and continued success of EOP; third, successful navigation of challenging macro events such as workers on-prem and, more recently, events in Iran. The events in Iran have created many ripple effects in the market, resulting in around 10 million barrels of crude production and approximately 5 million barrels per day of refining capacity remaining offline. This has created an environment of elevated crude and product prices, dislocation between physical and paper grades, steep backwardation, and wide ranges of crude differentials. We believe the structural product shortage created in this event will continue to impact the market well after the conflict comes to an end. In the meantime, under the current environment, we believe the refining companies which will have the biggest advantage are the ones which have direct access to crude, high distillate yield, high jet, and, most importantly, the ability to quickly respond to changing conditions. We believe because of our access to multiple grades of domestic crude, high distillates and jet yield, and access to both Gulf and Mid-Continent product markets, we are in a prime position to navigate the challenges and take advantage of the opportunities created by the ongoing disruption. Now, I will cover some of our first quarter highlights and strategic initiatives in detail. Starting with the planned turnaround in Big Spring. Big Spring successfully completed its planned turnaround. This work was executed safely, on budget, and on time, and the refinery is running at full capacity. The primary focus of the turnaround has been to improve Big Spring reliability, cost structure, and long-term margin capture. Post the turnaround, we expect improved reliability, crude slate optimization, improvement in overall product yields, and, finally, higher octane and blending capabilities. With no further planned turnarounds, we have the highest spending quarter behind us. Our system is well positioned to capture the strong crack spread environment and respond to increases in demand as we move into the summer driving season. Moving on to EOP next. Enterprise optimization spend continues to drive significant value. We are once again raising our enterprise optimization plan target to at least $220 million on an annual run rate basis. During 2026, we estimate approximately $60 million of EOP contribution to our P&L. We are looking at ways to further advance the program and create another meaningful step change to our free cash flow profile. We will provide more details on this in the future. Our sum-of-the-parts initiative continues to advance with rising strength of our midstream business. DKL today reaffirmed 2026 EBITDA guidance of $520 million to $560 million. DKL is currently seeing meaningful tailwinds in the business, and we are working hard to capture these opportunities in a prudent fashion. DKL is taking another meaningful step in completing its industry-leading comprehensive sour gas solution. It has completed the drilling of its first acid gas injection well. The comprehensive gathering, treatment, processing, and acid gas injection solution will provide DKL the ability to fully capitalize on the growth opportunities in the Delaware Basin and maintain its best-in-class EBITDA growth and yield. In 2026, on a pro forma basis, with continued growth in third-party cash flow, we expect DKL third-party EBITDA to exceed 80%. Achieving this level of economic separation has been a cornerstone of our sum-of-the-parts strategy, and it continues to bring us closer to our deconsolidation goal. We are in the process of taking additional steps to ensure the strength of DKL third-party midstream services are fully reflected in DK share price and DKL unit price. As mentioned last quarter, we are pursuing a proactive strategy to manage our obligations under the RFS. SRE provisions of the RFS serve the important purpose of mitigating the impact felt on small refineries from the RFS burden. We expect EPA to continue to provide relief for 2026 to refineries after clearing the backlog of pending petitions since 2019. We also remain actively involved in our effort to get full value for our 2019 to 2022 RINs for which we were provided invalid relief. Finally, we believe that the current administration, Senate, Congress, and EPA realize the importance of SREs not only for the refineries which qualify under the program, but also to the local communities they serve. The final piece of our strategy is being shareholder-friendly and having a strong balance sheet. During the quarter, we paid approximately $16 million in dividends. Our strong balance sheet, improved reliability, and EOP, and confidence in our outlook continue to support a disciplined approach to capital allocation through continued dividends and buybacks. We remain committed to a balanced and disciplined capital allocation strategy and look forward to continuing to reward our shareholders. In closing, thank you to our team for their hard work and dedication during 2026. I am proud of the progress Delek US Holdings, Inc. has made and look forward to continuing the progress through the remainder of the year. Now I will turn the call over to Mark, who will provide additional color on the quarter. Mark Hobbs: Thank you, Avigal. For the first quarter, Delek US Holdings, Inc. had a net loss of $201 million, or $3.34 per share. Adjusted net income was approximately $5 million, or $0.08 per share, and adjusted EBITDA was approximately $212 million. On slide four, we show the breakout of adjusted EBITDA and adjusted EPS for the first quarter. Excluding SREs, adjusted EBITDA and adjusted EPS were approximately $129 million and a loss of $0.98 per share, respectively. This removes the impact of our RVO exemption recognition for the first quarter of $82 million. On slide five, the breakdown of adjusted EBITDA excluding SREs from 2025 to the first quarter shows that there were two main drivers for the decrease in EBITDA. The drivers were primarily in the refining segment, where adjusted EBITDA declined due to the Big Spring turnaround, and the impacts of timing in our Supply and Marketing segment, which will reverse over time. Both impacts were partially offset by the increase in refining margins that we experienced in March after seasonally weak margins in January and February. Supply and Marketing was a loss of approximately $61 million in the quarter. Of that amount, wholesale marketing had a loss of $27.1 million, asphalt contributed a loss of $12.1 million, with the remaining loss coming from supply. In the Logistics segment, we delivered our best first quarter to date, generating approximately $132 million of adjusted EBITDA, which includes an approximate $10 million negative impact from winter storm Fern. Moving to slide 18 to discuss cash flow. Cash flow provided by operations was $461 million in the quarter. This includes our net income for the period, adjusted for noncash items, and a net inflow related to changes in working capital. Investing activities were a use of $190 million. Financing activities were a use of $273 million, which includes payments on financing agreements and other activities, approximately $16 million in dividend payments, and approximately $22 million in DKL distribution payments to public unitholders. On slide 19, we outline our first quarter capital spending, with $181 million invested at Delek on a standalone basis, the majority of which was related to the plant-wide Big Spring turnaround. With no additional turnarounds or major capital projects planned for the remainder of the year, Big Spring and the broader system are well positioned to capture stronger margins and meet seasonal demand during the driving season. We also invested $50 million in Delek Logistics, of which approximately $42 million was for growth projects. Our net debt position is broken out between Delek and Delek Logistics on slide 20. Excluding Delek Logistics, our Delek standalone net debt remained largely in line with year-end 2025. Moving now to slide 21, where we cover second quarter outlook items. Our throughput guidance for the second quarter is 72,000 to 77,000 barrels per day for Tyler; 78,000 to 83,000 barrels per day at El Dorado; Big Spring will run 65,000 to 70,000 barrels per day; and, lastly, Krotz Springs will run 78,000 to 83,000 barrels per day. Our implied system throughput target for the second quarter is in the 293,000 to 313,000 barrels per day range. In addition to the throughput guidance, for 2026, expect operating expenses to be between $215 million and $225 million, G&A to be between $47 million and $52 million, D&A is expected to be between $105 million and $115 million, and net interest expense to be between $80 million and $90 million. With that, we will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Alexa Patrick from Goldman Sachs. Your line is now open. Alexa Patrick: Good morning, team, and thank you for taking our question. With the Big Spring turnaround complete, how should we be thinking about your capital allocation priorities? Recognize this quarter had higher spend, but as we look to the rest of the year, how are you thinking about buybacks and then use of SRE cash inflow? Avigal Soreq: Yes, Alexa, first, good morning, and thank you. First of all, we are very proud of our performance of capital allocation during 2025. We have outperformed around 4% versus our peers. We gave more capital back to investors, around 4% more than the peer group, so it is a very good outcome in our mind. We have a very clear capital allocation program. First, we want a balanced approach between dividend, buyback, and balance sheet, which we have achieved. Second, we want to maintain dividend through the cycle, which we have maintained. And third, we want to make it very clear: we see a lot of value in our share price and more to come. We have a very good quarter ahead of us, and we are very optimistic. Alexa Patrick: Okay. That is helpful. And then our follow-up is just on 2Q. There is definitely a lot of moving pieces in the macro right now. So can you just talk about how we should think about captures and some of these different dynamics? Avigal Soreq: Yes, Alexa, with your permission, I will take a step back and talk about the macro in more detail because there is a lot of moving parts and a different macro environment versus a regular macro environment. I will start with the facts, and then we will take it from there. We have seen the Strait of Hormuz closed or constrained for close to two months now. The consensus in the market is that we are seeing around 10 million barrels per day of crude supply effectively offline and around 5 million barrels per day of refining capacity remaining offline. SPR offset the crude portion just a little bit, but not in a very meaningful way. On market effects, we see elevated crude and product prices, dislocation between physical and paper, which is very meaningful for some, steep backwardation that is impacting capture rates for almost everyone, and wide swings in crude differentials, especially around Brent. On the product side, we believe that the product market will outlast the event and there will be a lingering effect on crack spreads. We also see that the risk premium after the event between Brent and WTI will be different; the risk element of Brent has put itself into the market and will probably outlast the event as well. That means a higher call on U.S. shale that presents a lower premium risk versus Brent, and we will see more of that coming into effect. Being specific on the Delek side, we have a big operation on the midstream side that is very correlated to what is happening in the Permian at any given point. We have direct access to crude, which lets us come to the market and make changes as needed very quickly. And we have access to product markets both on the Gulf and in the Group, which gives us flexibility. I want to finish with a very important point. We have a very good distillate and jet yield, and part of that is due to the EOP we executed last year. You may remember a slide we put together that presented a great project the El Dorado team conducted to basically produce more jet with zero capital cost, and that is paying us very nice dividends today. Mohit Bhardwaj: And we are very well positioned to capture the opportunities in front of us. Operator: Thank you for your question. Your next question comes from the line of Manav Gupta from UBS. Your line is now open. Manav Gupta: Good morning, guys. I am also going to ask a little bit of a macro question here. What my question here is, when we look at 2Q, Delek is very well positioned, there is no doubt about it. But I am also trying to understand from the perspective of what you said. I think 2Q will be a story of haves and have-nots. Haves are people like Delek who have the crude, and have-nots are people who may have the best refining system in the world but have no crude. From my perspective, obviously, Delek is a winner, but do you also think the situation we are in, generally U.S. refining as such is a winner because you have the crude, you have the demand, you are not really dependent on the Strait of Hormuz? So we have this dynamic playing out where relative to global peers, U.S. refiners and Delek can actually show a lot of outperformance. Can you talk a little bit about it? Avigal Soreq: Yes, absolutely. First, a very smart question. Mohit and I and Mark and the team speak about it all the time. Mohit has a lot of energy around the topic, so I will let Mohit chime in. Mohit Bhardwaj: Thanks, Avigal. And Manav, thanks for all the good work you are doing. You are absolutely right. U.S. refining will have an advantage because the U.S. is one of the largest crude producers in the world. The U.S. has the most flexible refining system in the world. And, most importantly, U.S. natural gas prices are very low. So from an OpEx standpoint, we are also at an advantage. But you rightly pointed out, the biggest winners will be the companies who have access to barrels even within the U.S., who have very high distillate and jet yield. That is why we like our position versus anybody else in the U.S. refining system right now. Manav Gupta: Perfect. My second quick follow-up is that when we look at the price of the RIN, that is going up, and that does impact the price of gasoline. In my opinion, there is a higher probability of SREs in 2026 than there was even in 2025 and 2024. If you do not issue SREs, you can cause the price of RINs to get to a point where gasoline can go to $5. Can you talk about those dynamics? Why the possibility of SREs is even higher now than what it was in 2025 and 2024? Thank you. Avigal Soreq: Yes, absolutely. With your permission, I will take a step back and give you a wider answer about the SREs. Granting SREs is a way bigger topic. SRE is not a company-level issue; it is an asset-level issue, and it directly impacts close to a third to half of our industry, more or less. It is a very big deal, and I want to make it very clear. The whole point of the law is disproportionate economic harm. It is for each asset and each community. It is not related to companies. The essence of the law is to maintain high-paying jobs, to maintain local communities, and to maintain affordable fuel. When we are looking at compliance costs for a small/mid-cap refiner over the last five years, it is roughly 85% of the market number on a proportional basis, whereas for the biggest book it is single digits. That is a very different dynamic. Risking SREs, as you stated, will lead to higher prices at the pump. It is very clear. And coupling the critical topic of SRE with E15 is like putting a square peg in a round hole. Mohit, please chime in. Mohit Bhardwaj: Yes, Manav. Again, a very good question. As Avigal rightly pointed out, RFS and RIN issues are about disproportionate economic harm. We show in our slide deck that, at a $1.50 per gallon blended D4/D6/D3 RIN price, our 2026 RVO compliance is close to $750 million. For companies like us who stay in compliance, you do not get SREs as cash; you have to stay in compliance, and then you get money that you spent on buying RINs back. So for us, this is not just an issue about how RFS is working; it is an issue about disproportionate economic harm. And you rightly pointed out, a lot of market participants are pointing out that if you do not have 2026 SREs granted based upon the current renewable volume obligations, you will have a deep deficit in the 2027 RIN bank, and, as Avigal pointed out, that is going to impact affordability at the pump, which is squarely against this administration’s energy dominance agenda. So we definitely expect SREs to continue, but that is up to the EPA to decide. Our expectation is that, in line with the government’s agenda, they will be granting these SREs on a go-forward basis. I think the EPA has put a very clear, clean framework together that has all the credibility in the world to follow through. Operator: Thank you for your question. Your next question comes from the line of Matthew Blair from TPH. Matthew, your line is now open. Matthew Blair: Thank you, and good morning, and congrats on the strong results. Could you talk about how the Big Spring refinery is running post the turnaround? Are you seeing any operational improvements? And did the turnaround stretch into the second quarter at all? We would have thought that the Q2 throughput guidance might have been a touch higher. Could you address that? Avigal Soreq: The point of the turnaround, which we are very happy about, was to improve reliability, improve crude optimization, add higher octane blending options, margin, and cost. We are very happy with what we see. We have a very good team over there, and we are very optimistic about Big Spring going forward. We will leave it at that—more to come. We have a very strong guidance and more to come. Mohit Bhardwaj: Yes, Matthew, you rightly pointed out our guidance, but with Big Spring coming out of the turnaround, we are just being a little bit more conservative, and hopefully things will play out the way we expect them to. Matthew Blair: Sounds good. And then could you talk about what you are seeing in end-market demand so far in the second quarter, both for gasoline as well as diesel? And for jet as well—any evidence of demand destruction given the higher price environment? Or does demand still look pretty strong? Avigal Soreq: In all the markets we operate in, we see strong demand. We see decent netbacks. The Group dynamics are improving as we speak, and that is very positive. We do not see demand destruction at this juncture. The demand we see is pretty resilient. Mohit? Mohit Bhardwaj: Good question. In Europe, we have seen some talks around airlines reducing capacity. But U.S. demand remains very strong. We are seeing potentially a very strong summer gasoline driving season. Gasoline remains the part of the barrel right now. As people are focused on distillate and jet, we also think gasoline cracks have room to move higher. We do not see any demand destruction in the U.S. just yet, and we think the outlook for cracks in Q3 to move higher is very evident based upon where things are right now. Operator: Thank you for your question. Your next question comes from the line of Jason Daniel Gabelman from TD Cowen. Your line is now open. Jason Daniel Gabelman: Thanks for taking my questions. First, on regional product prices. It is looking right now like Group 3 is still a bit discounted versus the Gulf Coast. Typically, I think you would see Group 3 already strengthen at this time of year. Could you talk about your forward outlook for the relative values between those two markets, and if you expect normal seasonality to take hold? Avigal Soreq: Absolutely, Jason. Thank you for the question. The way we see the Group today is actually stronger coming into this morning—we just checked it before the call—so that is positive. Obviously, the Group has dynamics of its own. Even if you look longer term, you see the Group dynamic in the near- and mid-term future will be different. We have just seen two pipelines: one is coming in the second half of the year, and the other is coming later on, in three to four years. That will allow movements from the Group into PAD 4 and PAD 5. We are looking at the Group on a very tactical basis today, but we also have the obligation and the opportunity to look at the Group down the road. I think the Group that we remember is going to be very different versus the Group we will see starting second half of this year, and probably even more importantly when the next line is executed and moves product into PAD 5. That is a very good dynamic on the short term, midterm, and long term for our position. Jason Daniel Gabelman: Great. Thanks for that. And maybe if I could go back to the small refinery exemptions. Do you have a sense around timing of when you should expect to receive those? And I know you have presented cases where you think you are able to get up to $400 million—the full, I guess, amount of exemptions for all your plants. How do you square that with the EPA publishing an expected amount of exemptions to grant the next two years, which seems consistent with the past few years? Avigal Soreq: It is a great question. We have a tremendous amount of trust in the EPA. I think the EPA put very strong, strict guidance in place. The EPA was able to clear the backlog of 2019 to 2022, and we are confident the EPA is going to do what it says it is going to do. It is a very reliable administration in this regard. I am sure the administration sees the correlation between small refinery exemptions and the price at the pump and will look into that. Operator: Thank you for your question. Your next question comes from the line of Analyst from Wolfe Research. Your line is now open. Analyst: Hi. Hey, guys. I had some connection problems. I apologize for dialing in a bit late. I know that the SREs have been fairly well flogged on the call, but I just want to make sure I understand something—the indication you have given for 2026. What are you assuming for the RIN? Because it has basically doubled since the beginning of the year. I am trying to get a feel for, if you roll forward the current RIN price into 2027 and 2028, what would your number be? Mark Hobbs: Thank you for joining us. Avigal Soreq: This is really important for us, and I will let Mohit, who stays very close to the topic, take this one. Mohit Bhardwaj: Yes. As we have talked about in the past, the way EPA is looking at a lot of these issues is trying to have a happy medium. It is a mathematical equation that they have in their minds—looking at SREs, looking at RVO, looking at imports, and looking at reallocation as well—to come up with a price so that affordability at the pump remains. As far as our 2026 numbers are concerned, we show that very clearly in our slide based upon our current estimates. At a $1.50 per gallon blended D4, D6, D3 RIN price, we would have a $750 million RVO obligation in 2026. Analyst: But just to be clear, the RIN is not $1.50; it is $1.90. Mohit Bhardwaj: Yes, you are absolutely right about that. Analyst: That is what I was confused about in your previous answer. So what, in your mind, would cause the RIN value, from the RIN bank standpoint, to move back significantly lower from here? Mohit Bhardwaj: From our vantage point, based upon the numbers—and Jason was talking about those numbers in the previous question—you would have a significant 2027 deficit if those are the level of SREs which are granted. That is one toggle that EPA does have, and that is why we think the 2026 SREs are extremely important to manage the 2027 RIN bank. What exactly EPA will do—and there are extremely smart, honest people working at the EPA—they will figure it out. For us, we are just trying to manage our situation and highlight the fact that SREs are an issue about disproportionate economic harm, and we are trying to manage our position based on that. Operator: Thank you for your question. Your final question comes from the line of Joseph Gregory Laetsch from Morgan Stanley. Your line is now open. Joseph Gregory Laetsch: Hi, good morning, Avigal and team, and thanks for taking my questions. I wanted to start on the EOP program, where you have made good progress and increased the target again to over $220 million. Could you just talk through some of the initiatives to help drive this improvement and how we should think about the potential upside and maybe a potential seventh raise from here? Avigal Soreq: Absolutely. Thank you for that question—that is one I really like. EOP, first and foremost, is about lifestyle and culture. It was really important for us, and we are extremely proud of the ability to push EOP across the entire organization. You see the buy-in. You see people talking about it in the hallway. It is not a project; it is not a spreadsheet. People really think about how to make more of what we have. If I am going to the refinery, I hear it between the units. If I am going to the accounting team, I hear them speaking about it. If we are going to commercial, it is across the company. So it is not just about cost savings. As we have said in the past, it is about what we make, where we sell, and the whole value chain that we own A to Z. You can see it very clearly in our financial results—in El Dorado, in G&A, and in the capture rate of the rest of the refineries. We are always looking, as I said in my prepared remarks, at how to make it better—what else we can do, how else we can improve. I am very proud of the team here that is taking the high road on that and making it a part of our DNA. I want to finish with an important comment. If you look at our slide deck, we are seeing around $600 million to $700 million in a mid-cycle environment of free cash flow, and that is around 20% to 30% of our current market price. That is a tremendous opportunity. I want to connect this comment with the comment that I answered to Alexa: we see a tremendous amount of value in where we are. Joseph Gregory Laetsch: Perfect. That is helpful. And then I wanted to ask on the sum-of-the-parts side. Can you talk through the latest thinking about deconsolidation, value unlock options from here as well? You have done a good job with bolt-ons and organic growth at DKL. Any thoughts on the path forward here would be helpful. Thank you. Avigal Soreq: Absolutely. You are right—deconsolidation is our ultimate goal. We are going to do it at the right price, under the right conditions. We see a tremendous amount of value in our DKL story. On a pro forma basis, 80% third-party is unheard of versus what we used to be. We have done acquisitions that we are extremely pleased with. We built a gas plant that we are extremely pleased with. We have a very clear, clean strategy of being a premier provider of crude, gas, and water in the most prolific area of the Permian Basin. We have created something very strong here that we are proud of. Based upon the intrinsic asset value in DKL, we believe the unit should have a seven handle. For the right price, we will deconsolidate and reward investors going forward. We need to make sure that the value creation in the midstream business—vis-à-vis the 80% pro forma third-party—is fully reflected both in the DK share price and the DKL unit price. We are pursuing one or more of four ways: keep doing bolt-on acquisitions; deconsolidation, because people see the value in the DKL unit—53 consecutive distribution increases is pretty much unheard of in terms of our ability to reward investors; for the right price, we might sell assets; for the right price, DKL has the ability to buy its own units from DK; and we can always sell DKL for the right price. As I mentioned, we see the intrinsic value of a seven handle on the unit price. We are extremely aggressive and disciplined around this opportunity. Operator: There are no further questions at this time, and we have reached the end of the Q&A session. I will now turn the call back to Avigal Soreq, CEO, for closing remarks. Avigal Soreq: Thank you. Thank you to everyone who joined the call. Thank you to my colleagues here around the table—they did a great job. Thank you to the investors who are sticking with the story and like what we are doing. I want to thank the board of directors and, most importantly, our great employees that make this company what it is. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the MGP Ingredients, Inc. First Quarter 2026 Earnings Conference Call, with Julie Francis, President and CEO, and Brandon M. Gall, CFO. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. After today's presentation, there will be an opportunity to ask questions. Also note that this event is being recorded today. In addition, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's annual and quarterly reports filed with the SEC. The company assumes no obligation to update any forward-looking statements made during the call, except as required by law. This call will contain references to certain non-GAAP measures, which the company believes are useful in evaluating the company's performance. A reconciliation of these measures to the most comparable GAAP measures is included in today's earnings release, which was issued this morning before the markets opened and is available at www.mgpingredients.com. At this time, I would like to turn the call over to Julie Francis, President and CEO of MGP Ingredients, Inc. Julie Francis: Good morning. I would like to thank you all for joining us today on our first quarter 2026 earnings call. Let us kick it off with a review of some of our quarterly results and progress made against our key initiatives, and then Brandon can cover the financial metrics during his comments. Sales in 2026 came in at $106.4 million, down versus the prior year but in line with our expectations. Adjusted EBITDA of $15 million and adjusted basic EPS of $0.15 also declined versus the first quarter of last year; however, both of these key metrics were ahead of expectations. We are pleased with this performance as it helps to validate the work we have been doing to drive progress in our business while simultaneously navigating a challenging industry backdrop. In the first quarter, we continued to focus our energy on the areas we can control and to sharpen our strategic focus and strengthen execution across the organization. For Branded Spirits, we maintained momentum in our Premium Plus portfolio in the first quarter, which was led by Penelope Bourbon and benefited from improved demand for select mid-price offerings. We also delivered solid growth in Ingredient Solutions, as the improvements the team has made in operational reliability are taking hold and delivering results. While I plan to talk more about our segment performance later, I would like to share a few recent actions we have taken. As you know, we have been strengthening and revamping our strategy, marketing, and supply chain functions in order to add specific capabilities to address new and existing opportunities and to build out best-in-class processes designed to balance improved commercial planning while driving disciplined execution and long-term success. As a part of these efforts, we recently announced there will be a temporary idling of our distilling operations in Kentucky at Limestone Branch and Lux Row starting in May. Like many companies across the industry, we are navigating this challenging environment and taking the steps we believe are necessary to better align our operations and inventory. While this temporary idling will unfortunately affect 33 employees, it is not expected to impact the availability of our products or our services to our customers, and it is necessary to adjust our production to align with current inventory levels. I would like to remind everyone that our largest facility in Lawrenceburg, Indiana, remains fully operational and will continue to operate to serve our brands, clients, and customers. Shifting to our business segments, I will begin with Branded Spirits, which remains the focus as our primary long-term growth driver. As expected, first quarter sales were down year over year; however, we continue to see constructive progress, particularly within the Premium Plus and mid-price tiers. We view these price tiers as critical to the long-term health of our portfolio, and we are pleased to see they both saw growth in the quarter. Importantly, gross margin expanded 180 basis points to 47.8%, reflecting improved mix and early benefits from our revenue growth management initiatives. Gross profit of $21.1 million was down versus the prior year and primarily driven by an expected decline in sales of private label products within our other category. Premium Plus sales increased 1.5%, supported by continued consumer demand for our differentiated, high-quality offerings and the increasing effectiveness of our focused growth strategies. Penelope Bourbon once again delivered strong performance, with sales up 10% year over year. As you recall, this brand is cycling the highly successful launch of Penelope we did in the first quarter of last year. Even against this comparison, we saw growth driven by sustained and growing momentum in our core SKU, Penelope Four Grain, along with strong consumer response to limited-time releases such as Havana, Rio, and American Light Whiskey. We are also encouraged by the early traction from our new ready-to-pour offerings, including our Black Walnut and Apple Cinnamon Old Fashioned products, which continue to expand Penelope’s consumption occasions. Turning to Yellowstone, despite a year-over-year decline for the first quarter, we are seeing early signs of stabilization and recovery, supported by deliberate investments in innovation and digital capabilities. Our ultra-premium limited release, Yellowstone Recollection, has been exceptionally well received, earning strong critical acclaim and press coverage, with consumer demand exceeding our initial expectations. As discussed in our last earnings call, we continue to increase our investment in digital marketing and media capabilities. Yellowstone is the first brand we have deployed a fully integrated digital activation strategy for, combining best-in-class social media execution with targeted paid media in focus states, including select control states. In Pennsylvania and California, for example, this approach combined with revenue growth management initiatives drove robust double-digit growth for Yellowstone in the first quarter versus the prior year. Turning to tequila, our El Mayor brand delivered year-over-year growth driven by continued progress in price pack architecture efforts. This included expanded 1.75-liter offerings and the introduction of 375-milliliter sizes as consumers increasingly adopt premium tequila across a broader range of occasions and price points. Similarly, Exotico tequila was up strong double digits, fueled by the addition of a 1-liter offering that is enabling continued gains in on-premise distribution alongside price optimization. Additionally, the 375-milliliter size is allowing consumers to trade up from mixto tequila to high-quality 100% agave tequila at an attractive price point in the off-premise channel. For mid- and value-price portfolios, combined sales declined 3% in the first quarter. These are improving trends as we continue to prioritize our strongest performing SKUs and channels. Revenue growth management and price-pack-channel optimization remain critical levers in these categories, and we are encouraged by early results as we execute against this strategy. Looking ahead, we are intentionally concentrating resources behind approximately 10 of our most promising brands, with a clear focus on purposeful differentiation and innovation to support sustainable long-term growth. At the same time, we are managing the portfolio with discipline. As discussed on our prior call, we have initiated comprehensive portfolio review and rationalization. During 2026, we discontinued more than 30 tail brands, with approximately 15 additional brands planned to be discontinued by the end of this year. Combined, these brands represent approximately 1% of segment net sales and, when annualized, are expected to represent an estimated 20 basis point improvement to the segment’s gross margin profile. For our Branded Spirits segment, we are excited about the opportunities ahead across our broader portfolio. As with all growth trajectories, there will be many steps forward, some bigger and some smaller. We will also likely alternate between some really healthy quarters and some softer ones as we continue to successfully prioritize our best performing offerings and ramp up our investments in these brands, while continuing to cycle new product introductions. Turning to Distilling Solutions, where despite the challenging domestic whiskey supply environment, our first quarter results came in as expected. Segment sales of $28 million decreased 40% year over year, while gross profit of $8.6 million declined 54% as elevated inventory levels continued. In the first quarter, we maintained our focus on creating a differentiated value proposition to better position MGP Ingredients, Inc. as a long-term strategic partner for both large and small customers. Our brown goods customers’ expansion efforts are taking hold, as demonstrated by growth of 9% in aged sales and the addition of more than 20 new customers in the first quarter, including a significant national private label whiskey customer. We are proud of the customer expansion progress we are making, particularly given the current industry backdrop. As discussed on our last earnings call, we are also broadening our premium white good offerings, and these efforts are focused on complementing our brown goods portfolio. During the quarter, we transacted our first customer sale under this new highly customized initiative. While we are pleased with the progress we are making, given the unique and highly customized nature of these product offerings, these projects will take time to fully commercialize and scale. That said, we now expect growth from this initiative to pick up in the second half of this year. Our focus on premium white goods is designed to leverage the scale, heritage, and quality of our Indiana distillery to produce premium gin and grain neutral spirits, which can then be customized to meet each customer’s specific needs. We expect that this effort will allow us to move beyond commoditized offerings, generate more attractive economics and better asset utilization rates, and also serve as a bridge to longer-term and deeper relationships with strategic customers. Our efforts are also focused on driving cash generation by increasing our value-added service offerings, as we look to attract and retain a wider pool of customers. Warehouse services made up approximately 30% of our Distilling Solutions segment sales in the first quarter. Both sales and gross profit were up versus the prior year. Turning now to our Ingredient Solutions segment, sales of $34.2 million increased 29% versus the prior year. This growth was primarily driven by higher sales volume, price, and mix for our specialty wheat proteins and starches. Gross profit of $3.8 million was up 56%, with gross margin of 11.2% up nearly 200 basis points, as higher sales of specialty protein and starch products were partially offset by higher waste disposal costs. This successful first quarter was driven by continued improvements in operational reliability, with each month better than the previous one. For the quarter, efficiency was up 14% year over year. With a slower start to the year firmly offset by a solid March, we plan to continue to move towards greater efficiency as we improve overall and as we begin to cycle previous throughput issues. Effluent disposal has been more complex and more costly than initially projected. Reducing waste and disposal costs are a key priority, and we are implementing additional measures by year-end and continue to expect to remove these costs over the long term. At the end of the second quarter and into the third, we have a planned shutdown for scheduled maintenance and capital projects designed to further improve reliability and throughput and to provide some relief in our waste stream disposal costs. Brandon will share the related financial impacts in a moment. Despite the effluent challenge, we are moving in the right direction in Ingredient Solutions. We are pleased with the momentum, as better operational reliability means we have more product to sell, and this is key as we continue to see increasing demand for our proprietary and unique products. We will remain focused on driving growth through our specialty fiber Fibersym, our specialty protein Arise, and our extrusion protein Proterra. Now I would like to highlight the progress we are making in driving an ownership cost management mindset that is supporting growth and our bottom line by eliminating waste, driving efficiencies, and maximizing effectiveness. One reinvestment example of this is the work we completed to streamline marketing services and to reduce our non-working media spend, while reinvesting those savings into our Yellowstone digital marketing programs. Going forward, we will continue to reinforce this mindset by embedding productivity and cost discipline into our operating routines, performance management, and compensation metrics. Productivity and a cost management focus are becoming a part of our regular manager routines, helping us to uncover and track opportunities to eliminate waste and driving us to operate more efficiently and effectively across the entire organization. And with that, I would like to turn the call over to Brandon. Brandon M. Gall: Thank you, Julie. Turning now to our financial results. For 2026, we reported consolidated sales of $106 million. While sales decreased 13% compared to the year-ago period, they were in line with expectations. Gross profit of $33 million was down 22%, while gross margin of 31.6% declined by approximately 400 basis points. Our total SG&A spend declined by approximately 1% in the first quarter, while adjusted SG&A declined by approximately 2%. As expected, Branded Spirits advertising and promotion expenses were 13.6% of Branded Spirits sales, a reduction of approximately 24% year over year as we cycled the final period of elevated marketing spend prior to our current more disciplined and efficient realignment efforts. We continue to expect full-year Branded Spirits A&P to be 13% to 14% of Branded Spirits sales. Net income decreased to a loss of $134.8 million, primarily due to a discrete non-cash adjustment of $179.5 million to reduce the carrying amount of goodwill and other long-lived assets in the Branded Spirits segment. This also included approximately $27 million for equipment unrelated to the distillation process at our Lux Row facility in Kentucky. Adjusted net income of $3.3 million decreased 57% on a year-over-year basis. On a per-share basis, we had a loss of $6.30 for the first quarter versus a loss of $0.14 in the prior year, primarily due to the adjustments I just noted. On an adjusted basis, earnings per share of $0.15 decreased 58% year over year. Adjusted EBITDA of $15 million decreased 31% over the same period. Capital expenditures declined 75% to $2 million in the first quarter, and we continue to estimate CapEx of approximately $20 million for the full year. We look to optimize our capital deployment in the current industry environment. Finally, as of March 31, our net debt leverage ratio was approximately 2.1 times. Turning to annual guidance for 2026, which we are reaffirming, we continue to expect net sales between $480 million and $500 million. Adjusted EBITDA is projected to range from $90 million to $98 million. This is consistent with previous expectations, as the efficiencies and savings from our recently implemented ownership cost management mindset initiative are expected to offset our reduced gross profit outlook in Ingredient Solutions. Our adjusted basic earnings per share range remains between $1.50 and $1.80, and average shares outstanding should be approximately 21.4 million shares for the full year. Our annual tax rate is expected to be approximately 27%. Turning to our balance sheet and cash flow outlook, as Julie shared, the decision to temporarily idle our Kentucky distilling operations beginning in May was difficult. However, given the current environment, it is an additional example of the capital prudence necessary to position us for long-term success. As a result, we expect full-year improvement in cash flows of $10 million versus previous expectations. Excluding the impact of the Penelope earnout payment, we now anticipate 2026 full-year operating cash flow of $50 million to $55 million and free cash flow of $30 million to $35 million. We also anticipate an improvement in our net leverage ratio as a result of the temporary idling and expect it to peak at approximately 3.5 times, down from the 3.75 times figure we provided on our fourth quarter earnings call. We continue to estimate net whiskey put-away in the $13 million to $18 million range for 2026, which represents our second consecutive year of meaningful capital investment optimization and stewardship. This target includes both new production and procurement of barrels, and is consistent with prior expectations as much of the temporary idling was factored into the previously provided outlook. From a business segment perspective, our full-year segment outlook for Distilling Solutions sales and gross profit is consistent with previously shared estimates. However, our white goods sales outlook for 2026 has been reduced and is now expected to be up mid-single digits, largely due to the time needed to fully commercialize and scale these customized new projects. Much of this reduction is expected to be offset by improved sales within other product lines. Our full-year sales outlook for Ingredient Solutions is consistent with previously shared estimates; however, we now expect full-year segment gross margins to be in the mid-teens as a result of the increased effluent costs and plant shutdown at the end of the second quarter and into the third quarter. Our full-year segment outlook for Branded Spirits is unchanged from previously shared estimates. To close, I would like to stress Julie’s comments regarding our performance to date, as it helps to validate the work we have been doing to drive progress in our business while simultaneously navigating the challenging industry backdrop. And with that, I would like to turn the call back over to Julie. Julie Francis: Thank you, Brandon. Before we wrap up, I want to thank the entire MGP Ingredients, Inc. team for another quarter of persistence, dedication, and hard work, and for their commitment to executing against our strategic roadmap. This strategic roadmap is designed to drive growth across all three businesses. For our Branded Spirits, we will continue to focus on winning in the Premium Plus category with Penelope Bourbon, while strengthening our overall brand focus. We will prioritize our best performing brands and plan to rationalize approximately 20% of our tail brands. We will also strive to increase our penetration in national accounts and to strengthen our digital marketing capabilities. For Distilling Solutions, we will remain focused on rebuilding our aged whiskey pipeline while broadening our premium white goods offerings to complement our brown goods portfolio. We will also continue to work on attracting and retaining a wider pool of customers by growing our private label and international whiskey programs and by expanding our value-added service offerings. And for Ingredient Solutions, our efforts will remain focused on driving growth through our industry-leading specialty fiber and specialty protein product offerings. We will also continue to implement new processes to help return to operational excellence and improve reliability and throughput. In addition, managing high waste disposal costs will remain a key priority for this segment. Looking ahead, I am encouraged by the progress we are making across our organization. As I stated earlier, our strategy remains grounded in focus, execution, discipline, and accountability. We are actively evaluating all available levers to operate more efficiently and effectively. While the industry outlook remains challenging over the near term, we are committed to addressing our challenges in order to position MGP Ingredients, Inc. to emerge as a better aligned and more resilient company that is capable of delivering long-term value creation. And with that, I would like to turn the call over to the operator for any 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 at any time your question has been addressed and you would like to withdraw your question, please press the appropriate key. The first question comes from Robert Moskow with TD Cowen. Please go ahead. Seamus Cassidy: Hi, this is Seamus Cassidy on for Rob, and thanks for the question. Was hoping you could provide a little bit more detail on the early learnings from your portfolio review in Branded Spirits and the approach you took to this review. You mentioned the investment in Yellowstone and 10 brands in total. What went into the decision to invest in these brands? And secondly, does rationalizing tail brands have any impact on capacity or distributor alignment, or any considerations there? Thanks. Hey, Julie, thanks so much. Appreciate it. Julie Francis: Let us do the SKU conversation first. As you have read, we discontinued over 30 tail brands in Q1, with another 15 expected by year-end. These represent approximately 1% of our segment net sales, and when annualized, we expect a 20 basis point improvement in segment gross margin. The learnings are that these were not highly visible brands in the market, but they consumed resources. Think about changeover configurations, glass, containers, and liquid we had. This improves line efficiency and provides more line time for core SKUs. We do have a few that are growing quite nicely, and the main impact is really inventory reduction. We are reducing working capital by over $2.5 million and other logistics and supply chain costs like warehouse and storage. From a distributor focus, it does not take away their focus; if anything, it has allowed them, with our partnership approach this year of really targeting our top 10 brands, to focus their execution and activation. We are seeing nice momentum in their planning and execution in Q1. Shifting to the power brands—the 10—how did we do it? We brought in new capabilities about six months ago to lead the marketing organization. It has been a robust six months, first and foremost doing comprehensive reviews of our top two portfolios, which are American whiskey and tequila. We assessed positioning, what the brands stand for, consumer segments, competitive sets, key occasions, price pack architecture, A&P allotment, and any overlap from the robust portfolio we have in American whiskey, and the same for tequila. From that, we identified the key brands and built a strategic roadmap for investment and execution. We then put a brand growth framework around those brands to ensure they are selectively being pushed, executed, and invested against a couple of key areas. One is mental availability—our referenced digital—reaching more consumers through increased paid media, the ability to target geographies based on ZIP codes, and having the right and dynamic content: the right message, the right consumer, the right channel at the right time. The second is physical availability—how we increase our PODs, distribution, and velocities across all accounts, in particular national account expansion opportunities across off-premise and on-premise. Store visibility and execution remain goals. One of the heavy-up areas we focused on is elevating our digital media capabilities. We have doubled the investment there, brought a highly capable expert into the team, and tested in-house digital media. Yellowstone was our first test-and-learn. We did a couple of states, and within those states we are seeing a nice turnaround for Yellowstone Select, up double digits. That is driven by both media and pricing heavy-ups in those markets and tied to targeting ZIP codes that purchase Yellowstone. We are pleased with the results. It is early days, but you can expect this approach to extend to our other focus brands as well. Seamus Cassidy: Very clear. Thanks. Operator: The next question comes from Sean McGowan with ROTH Capital Partners. Please go ahead. Sean McGowan: Thank you. I wanted to get a little bit more color on some of your gross margin comments. First, specifically to clear up, when you are talking about the 20 basis point improvement, is that on a run-rate basis as you exit the year, or is that for the full year? And that is just within Branded Spirits, right? Brandon M. Gall: That is a run-rate, annualized basis. The impacts will all hit in 2026; however, what is going to hit is factored into our guidance and can be expected on an annualized basis going forward. And yes, that is just within Branded Spirits. Sean McGowan: Okay. And then on the Ingredient side, by the end of the year, would you expect to be back to where you thought you would be on gross margin, or is this hit going to linger into next year? Julie Francis: Thanks for the question. First, we are pleased with the operational reliability improvements we have sequentially made as the year has started. Our downtime is down, and we are more efficient by 14%. What is driving that is our unplanned equipment outages have reduced since December by 10 points, and throughput improvements are up 18%. Operational reliability has allowed us to get more pounds out. We have robust demand for our proprietary platforms across starch and fiber, and you saw that in our sales. So, more to sell and more reliability. The gross margin is being impacted by effluent. We have discussed that before. At the end of the second quarter, with our planned shutdown that will cross into Q3, we will bring in a piece of equipment—a third dryer—that is going to help us eliminate some of that effluent. We expect those costs to sequentially go down by the end of the year and be cut in half. By the time we end the year, we expect mid-teens gross margin, and by 2027, we would expect that to be in the high twenties. Sean McGowan: Thank you. And then on Distilling, the commentary that white goods may be coming a little bit slower and offset by other products—what are the gross margin implications for that shift? Brandon M. Gall: We are still expecting low- to mid-30s gross margins for the Distilling Solutions segment. As we said in our prepared remarks, the white goods sales shortfall is expected to be offset by other product lines within the segment, so we are staying consistent with what we said last time. Sean McGowan: Okay. Thank you very much. Operator: The next question comes from Marc Torrente with Wells Fargo. Please go ahead. Marc Torrente: I guess first on Distilling Solutions, last quarter you talked about discussions with larger customers taking shape through the second quarter and potentially providing some color on the 2026 outlook and beyond. Do you have any incremental color there? What are you hearing in terms of customer needs and timing to demand inflection? And any further comfort that 2026 could be a bottom? Julie Francis: Thanks, Marc. We continue to view 2026 as likely a trough year for Distilling Solutions. Nothing we saw in Q1 changed that view. We are pleased with our partnership approach. Our conversations with customers remain active, pragmatic, and constructive. Inventory levels across the industry are still elevated, but we are seeing customers move from broad pauses to much more targeted planning discussions. Importantly, those conversations are increasingly focused on how they want to reengage—product types and customization services—not necessarily if. We still expect clarity as we move through 2026, which is consistent with what we said previously, particularly from some multinationals and where they stand in their cycle. While the overall cycle will take time to normalize, we believe we will exit this period stronger, with better customer relationships and a more differentiated offering than before. Marc Torrente: Thank you for that. And then more color on the decision to idle distilling in Kentucky. Was there anything incremental you were seeing in the market that drove that decision during the quarter? What percent of your overall distilling capacity does that represent, and how much of that is for your own brands versus outside brands? It does not sound like that has any impact to your outlook for distilling sales or branded product availability—just to confirm. Julie Francis: That is correct—it has no impact on either Distilling Solutions sales or branded product availability. Our decision to temporarily idle our Kentucky distilling operations impacts a modest portion of our total distilling capacity and was driven by inventory alignment, not customer demand disruption. Most of the paused production was intended for future aged inventory for our own brands rather than near-term customer commitments. As you recall, in 2025 we balanced our Distilling Solutions production with sales during the industry reset, which meaningfully reduced our fixed costs and allowed us to optimize production schedules and still deliver gross margins in the 30s. We thought it was prudent to do the same thing for our Branded Spirits. Once our 2026 production needs for our brands and any customers were met, we chose to idle. Brandon can add the balance sheet impacts. Brandon M. Gall: We shared the balance sheet and cash flow benefits. As Julie said, this is inventory- and working-capital-driven and reflects us being good stewards of the balance sheet. Operationally, because most of these costs relate to branded spirits put-away, they have historically been capitalized and show up later in the income statement. We do not expect much impact to operating margins on an adjusted basis. Marc Torrente: Appreciate the color. Thanks. Operator: The next question comes from Ben Klieve with Lake Street Capital Markets. Please go ahead. Ben Klieve: Thanks for taking my questions. A couple from me. First, in your prepared remarks, you talked about onboarding 20 new customers. I cannot remember if you said that was the Branded Spirits segment collectively or brown goods specifically. Can you talk about who this new customer base is, the extent to which these are aged versus new customers, and in this difficult environment, how this came about and where they were sourcing from historically, if you can provide any context? Julie Francis: Thanks, Ben. We are pleased—our partnership approach is working. Stepping back, we previously targeted an addressable market of around 1,000 customers. By leveraging data, we have identified a total addressable market of about 4,000. We have allocated those prospects to our sales team, which is now very well-versed in our differentiated value proposition. About 75% of that new-customer pool was new-to-industry customers, and approximately 25% came from competitors. Broadly speaking, these wins are brown goods, typically aged purchases. The team has done a nice job ensuring the broader market knows we are open for business and highlighting the craftsmanship you get at MGP Ingredients, Inc. for both brown and white goods. We offer different mash bills, finishing capabilities, and barrel sizes. Some customers were surprised—we do smaller batches—and they had thought they needed to go a different route to get our quality juice. Ben Klieve: Very good. Thanks, Julie. One more from me on the tax line. With a 27% rate on a full-year basis, can you help us understand your expectations around cash taxes given the non-cash expenses in the first quarter? Brandon M. Gall: The ownership cost management mindset we highlighted on this call and last is taking effect across the organization, up and down the P&L. Cash taxes are being optimized from an outflow and timing standpoint as much as possible, and those benefits will be felt. Excluding the impact of the impairment, we still expect around 27% for the year, knowing Q1 was a little wonky because of a couple of discrete items. The cash management mindset is in full force, and we will mitigate cash tax outflows as much as possible throughout the year. Operator: This concludes our question and answer session. I would like to turn the conference back over to Julie Francis for any closing remarks. Julie Francis: Thank you. On behalf of the entire MGP Ingredients, Inc. team, thank you for your continued confidence and support. We look forward to talking to you next quarter. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to Tradeweb Markets Inc.'s First Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback. To begin, I will turn the call over to Head of Treasury, FP&A, and Investor Relations, Ashley Neil Serrao. Please go ahead. Ashley Neil Serrao: Thank you, and good morning. Joining me today for the call are our CEO, William E. Hult, who will review our business results and key growth initiatives, and our CFO, Sara Hassan Furber, who will review our financial results. We intend to use the website as a means of disclosing material, nonpublic information and complying with our disclosure obligations under Regulation FD. I would like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release, earnings presentation, and periodic reports filed with the SEC. In addition, on today's call, we will reference certain non-GAAP measures as well as certain market and industry data. Information regarding these non-GAAP measures, including reconciliations to GAAP measures, is in our earnings release and earnings presentation. Information regarding market and industry data, including sources, is in our earnings presentation. Now let me turn the call over to William. William E. Hult: Thanks, Ashley. Good morning, everyone. Thank you for joining our first quarter earnings call. We delivered another record quarter, surpassing $600 million in quarterly revenue for the first time in our history. As I noted last quarter, we entered the year with a constructive macro backdrop featuring strong private sector intermediation, robust global issuance, and elevated levels of market debate alongside early signs of diversification away from U.S. assets. That backdrop evolved quickly. What began as a market conversation centered on the pace of rate cuts in 2026 shifted meaningfully as geopolitical tensions in the Middle East drove an increase in oil prices and renewed concerns around inflation across the global economy. Our clients actively repositioned risk and navigated this dynamic environment, driving record quarterly average daily volumes on the platform, including 17 of our 22 products that we report in our monthly activity report. While periods of elevated volatility tend to naturally drive wider bid-ask spreads, markets remained orderly throughout the quarter. Our clients engaged with the platform at record levels and increasingly capitalized on our automation solution, AIX. Equally important, our dealer partners flourished as their continued and consistent two-way electronic liquidity benefited clients during heightened market stress. As we move into the aftermath of the volatility spike, history has shown that activity can moderate as clients digest the forward outlook. More importantly, this macro shock has left our clients in a healthy position, and we expect them to resume trading actively across our global franchise. Diving into the first quarter, strong client activity and a risk-on environment drove 21.2% year-over-year revenue growth on a reported basis. Our international business continued to set new records with 29% revenue growth as our strategic initiatives across Europe, APAC, and EM continued to pay off. We continued to balance investing for growth and profitability as adjusted EBITDA margins expanded by 40 basis points relative to 2025. Our international business really continued to fire on all cylinders for us this quarter, contributing to nearly 60% of our overall revenue growth. Importantly, that strength was broad based, as we saw double-digit growth across all four asset classes with our international clients. Even though international clients are naturally focused on non-U.S. products, they are increasingly trading outside their home markets. That really speaks to the strength of our platform. To put some numbers around it, our international clients drove 60% of our dollar swap growth, and we also saw double-digit contributions from them across U.S. Treasuries, cash credit, CDS, and ETFs. On the product side internationally, we had double-digit growth across European, Aussie, and Japanese government bonds. European swaps were a standout, but we also saw a very strong performance across APAC and EM swaps. It was not just rates, as our European credit and CDS produced strong revenue growth. Not to be overshadowed, we also saw over 20% growth in both our European ETF and repo businesses. On the flip side, it is not just international clients driving this activity; our U.S. clients are increasingly active in international products, contributing over 20% of our international product revenue growth. So when you step back, what you are really seeing is the flywheel of the platform at work, where our global clients are trading across regions and asset classes, and we believe this advantage will only grow as we expand our presence across regions. Turning to slide five. Our Rates business produced a record revenue quarter driven by continued organic growth across swaps, global government bonds, and mortgages. Record Credit revenues were led by strength across global corporate bonds and credit derivatives. Money Markets revenue growth was led by record quarterly revenues across global repos and ICD. Equities also produced record revenues, led by growth in global ETFs and equity derivatives. Other revenues grew over 56% year over year driven by our digital assets initiatives. Finally, Market Data revenues were down approximately 5% year over year driven by a timing shift in how certain historical data sets are delivered under our amended LSEG agreement. Recall, we recorded $8 million in January 2025 tied to the delivery of datasets to LSEG. The revenue recognition of these datasets in 2026 shifted to $2 million being recognized in the first month of every quarter. Adjusting for the timing difference, Market Data revenues grew 13% year over year driven by growth in our recently renewed LSEG market data contract and proprietary data products. Turning to slide six, I will provide a brief update on two of our focus areas, U.S. Treasuries and ETFs, and then I will dig deeper into U.S. Credit and global interest rate swaps. Starting with U.S. Treasuries, after eight months of below-average intraday volatility, we saw a significant pickup in March intraday volatility. While March volatility rose over 50% from the December lows, it was still nearly 40% below what we saw in April 2025. Our first quarter market share of 22% drove record revenues, up nearly 10% year over year as double-digit revenue growth in our institutional channel was partially offset by weaker retail trends. While market share was down year over year mainly due to lower wholesale market share, we remain optimistic on a reacceleration in our U.S. Treasury business as we penetrate additional parts of the voice market, coupled with continued strong government debt issuance. Our competitive position remains strong. On a relative basis, we exceeded 50% share for the eighth consecutive quarter in electronic institutional U.S. Treasuries versus our main electronic competitor. Wholesale remains a strategic priority with continued focus on expanding our liquidity network, deepening client relationships, and driving growth through differentiated protocols and products across our integrated platform. Turning to Equities. This year marks the ten-year anniversary of our institutional U.S. ETF platform, an important milestone that reflects both the evolution of the ETF ecosystem and Tradeweb Markets Inc.'s role at its center. Since launch, our platform has scaled significantly, surpassing $4 trillion in notional traded including more than $1 trillion in the past twelve months alone. What began with just a handful of participants a decade ago has grown into a broad and diverse global network of close to 200 institutional clients and over 20 dealers. Our ETF business posted revenue growth in excess of 35% year over year as we continue to deepen integration with our clients coupled with a pickup in market volatility. Our AIX automation solution continues to be a key differentiator with our ETF clients, with average daily trades increasing over 70% year over year with double-digit growth across European and U.S. ETFs. Our efforts to broaden our equity presence beyond our flagship ETF franchise continue to pay off with record institutional equity derivative revenues up nearly 20% year over year. Looking ahead, the pipeline remains strong as the benefits of our electronic solutions continue to resonate with our clients. We believe we are well positioned to capitalize on the long-term secular ETF growth story, not just in equities, but across our fixed income business. Shifting to Global Credit, on slide seven. Double-digit revenue growth for Global Credit was driven by strong double-digit revenue growth in European credit, EM credit, and credit derivatives, which more than offset weakness in municipal bonds. U.S. Credit produced low single-digit revenue growth led by strong double-digit revenue growth in our institutional business, but partially offset by continued weakness in our retail corporate credit channel, where revenues were down over 20% year over year, primarily reflecting the better relative yields our clients were getting outside of U.S. Credit. U.S. Credit remains a key growth priority, and we are focused on expanding our penetration within RFQ markets to complement our leadership in portfolio and session-based trading. Despite more than a decade of innovation, RFQ continues to be the primary execution protocol for institutional clients in U.S. Credit, driven by its transparency and competitive pricing dynamics. However, clients are often reluctant to expose larger trades broadly given the trade-off between minimizing information leakage and achieving optimal pricing. In response, we are focused on enhancing workflows that better align with client needs. To that end, we have continued to invest in our enhanced dealer selection tool, Snap+, which enables our clients to dynamically target the most likely to engage and win a given inquiry based on both historical and real-time trading data. This innovation builds on our broader strategy of expanding the range of pre-trade, execution, and post-trade solutions we offer. We remain focused on the block market with overall U.S. Credit block share up 20 basis points year over year in the first quarter, with block average daily volume growth of over 30% year over year across IG and High Yield. Our volume growth was driven by continued adoption of our portfolio trading, RFQ, and sessions protocols. Institutional RFQ average daily volume grew over 30% year over year, with double-digit growth in both IG and High Yield. Our efforts to expand into RFQ are seeing continued signs of success with our RFQ share of overall TRACE up over 50 basis points year over year. Portfolio trading produced record average daily volume, increasing over 30% year over year with double-digit growth across both U.S. and international PT. AllTrade had a strong quarter, with over $230 billion in volume with average daily volume up over 5% year over year. Our all-to-all average daily volume grew over 65% year over year, and our dealer RFQ average daily volume grew over 40% year over year. We saw record responder rates in High Yield as the team remains focused on expanding our network and increasing the number of responders on the AllTrade platform. Electronification remains a key focus, especially in U.S. Credit where underlying trends are strong. However, investment grade volumes have been increasingly impacted by affiliate trades, which are internal transfers within a dealer that occur after a transaction in the institutional market. These are double counted, noneconomic trades that do not interact with electronic platforms, distorting reported market share and electronification and creating artificial pressure on both. If you adjust for that activity, the underlying picture looks better. Based on our estimates, first quarter market share in IG would have increased 5 basis points versus our reported decline of 33 basis points, and electronification also would have moved higher. The core trend has not changed, with electronification in U.S. Credit continuing to build, and we feel very good about our positioning as that plays out. Looking ahead, Global Credit remains a key area of focus with a long runway for growth. While U.S. Credit continues to anchor performance through ongoing innovation, differentiated liquidity, and investment in our platform, we are also scaling European credit by expanding RFQ adoption and liquidity, and advancing munis through increased electronification, transparency, and connectivity in a fragmented market. Finally, in EM credit where we are still early in our expansion, we are building momentum by leveraging our established presence in developed markets alongside a holistic EM product offering across rates and credit. Our EM credit revenues grew over 40% year over year in the first quarter, signaling strong momentum. Moving to slide eight. Over the past two decades, electronic interest rate swaps trading has evolved from an emerging concept into an ecosystem defined by transparency, efficiency, and ongoing innovation. That continued evolution was evident this quarter, including in moments of heightened volatility where clients leaned further into electronic workflows. Global Swaps delivered record quarterly revenues, up over 45% year over year driven by strong client engagement across our global suite of currency. Our quarterly core risk market share, which drives revenues and excludes compression trading, reached a record, rising 190 basis points year over year. Total market share increased from 21% in the first quarter 2025 to 24.1% in the first quarter 2026, reflecting a combination of strong risk and compression volume growth. During the quarter, we achieved record share across sterling and other G11 currencies and our second-highest share across EM-denominated currencies. First quarter performance was driven by record revenues across the U.S., Europe, APAC, and emerging markets. This quarter underscored the value of our breadth across the swaps market, particularly as clients’ interest can ebb and flow across products over time. Specifically, as inflation concerns reemerged and rate expectations shifted this quarter, activity picked up in our inflation swaps business, driving record volumes. It is a product area we entered in 2017, where adoption was initially gradual, but where the opportunity in the market expanded materially after 2020, and we currently hold over 95% electronic market share. That trajectory makes periods like this especially meaningful as they reinforce the value of our continuous investments towards building a more holistic swaps offering across products and geographies over time. Beyond inflation swaps, the nature of trading we saw in March evidenced a broader shift in how electronic trading continues to evolve. Even as market conditions became more challenging, automation remained robust, and we saw clients not only lean into inherently electronic protocols, but use them in a more sophisticated way through sending their trades out to multiple dealers amidst an environment where we have historically seen that pull back. It is a testament to the sophistication clients have built into their workflows and to the growing value of electronic trading across market conditions. Overall, our RFM protocol saw average daily volume growth of over 150% year over year in the first quarter, with growth accelerating in March. Additionally, we continue to make progress across emerging market swaps. Our first quarter EM swaps revenues delivered another strong growth period, delivering another record, and we believe there remains significant runway given the still relatively low levels of electronification. Looking ahead, we continue to see significant long-term growth potential in swaps. On a DV01 basis, electronification has grown at an average annual rate of 160 basis points since the first quarter 2020 as dealers and clients move a greater share of their workflows electronically. That progress is reflected in the continued strong revenue performance of our swaps business, and we see substantial opportunity to further digitize workflows alongside our clients. In collaboration with them, we expect to drive continued workflow innovation across both cleared and bilateral swaps markets. With that, let me turn it over to Sara to discuss our financials in more detail. Sara Hassan Furber: Thanks, William, and good morning. As I go through the numbers, all comparisons will be to the prior-year period unless otherwise noted. Slide nine provides a summary of our quarterly earnings performance. As William recapped earlier, this quarter, we saw record revenues of $618 million that were up 21.2% year over year on a reported basis and 17.5% on a constant currency basis given the weakening dollar. We derived approximately 44% of our first quarter revenues from international clients, and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Total trading revenues increased 23%, comprised of 25% variable trading revenue growth and 14% growth across fixed trading revenue. Rates fixed revenue growth was primarily driven by an increase in minimum fee floors for certain dealers and by the addition of dealers to our mortgage and U.S. government bond platforms. Credit fixed revenue growth was primarily driven by the previously disclosed introduction of minimum fee floors and the migration of certain dealers to subscription fees. Other revenues of $10 million for the first quarter increased by 56%, primarily driven by growth in our digital initiatives related to our commercial relationship with the Canton network. Overall, the Other revenue line will remain variable quarter to quarter, reflecting fluctuations in a number of variables, including the number of Canton coins earned, Canton coin value, the number of super validators in the network, and periodic tech enhancements for our retail clients. We expect total Other revenues in 2026 to be roughly in line with 2025. First quarter adjusted EBITDA margin of 55% increased by 101 basis points on a reported basis when compared to our 2025 full-year margins. Our net interest income of approximately $17 million increased due to higher cash balances, which offset lower interest yields. Lastly, this quarter's GAAP results were impacted by both realized and unrealized gains and losses across our strategic investments. Specifically, we recorded a $1.2 million net loss this quarter, including $2.9 million of unrealized losses from the mark-to-market of our Canton coin holdings. As a reminder, these losses are only included in GAAP EPS and are excluded from our non-GAAP adjusted diluted EPS. Moving on to fees per million on slide 10. We provide a highlight of the key trends for the quarter. You can see slide 17 of the earnings presentation for the full detail regarding our fee per million performance this quarter. I will spend more time talking about cash credit fee per million given the movements are slightly more nuanced. Cash credit fee per million decreased 15% this quarter based largely on two drivers: the prior introduction of variable and fixed fee mix changes, and business mix changes. Specifically, the introduction of minimum fee floors and migration of certain dealers from fully variable to more fixed plans in 2025, and a mix shift away from municipal bonds and retail this quarter, which carry a relatively higher fee per million, as well as a mix shift towards non-comp PT, which carry a relatively lower fee per million. Excluding the impact of our previously disclosed fee changes, and this quarter's impact of product/protocol mix shifts, fee per million would be down approximately 1%. Slide 11 details our adjusted expenses. At a high level, the scalability and variable nature of our expense base allows us to continue to invest for growth and grow margins. We have maintained a consistent philosophy here. Adjusted expenses for the first quarter increased 20.2% on a reported basis and 15.3% on a constant currency basis. During the first quarter, we continued investments in tech and communications, digital assets, consulting, and client relationship development. Adjusted compensation costs grew 12%, with nearly 30% of the increase from higher discretionary and performance-related comp, more than 25% due to higher headcount, which was up 11.4% year over year, and 25% due to higher payroll taxes. Technology and communication costs increased 37.7%, primarily due to our continued investments in data strategy and infrastructure, and increased software costs. Approximately $5 million of the increase was driven by higher reference data costs and investments in our data and infrastructure strategy, both of which began in 2025. Adjusted professional fees grew 18.8% due to an increase in tech consultants as we continue to augment our offshore technology operations. Occupancy expenses increased 61.5%, primarily from increased rent due to the move to our new New York City headquarters which came into effect in 2025. Adjusted general and administrative costs increased 85.2%, primarily due to $8.1 million of unfavorable movements in FX, and a pickup in travel and entertainment. Unfavorable movements in FX resulted in a $5.1 million loss in 2026 versus approximately a $2.9 million gain in 2025. Excluding FX, adjusted general and administrative costs grew 11.4%. Slide 12 details capital management and our guidance. On our cash position and capital return policy, we ended the first quarter in a strong position with approximately $1.9 billion in cash and cash equivalents, and free cash flow exceeding $1 billion for the trailing twelve months, representing strong year-over-year growth of approximately 31%. We also held $1.6 billion of Canton coins, with a fair value of approximately $243 million. With this quarter's earnings, the Board declared a quarterly dividend of $0.14 per Class A and Class B shares, up 17% year over year. During the quarter, we repurchased approximately 483 thousand shares for $51 million. There is $523 million of aggregate share repurchase authorization remaining. Turning to guidance for 2026. In light of continued strong business momentum, we now expect adjusted expenses to trend towards the top half of the initial guidance range of $1.1 billion to $1.16 billion. We believe we can drive adjusted EBITDA and operating margin expansion compared to 2025 at either end of this range, although we expect the incremental margin expansion to be more muted as we continue to focus on balancing margin expansion with investing for the future. Specifically, we continue to invest in Credit, Rates, international markets, ICD, and digital assets as key focus areas with a long runway for growth. We also continue to invest in technology that allows us to sustain and build on our leading platform. Some of these investments will take time to scale, but we continue to prize innovation and create durable long-term revenue growth opportunities. Now I will turn it back to William for concluding remarks. William E. Hult: Thanks, Sara. Before I get into the broader outlook, I want to spend a minute on some of our frontier markets. We have made solid progress there in a relatively short period of time through targeted partnerships and investment. From our work with the Canton network to our new partnerships with Kalshi in prediction markets to Crossover Markets in crypto execution, these partnerships build directly on what we have already established: a broad network, execution infrastructure, and a central role in trading activity. With tokenization, we are focused on the evolution of settlement, particularly around capital efficiency and collateral mobility. We have already executed trades in this space alongside a variety of market participants utilizing Canton's distributed ledger infrastructure. We are working alongside both existing and new clients who are driving demand for instant settlement. In institutional crypto, the opportunity is to bring more standardized electronic execution to a market where demand is growing, but broadly adopted infrastructure remains nascent. Alongside our investment in partnership with Crossover Markets, we are building a more comprehensive execution offering, including over time, leveraging RateFins technology to incorporate spreading functionality. In prediction markets, through our partnership with Kalshi, we are working to integrate event-driven data into our Rates and Credit platforms while working with market participants to support the longer-term development of an institutional-grade execution environment. Across all three, the focus is on extending our network and execution capabilities while closely partnering with our clients and the broader ecosystem as these markets evolve. The environment to start the year has been defined by a lot of debate. If anything, that uncertainty has only increased as we move forward. We did see clients take a bit of a breather in April as they stepped back and recalibrated their forward strategies. Importantly, what came through clearly was the durability of our business. Intraday volatility in April to date was down more than 50% year over year. So this was not an easy backdrop. Even after a record first quarter, April 2025 still ranks as the third-best revenue month in our history after clients rapidly repositioned their portfolios post the announcement of tariffs. Looking ahead to April 2026, despite a tougher comparison and a different volatility environment, we are trending toward another top-five revenue month based on internal estimates. That underscores what we have been talking about for some time now: the breadth of the model and the strength of the recurring activity we are able to build irrespective of the volatility environment. As we focus on delivering more durable, workflow solutions for our clients, we are seeing that translate into sustained engagement. In fact, April average daily volume is currently running ahead of April 2025, which tells you that while the mix of activity may shift, the level of client connectivity on our platform remains very healthy. With two important month-end trading days left in April, which tend to be some of our strongest revenue days, overall, average daily revenues are trending down by a low single-digit percentage relative to April 2025. The diversity of our growth remains a theme, as we are seeing preliminary positive average daily volume growth across global swaps, mortgages, European government bonds, European credit, EM credit, CDS, equity derivatives, repos, and ICD. Our IG share is tracking in line with March levels while our High Yield share is tracking above. I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter. I want to thank my colleagues for their efforts that contributed to the record quarterly revenues and volumes at Tradeweb Markets Inc. With that, I will turn it back to Ashley for your questions. Ashley Neil Serrao: Thanks, William. As a reminder, please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10:30 AM Eastern Time. Operator, you can now take our first question. Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Craig William Siegenthaler of Bank of America. Your line is now open. Craig William Siegenthaler: Good morning, William and Sara. Hope you are doing well. Our question is on swaps, and congrats on that 45% year-over-year growth. We wanted your perspective on the good versus bad volatility debate in the swaps market, given recent strength, and especially curious on what you saw in Europe. William E. Hult: Craig, how are you? It is a good question. Before parsing “good” versus “bad” volatility, a quick moment on the environment. I was very amped about the macro setup last quarter, and a couple of months later the world changes quickly. We remain very amped at Tradeweb Markets Inc. We are in a sweet spot for our business. The combination of fiscal stimulus, monetary debate on Fed timing, a technology investment supercycle, deregulatory unwind, and strong partner bank performance in global markets, plus standout trading from nonbank liquidity providers, creates a prime environment. On “good” versus “bad” volatility: good volatility features strong two-way markets and active price discovery where our AIX algorithmic search runs really well. “Bad” would be dislocations and thinner liquidity in less-liquid areas like some off-the-run Treasuries. In March, volatility across sterling and European markets was about 2x the U.S. rates market. Given the rapid repricing from cuts to potential hikes, markets moved in an orderly way with healthy price discovery, not stress. Both buy side and dealers are much better positioned to navigate these environments electronically today. We saw increased usage of electronic protocols, particularly RFM and “in-comp” trading. Our request-for-market in Europe reached roughly 45% of flow; in-comp moved north of 80%. As trading becomes more automated and protocol driven, liquidity is more resilient even as volatility rises. The line between “good” and “bad” volatility becomes less relevant because the market structure is designed to perform across a wide range of conditions. On thriving: if you take April revenues versus May and June of last year, we are up over 10%. Macro volatility is a tailwind, and the electronic runway remains significant in our space. Thanks for the question. Operator: Thank you. Our next question comes from the line of Michael Cyprys of Morgan Stanley. Your line is now open. Michael Cyprys: Hey, good morning, William and Sara. How are you thinking about AI’s role in increasing automation across workflows, particularly in Credit and Rates, and what KPIs should we track? William E. Hult: Great and timely question, Michael. Core principle: Tradeweb Markets Inc. is in the business of serving our clients. Everything we do around AI starts there, with the goal of being the most client-centric firm in electronic markets. AI is a massive accelerant, making smart people smarter and more productive. We believe data is the moat. Our proprietary data—from live markets, executable pricing, RFQ behavior, execution outcomes, and client decision-making across assets—gives our AI foundation a real advantage. On generative AI, our goal is to move clients from data retrieval to insight generation in markets that never slow down. We built an AI-powered assistant, “TARA” (Tradeweb AI Research Assistant), in beta with clients and on track to launch in the second quarter. It will surface insights around liquidity conditions, market participation, historical execution behavior, and relative pricing dynamics in a single conversation. On predictive AI, we are tackling price discovery—one of fixed income’s hardest problems. We are launching AI Price 2.0 at the end of the second quarter. Corporate bonds can go hours or days without a print, and true economics can be obscured by complexity; we are investing heavily here. For KPIs, think: adoption/usage of TARA, accuracy and coverage of AI price estimates, impact on hit/response rates, time-to-fill, client satisfaction, and workflow penetration in automated protocols. This is not just about doing more with fewer people; it is about reimagining processes so we can invest more in future growth. Data advantage reinforces network effects and opens up new revenue opportunities—smarter, faster ways for clients to trade and execute. Thanks for the question. Operator: Thank you. Our next question comes from the line of Simon Alistair Clinch of Rothschild & Co, Redburn. Your line is now open. Simon Alistair Clinch: Hi, thanks for taking my question. This one is for Sara. Could you expand on your philosophy for expense growth—your flexibility and willingness to adjust investments up or down in environments of volume upside or downside? How should we think about that flex? Sara Hassan Furber: Hi, Simon. Great question. Regardless of high or low volume environments, we have significant operating leverage and expense flexibility. Roughly 55% of our expenses are fixed and 45% are variable or discretionary. Within the variable bucket, most are tied more directly to revenue or EBITDA (performance-driven comp, commissions) versus pure volume. Smaller components that correlate to volume—like exchange and clearing fees—are low single digits, about 3% of total expenses. That leaves us flexibility to manage expenses and deliver operating leverage. In higher-revenue environments, we typically accelerate discretionary spend while still delivering margin expansion. Last year, top line grew 19%, expenses grew 17%, and we still delivered 64 basis points of margin improvement. In 1H 2023, with single-digit top-line growth, we still expanded margins by just under 50 basis points while investing. This quarter, we delivered almost 100 basis points of margin improvement on a constant currency basis despite step-ups from FX, office, and data infrastructure. As revenue scales, we see natural operating leverage, allowing us to calibrate expenses while investing in areas like AI and EM. Our North Star is to invest through the cycle to deliver durable long-term revenue growth. Operator: Thank you. Our next question comes from the line of Jeff Schmidt of William Blair. Your line is now open. Jeff Schmidt: Good morning. You have talked about EM and EM swaps as key revenue growth opportunities. It is still a small part of the mix, but what are you doing on that front and what type of growth are you seeing? William E. Hult: It is a good question. EM was about 6% of revenues in the first quarter of 2026, up from a little over 1% in 2022, and we are still scratching the surface. The overall EM revenue wallet exceeds a little over $1.5 billion annually, so it is a significant opportunity. We view this as a multiyear growth opportunity. In EM swaps, cleared EM swap markets have grown at over a 20% CAGR over the last five years, yet are still only about 20% electronified and a fraction of the dollar, euro, and sterling markets. We are seeing early success in EM hard and local currency credit—still a bigger lift, but momentum is building. Index inclusion in markets like Saudi Arabia, evolving clearing frameworks, and increasing participation from global and regional investors are important. Recent launches like Mexican repos and asset swaps are good examples of deploying capital to establish liquidity and then scaling participation across dealers and clients. We feel good about the trajectory, the wallet, and the long-term health of our EM franchise. Thanks for the question. Operator: Thank you. Our next question comes from the line of Patrick Malcolm Moley of Piper Sandler. Your line is now open. Patrick Malcolm Moley: Good morning. The DTCC’s tokenized Treasury pilot is going to go live on Canton in the next couple months. It is a network you have been running infrastructure on for some time. How are you thinking about the potential impact of real-time intraday collateral mobility on fixed income volumes and Rates in particular? Any broader opportunity and risks as it relates to tokenization, and anything you can share on client conversations and demand for tokenized trading? William E. Hult: Good to hear your voice, Patrick. We are strong supporters of Canton and think they are onto something important. Tokenization is an upgrade to market infrastructure: faster settlement, more transparency, and potential for real-time, 24/7 collateral movement. The DTCC pilot is meaningful because it brings U.S. Treasuries on-chain within a trusted market structure, which can drive broader industry momentum. We have been active via tokenized repo activity on Canton, with a growing and more diverse participant set. We bring credibility to help the industry get comfortable with change. We do not see this disintermediating us. The execution layer—where liquidity is formed and price is discovered—remains the most valuable part of the market; that is our domain. As assets become tokenized, they will continue to trade through electronic workflows, which is our bread and butter. The mortgage market, given its importance, has a settlement process that could really change; we will stay focused there. More streamlined settlement can bring more participants into markets. Thanks for the question. Operator: Thank you. Our next question comes from the line of Benjamin Elliot Budish of Barclays. Your line is now open. Benjamin Elliot Budish: Good morning, and thank you for taking the question. On ICD: it has been almost two years since you completed that acquisition. Could you give us an update on cross-selling, balances, and the product roadmap after the addition of T-Bills? Sara Hassan Furber: Good morning. We are pleased with ICD’s performance; it has complemented our business culturally, strategically, and financially. This quarter, ICD delivered record revenues and balances with around 8% year-over-year growth. In April, revenue and average daily growth rates are trending higher than in the first quarter. Large corporate issuances and spending have generally benefited ICD as those issuances translate to balances. Corporate health, momentum in new client wins, and high retention remain strong. On our original thesis, we focused on two cross-sell areas: (1) selling our products to ICD clients on their portal, and (2) taking ICD to our client base internationally. The international opportunity—especially Asia—is compelling. We completed Singapore regulatory approvals and added salespeople there. As we expand in Asia and EM, ICD is a high-quality product to sell into those relationships. On T-Bills, we completed that last year. Cross-selling other Tradeweb Markets Inc. products: core functionality is complete; we are working through adjacent integrations with treasury management platforms to drive easier adoption. Progress is steady, if slower than hoped. Near term, international expansion is more in focus. Strategically, ICD adds durability to our portfolio. In risk-off environments, clients keep more cash; in periods of heavy corporate issuance—historically a near-term headwind for U.S. Credit trading—we see larger cash balances on ICD. That hedge-like quality supports a more durable growth portfolio. Overall, we feel good about ICD and the growth ahead. Operator: Thank you. Our next question comes from the line of Alexander Blostein of Goldman Sachs. Your line is now open. Alexander Blostein: Good morning. On Kalshi and the innovation you are pursuing there: could you provide more specificity on revenue opportunities over time in prediction markets, and how you will deal with regulatory uncertainty? William E. Hult: Good question, Alex. It is still early, though there is momentum. Not all prediction markets are created equally. We are oriented toward financially focused prediction markets; pop-culture contracts are not our interest. Interest is broad and impressive across hedge funds, systematic shops, nonbank liquidity providers, and increasingly some long-only investors. Fed research has helped timing, but demand was already building. The definition of macro markets is evolving; clients are looking at prediction markets, crypto markets, and other nontraditional sources to support macro strategies. We started simple: launching a free viewer in the second quarter so clients can see select economic and financial event contracts in real time alongside swaps and Treasuries—low friction and focused on discovery and learning. Next is a normalized API feed so clients can pull this data directly into OMS/EMS and analytics workflows. We expect banks pricing risk on our platform to use this data in forward curves. We will stay thoughtful and disciplined given regulatory headlines and see how things play out. We believe these partnerships can lead to strong innovation, and we will place the right bets around these evolutions. Thanks, Alex. Operator: Thank you. Our next question comes from the line of Christopher John Allen of KBW. Your line is now open. Christopher John Allen: Good morning. On your February announcement of the partnership with Maxx within U.S. residential mortgages, are you seeing any early returns? And more broadly, how does MBS trading look into the back half of this year and 2027? William E. Hult: Same theme you are hearing from us: we are placing disciplined bets on further evolution with a clear vision. Maxx is important, and it is still early. We entered into a commercial collaboration to expand institutional access across the U.S. residential private credit marketplace. Maxx is a leading digital exchange for whole loans, connecting a broad network of originators with institutional buyers via a centralized clearinghouse—unique in a highly fragmented market. That is the kind of partner we like. The mortgage market is an extremely important part of the Rates complex, and we have a leadership position we are proud of. We will take that leadership into further innovation. Activity levels are healthy, and we remain bullish on continued evolution and trading velocity in mortgages—one of our original markets. We are focused on Maxx and broadly constructive on MBS activity into the back half and beyond. Thanks for the question. Operator: Thank you. This concludes the question and answer session. I would now like to turn it back to William E. Hult for closing remarks. William E. Hult: Thank you all very much for joining us this morning. We appreciate the questions as always. Any follow-ups, please feel free to reach out to Ashley, Sameer, and the team. Thank you all. Have a great day. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Thank you for standing by, and welcome to Waste Management, Inc.'s First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Edward A. Egl, Vice President, Investor Relations. Please go ahead, sir. Edward A. Egl: Thank you, Jonathan. Good morning, everyone, and thank you for joining us for our first quarter 2026 earnings conference call. With me this morning are James C. Fish, Chief Executive Officer; John J. Morris, President and Chief Operating Officer; and David Reed, Executive Vice President and Chief Financial Officer. You will hear prepared comments from each of them today. I will cover high-level financials and provide a strategic update. John will cover an operating overview, and David will cover the details of the financials. Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, the press release, and the schedules for the press release include important information. During the call, you will hear forward-looking statements, which are based on current expectations, projections, or opinions about future periods. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent Form 10-K and Form 10-Qs. James and John will discuss our results in the areas of yield and volume, which, unless stated otherwise, more specifically reference internal revenue growth, or IRG, from yield or volume. During the call, James, John, and David will discuss operating EBITDA, which is income from operations before depreciation, depletion, amortization, and accretion. Beginning this year, landfill accretion expense was moved from operating expense to depreciation, depletion, amortization, and accretion to enhance comparability and better reflect operating performance. For comparability purposes, 2025 actuals have been updated to reflect the change. Any comparisons, unless otherwise stated, will be with the prior-year period. Net income, EPS, income from operations and margin, operating EBITDA and margin, operating expense and margin, and SG&A expense and margin have been adjusted to enhance comparability by excluding certain items management believes do not reflect our fundamental business performance or results of operations. These adjusted measures, in addition to free cash flow, are non-GAAP measures. Please refer to our earnings press release and tables, which can be found at the company's website at www.wm.com, for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures. This call is being recorded and will be available 24 hours a day beginning approximately 1 p.m. Eastern time today. To hear a replay of the call, access the Waste Management, Inc. website at investors.wm.com. Time-sensitive information provided during today's call, which is occurring on 04/29/2026, may no longer be accurate at the time of a replay. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed written consent of Waste Management, Inc. is prohibited. I will now turn the call over to Waste Management, Inc. CEO, James C. Fish. James C. Fish: Thanks, Ed, and thank you all for joining us. The Waste Management, Inc. team again delivered strong quarterly results with earnings and cash flow results that achieved our expectations. What continues to set us apart is our ability to consistently achieve strong performance regardless of external factors. Q1 operating EBITDA grew by nearly 6% compared to 2025, driven by solid performance in our collection and disposal business, and further supported by growth in our sustainability businesses and ongoing optimization of health care solutions. This momentum to start the year, combined with our proven operational execution and resilient business model, reinforces our confidence in achieving our full-year financial guidance. In the first quarter, our results clearly advanced each of our four strategic priorities for 2026. First, we grew our collection and disposal business, achieving 6.4% operating EBITDA growth supported by our focus on customer lifetime value, operational excellence, and network advantages. Our strategically positioned post-collection network is driving profitable MSW volume growth while our technology leadership leads to differentiated services and lower costs. Our people-first culture and disciplined approach to retention are driving meaningful improvements in safety, service reliability, and operational efficiency. As we look ahead, we continue to see opportunities for tuck-in acquisitions that complement our existing portfolio that we expect to close in 2026. Second, our sustainability investments continue to generate meaningful returns, underscoring the value of the capital we have deployed over time. In renewable energy, operating EBITDA more than doubled in the quarter, driven by the completion of seven new renewable natural gas facilities since 2025. In the recycling segment, even though pricing for single-stream commodities declined 27%, operating EBITDA grew by 18% as we realized automation benefits that lower labor costs and deliver higher-quality material, and processed 9% more volume. In 2026, we are on track to substantially complete the sustainability capital expenditure program we laid out in 2023. Third, in health care solutions, we continue to advance the business towards scalable, accretive growth. While revenue was impacted by volume losses from last year, effective cost management and synergy capture drove operating EBITDA growth of nearly 12% in the quarter. Importantly, we expect an inflection in revenue growth in 2026 as the ERP is stabilized and the benefits of our integrated offering become more evident. And finally, turning to capital allocation. Our strong operating performance translated into significant free cash flow generation with Q1 free cash flow of $920 million, nearly doubling from the prior year. This enabled us to return about $730 million to shareholders through dividends and share repurchases. As we close out the first quarter, our performance reinforces both the strength of our strategy and its alignment with the long-term trends shaping our business: delivering consistent results in our core operations, realizing returns from years of disciplined investment in sustainability, advancing health care solutions towards scalable growth, and pairing that execution with a thoughtful, shareholder-focused approach to capital allocation. As we progress through 2026, we are well-positioned to continue to produce strong results and harvest the benefits of our investments. I want to thank our employees for their continued dedication and hard work. I will turn the call over to John to discuss our operational results. John J. Morris: Thanks, James, and good morning. The first quarter once again demonstrated the strength and resilience of our operating model and the progress we continue to make in optimizing our business. Despite a softer volume environment, driven largely by winter weather impacts and the absence of last year's wildfire-related volumes, we delivered strong financial performance by remaining focused on disciplined price execution, technology-enabled efficiency, and cost control. This is clearly visible in our collection and disposal business where we delivered operating EBITDA growth of more than 6% year-over-year with margin expanding approximately 110 basis points. From a cost perspective, our focus on operational excellence continues to drive meaningful results. Operating expenses as a percentage of revenue improved 70 basis points and came in below 60% for the fifth consecutive quarter, underscoring the durability of the structural changes we are making across the business. Automation and technology continue to help us flex costs as volumes fluctuate. As an example, whole dollars repair and maintenance costs were actually lower year-over-year and improved by approximately 30 basis points as a percentage of revenue. This improvement reflects innovative solutions and disciplined fleet actions, including the use of augmented reality tools to improve technician efficiency, and continued benefits from rightsizing the fleet. Together, these initiatives are improving asset utilization and delivering sustainable cost savings. Equally important, our people-first approach continues to show up in our results. Total driver and technician turnover, both voluntary and involuntary, remained low at 17.2%, improving 130 basis points year-over-year. The strong retention supports safer operations, higher service reliability, and greater efficiency across the business. Notably, our first quarter safety performance was our best-ever Q1 performance for safety-related incidents, which is particularly impressive given the challenging winter weather conditions. Together, these results reflect the engagement, consistency, and dedication our teams bring to executing our strategy every day. Turning to the top line. Pricing execution remains strong. Each of collection and disposal's core price of 6.3% and yield of 3.9% exceeded our expectations, with pricing dollars up year-over-year. Core price growth in our commercial and landfill lines of business each exceeded 7.5%, reflecting the value of our service offerings, consistent execution in the field, and focus on price-to-cost spread. Shifting to volumes, we began the year softer than expected, with about half of the shortfall in collection and disposal volumes driven by severe winter weather. We did see several areas of underlying strength and stability. MSW volumes were up 2.7%, and special waste volumes were up 6.7% when excluding wildfire volumes from the prior year. Industrial collection volumes returned to modest growth in the quarter, supported by continued internalization of solid waste from health care solutions customers. While volumes were a headwind early in the year, we expect improvement from seasonality as well as the lapping of a couple of larger, low-margin contract losses in the balance of the year. In Q1, our energy surcharge program recovered the increase in both direct and indirect fuel costs we saw in the first quarter. Higher revenue from fuel recovery created a 20 basis point drag on operating EBITDA margin. Putting together these pieces on pricing, volume, and energy surcharges, we expect to achieve our full-year revenue guidance in 2026. Turning to health care solutions. We continue to see the benefits of integration into our core operating structure. Operating EBITDA margin improved by 200 basis points in the quarter, while SG&A costs decreased roughly 20% year-over-year, reflecting discipline, operational alignment, and the benefits of Waste Management, Inc.'s integrated business model. We remain on track to achieve a run rate of $300 million of total synergies by 2027 with results reflected across all of our business segments. In closing, I want to thank our teams for their continued focus, discipline, and commitment to serving our customers. The strong start to the year reinforces our confidence in our strategy, operating model, and ability to perform consistently in a dynamic operating environment. With that, I will turn the call over to David to walk through our financial results in more detail. David Reed: Thanks, John, and good morning. We are pleased with our strong start to 2026, particularly when looking at the drivers of our first quarter operating EBITDA margin expansion, which reflects solid contributions from across the business. The collection and disposal business expanded margin by 110 basis points driven by strong pricing and our success using technology and automation to reduce costs. This growth includes the 20 basis point headwind John mentioned from the impact of higher fuel prices. Our recycling and renewable energy businesses together contributed approximately 50 basis points of margin expansion, reflecting accretive growth from investments in renewable natural gas facilities and recycling automation and new market projects. Health care solutions contributed another 20 basis points of margin expansion due to effective cost management and synergy capture. These contributions were partially offset by 40 basis points of increased spending on technology initiatives and 70 basis points related to higher cost and timing-related impacts from incentive compensation and employee benefit costs. The strong execution translated into robust cash generation. Operating cash flow was $1.5 billion in the quarter, an increase of nearly $300 million compared to 2025. The increase was driven by working capital improvements and our strong earnings growth. Capital expenditures totaled $650 million in the quarter, including $61 million directed to sustainability growth investments. Capital spending was approximately 22% lower year-over-year, as expected, reflecting normalized spend on collection vehicles and lower sustainability capital as several projects reached completion during 2025. Combining all of this, first quarter free cash flow nearly doubled to $920 million, putting us on track to achieve our full-year guidance. As James mentioned, we allocated the majority of our free cash flow to shareholder returns in the first quarter. We returned $385 million to shareholders in dividends, and we resumed share buybacks, repurchasing $344 million of our shares. Our leverage ratio at the end of the quarter was 2.94 times, returning to within our target range of between 2.5 and 3 times. Our effective tax rate was approximately 18% in the first quarter, lower than planned, driven largely by the benefit of production tax credits related to our renewable natural gas business. During the quarter, the IRS clarified the qualification for these credits. We now expect to realize benefits during the next several years, another value add from our strategic decision to grow our renewable natural gas portfolio. That benefit is approximately $27 million for the 2025 tax year and $30 million to $35 million annually from this year through 2029. As a result of receiving 2025 and 2026 production tax credits, we now expect a full-year effective tax rate of approximately 23% in 2026. In closing, I want to thank the entire Waste Management, Inc. team for their continued focus and execution. Their dedication has driven a strong start to the year and positions us well to deliver on our full-year financial guidance. Through our disciplined approach to operations, capital allocation, and investment, we remain confident in our ability to create long-term value for shareholders. With that, Jonathan, let us open the line for questions. Operator: Certainly. Our first question comes from the line of Jerry Revich from Wells Fargo. Your question, please. Jerry Revich: Thanks. I just want to unpack the really strong margin performance despite the lower volumes. In the quarter, really nice price-cost. As we think about the volume cadence over the balance of the year, can we double click on what gives you confidence that volume trends will be better in the back half of the year? Can you quantify the weather impact? If you want to talk about it month by month or just give us more visibility on that point, that would be helpful. David Reed: Just in terms of the margin trajectory for the back half of the year, you should note that Q2 will be a tough comp for us with the wildfire volumes, but we do expect EBITDA margin to lift nicely from there in the second half and follow a pattern similar to what we saw in 2025. We had a strong start to our pricing plan for the year, and that also gives us confidence with the margin trajectory. James C. Fish: And then, Jerry, as far as volume goes for the remainder of the year, first quarter was impacted by weather. We do not normally talk about weather because it happens every year, but this year in particular along the East Coast, three feet of snow in Boston—I do not think they have had that in 15 years. It did impact us. We had a number of facilities that were shut down. Some of our facilities were shut down for as many as 10 days, including our Stericycle facilities. So it did have a significant impact on volume. As we look at volume going forward, there are a couple of things that give us reason to be optimistic. Specifically, special waste, which we knew was going to be a difficult comp because of Southern California fire volume last year. Including the fire volume, it was down about 1.5%. But excluding it, as John mentioned, it was up 6.7%. The reason that is meaningful is because it gives us an indication of what special waste will look like when we anniversary this fire volume, which is for the most part at the end of Q2. We did get some fire volume in Q3 in the month of July, and then it almost all went away after July. So we will get to a clean year-over-year for special waste by August, and this gives us an indication that special waste volume should be strong for us—6.7% is a pretty decent number. John also mentioned MSW volume. Looking at the numbers for last week, MSW volume was over 4% positive for us, which is a positive. And industrial volumes have finally shown a reversal of a six- or seven-quarter trend. We had been negative on roll-off volumes for at least a year and a half, and we finally got to a point where we are slightly positive—about 0.2% positive versus last year's approximately 1.5% negative. We are fairly encouraged with volume numbers. Will we hit our guidance for the year? We will reassess at the end of Q2, but we are encouraged with what we are seeing on the volume side. Jerry Revich: Okay. I appreciate the color. And just to unpack the comments about the tough margin comp in 2Q, I think normally you are up somewhere around 150 to 200 basis points margins in 2Q versus 1Q. Given the weather that we just stepped through, it does look like you should be in a position for good year-over-year margin expansion in 2Q even with the tough comps from the wildfire standpoint, given the run rate in 1Q. I just want to make sure we are on the same page and not miss any moving pieces in the 1Q results as we think about the normal seasonality for 2Q. John J. Morris: Jerry, I would say the outsized impact of the wildfires in Q2 is really worth noting again. I think the revenue number was about $85 million and probably strong flow-through on that EBITDA. If you take that out, what I would point you to is, if you look back in the tables, you can see whether it is collection, disposal, recycling, renewable energy, or health care, you can see the margin improvement in Q1. Net of the fire headwinds, we are going to see good margin from Q1 to Q2, but it will be somewhat muted by that volume not repeating in the landfill line of business. Analyst: Thank you. James C. Fish: Sure. Analyst: Good morning. Can you hear me? David Reed: Yes. Good morning. Thanks for taking the question. Analyst: Overall, really strong margin expansion in the quarter. The only item that jumped out in a negative way was the magnitude of the increase in corporate expense. You had been flagging that would be up because of some technology-related investments. Is the level of increase in 1Q appropriate for 2Q, or should we think about that moderating throughout the year? David Reed: Thanks for the question. We did expect Q1 to be a tougher comp in this segment. I will break it down into two pieces. There was a health and welfare cost aspect to an unusually favorable Q1 last year—it had some one-time benefits—so that made the year-over-year comp a bit difficult. We also had higher annual incentive compensation and annual wage increases, along with the increased technology costs that you mentioned. Those costs support strategic initiatives that benefit other segments, and if you look at the overall performance of those other segments, I think you are seeing some of the returns on those investments. In terms of cadence for the rest of the year, Q1 is indicative—it is a normalized rate for the remainder of the year. It is pretty flat throughout the rest of the year at the Q1 level. Analyst: Understood. Thank you. And then, John, you mentioned surcharges for rising fuel costs. Do you anticipate any drag on EBITDA in 2Q given potential timing differences between rising costs and surcharge implementation, or is this happening in real time? John J. Morris: It is almost real time. There is a little bit of drag—we said 20 basis points on the margin side. Based on the way our billing cycles work, there is about a month lag, but from an EBITDA standpoint it is not going to be anything material. Operator: Thank you. Our next question comes from the line of James Joseph Schumm from TD Cowen. Your question, please. James Joseph Schumm: Hey, good morning. Looking at the solid waste volumes up quite a bit and transfer station volumes down, what is driving that? Does that have something to do with Waste Management, Inc. Health Care? James C. Fish: No, James. The transfer volume is probably as much about the Northeast and the weather. In the New York metro area, there was significant impact due to the weather. That is really what is driving the transfer volume, not the health care business. James Joseph Schumm: Okay, I see. On the health care business, can you give us a sense of customer credits? You said they peaked in Q4. What did that look like in Q1 and what does it look like in Q2? How is that trending? David Reed: Customer credits peaked in Q4, as we said, and then fell off a little bit in Q1 and Q2, and then they will really reverse when we get to Q3 and Q4. So the year-over-year comp becomes quite a bit easier in Q3 and Q4. James C. Fish: Overall, as I look at the health care business, it is really turning out to be exactly what we hoped it would be. EBITDA improved by almost 12%. We are better than our own business plan by about 3%. Pricing is right on track with where we thought it would be. We said last quarter that the year on the top line was largely going to be about price, not volume. Volume would be negative, mostly a function of losing a couple of hospitals. We projected to lose three hospitals; we actually only ended up losing one. That was a positive. I think the reason we only lost one is because our customers are now getting a very payable invoice. All the work that continues to happen—we are still working on ERP—is behind the scenes, so it is invisible to the customers, and that is a real positive. The ERP is progressing, but we wanted to make sure it was not visible to the customer. We will continue to do the technology work, the systems work, and the process work, which is ongoing. A lot of that will be done by the end of the year; some will carry over into next year. My biggest concern was the customer, and now the customer is getting a good bill. That is why we only ended up losing one of the three hospitals. As I think about cross-selling or synergies, cross-selling has been a positive. We had two big cross-selling closes for the quarter that benefited both health care solutions and solid waste. Pricing is on track and continues to improve as we get into the rest of the year. Synergies are at or even potentially ahead of plan. We are moving fleet maintenance in-house; that should be a positive on the cost line. Overall, we are very pleased. The credit memos in large part in Q4 were really cleaning up the mess from prior periods. We will always have credit memos, including in our solid waste business, but if you look at things like DSO—down 14 days—that is a major change. Past-due receivables are down by two-thirds over less than a year. All of those are positive signs, and we think that the health care solutions business is shaping up to be exactly what we hoped when we bought it. James Joseph Schumm: Since you brought it up, on the synergies on the path to $300 million, roughly where are you now? David Reed: The total number we said would be $300 million; I think $50 million of that was cross-selling benefits. We are on track for that number, and you could argue we may be ahead of that a little bit. We are targeting $300 million still, but it could end up ahead of that and maybe as high as $325 million. Operator: Our next question comes from the line of Faiza Alwy from Deutsche Bank. Your question, please. Faiza Alwy: Hi, thank you so much. What are you seeing from a recycling commodity pricing perspective? Given higher oil prices, are you expecting an improvement in those prices, and can you help frame that in terms of upside? I know you are typically hedged, so potential upside to revenue and EBITDA? Tara J. Hemmer: We were pleased with where we exited the quarter. March was at about $69 a ton, and as you recall, we guided to $70 a ton, so we feel positive about where that is heading. Two points: about 80% of our commodities stay domestic between the U.S. and Canada. We do have some exposure to what is happening globally, which really is about freight disruptions given what is going on in the Middle East. We have no qualms about demand for our products; it is really about us tracking what those freight costs might look like, and that will be a function of how long this goes on in the Middle East. That being said, we feel really positive about the $70 per ton that we guided to. We will give more of an update in Q2 on where we think it could head up or down. Faiza Alwy: Thank you. And on the health care cross-selling opportunities, could you frame how much of the improvement you are seeing on the industrial volume side is related to cross-selling benefits, and how much better are you doing relative to the underlying market? James C. Fish: That is a good question. We will have to get back to you on how much of that cross-selling actually impacts the industrial line of business. I can tell you the annualized EBITDA benefit was about $27 million from cross-selling, but I do not know offhand how much of it was in the industrial line of business. Operator: Thank you. Our next question comes from the line of Trevor Romeo from William Blair. Your question, please. Trevor Romeo: Good morning, and thank you. On collection and disposal pricing, I think you said both core price and yield were coming in a little ahead of what you had expected. Where are you seeing pricing stick a little better than you thought, and what are the drivers? And then if CPI starts to trend higher, and given some contracts take time to reset, how does that impact your ability to price in a higher inflationary environment? Could we see those pricing and spread metrics move up into 2027? James C. Fish: I will take the second part first on CPI. We tend to say there is about a one- to two-quarter lag on the adjustments for CPI. About 40% to 45% of our total revenue is based on an index. Those indexes tend to reset on a quarterly basis, and it often takes two quarters for that reset to take place. Any movement in CPI we would have seen in Q1 probably will not have much of an impact until the back half of the year. On price overall, two lines of business were ahead of expectations—residential (Resi) and MSW. Resi yield was up 110 basis points versus 2025, and yield was 6.3%. That is really strong for residential. We have been talking about residential for quite a while as we have pared down some unprofitable business, and that is part of that exercise. MSW might have been the single most impressive performer for the entire quarter, both on volume and price. MSW yield was 6.9%. What you are seeing with MSW yield—and this takes place slowly over years—we talked about it at last June’s Investor Day—as landfill capacity slowly comes offline for the industry or moves to more center-U.S. locations away from big cities, we end up in a better position because our lives—our landfill lives—are longer than the rest of the industry. It gives us the ability to raise price to preserve airspace, and that is what you are seeing with MSW yield up 6.9%. It is a bit of cost recovery, but also airspace preservation. Those were both upside surprises. The rest were pretty much on track. Trevor Romeo: Thanks. I would also love your perspective on AI and new technologies. Waste Management, Inc. has been leaning into automation for a long time, but in terms of AI, are there new tools you are looking at that could accelerate your efficiency going forward? John J. Morris: Good question. We have embedded technology into the business across recycling, routing, and logistics with the roughly 19 thousand trucks we have on the street, and in the health care business. A lot of the technology benefits we see in our traditional collection and disposal business have yet to show up in the health care business, so we see upside there. We still feel like we are in the early innings in terms of embedding technology to drive efficiency and improve the roles, making them less labor dependent. Our turnover at 17-plus percent is the lowest it has ever been; part of that is we are changing the scope of roles. On safety, our best Q1 safety numbers ever are helped by using AI for coaching with our 20 thousand-plus drivers. As much benefit as we have seen show up in OpEx and margins, we still see a lot of runway to continue to accelerate those investments. Operator: Thank you. Our next question comes from the line of Noah Duke Kaye from Oppenheimer. Your question, please. Noah Duke Kaye: Following on the safety discussion, risk management is at about 1.5% of sales, which is very good. That is a lagging indicator of safety performance. How sustainable are these gains on safety? Could we get further benefit, and how should we think about that translating to risk management going forward? John J. Morris: This is not something that happens over a quarter or two. We have had slow and steady improvement in our safety results, and you are starting to see it show up in the risk numbers over time. Our recordable injury rate for the quarter was about 2.7, under 3, which is a big milestone. We still see plenty of opportunity, and it will translate positively to risk going forward. Noah Duke Kaye: Thanks. Question on renewable energy segment contributions—how did the mix of lower RIN and higher energy commodities impact results in the quarter? Tara J. Hemmer: We almost doubled our renewable energy production from our renewable natural gas plants, which was excellent and what we anticipated coming out of 2025 with plants that came online that year. We did not have any new plants come online in Q1. We expect three more to come online in Q2 and the rest in the back half of the year. That is up from 60% when we announced guidance in January. We are pleased with our performance, how we are tracking, and we are seeing the benefit of some higher commodity prices too. Noah Duke Kaye: Thanks. One quick one for David. On the weather headwinds in the quarter, you said those were about half of the delta on volumes. Was that half of the 1.5% volume decline? David Reed: It is half of the 1.5%. Operator: Thank you. Our next question comes from the line of Analyst from Bernstein. Your question, please. Analyst: Thanks. On AI investment, others in the industry have talked about benefits from a pricing standpoint—commentary that they expect a 100 basis point improvement in margins over the next few years. Have you seen similar benefits mainly on pricing, and do you have a sense of what that number could be, or is it still too early to tell? James C. Fish: As it relates to AI and pricing, we have been using AI-enabled cameras on trucks to help with quality of material. As a can is dumped into a recycling truck, the AI-enabled cameras identify nonrecyclable materials accurately, and we can contact the customer to clean up their recycle stream. If they choose not to, we will bill them for it. It has been a positive on the price line and on the quality of material coming into the recycling plants. Operator: Thank you. Our next question comes from the line of Robert Wertheimer from Melius Research. Your question, please. Robert Wertheimer: Thanks. You mentioned 2H revenue growth as ERP stabilizes in health care. Is that mostly the absence of customer credit, or are you seeing more price and volume opportunity come through as you improve service quality? When do those factors start to make a bigger difference? James C. Fish: It is all of the above. Credits will improve as past due receivables are cleaned up; they have dropped by two-thirds in a short period of time, and we will continue to see positive year-over-year change, particularly in the back half. Pricing—last year we were getting our sea legs a bit. This year, we are in a good spot. We understand the customer better, our customer service stats are as good as, if not better than, some of our solid waste stats, and that gives us the ability to put through price increases. It is hard to put a price increase through if your customer service has been poor, and we have turned that corner. We also see volume contribution from cross-selling opportunities starting to manifest. The losses that presented a roughly $40 million headwind coming into 2026 were mostly a front-half issue. We are very optimistic because the front half versus back half story is starting to show up for us. Operator: Thank you. Our next question comes from the line of Sabahat Khan from RBC Capital Markets. Your question, please. Sabahat Khan: Thanks. Following up on health care, I think you are talking roughly flattish volumes this year with most of the gain coming from pricing. Longer-term number is about 3% to 5% top-line growth. Based on what you have learned about the business and the customer mix, how are you thinking about price versus volume opportunity going forward? Does this align more with solid waste where growth remains primarily pricing-driven? James C. Fish: I think what we are seeing with price—particularly as we think about Q2, Q3, Q4—looks like what we would expect for the long term. Volume was where we had the most ability to improve, and that is why we are encouraged about the front half/back half. The front half was soft from a volume standpoint due to customer losses; we are encouraged those losses are lower than we thought. As we get into next year where we do not have this front half/back half dynamic, we expect a nice level of volume growth so the top line is not solely reliant on price. Price is quite good, and volume is coming. Sabahat Khan: And on the back half of the guidance and the outlook, with RINs and commodities maybe in a better position than a few months ago, are you assuming volume inline with initial expectations with potential upside from RINs and commodities, or do you see those as offsetting? Tara J. Hemmer: On sustainability-related businesses, we are still expecting to come in at that $240 million to $250 million benefit to EBITDA from the sustainability businesses. While we expect, at least on the renewable energy side, pricing to come in a bit better, one of the things that we are tracking is interconnect delays with utilities that might have been unexpected. All of that said, we are in a great spot to achieve our goals for 2026 and positioned nicely for 2027 when all the plants are online and our ability to meet or exceed the $26 per MMBtu number. David can speak to how that stacks with the rest of the business. David Reed: It is still in line with what we guided to last quarter. It is a little more weighted in the second half in terms of EBITDA contribution. The margin trajectory for the remainder of the year looks similar to 2025 in terms of the slope—you do see sequential and year-over-year improvements in the back half on margin as well. Operator: Thank you. Our next question comes from the line of Konark Gupta from Scotia Capital. Your question, please. Konark Gupta: Thanks. First question on volume. Residential volumes have been soft. Where do you see that softening slowing down substantially? Is it still more a second half story or more of 2027 now? And the initial rebound in industrial volumes was small but positive in Q1. Would that, along with special waste strength, indicate the macro turning more positive? John J. Morris: On special waste, as Jim mentioned and I noted in my prepared remarks, we saw strength net of the wildfire benefit last year. In our quarterly business reviews last week, there was optimism around the special waste pipeline. We feel good about that for the balance of the year. On residential, we posted about a 5% negative volume for the quarter—it does fluctuate. Looking back to 2023, with about a 3.5% volume decrease each quarter since then, we have seen revenue and EBITDA improvement. From 2023 to 2026, residential EBITDA was up 211%. While we traded off some volume, we have seen financial benefit. We have automated the majority of that fleet, seen improved safety and efficiency, and focused on quality of revenue and contract terms. We said at the end of the year that we see some moderation coming in the second half—not to positive, but we will see positive movement through Q2 and Q3 in terms of slowing volume degradation. To date, every quarter for the last three years, we have shown substantial positive EBITDA dollar and margin improvement. We feel good about where we are, and we see residential becoming more of a tailwind over the next handful of quarters. Konark Gupta: As a follow-up on margin, fuel is a headwind of about 20 basis points for now. For the full year, the EBITDA dollars are not impacted much given fuel revenue and fuel costs offset. Is the top end of the guidance range for margin, 31% for the full year, still obtainable in the current fuel environment, or might that be impacted just given the mathematical influence? David Reed: Based on where we are now, we are very comfortable with the whole margin range we gave. For context on surcharge revenue, about a $1 increase in the price of diesel equates to about $200 million of annualized surcharge revenue. If you assume a one-to-one trade-off with fuel cost and surcharge revenue, that is about a 20 to 25 basis point headwind. We have that factored into our forecast and still feel comfortable with our guidance range. Operator: Thank you. Our next question comes from the line of Adam Bubes from Goldman Sachs. Your question, please. Adam Bubes: Good morning. On corporate expense, how should we think about what normalized corporate expense as a percent of sales looks like beyond 2026 and your ability to achieve leverage on that line item beyond 2026? David Reed: The cost shows up in that segment, but the benefits are showing up elsewhere. For the remainder of this year, corporate and other is relatively stable at the Q1 level. You have to look at the whole picture in terms of returns, particularly on technology investments. That may mean SG&A as a percentage of revenue is more in the 10% range long term versus south of that, but you should also see improvement to OpEx so overall margin improvement as a result of those investments. James C. Fish: Part of that 10% is having the Stericycle business onboard. Prior to Stericycle, the number was approaching 9%. Stericycle's SG&A was as high as, I think, 25%. We have reduced that to the high teens. It is still not down where the business was prior to the acquisition, so David's number of 10% is a reasonable, quite good number considering the high-teens business in Waste Management, Inc. Health Care Solutions. As we continue to get synergies—and a lot come out of SG&A—I think it is possible to get the business down into the low teens and maybe below that. There is a long-term pathway to getting total SG&A back in the low 9s, but for now we are focused on sub-10% because of the Stericycle business. Adam Bubes: Got it. And on free cash flow conversion trajectory from here—excluding growth investments as a percent of EBITDA, you would be at high 40s this year. Where can that trend beyond 2026? You will have landfill gas, which is high free cash flow conversion, ramping, and continued focus on working capital improvements. You also talked about incremental production tax credits. David Reed: Given the quarter with $920 million of free cash flow, it is actually close to 50% for the quarter. For the year, it is around 46% including all investments. We see a path to continuously improve that, and I think 50% is a good number to aspire to. We are charging forward with plans and investments that should enable us to do that. Operator: Thank you. Our next question comes from the line of Toni Michele Kaplan from Morgan Stanley. Your question, please. Toni Michele Kaplan: Thanks so much. It looks like you restarted your buyback program with over $340 million of buybacks. Can you refresh us on capital deployment strategy going forward and how you are thinking about M&A and the pipeline for deals? How will you balance M&A versus buybacks? David Reed: We commenced our share repurchase program right after our earnings call last quarter, and we are on track for $2 billion for the year. It is going to be a little more end-weighted—call it 55% to 60% in the second half. Our capital allocation strategy for this year is balanced. It is a year of harvest, and we are focused on returning cash to shareholders—over 90% of our free cash flow will be deployed in the form of dividends and share repurchases this year. We do have a decent tuck-in pipeline. We previously said $100 million to $200 million; it is likely we will be at the high end of that, if not above, but we will give more guidance next quarter. Our leverage target is back within our long-term range, which gives us capacity and flexibility for acquisitions longer term. But this year, we are primarily focused on harvesting. James C. Fish: One thing I would add—there were a few acquisitions we expected to close in Q4 or Q1 that have not closed yet, but we expect in the next days or weeks one of those will close. That was a little bit of a revenue headwind in Q1—just under $20 million. We expect to have it as part of our run rate going forward sometime in Q2. Toni Michele Kaplan: Helpful. As a follow-up on technology and automation, which initiatives are you seeing the most benefit from right now, and which will continue to benefit you going forward? John J. Morris: In recycling, despite low commodity prices, we are making more money with better margins because we have structurally lowered the operating cost model—automation and AI in plants. On trucks, all of our commercial and residential fleet is outfitted with technology that captures over 300 million images a year. We process about 95% of those images without human touch, providing data for safety, contamination, pricing opportunities, and right-sizing service. That technology has been around for close to a decade. From a safety perspective, AI helps us capture data on how folks are operating inside the cab, enabling coaching and contributing to historically low turnover and strong retention. Going forward, we see tremendous opportunity in routing and logistics. We are piloting remote heavy equipment in a number of spots, a potential pathway to forms of autonomy at some landfills. Those are examples in place now and drivers of future benefits. Operator: Thank you. Our next question comes from the line of Tami Zakaria from JPMorgan. Your question, please. Tami Zakaria: Good morning. Probably a question for Tara. Your sustainability EBITDA dollars were robust, but margin sequentially ticked down to, I think, 45% from 50% in April. Is that due to seasonality? What margin are you expecting in 2Q and for the rest of the year for sustainability? Tara J. Hemmer: We saw strong margin improvement year-over-year in both renewable energy and recycling, and we were pleased with where we came in. We previously said on recycling we would anticipate roughly 300 basis points of margin expansion this year, and we are still on track for that. In renewable energy, we anticipated 200 basis points of margin expansion related to growth investments, which might be offset slightly related to our third-party fuels program. Given that pricing is a bit higher in renewable energy than we anticipated, we would expect margins to tick up a bit based on what we guided to. All in all, we are in a really good spot, performing as anticipated, and feel positive about where we are headed this year. Tami Zakaria: Understood. And on the health care business, could you quantify the price versus volume you saw this quarter? James C. Fish: We can follow up offline with that breakdown. Operator: Thank you. Our next question comes from the line of Seth Weber from BMO. Your question, please. Seth Weber: Good morning, and thanks for extending the call. Quick one on special waste strength. In your experience, is that typically a good leading indicator of the broader macro, and do you think about special waste as an indicator of the business? James C. Fish: Yes. Special waste is one of the best forward-looking metrics we have. Customers have flexibility in timing on special waste projects. When we see that pipeline materialize in volume growth, it tells us our customer base is relatively optimistic. Operator: Thank you. Our next question comes from the line of Shlomo Rosenbaum from Stifel. Your question, please. Shlomo Rosenbaum: Thank you. Can you talk about the current price-cost spread within collection and disposal versus your outlook, and how we should think about that spread as we go through the year? John J. Morris: You can see collection and disposal margins—EBITDA margins up 110 basis points, overcoming a 20 basis point fuel headwind. Operating expenses again below 60% in Q1. We are showing good spread between price and cost. We have talked about 150 to 200 basis points; it is probably a little more than 200 basis points now. That has translated to the 70 basis point EBITDA margin expansion across the business and 110 basis points in collection and disposal. On inflation, we are seeing around 3% to 3.5%, with a little more pressure on labor, probably closer to 4%. Our core price performance quarter in and quarter out, the yield conversion, and margin translation give us confidence to continue driving margin expansion as we go forward. Shlomo Rosenbaum: And on churn rate in the quarter versus last quarter and year-over-year, and the role of technology and AI in improvements in customer and price stickiness? John J. Morris: We were still positive on service increases in the quarter. Churn was around 10%—it varies quarter to quarter; national account business can affect it. We have not seen wide swings. Encouragingly, we are driving strong core price and yield conversion without driving defection. On technology, it is broader than AI—we use predictive analytical capability our customer teams have built, using a lot of data filtered through technology tools to give a better predictive position on when and where pricing is warranted and how it will be received and accepted. You are seeing the results in our financial performance. Operator: Thank you. Our next question comes from the line of Analyst from Barclays. Your question, please. Analyst: Good morning. Coming back to the renewable energy business, the EPA recently finalized the RVO for 2026 and 2027. How has that impacted your discussions with customers in terms of forward selling of RNG, and pricing expectations on voluntary offtake? Tara J. Hemmer: We were pleased the EPA slightly raised the renewable volume obligation. Prices have held steady at about $2.40 per RIN, which is good for us and well above what we anticipated for our long-term investment thesis at $2. We have been able to forward sell RINs, and we have 80% of our volume locked up for 2026—some in the RIN market. We are tracking the voluntary market more broadly. Roughly half of our long-term offtake will be transportation, and half in the voluntary market. We have seen strong voluntary markets outside the U.S. (Canada, the U.K., Europe, Asia). We are continuing to look at what public utilities might do in the U.S. as they pass along options to ratepayers. We feel confident we can sell all of our volume in the voluntary market at or above our $26 per MMBtu investment thesis. Analyst: Appreciate the color. Thanks very much. Operator: Thank you. Our final question for today comes from the line of Kevin Chiang from CIBC. Your question, please. Kevin Chiang: Thanks. Maybe for you, Tara. What are you seeing in the recycled plastics market? Virgin plastics have gone up significantly since the onset of the conflict in the Middle East. You did shutter a Natura plastic film processing facility. Do the economics of that facility change given the broader plastics market? Tara J. Hemmer: Clearly, what is happening in the Middle East and with virgin pricing could impact recycled commodities, potentially positively. We are tracking that closely, and it is starting to creep back up, but the key word is creep. We are not anticipating any significant benefit from plastics pricing right now, nor would it change our view on the facilities we have shuttered at this point. Operator: Thank you. This concludes the question-and-answer session of today's program. I would like to hand the program back to James C. Fish for any further remarks. James C. Fish: Thank you. One last comment: we did not talk much about the geopolitical environment, but even with the uncertainty and the weather we discussed, we are most proud that our 60 thousand folks have produced good results and we are on track to hit our guidance for the year. We are very proud of that. Thank you all for joining us, and we look forward to talking to you next quarter. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This concludes the program. You may now disconnect. Edward A. Egl: Good day.
Operator: Thank you for standing by, and welcome to InvenTrust Properties Corp.'s first quarter 2026 earnings conference call. My name is Christine Nguyen, and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and a replay will be available on the Investors section of the company's website at inventrustproperties.com. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I would now like to turn the call over to Dan Lombardo, Vice President of Investor Relations. Please go ahead, sir. Dan Lombardo: Good morning, everyone, and thank you for joining us today. On the call from the InvenTrust Properties Corp. team is DJ Busch, President and Chief Executive Officer; Mike Phillips, Chief Financial Officer; Christy L. David, Chief Operating Officer; and Dave Heinberger, Chief Investment Officer. Following the team's prepared remarks, the lines will be open for questions. As a reminder, some of today's comments may contain forward-looking statements about the company's views on the future of our business and performance, including forward-looking earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call or that are in the quarterly financial supplemental or press release. In addition, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials which are posted on our Investor Relations website. With that, I will turn the call over to DJ. DJ Busch: Our first quarter results reflected steady operating performance across the portfolio. Same-property NOI grew 2.6%, while Core FFO and NAREIT FFO per share increased 6.5% and 10.4%, respectively, from 2025. We continue to enjoy meaningful embedded growth from annual escalators, healthy cash-on-cash leasing spreads, and our signed-not-open pipeline provides further confidence regarding revenue conversion. Taken together, this supports our expectation for same-property NOI growth to build in the back half of the year. Christy will provide additional details on leasing demand and backfill opportunities for our available spaces in her remarks. Given this visibility, coupled with increased confidence around our acquisition pipeline, we were able to increase FFO per share guidance for 2026. Our nearly 100% Sun Belt footprint is roughly 89% grocery-anchored, and centered on essential goods and services in trade areas with strong long-term demographic tailwinds. The backdrop across the region remains highly favorable, with many of the country's fastest growing cities and suburban communities concentrated in the Sun Belt. Recent migration data also underscores the appeal of our markets, with Florida, Texas, the Carolinas, Arizona, and Tennessee among the leading beneficiaries of wealth inflows. These states continue to attract new residents due to job growth, lower taxes, and lifestyle appeal. We will continue to invest in our core markets while expanding our corridor strategy into complementary secondary Sun Belt cities. That approach broadens our acquisition sourcing efforts and expands the opportunity set for capital deployment. Within that framework, we remain disciplined, active, and selective in a competitive transaction environment. This quarter, we completed $123 million towards our $300 million net investment guidance for the year. We have another $167 million of additional deals awarded or under contract with other opportunities still in the pipeline. In February, we entered the Nashville market with the acquisition of Nashville West. It adds a high-quality property to our portfolio and follows the same playbook we have used successfully elsewhere, which is to enter areas where demographics, retailer demand, and long-term fundamentals align to support durable growth, and then build from that initial foothold over time. Selective small-scale redevelopment continues to provide another avenue for incremental NOI growth within the existing asset base. We are focused on projects that reposition anchors, remerchandise space, add small shop or outparcel space where demand is strong and additional GLA is warranted. In 2026, we expect this pipeline to contribute approximately 90 to 100 basis points of same-property NOI growth. With visible internal growth and disciplined capital investment across redevelopment and acquisitions, we believe InvenTrust Properties Corp. remains well positioned to create long-term shareholder value in an environment where necessity-based retail continues to outperform. With that, I will turn it over to Mike. Mike Phillips: Thanks, DJ, and good morning, everyone. Turning to our financial results, same-property NOI for the quarter totaled $48.7 million, an increase of 2.6% over 2025. Growth was driven primarily by embedded rent escalations, which contributed approximately 170 basis points. Positive leasing spreads added roughly 90 basis points, redevelopment activity provided an additional 70 basis points, and percentage rents and specialty income added 50 basis points. These gains were partially offset by a 40 basis point headwind from bad debt and 60 basis points from an expected temporary impact in occupancy. NAREIT FFO for the quarter totaled $41.3 million, or $0.53 per diluted share, reflecting a 10.4% increase from 2025. Core FFO rose 6.5% to $0.49 per share year over year. FFO growth was driven primarily by higher same-property NOI and net acquisition activity partially offset by interest expense. We also recognized approximately $0.8 million of lease termination fee income during the quarter, which was anticipated and incorporated into our initial guidance. Our balance sheet remains strong and gives us flexibility and liquidity to continue executing on our long-term growth strategy. At quarter end, total liquidity stood at $346 million, including $27 million of cash and $319 million available on our revolving credit facility. Our weighted average interest rate was 4.1% with a weighted average term to maturity of four years. Net leverage finished the quarter at 29.7% and net debt to adjusted EBITDA was 5.2x on a trailing twelve-month basis. Subsequent to quarter end in April, we signed a definitive note purchase agreement for a $250 million private placement of senior unsecured notes. The financing is structured in three tranches: $50 million due in 2029, $100 million due in 2031, and $100 million due in 2033. On a combined basis, the notes provide us with a weighted average tenor of approximately 5.4 years and a weighted average fixed interest rate of 5.4% over the term. Funding is expected on 06/29/2026, subject to customary closing conditions. Finally, we declared a quarterly dividend of $0.25 per share, a 5% increase over last year. Turning to guidance, we are reaffirming our full-year same-property NOI growth guidance range of 3.25% to 4.25%. For NAREIT FFO, we are increasing our full-year guidance range to $2.00 to $2.06 per share, which represents 7.4% growth at the midpoint versus 2025. This increase is primarily driven by mark-to-market lease adjustments related to our recent acquisitions. Our Core FFO guidance is increasing to $1.92 to $1.96 per share, up 6% at the midpoint from last year. Additional details on our guidance assumptions are available in our supplemental disclosure. With that, I will turn the call over to Christy to discuss our portfolio activity. Christy L. David: Thanks, Mike. From an operating standpoint, leasing activity remained healthy during the quarter. We executed 64 leases covering approximately 329 thousand square feet and comparable blended spreads were 10.5%, with new leases at 19.8% and renewals at 9.9%. Annualized base rent per occupied square foot increased 2.1% year over year to $20.63. At quarter end, leased occupancy stood at 96.4%, with anchor leased occupancy at 98.5% and small shop leased occupancy at 92.9%. The anticipated short-term change in occupancy was driven primarily by seven larger format small shop spaces, and we already have six of those seven spaces either signed or under LOI. For the new opportunities and spaces coming back to us, prospective rents are running approximately 15% to 20% higher. With occupancy levels at or near all-time highs for the last several quarters, the aforementioned opportunities are a welcomed event, allowing us to maintain strong occupancy while proactively recapturing and re-tenanting space to improve the merchandise mix, retailer credit, and rent growth profile. We currently have five anchor vacancies including three tied to our redevelopment project at Gateway Market Center in Florida, one in our California asset that is in our disposition pipeline, and one space in Texas that has an LOI currently being negotiated. More recently, Painted Tree Marketplace closed stores across the U.S., including our one location in Glen, Virginia, representing approximately 30 thousand square feet or about 20 basis points of ABR. We are well positioned to backfill this space. As we look to the balance of the year, we continue to have good visibility into future growth. The lease-to-economic occupancy spread ended the quarter at 130 basis points, with 80% attributable to small shop space that is yet to commence, giving us a clear line of sight into revenue conversion and reinforcing the embedded growth in the portfolio. Our lease-to-economic spread matched our fourth-quarter level, reflecting our team's execution in getting tenants open and paying rent. The first quarter of 2026 was one of our highest quarters of new rent commencement since our listing. The consumer environment also continues to support our platform. Shoppers remain value conscious, with spending on convenience, necessity, and everyday services holding up well. This is translating into tenant demand across categories such as food service, medical retail, and other service-oriented uses. Off-price is a good example of that dynamic. It remains a dependable traffic-driving category in open air retail and resonates in a consumer environment where value matters. Together with grocery and other essential anchors, these tenants help create a merchandising mix that aligns well with consumer needs and positions our centers for long-term performance. Our exposure to higher-risk discretionary categories also remains limited, and while we always maintain a watch list, the overall risk profile remains manageable. Turning to acquisitions, the opportunity set within our pipeline, while competitive, remains robust as we look to add properties in both current markets as well as adjacent or corridor markets that are complementary to the existing portfolio. During the quarter, we added two properties: Marketplace at Hudson Station in Phoenix, Arizona, a neighborhood center anchored by EOS Fitness and shadow-anchored by a Fry's Marketplace in a growing part of the Phoenix MSA. The acquisition deepens our presence in an existing growth market and reinforces our approach to building scale in regions where we already have conviction. And as DJ mentioned, we also purchased Nashville West, a high-performing open air power center located roughly fifteen minutes from downtown Nashville, shadow-anchored by Target, Costco, and Publix. The asset benefits from strong traffic, attractive surrounding demographics, and a location in one of the fastest growing parts of the country. We believe Nashville West gives us a solid entry into an attractive new Sun Belt market. That concludes our prepared remarks. Operator: We will now open the call for questions. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd, your line is now open. Todd Thomas: Alright. Thanks. Good morning. First, I just wanted to ask about acquisitions. The $167 million of acquisitions that are under contract or that have been awarded, which gets you to the $300 million target for the year—are those expected to close by roughly the end of the second quarter? And then it sounds like there is appetite to be more active beyond that as you move further into the year. Can you just talk about the future pipeline and remind us of the initial yields and IRRs that you are achieving and whether those are moving around a little bit as you work through some additional deals? DJ Busch: Yeah, thanks, Todd. Good morning. We are very happy with how the year started as it relates to our acquisition pipeline. If you remember last year, we sold in the beginning part of the year with our recycling out of California, and then much of our acquisition activity ended up being backloaded. This year, we got off to a good start, as Christy alluded to, with Nashville West and Hudson Station. The things that we have awarded or under contract, to answer your question directly, we are hoping that most of those will close at some point in the second quarter. It is hard to predict exactly when they will close, but you can expect around that timeframe, maybe leaking a little bit into the third quarter. And to your point, we have, on a gross basis, about $290 million of deals either closed, under contract, or awarded, but we do have a really strong pipeline that we are going to continue to pursue behind that. We have discussed there will be a little bit of capital recycling, or asset sales on a very select basis, but only if we feel like we have an acquisition pipeline that continues to be actionable. That will continue to be the strategy throughout the year. One of the things that we were excited about coming into this year—and Mike alluded to the private placement that we just completed—we have a lot of dry powder. We have a lot of balance sheet capacity in a market that continues to be competitive, but we have continued to find deals at initial yields in that low-6% range or even mid-6% that are giving us healthy IRRs comfortably in the 7% range. That has been the recipe for success for us. Our guidance indicates that the cadence at which our acquisitions are coming is a little bit better than expected, which is why we were able to raise FFO per share for the year. We will continue to be active as long as we find deals that we like and that are going to continue to be accretive to the portfolio. Todd Thomas: Okay. That is helpful. And then in terms of funding, you have some dry powder. Leverage is below your longer-term leverage target of 5x to 5.5x. You mentioned some dispositions, but how should we think about equity capital fitting into the equation a little bit as you look at where your equity cost of capital is today as well? DJ Busch: It is a very good question. It is good to look back when we issued equity in 2024. It was a similar situation. The stock was trading at an all-time high at that point, and more importantly, based on that equity cost of capital or weighted average cost of capital across the different pockets of capital that we had at the time, we had an attractive pipeline that was actionable and we knew we could grow free cash flow accretively. As we sit here today, we are a couple of days off another all-time high. We feel pretty good about our multiple. We feel good about where the stock is at. But having said that, it is all predicated on the opportunity set. If the opportunity set is one where we can continue to grow cash flow accretively, we will look at all different avenues. Todd Thomas: Okay. Have you seen changes in seller expectations at all? With more capital coming into the space, are you hearing about pockets of capital that are pulling back or having a difficult time accessing capital, given some of the turbulence in the credit markets? DJ Busch: Not really, to be frank. We are continuing to find really good opportunities, but there has not been a whole lot of distress on the seller side. Every situation seems to be a little bit unique. Almost the entirety of our acquisitions that we have done is in the private market, usually with smaller operators that are selling for one reason or another. We have done a couple of larger ones where they are rotating out of funds. It runs the gamut, but I would not say that we are seeing distress related to credit tightening. Todd Thomas: Okay. Alright. Thank you. Operator: Your next question comes from the line of Andrew Reale with Bank of America. Andrew, your line is now open. Andrew Reale: Hi. Good morning. Thanks for taking my questions. First, on acquisitions. Nashville West is a single-asset entry into a new market. What made this the right time to enter? Do you have any additional Nashville assets in the pipeline currently? And how much scale would you aim to achieve there? And then the two acquisitions in the quarter are basically fully occupied. Can you talk about any upside you see at those assets in terms of rent mark-to-markets or other value-add? Christy L. David: Thanks, Andrew, for the question. Nashville West is a dominant power center with really healthy and competitive shadow anchors—Costco, Publix, and Target. One thing that is unique, and how we view this property, is that there is the ability to raise rent here. While it is largely occupied today, we see long-term value in rent growth and there is a little bit of remerchandising we think we can get done as well. Holistically, the Nashville market is an exciting opportunity. We do have a few other assets in the pipeline—nothing currently under LOI or near execution—but there are things that we have our eye on and have had long-term conversations about. Over time, we hope to establish a presence that would allow us to have three or four assets in the market and operate there, and in the interim we are able to utilize our boots on the ground in surrounding markets to help us service that asset and operate effectively. As for your question about the acquisitions being fully occupied, both are in markets where, over time, we are able to put the InvenTrust model to work. We are able to grow rents, implement annual escalators, and get them on fixed CAM, all of which will help us produce cash flow growth. Andrew Reale: Thank you. And I think it was last quarter there was a comment that acquisitions from 2024 and 2025 were generating blended spreads in the low-20% range. How much below-market rent is left in that acquired pool, and over what time frame does it get marked to market? DJ Busch: The great news is there is a lot left because we only get access to a certain amount of leases every year. More importantly, if you look at all the acquisitions that we have made since 2021—or even since 2024—the average annual escalator within those tenants or at those properties is about half of what we are getting in the remainder of the portfolio. On every new deal now, we are achieving over 3% annual escalators, while the in-place escalators are about 1.5%. So there is a tremendous amount of opportunity not only at the initial cash spread—20% plus on those deals—but also in being able to put in annual escalators and fixed CAM, as Christy mentioned, to drive continual NOI and cash flow growth year in, year out. Operator: Your next question comes from the line of Cooper Clark with Wells Fargo. Cooper, your line is now open. Cooper R. Clark: Great. Thanks for taking the question. I wanted to ask about the same-property NOI acceleration in the back half of the year. In the press release, you noted the acceleration is driven by contractual rent and also a strong pipeline of lease commencements over the balance of the year. Could you provide a little more color on the contribution coming from the lease commencements, within the context of the SNO pipeline declining quarter over quarter in terms of the $4.6 million ABR contribution, and how lease commencements compare to some of the other core items driving the acceleration in the back half? Mike Phillips: Yeah, Cooper. Most of the SNO pipeline is small shop—about 80%—and we do expect 90% of that to be coming online by the end of the year. It is weighted very much to the back half of the year. Q3 and Q4 is when you will see most of that come online. DJ Busch: The only thing I would add is when you think about the NOI cadence—we do not guide to quarterly cadence, but it is important in this case because of the acceleration—the second quarter we are expecting to be very similar to the first quarter. You will really see the acceleration in the third, but mostly in the fourth quarter. You can expect the same thing from an occupancy standpoint. It is always hard to gauge leased versus occupied, but you can expect us to comfortably accelerate in the back half, and that SNO pipeline actually increasing as we get to the back half of the year, which is going to serve us extremely well going into 2027. Cooper R. Clark: Great. And then on the acquisition market, could you talk about the buyer profile you are finding yourselves competing against today? As the transaction market remains highly competitive, do you think competitors are reflecting a higher risk tolerance for the asset class, whether it is lower exit cap rates or higher rent growth? DJ Busch: It has been and will continue to be competitive. Where we have found our sweet spot at InvenTrust is we do not do many deals under $10 million to $15 million—that tends to be very competitive in the private market—and we also avoid anything over about $200 million so we do not take on undue single-asset risk. Along with our cluster/corridor strategies in complementary secondary markets, we have found a niche where we have been able to get phenomenal properties with strong embedded growth at a good initial return and, most importantly, a good growth profile and unlevered return over time. There has been more competition in some gateway markets where there is probably a liquidity premium, especially because of activity from private funds. That is not where we have been focused. If we are able to announce the deals that are awarded or under contract, you will see much of the same: introductions to new markets that are very complementary to the core markets we are already in. Operator: Your next question comes from the line of Michael Gorman with BTIG. Michael, your line is now open. Michael Gorman: Yeah, thanks. Good morning. Christy, I am sorry if I missed it, but for those seven larger-format small shop tenants, was there anything thematic in there? Were they all the same operator, or did it just happen to come in a cluster in the first quarter? Christy L. David: Thanks for the question. There is nothing systematic or thematic about what departed. There are seven, and on a blended basis they are around 5 thousand square feet each. These are spaces we have had our eye on for a long time with operators that may have been limping along. There is no single use-related issue; they are spread across categories and across our markets. As I mentioned, we have six already identified with either LOIs or executed leases with 15% to 20% spreads. We are actually excited to get our hands on some of these to capture the lift. It has been a long time since we have been able to take some of these opportunities. DJ Busch: The only thing I would add—our small shop occupancy and retention rate has continued to climb to all-time highs, which is a good problem to have. At an all-time high in the fourth quarter, we found this to be the perfect time to have some planned tenant transitions in an otherwise highly occupied portfolio. We can still drive solid growth, and this is going to set us up exceptionally well as we get these re-leased and open in the back half of this year going into 2027. Michael Gorman: Thanks. And maybe one more on the acquisition side. The outparcel in Atlanta—was that just an opportunistic purchase, or is there a potential redevelopment of the center that that outparcel was critical for? And bigger picture, can you remind us of your view on outparcels and your outparcel strategy for the properties that you own? Christy L. David: That particular outparcel is one we have had our eye on for some time. It sits at the entryway to that asset. The more we can control the “front door” of a property, the better off we are. This was an opportunity. It is not a redevelopment play in and of itself at this asset; it currently has a new lease with an urgent care, which complements our current uses at the center. But it does provide us the opportunity to work with that tenant and potentially add an additional outparcel there in the future if demand warrants. Across our portfolio, we consistently look at where we may have outparcel opportunities to purchase—whether relevant for redevelopment or to give us better control of our assets. Owning everything helps us have better control of our properties, including with OEAs and REAs. Operator: Your next question comes from the line of Hong Zhang with JPMorgan. Hong, your line is now open. Hong Zhang: Hey. How should we think about the size of your active redevelopment pipeline for the remainder of the year, given that you completed a number of projects in the first quarter? DJ Busch: We delivered a couple of projects early, which, as I mentioned, is a nice building block for our NOI growth this year. As you see in the supplemental, we have a number of projects we are working on at any given time, at different stages—waiting for entitlements or with shovels in the ground. The cadence will be consistent. One of the things that is exciting over the next couple of years is we do have some larger redevelopment projects—mostly related to grocery rebuilds or relocations within the same center. Those are the best bang for our buck and the best thing for the center on a long-term basis, and we will continue to do some of those. The Florida project you are alluding to was an exciting opportunity to do some remerchandising to upgrade the merchandise mix. We will continue to look for those select opportunities. As Christy mentioned, one of the most important aspects of our outparcel acquisition strategy is really just controlling as much of the property as we can. If and when we do get an outparcel back, we have full control over what we want to do in the future of that pad. Operator: Your last question comes from the line of Paulina Rojas Schmidt from Green Street. Paulina, your line is now open. Paulina Rojas Schmidt: Hi. You mentioned the market has remained competitive. Have you seen any shift in terms of cap rates, or do you see a continuation of the trends that have been in place for a while now? DJ Busch: It is always hard to pinpoint because every asset has its own unique story, so it is hard to find a trend. It has remained competitive. There has been a lot of activity and interest in the open air multi-tenant retail space, which would allude to stronger private market pricing. We have seen that in certain markets—that was an opportunity for us in California. We have seen strong pricing in the larger markets in Texas. We have found unique opportunities on a one-off basis in complementary markets to our core markets where we are seeing just as good growth but a less liquid market, which can be reflected in the cap rate and unlevered return. Everything we bought we tend to feel better about six months later, both from a pricing perspective and a performance perspective. Not only do we feel good about our initial yields, but we like the activity and demand we were hopeful for when underwriting. So it is much of the same rather than any material difference from last quarter or a couple of quarters ago. Paulina Rojas Schmidt: And going back to the occupancy loss—similar to what some of your peers experienced—how do you distinguish normal seasonality from something more worth monitoring? DJ Busch: The reason we can tell is because our portfolio is of a size where we have really good intel and conversations with every one of our tenants. The seven tenants that were the predominant needle movers this quarter were ones we had our eyes on and had discussions with for some time. They continued longer than they otherwise might have given strong underlying fundamentals. Two or three of those spaces we proactively went after because we needed the space back—either for expansion of existing concepts or to accommodate a tenant we had to get into the property. The other ones we had been waiting on. That is why we already have six of the seven earmarked either with a deal underway or in some form of LOI or legal. If we did not have the demand right behind those, perhaps I would say there was some softness, but that is absolutely not the case. It is transitory in nature, and moving some larger small shop spaces while increasing guidance and setting up success for the next couple of years is a very good position for us. Operator: There are no further questions at this time. I will now turn the call back to DJ Busch for closing remarks. DJ Busch: Thank you, everyone, who joined us. We appreciate your time and your interest in InvenTrust Properties Corp., and we look forward to seeing many of you in the coming months either at ICSC or at several conferences over the summer and early fall. Operator: Thank you. This concludes today's call. Thank you for attending. You may now disconnect.
Unknown Speaker: Good morning. Operator: My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Earnings Call for The Bank of N.T. Butterfield & Son Limited. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star. Please note this event is being recorded. I would now like to turn the call over to Noah Fields, The Bank of N.T. Butterfield & Son Limited’s Head of Investor Relations. Please go ahead. Noah Fields: Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing The Bank of N.T. Butterfield & Son Limited’s first quarter 2026 financial results. On the call, I am joined by Michael Collins, The Bank of N.T. Butterfield & Son Limited’s Chairman and Chief Executive Officer; Michael L. Schrum, President and Chief Financial Officer; and Jody Feldman, Managing Director of Bermuda. Following their prepared remarks, we will open the call up for a question and answer session. Yesterday afternoon, we issued a press release announcing our first quarter 2026 results. The press release and financial statements, along with a slide presentation that we will refer to during our remarks on this call, are available on the Investor Relations section of our site at www.butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today’s discussion will refer to certain non-GAAP measures, which we believe are important in evaluating the company’s performance. For a reconciliation of these measures to U.S. GAAP, please refer to the earnings press release and slide presentation. Today’s call and associated materials may also contain certain forward-looking statements, which are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these risks can be found in our SEC filings. I will now turn the call over to Michael Collins. Michael Collins: Thank you, Noah, and thanks to everyone joining the call today. 2026 represents a strong start to the year, with solid financial performance and continued execution of our disciplined growth strategy. We were pleased to announce the agreement to acquire Rollinson & Hunter in Guernsey, reinforcing our commitment to build scale in key markets. Demand across our core businesses of banking, wealth management, and trust remained robust, reflecting the strength of our client relationships and the resilience of our franchise. Net interest income benefited from lower costs, while deposit volumes remained stable across all jurisdictions. At the same time, we improved non-interest expenses, demonstrating our ability to manage costs effectively in a low-rate, more volatile environment. I am also pleased to report that following our announcement in February, the acquisition of Rollinson & Hunter Guernsey has now closed. This is a strategically important transaction that enhances the scale and capability of our private trust business in Guernsey and furthers our position as a leading international provider of trust services, with group assets under administration of $146 billion. Looking ahead, acquisitions remain a key driver of our growth. We will continue to pursue high-quality opportunities in Island Banking and Trust that align with our strategy and deliver long-term value for our stakeholders. The Bank of N.T. Butterfield & Son Limited is a leading offshore bank and wealth manager, with strong leading market positions in Bermuda and the Cayman Islands, and an expanding retail presence in the Channel Islands. Across markets, we deliver a broad range of services, including trust, private banking, asset management, and custody, which are designed around the needs of our clients. We also support international private trust clients in The Bahamas, Switzerland, and Singapore and originate high-net-worth residential mortgages for prime London properties through our London office. I will now turn to the first quarter highlights on Page 5. The Bank of N.T. Butterfield & Son Limited reported net income of $62.6 million and core net income of $63.2 million. We reported core earnings per share of $1.55 with a core return on average common equity of 24.1% in the first quarter. The net interest margin was 2.75% in the first quarter, an increase of 6 basis points from the prior quarter, with the cost of deposits falling 13 basis points to 124 basis points from the prior quarter. We again are announcing a quarterly cash dividend of $0.50 per share. During the first quarter, we continued to repurchase shares, with a total of 800 thousand shares at a cost of $42.4 million. We continue our active capital management and plan to continue to return excess capital that we do not require to support the business and growth initiatives. I will now turn the call over to Jody Feldman for an update on Bermuda and Cayman markets and businesses. Jody Feldman: Thank you, Michael. Starting with Bermuda, the economic outlook remains constructive, underpinned by steady growth and a thriving international business sector anchored by reinsurance. Real GDP growth is estimated at 3% for 2025, reflecting continued economic momentum. Bermuda’s fiscal position has improved markedly, with the government projecting a record surplus of $472 million for the 2027 fiscal year, largely driven by revenues from the new corporate income tax. While economic growth is positive, Bermuda continues to navigate structural challenges, including a high cost of living and doing business, an aging population, and limited availability of affordable housing. These factors remain important considerations as the island plans for sustainable long-term growth. The hospitality sector is benefiting from renewed investment, with $182 million of capital spend for infrastructure and tourism revitalization. The partial reopening of the Fairmont Southampton in late 2026 followed by a full reopening in 2027 is expected to bring hotel room inventory above pre-pandemic levels. We are also encouraged by plans for the redevelopment of Elbow Beach Resort, which is expected to commence later this year. Finally, Bermuda continues to reinforce its global profile as a premier destination for international sporting events, including the PGA Tour Butterfield Bermuda Championship, the Newport to Bermuda Sailing Race, and Sail GP. Events not only support tourism and international visibility, but also reinforce Bermuda’s position as a high-quality jurisdiction for business visitors and residents alike. Now turning to the Cayman Islands. GDP forecasts suggest that growth is expected to moderate in 2026 to around 2% for the year, which is a steadier and more stable pace of development following the past few years of 4% to 6% GDP growth. Unlike Bermuda, Cayman has seen significant population increases, which are forecasted to grow to the low 90 thousands over the next couple of years. Tourism and financial services continue to grow; January and February saw record stayover arrivals consisting primarily of U.S. tourists. Financial services in Cayman continue to grow, with reinsurance a growing industry and the international fund services business remaining a cornerstone. The Cayman government continues to be fiscally disciplined, with 2026–2027 budget expectations of a modest surplus, suggesting Cayman is entering a slower growth phase following rapid expansion. I will now turn the call over to Michael L. Schrum for more detail on the quarter. Michael L. Schrum: Thank you, Jody, and good morning. On Slide 6, we have a summary of net interest income and net interest margin. In the first quarter, we reported net interest income before provisions for credit losses of $93.3 million, an increase of $700 thousand from the prior quarter. Net interest margin increased 6 basis points to 2.75% compared to 2.69% in the prior quarter. This increase is largely due to lower deposit costs and increased investment yields, partially offset by our treasury and loan yields as central banks cut market interest rates, as well as a lower day count in 2026. We expect NIM to be broadly stable with a slight positive bias for the remainder of this year. Average investment volumes increased as assets were deployed into high-yielding available-for-sale investment securities, helping to increase the average investment yield by 6 basis points to 2.78%. Average loan balances were stable compared to the prior quarter. Net loan volumes actually increased during the quarter in Jersey and Cayman; however, the impact of foreign exchange translation from the weakening of the pound sterling against the U.S. dollar masked this uptick. During the quarter, the bank continued to pursue its conservative strategy of reinvesting the paydowns and investment maturities into a mix of U.S. Agency MBS securities and medium-term U.S. Treasuries. Slide 7 provides a summary of non-interest income, which totaled $62.6 million, a decrease of $3.7 million over last quarter. This was due to an expected decrease in seasonally higher comparative fourth-quarter banking fees. Trust fees were also down due to lower time-based and special fees compared to the prior quarter. Foreign exchange fees increased slightly due to higher volumes in the quarter. The fee income ratio decreased overall to 40.6% compared to 41.7% in the prior quarter and continues to compare favorably to historical peer averages. On Slide 8, we present core non-interest expenses. Core non-interest expenses decreased compared to the prior quarter due to lower costs associated with professional and outside services fees for project work and lower technology and communications expenses, which were offset by higher payroll tax related to the annual vesting of share-based compensation in the first quarter. Slide 9 shows The Bank of N.T. Butterfield & Son Limited’s balance sheet is liquid and conservatively positioned. Period-end deposit balances were slightly elevated compared to the prior quarter. Our low risk density of 28.7% continues to reflect the regulatory capital efficiency of the balance sheet. On Slide 10, we show that asset quality remains strong. The investment portfolio is low risk, consisting entirely of AA or higher rated U.S. Treasuries and government-guaranteed agency securities. Credit performance was stable this quarter, with negligible net charge-offs, non-accruals at 2%, and allowance for credit losses at 0.6% of total loans. Our loan book is anchored by high-quality residential mortgages, with 71% full-recourse loans and nearly 80% at loan-to-value below 70%. We continue to apply conservative underwriting across Bermuda, the Cayman Islands, and our U.K. and Channel Islands businesses. On Slide 10, we present the average cash and securities balances with a summary of net interest rate sensitivity. Net unrealized losses in the AFS portfolio included in OCI were $99.7 million at the end of the first quarter, an increase of $10.3 million over the prior quarter. Interest rate sensitivity has increased slightly against the prior quarter, driven by changes in asset composition and an increase in short-duration assets. We continue to expect improvement in OCI with additional burn down over the next 12 to 24 months [inaudible]. Slide 12 summarizes regulatory and leverage capital levels. The Board of Directors has once again approved a quarterly dividend of $0.50 per share. TCE/TA continues to be conservatively above our targeted range of 6% to 6.5%. Finally, tangible book value continued to increase and closed the quarter at $26.56 per share, an increase of 0.6% over prior quarter-end. I will now turn the call back to Michael Collins for closing remarks. Michael Collins: Thank you, Michael. The Bank of N.T. Butterfield & Son Limited’s geographic footprint includes some of the world’s key global financial jurisdictions, which position us well for sustained expansion supported by both targeted acquisitions and internally driven growth initiatives. We continue to seek overlapping and complementary bank and private trust acquisitions—acquisitions that best utilize our management team’s extensive experience and further our ambition as a leading independent bank and wealth management group operating across strategic financial centers and island economies with favorable profiles and potential for growth. Our capital-light, fee-driven businesses continue to offer distinctive solutions tailored to evolving client needs, reinforcing our strong competitive position. Looking ahead, we are committed to further improving operational effectiveness while maintaining disciplined cost management. The Bank of N.T. Butterfield & Son Limited’s capital management remains central to our approach. Strong earnings generation enables us to strike the appropriate balance by delivering consistent shareholder returns through dividends, investing in organic growth, pursuing strategic and value-enhancing acquisitions, and executing share repurchases as appropriate. Our balance sheet remains strong, with a conservative liquidity profile that is closely aligned with our operating model and regulatory oversight. The bank is well positioned to deliver service and value to all stakeholders. Thank you. And with that, we would be happy to take your questions. Michael L. Schrum: Operator? Operator: We will now open the call for questions. We will now begin the question and answer session. We will pause momentarily while we assemble our roster. Our first question comes from Evan Kwiatkowski with Raymond James. Please go ahead. Analyst: Hey. This is Evan on for David Feaster. Good morning, everybody. Michael Collins: Morning. Analyst: I know it is early innings still, but just curious how things are progressing and what you are hearing from both the team and customers broadly. And then maybe on the financial impacts, I am just curious what your updated fee income growth expectations are, and then any additional one-time costs that are expected from the transaction. Thanks. Michael Collins: Hi, it is Michael Collins. The client base is very similar to ours. We have been in the private trust business for 70 years, and this was a founder-owned trust company that we have looked at for years in Guernsey, so we know it quite well. The client base, I think, will be very comfortable with our approach—very similar to their approach. We do not compete in terms of trying to sell asset management into our private trust relationships, and clients appreciate that. It is 50 really highly qualified staff in Guernsey, 71 client groups, and about $9 billion assets under trusteeship. That takes us up to about $146 billion assets under administration or trusteeship. It is not huge, and as we have said in the past, we are very disciplined in terms of how we price these acquisitions. So it is, sort of, eight times up to $50 million in terms of private trust acquisitions—8x EBITDA, 12% to 15% IRR or higher—and has to be at least two-thirds private trust. We know the business well. It is incremental in terms of fee income. It helps quite a bit, but it gets us 70 new client groups which are very high quality. We are very happy with it. It is closed. We are working on integration. It should be seamless, very low risk. Michael L. Schrum: Yes, Evan, it is Michael L. Schrum. Just on the question in terms of updated fee, we are expecting this to add about £8 million to £10 million annualized. So, obviously, we will start to put that into the next quarter. With that comes the integration costs and also the cost line will increase due to onboarding of the new colleagues as well. I think it is a really good book of business, and the people we have met have been very pleased with the model that we run, which is the independent trust model. This gives our new colleagues a genuine career path, and the clients really do like The Bank of N.T. Butterfield & Son Limited. It is a well-known brand in Guernsey, and I think, again, they will be comforted by the credit rating of the bank and, obviously, the balance sheet that sits behind their new fiduciary provider. We just closed it. We are in the process of looking at the integration and potential synergies, etc. We will come back once we finalize the PPA work next quarter and give some more detail on how it is going. Analyst: That is really helpful. Thank you. And then next, I thought I would touch on the NIM. I noticed you called out you managed the duration of the portfolio to be a bit shorter, increasing rate sensitivity. I am just curious how you view the NIM trajectory from here given current central bank expectations. Michael L. Schrum: Yes, great question. Obviously, maybe better than it was a month ago. We view the flat, higher-for-longer rate environment as constructive for the balance sheet. I think I said last quarter NIM should be broadly flat. We have some tailwinds and headwinds in that. The exit NIM for March month was at the 2.70% level. So it was a little bit lower, but again, plus/minus 5 basis points depending on the deposit composition. What really drove this quarter was the lowering of deposit costs overtaking the downward trajectory in treasury and short cash repricing. For the remainder of the year, we remain cautiously optimistic that we can fight those headwinds with the asset repricing model that is in there, both on the loan book and the investment securities. At the moment, the average investment security yield for the quarter was 3.96%. When you have close to $1 billion resetting over the next year with a tailwind of 1%, that should be a positive bias. Central banks are weighing their options at the moment, and anytime we see a higher-for-longer environment, that is going to be better for us because we get the whole repricing coming through. Analyst: That is helpful color. Thank you. And then, lastly for me, you already kind of alluded to it, but keeping in mind your through-cycle efficiency ratio target of 60%, is it fair to see core expense tick back into that $90 million to $92 million range per quarter for the rest of the year? Any updated expectations there, especially with the deal? Any seasonality trends would also be helpful. Michael L. Schrum: Yes, great question. It is Michael L. Schrum again. The first quarter is always a little bit seasonally low. There tends to be a lot of expense drive up to the end of the year, but it is not enough to really call it out. In terms of the deal, I think $90 million to $92 million without the additional new colleagues that we are onboarding and system conversion, etc. There is a little bit of non-core cost this quarter related to the drafting of the SPA and that type of thing. We are expecting this to be accretive overall. If you think about the fees that are getting added to the top line, we would expect that to generate some cost increase as well from salaries as we onboard the new folks. They are going to be brought onto our platforms. It is a little bit early to talk about forward guidance on cost, but without the deal, I would say $90 million to $92 million is a good number. Analyst: Perfect. Thank you for taking my questions. I will step back. Operator: Our next question comes from Emily Lee with KBW. Please go ahead. Emily Lee: Hi, everyone. This is Emily Lee stepping in for Timothy Switzer. Thanks for taking my question, and congrats on the quarter. Michael Collins: Sure. Thanks. Emily Lee: So just on credit, NPLs and provision took a step up this quarter. Could you provide any color on the drivers there and what we should expect on both metrics going forward? Michael L. Schrum: Yes. We are starting from a very low base. It is Michael L. Schrum again. When you look at Note 6 to the financials, you will see some past due migration. Really, it is something that we have seen in a few cases over the last couple of years. These are primarily related to residential mortgages in our prime Central London loan book, and they dropped into the short-term past due account this quarter. As a reminder, these are three- to five-year mortgages underwritten at 60%–65% LTV, so really well secured, and there is a lot of equity in these loans. We continue to believe that they will resolve themselves over the medium term, as liquidity in the London prime and super prime markets is relatively thin at the moment. There have been a number of policy changes in that market. We are patient lenders, and we continue to work with borrowers facing temporary liquidity issues. Bottom line, it is a little bit elevated right now, but we expect that to normalize either through refinancing or through repayment when the property is sold. These are similar to what we have seen before in prime Central London mortgages. Emily Lee: Got it. Thank you. And then, how is the current loan pipeline looking? What are you hearing from borrowers on demand? Are there any particular industries or jurisdictions that are seeing strength or that you are leaning into over others right now? Michael L. Schrum: Yes, I will start and Jody, who is closer to the clients, can add color. Markets are all different. Prime and super prime in London is facing some uncertainty around governmental policy changes, including changes to the non-dom regime and some additional property taxes that need to filter through the market in terms of valuation changes. There are a lot of buyers on the sidelines at the moment in that market. On the flip side, with the Middle Eastern situation, there are a lot of people moving back and renting, which is a temporary fix, particularly from Dubai into Central London now. Cayman is looking pretty good. We obviously want residential mortgages because our model is a return-on-risk-weighted-asset model—35% risk weight and now potentially even lower at LTV bands under Basel IV in Cayman. We strongly prefer residential mortgages. The Cayman loan book actually is looking decent. In Bermuda and Cayman, we have fully amortizing mortgages underwritten at a maximum 80% LTV, with appropriate exception underwriting in place. For the first time in a couple of years, the Cayman residential mortgage book originations overtook amortization rundown as we improved the LTV profile overall. Jody, do you want to talk about Bermuda? Jody Feldman: Yes, thanks, Michael. I will just highlight we are not a loan growth story, but as Michael pointed out, we have a good pipeline, particularly here in Cayman with some of the high-end residential towers that are popping up. We are participating prominently in a lot of those, which is great to see. In Bermuda, there are some pretty acute supply-demand imbalances in housing, but we have a good position within the retail and private banking lending space. We are a bit constrained on the corporate side in Bermuda due to a lack of significant projects coming online. Overall, we are seeing a decent pipeline across all markets combined—subdued in Bermuda but with good pockets of opportunity in Cayman. Emily Lee: That is very helpful. Thank you. And if I could squeeze in one more: you mentioned expectations for asset repricing to help fight pressures on the NIM. How are incremental loan yields looking right now? Michael L. Schrum: Yes, there are a couple of dynamics. In Bermuda, we underwrite at 80% LTV. We have a lot of fixed-rate loans coming up this year, both in Bermuda and Cayman, which are temporarily fixed or ARM-type structures that are resetting back to their original floating rate, which is still elevated. So there are significant tailwinds from that asset repricing. New loans in Bermuda are around 7%. Cayman is a little more competitive around new originations; there are a number of other participants who are aggressive on price competition, so around 6%-ish. Channel Islands maybe around 5%. Again, these are sterling, Bank of England–linked, fixed and floating rate loans that are three to five years. If you average that out over new originations, it probably ends up somewhere in the 6% range, which is reasonable for that risk rating. The pipeline really is beyond what we can control; we can be a participant in the market. Emily Lee: Great. That is all for me. Thanks so much. Operator: Our next question comes from Robert Ruchow with Wells Fargo. Please go ahead. Analyst: Hey, good morning. Thanks for taking my question. Question on deposits. Could you give us an update on the outlook for deposits? Any concerns that we should think about in terms of outflows, and do you expect to get any inflows from the RNH deal? Michael L. Schrum: Yes, it is Michael L. Schrum again. On the RNH deal, initially these clients are trust clients. Occasionally, we can provide banking services to those clients as well. A few of them were already banking clients of ours because RNH was an independent trust company. It is always something that we would like to do for administrative ease—ins and outs—and we can see and understand the client a bit better that way, but we are not competing on asset management for those clients. There could be a little bit of a trickle in, but I would not expect it to be a major uplift to deposit balances overall. For a while, we have been monitoring a couple of lumpier deposits, typically from our trust business and private client business in Bermuda and some corporate deposits. We were expecting some further outflows and for the balance sheet to normalize at around $12 billion. We are now getting notified of some new income and deposits, so it could be a bit longer, and some of the composition of the deposit base will probably end up changing a little bit over time. At the moment, $12 billion to $12.5 billion is probably a decent number for now. We will see it when we see it, but some of those corporate deposits are held up in court proceedings and appeals processes and that type of thing. Generally constructive, actually. Analyst: Okay, great. And if I could follow up with a broader question: as you think about acquisition opportunities, how many competitors might be out there that you would be able or willing to buy? Is there any increase in competitive pressures that might encourage someone to sell—technology requirements or anything else that might spur a little more activity than we have seen over, say, the past five years? Michael Collins: Yes. There are sort of three types of offshore trust entities that we are interested in. The first is founder-owned, which is what RNH Guernsey was—part of an affiliated network, Rollinson & Hunter, but founder-owned with a really good book of business. It is usually pretty small—not huge—but a great book of business. Then you have the big bank–owned trust companies, whether it is HSBC or RBC. Those are a lot bigger. We still think that a lot of big banks are motivated to sell offshore trust companies due to regulatory pressure and, frankly, scale—it is sometimes not worth having something like that. We still think there could be opportunities there. The third kind is the big private equity–owned fee businesses offshore, which do private trust company administration and fund administration. We have looked at those. We are hesitant to go into those sorts of businesses because we are really focused on private trust administration. Company administration is very different—it needs a lot of technology and can be tough because you have AML issues sometimes. We are very focused on private trust. Also, as the third buyer from private equity, it is probably not the best price, so we tend to stay away from that. There are a lot of opportunities—founder-owned and also big onshore bank–owned offshore trust companies. We just have to be patient and stick to our guns. We are not going to pay above eight or nine times EBITDA, and the IRR has to be decent. We are at a 40% fee income ratio, and our goal is to get that higher and become more of a fee company. Every one of these acquisitions adds a couple of percent onto that fee income ratio. We just need to be patient, find the right books, and be very disciplined about pricing. Analyst: Great. Thank you for taking my questions. Michael Collins: Thanks. Operator: This concludes our question and answer session. I would like to turn the call back over to Noah Fields for any closing remarks. Noah Fields: Thank you, Bailey, and thanks to everyone for dialing in today. We look forward to speaking with you again next quarter. Have a great day. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Unum First Quarter 2026 earnings. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Matt Royal, Investor Relations. So Matt, please go ahead. J. Royal: Thank you, and good morning to everyone. Welcome to Unum Group's First Quarter 2026 Earnings Call. Please note today's call may include forward-looking statements, and actual results may differ materially, and we are not obligated to update any of these statements. Please refer to our earnings release and our periodic filings with the SEC for a description of factors that could cause actual results to differ from expected results. Yesterday afternoon, Unum released our earnings results and financial supplement for the first quarter of 2026. Materials are also available on the Investors section of our website. . Also, please note references made today to core operations sales and premium, including Unum International, are presented on a constant currency basis for improved comparability period to period. Participating in this morning's conference call are Unum's President and CEO, Rick McKenney; and Chief Financial Officer, Steve Zabel. Following remarks from Rick and Steve additional members of management will join and participate in Q&A, including Tim Arnold, who heads our Colonial Life and Voluntary Benefits lines, Chris Pyne for Group Benefits; and Mark Till, who heads our Unum International business. Now let me turn the call over to our President and CEO, Rick McKenney. Richard McKenney: Great. Thank you, Matt. Good morning, and thank you for joining us. We are very pleased with a solid and encouraging start to 2026. It is one that reflects strong execution across the business for both the top and bottom line, greater capital deployment and continued progress in management of our Closed Block. Core operations performed well with earned premium growth of over 5% adjusting for the transactions. After-tax adjusted operating earnings of $353 million and after-tax adjusted operating EPS of $2.14 is up nearly 10% from a year ago. Leading the way our group -- our U.S. group business had a standout quarter with sales up 22% and persistency is strong at 92%. Combined, this drove premiums up approximately 5%, specific to our group lines. The top line also translated to the bottom line as we saw record earnings in group life, bringing total U.S. group earnings to over $220 million and with a very high ROE. Within the group portfolio, this quarter, it was clearly the Group Life business, which outperformed, but not to be overshadowed, our group disability business showed consistent strength with high returns and good long-term disability fundamentals. As we pay careful attention to pricing and risk selection at the employer level for new and existing customers, our team continues to do an excellent job helping people get back to work and fulfill our purpose. These results reinforce what has long been true for us. We have built our business on disciplined pricing and underwriting, strong customer relationship management, which is key to high persistency and continued focused investments and capabilities that differentiate Unum in markets. It is particularly important where technology and human support come together at moments that matter most. It is also another quarter in which we delivered on the consistency and execution that our customers and shareholders expect from us. To achieve this, we have been deliberately investing in technology-enabled solutions that help us win, retain and grow business by making it easier for employers and their employees to engage with their benefits. This is evident in this quarter's results with the success we're having in providing solutions and services that resonate with our customers. In recent years, employers have placed increasing importance on managing employees leads. The expansion of state family and medical lead programs has provided another avenue to leverage our LEAP management leadership position and reach more people. Our Digital First Total leave platform combined with our traditional insurance products and technologies such as HR Connect, delivers a best-in-class experience to our clients which in turn contributes to the high levels of satisfaction and persistency exemplified this quarter. Extending from our leading group businesses is a very successful and broad-reaching supplemental and voluntary product business. These lines of business saw a 20% sales growth in the quarter. We see employers looking at the broader benefits package more often as these products leverage the same digital tools and employers know they can depend on Unum across their benefit needs. Taking our Unum US business in totality, we delivered strong before tax earnings of $338 million and an ROE of 25% in the quarter. At Colonial Life, momentum continues to build. The business delivered a record earnings quarter supported by premium growth in line with expectations, attractive returns and continued benefit from disciplined execution and strong relationships in the worksite market. Colonial Life is an important component of our reach and able to get to employers of different sizes that are looking for high-quality solutions to help take care of their employees. Looking internationally, after significant growth on top and bottom line over the last several years, Unum International produced mixed results this quarter. Strong performance in Poland, where growth continues at an exceptional pace was offset by benefits pressure in the U.K. Our market position and know-how gives us confidence that we can actively address macro market dynamics and we are excited about the long-term value growth and contribution of our international businesses. Overall, core operations are in excellent shape heading into the rest of the year. As we refine how we present and focus our earnings on an ongoing basis, we'll also continue to provide transparency into our closed block. This remains an area of active and deliberate management. Importantly, results this quarter reflect tangible progress in reducing both the size and the risk profile of the block. As we announced late last year, we discontinued new employee coverage on existing group cases. The response was well received by clients, particularly among employers who had not recently evaluated the cost and value to their employees of this legacy offering within their broader employee benefits package. Because this product was last marketed in 2012 and provides benefits well beyond an employees working years, our engagement this quarter led some employers to voluntarily cease their coverage. As a result, 7% of all group LTC cases closed during the first quarter, meaningfully reducing our exposure. Importantly, this reduction in footprint was achieved with clarity and transparency for our clients. As our customers' evaluation continues, we expect additional case closures going forward. Beyond that, our fair wind protection remains at a robust $2.2 billion. The external reinsurance transaction we completed last year continues to perform well. and the elimination of new employee tail risk is fully in place. We continue to evaluate a broad set of options to further mitigate LTC exposure, including risk transfer, and we are encouraged by our progress and the opportunities ahead. The actions we are taking are methodical, deliberate and effective. Each step improves the risk profile and allows us to keep our focus where it belongs, growing and strengthening our core business. Turning to the balance sheet. Our portfolio continues to perform well in the current environment and remain solidly investment grade. Our team has done a good job over the last several years, increasing our overall credit quality at a time when you weren't getting appropriately paid for the inherent credit risk. Additionally, our capital position remains very strong. with RBC at 460%, which is over 100 points above our target range and holding company liquidity is strong at approximately $1.7 billion. With solid capital generation, we remain committed to our capital deployment framework, investing in our business for growth, both organically and inorganically, and then returning capital to our shareholders through dividends and share repurchases. Our outlook calls for the redeployment of roughly $1.3 billion, which is roughly what we generate in a year. During the first quarter, we repurchased approximately $400 million of shares taking advantage of attractive prices to accelerate a portion of our planned repurchase. This reduced our public float by approximately 3% in 1 quarter. After paying out $78 million in dividends in the first quarter, we will also look to increase our dividend rate in the coming months heading into our annual meeting. Our delivery of investing in growth and deployment plans are intact. Looking ahead, we remain confident in our 2026 outlook, which consists of delivering 4% to 7% top line growth, 8% to 12% EPS growth, attractive returns on equity in our core operations and continued strong capital generation and deployment. The environment remains supportive. Our sales pipelines are building as we move through the year. Digital connections with our customers continue to deepen and our teams remain intensely focused on execution. Most importantly, our purpose of helping the working world thrive throughout life's moments continues to guide our teams. Our growth and our culture over the long term. This year, we were pleased to be named 1 of the world's most ethical companies for the sixth straight year. This all comes together to generate the results of today and the long-term value creation we are building for customers, employers and shareholders. I'm happy now to turn the call over to Steve to walk through the numbers in more detail. Steve? Steven Zabel: Great. Thank you, Rick, and good morning, everyone. The first quarter of 2026 was a strong start to the year with many of the expectations we laid out in our outlook meeting emerging across our businesses, resulting in after-tax adjusted operating income per share of $2.14. Notably, Group Life and AD&D, along with Colonial Life had record levels of earnings and group disability met our expectations. Alongside the strong margins we saw, top line trends were ahead of our expectations with sales growth of 14.4%, grew persistency increasing 2.7% year-over-year to 92% and core premium growth of 3.9%. While premium growth is slightly below our 4% to 7% full year expectation, we had expected this to accelerate and build throughout the year. . Adjusting for the runoff of the stop loss business and the transactions executed last year, core premium growth would have been just over 5%. Before moving on to our segment results, I will remind you that this is the first quarter reporting under our new definition of after-tax adjusted operating earnings, which excludes the closed block. While the closed block earnings are no longer represented in our headline adjusted after-tax operating income, I will spend some time later in the call to talk about key trends in that business. Diving into our quarterly operating results across the segments, the Unum US segment produced adjusted operating income of $337.9 million in the first quarter of 2026, compared to $329.1 million in the first quarter of 2025. Group disability adjusted operating earnings of $106.6 million in the first quarter of 2026 reflect a benefit ratio of 63.7% compared to 61.8% in the year ago period and an improvement from 64.2% in the fourth quarter of last year. Overall, long-term disability results are consistent with the assumptions embedded in the models that underpinned our guidance last quarter and reflect continued progress as the line continues to normalize. With that said, the quarter did include higher incidents in the short-term disability product line compared to the same period a year ago. Specifically, paid family and medical leave experience was somewhat elevated in newer PFML states and modestly pressured in existing jurisdictions, reflecting continued investment in the attractive leave opportunity discussed earlier. As PFML remains a maturing market. Our standard 1-year rate guarantees provide flexibility to respond quickly. Excluding PFML, group disability experience was solid and within expectations supported by stable incidents, strong recoveries and a rational pricing environment. Results for Unum US Group Life and AD&D include adjusted operating income of $115.1 million for the first quarter of 2026 compared to $69.2 million in the same period a year ago. The benefit ratio decreased to 61.8% compared to 69.3% in the first quarter of 2025 driven by lower incidents. This result was extremely favorable compared to our outlook of 70%, and we've now seen multiple years of better-than-expected results, averaging in the mid- to high 60s. We believe that this moderate level of outperformance could continue to persist. Adjusted operating earnings for the Unum US supplemental and voluntary lines were $116.2 million in the first quarter, a decrease from $140.7 million in the first quarter of 2025. The decline in earnings was driven in part by last year's long-term care transaction, which ceded a portion of our IDI business. but also by unfavorable underlying experience in that line. Turning to premium and sales. Our top line trends remain healthy. Unum US premium grew 3.3% with support from high levels of persistency. Excluding the impact from the runoff of the stop loss business and our transaction last year, Unum US premium grew just over 5% year-over-year. Our pipeline for future growth remains strong. Unum U.S. quarterly sales were $335.1 million compared to $277.5 million in the first quarter of 2025. Total group persistency of 92% increased sequentially from the fourth quarter and from the same period last year, reflecting the enduring relationships we are able to create with our customers. Moving to Unum International. Adjusted operating income for the first quarter was $30.9 million compared to $38.7 million in the first quarter of 2025. And and below our outlook for earnings in the low $40 million range. The International segment's benefit ratio was 71% compared to 66.5% in the year ago period driven by unfavorable experience in the U.K. business. Adjusted operating income for the Unum UK business was GBP 20.4 million in the first quarter compared to GBP 29.5 million pounds in the first quarter of 2025. The results reflect underlying claims performance, including a benefit ratio of 72.9% compared to 76.1% a year ago. The change in benefit ratio was primarily due to a larger average claim size in our group long-term care disability business in 2026. International premiums continue to show growth. increasing 8.1% and are supported by healthy persistency levels and sales growth of 5.5%. Premium growth was broad-based with U.K. premium growing 6.5% and and Poland premium growing 15.2%. Next, adjusted operating income for the Colonial Life segment of $127.8 million in the first quarter was a record, and increased from $115.7 million in the first quarter of 2025 driven by strong benefits experience and underlying premium growth. The benefit ratio of 46% compared to 47.7% in the year ago period and was better than our expectation of the range of 48% to 50%. Premium income of $472.7 million compared to $457.3 million in the first quarter of 2025 and was driven by strong sales in the prior year and stable persistency. Sales in the first quarter of $106.3 million were up slightly from the prior year. Colonial Life produced strong returns, including ROE of 19.2%. I will now provide an update on the closed block focusing less on the earnings results and more on key business trends and balance sheet health. Long-Term Care's results this quarter were largely influenced by employers' decisions to cease coverage following the discontinuation of new employee enrollments on existing GLTC cases that we announced in the third quarter of last year and that was effective in February of 2026. As a result of these decisions, we saw elevated GAAP accounting volatility from these closed cases, which is acutely seen in the headline segment earnings results. Despite the margin in these closed cases, which reduced current period GAAP earnings, we are very pleased to reduce the associated exposure and tail risk in the block. In addition, first quarter results included amortization of reinsurance costs related to the LTC reinsurance transaction that closed in July of 2025, which did not impact the year ago period. Outside of these impacts, underlying experience trends remain in line with expectations. Combined with the underlying benefits experience, the NPR increased 10 basis points to 97.6% on a sequential basis. Other key considerations for monitoring the block health include our Fairwind protection remaining stable at approximately $2.2 billion and continued success with our premium rate increase program with our achievement rate sitting at approximately 15% for our current program. Then lastly, for the closed block, our alternative investment portfolio, which mainly supports LTC and and an annualized yield of 6.7% in the quarter, below our long-term expectation of 8% to 10%. We typically see seasonality in first quarter marks due to the timing of receiving year-end statements and therefore, we remain confident in the construction and resiliency of this portfolio. I'll end by covering our capital position. In the quarter, capital metrics across the board remain robust. Holding company liquidity stood at $1.7 billion and traditional RBC at 460%, both above our long-term targets and consistent with our expectations. These levels keep us on track to achieve our full year outlook of 400% to 425% RBC and $2 billion to $2.5 billion of holding company liquidity. Our robust capital position is supported by statutory after-tax operating income of $314 million in the first quarter, positioning us for our full year expectation of $1.4 billion to $1.6 billion of total capital generation. This cash generation model paired with our strong position enables our durable approach to deploying capital to our shareholders. In the quarter, we took the opportunity to execute a dynamic approach to share repurchase buying back around $400 million of stock. While we are constantly evaluating our capital deployment plans, we view these actions as a pull forward of our plan and remain on track to repurchase $1 billion of stock this year representing all of the free cash flow we plan to generate. Our thoughtful share repurchase, paired with our common stock dividend of $78.4 million put first quarter deployment just under $0.5 billion, underscoring our ongoing focus of executing prudent capital management. So all in all, it is a solid start to the year for the company. The encouraging top line trends and strong margins across many of our products illustrate the high-quality nature of our business. This paired with our continued active management in the Closed Block and opportunistic acceleration of share repurchases and provides us with healthy optimism for the remainder of the year and positions us well to execute against our goals. I will now turn it over to Rick for his closing comments before going to your questions. Richard McKenney: Thank you, Steve. And overall, you heard from both Steve and I as we delivered a strong first quarter. It reinforces both our near-term momentum and our confidence in the company's long-term positioning as we move through the year. Before we move to Q&A, I want to recognize an important leadership transition for our company. After more than 4 decades at Unum, Tim Arnold has decided to retire in July. Tim has been a highly respected leader with a significant impact on our voluntary benefits businesses, particularly at Colonial Life, where he has been the President for the past 11 years. Tim is 1 of the few people who has lived in each of our 4 major locations and has impacted the people and the communities he has served. We are grateful for his many contributions and the legacy he leaves behind. We're also very pleased with the planned leadership transition, including the appointment of Steve Jones. Currently, Colonial Life Head of Market and Field Development as the next President of Colonial Life. This reflects the depth of our management team and our focus on continuity and long-term growth. We will look forward to Steve joining us on this call in the future. So with that, operator, we'd be happy to take questions we have out there. Operator: [Operator Instructions] Your first question from the line of Alex Scott with Barclays. Taylor Scott: First one I had is on the paid family medical leave. I wanted to see if you could provide a little more color on what you're seeing in that product line as you move into new states and -- just help us understand if we should expect to continue to see some pressure there until we hit another renewal cycle or what you saw in first quarter is a little more one-off in nature. Richard McKenney: Yes. Thanks, Alex, for the question. It's Rick. I just wanted to just say that this is an important part of the overall mix. And so when we think about it, we think about it, it's been consolidated in our group disability results, which, as you can see, very high returning business. And so this is a new developing area, which one we've been talking about for a long time. But certainly, we can give us some more details behind that, which is just an extension, as I mentioned, of our leave business. But maybe, Chris, we give some more context in terms of the dynamics in the paid family medical leave currently. Christopher Pyne: Sure. Thanks, Rick. And thanks, Alex. Ultimately, this is an exciting time in our business. If you think about PFML and the states that have come on over time and most recently, Minnesota and Delaware were added 1/1, and then May will come up in the first quarter this year. This is an expansion of a business we're in, giving more employers the requirement to be covered for short-term disability on the employee side, but also adding coverage for family events where people need to be away from work. So it really fits the work and the investments we've made in the lead business where you bundle products and services to make sure that we can be that partner to employers as they manage their workforce for both regulated events and also just what they want to provide in terms of flexibility for their employee population. When stays come on, we deal with it like any other new line of business coming on in a state. And you can see some pressure from pent-up demand that happens at times. We manage it. The good thing about PFML is, it is high-frequency type coverage like short-term disability. It gets credible quickly. You can see how the experience emerges and it is short in terms of rate guarantees. So normally, a 1-year rate guarantee gives us the opportunity to reprice and we've been doing that at current, and we'll continue to do that. It also can give you a little bit of lift in sales. Normally, that's been small enough to just be absorbed into our business because it's one state at a time. And obviously, our disability business is quite large. When you have 2 or more or it can show up a little bit, and that does provide a little bit of tailwind in sales. But I would bring you back to -- this is the business we're in. This is the business that employers need our help with, so it's an exciting time. When new states come on, that is part of it as prior states mature in terms of how the experience plays out, that's given us more information, and we'll continue to adjust price and manage that business very well, which is part of our heritage. Taylor Scott: That's helpful. Second one I have is on long-term care. Could you talk about the in-force management actions that you've taken? And just the 7%, can you tell me about what portion of the policies had that renewal that that occurred this quarter? And how much are you expecting to renew that you're working on some of these actions with through the rest of the year. So how do we think about that 7% potentially growing to a larger percentage of the total group LTC . Richard McKenney: Yes. Thanks, Alex. Let me just provide a little bit more context around our LTC actions. And we've been taking them now for several years. As we've said, it's been methodical addressing different parts of our book of business. That includes rate increases, which we've been doing now for a long period of time, also includes the capital actions we've taken behind Fairwind over the last several years. And then most recently, last year on the risk transfer that we did as part of that -- and then in third quarter, we took some actions around new lives on group cases, and I think that has some impacts that we've started to see coming out there. And Steve, maybe you can take us through some of the details of Alex what we saw specific to this quarter? . Steven Zabel: Yes. Yes. So I would go back to last year when we notified our employer base that we were going to be no longer accepting new lives on existing cases. And then what that did is it really -- it really started a lot of conversations with our employer groups, just about the value of the program, the future of the program. You get into the discussions about kind of what we're looking for going forward around our rate increase program. And it's just a point in time where they evaluate their entire employee benefits package and how the LTC plans might fit into that. And so -- as a result of some of those discussions, we did have much higher levels of employer level terminations of those cases, we did quote that about 7% of our cases did terminate in the first quarter. That equates to approximately 30,000 actual lives on a net basis that would have ceased coverage during that period of time. And so as we think about just ongoing communications with our customers, that's part of the conversation. We will continue to have those going forward. I would say, as we look forward, first quarter is probably the most acute that we feel the impact, but we could see future terminations on some cases as those conversations continue. I would just pull it back up though. I know there's a lot of GAAP accounting noise on this one. But at the end of the day, we're having good conversations with our clients. As a result, we've reduced risk exposure, tail risk on that book of business, and we just view it as another part of us thinking about how to manage this business going forward. Operator: Next question from the line of Tom Gallagher with Evercore ISI. Thomas Gallagher: First question is just on how to think about guidance over the balance of the year. I heard your comment on Group Life and AD&D, how you think that's probably going to trend somewhat favorable relative to initial assumption. I don't know, can you just mention have you changed anything for the other businesses? It does seem like international is running somewhat adverse. And I guess, group disability, the loss ratio sounds like it might be more toward the high end of the range, if I'm reading you correctly on this PFML issue, assuming that process for a bit, can you just talk about how are you thinking about the different businesses over the balance of the year? Steven Zabel: Yes, this is Steve. I mean I would go up and just say, we feel very comfortable in the guidance range that we've given based on what we've seen in the first quarter, the drivers of some of the margins in the first quarter and how we look to the back half of the year. I'd start with we feel great about growth within our core businesses, and that's a real driver than of bottom line. So everything we're seeing commercially would very much support the top line growth that will drive the earnings that we have in that outlook. We did have some variances against kind of original expectations in the first quarter. You mentioned group life. That was a great result for us. We do think that there's a possibility that will continue to be somewhat favorable to the 70%. But as you know, group life can be very volatile. So we just have to see how the year plays out. International benefit ratio was a little bit higher. There was kind of some one-off things around just the average size of new disability claims. We don't believe that will persist. That will be wild cherry for us, though, and we'll monitor that as the year goes on. Colonial had a great quarter. Really everything from a benefit ratio perspective was very positive. We have a lot of different products within that. And there's usually a little bit of offsetting of performance. But this quarter, everything was very positive. And then there are some other lines where we had some variations, including group disability, but they were all within our range, going into kind of planning for that ultimate outlook. So Tom, at this point, we're 1 quarter in. And so I'd say we still feel very good about the broad outlook range that we gave at the beginning of the year. Thomas Gallagher: Got you. My follow-up also long-term care. Can you give a little bit of color for how big are the group LTC reserves relative to the total of -- we'll call it, $14 billion or so? And did you -- when you had a 17% reduction from nonrenewals, can you provide a little more transparency, what did that do to reserve levels versus the capital that make up the $2.2 billion of excess over best estimates in Fairwind? Steven Zabel: Yes. So it wasn't 17%. We had a 7% reduction in cases in the first quarter due to employers ceasing the coverage in their plans. What I would tell you is kind of from a statutory reserving perspective, we did release reserves in the first quarter of the year and felt very good about that. I kind of zoom back a little bit and just think about the protections that we have in Fairwind generally. And mechanically, what happens is we release those statutory reserves and those in essence flow into excess capital in Fairwind. And when you think about our definition of protections in Fairwind, it's a combination of the margins that we have in the reserves and the excess capital, it was pretty much neutral. . And so the way I think about it is we still have $2.2 billion of protections in Fairwind on a block that's smaller. And so net-net on net, feel like we have more relative protection in Fairwind for the remaining walk there. We haven't really disclosed the split between GAAP and individual -- or sorry, group and individual statutory reserves. And so -- and that's something we can consider going forward. There is a lot of demographic information about the split between individual and group in our annual investor packet that we send out as part of that call. Operator: Our next question from the line of Suneet Kamath with Jefferies. Suneet Kamath: Just wanted to start out, congratulating Tim Arnold on his retirement, but I did want to ask him a question. Just on the voluntary business, we're starting to see some reports of states telling insurance companies to lower premiums on certain products. Just wondering if you're seeing any of that in terms of your business? Timothy Arnold: Yes, this is Tim. Thank you so much for the congratulations on the retirement. I appreciate that. There have been states throughout the last 10, 15 years who had loss ratio requirements that differ -- and so it's not something new that we're working through, but we are seeing a couple of additional instances where states are inquiring about loss ratios and just trying to make sure that the products are performing as they were originally priced. Suneet Kamath: Got it. Okay. And then, I guess, turning to Unum US, I mean, the 20% sales growth was pretty strong. I think most of it is from the core market. But -- can you just kind of unpack that a little bit? How much of that is sales to existing customers versus new customers? And any comment on kind of the natural growth that you typically talk about on these calls. Richard McKenney: Yes, Suneet, actually, we'll let Chris get into that. But I think it would be helpful to actually talk about sales around the horn because I think we had a really good sales quarter and in the U.S., but I think that, that was other places as well. So Chris, do you want to start us off and maybe we'll ask Mark and Tim talk a little bit about sales as well. . Christopher Pyne: Great. Thanks, Sumit. Yes, strong sales in the quarter, 20% growth and we're thrilled as we look at that sales growth that we continue to tie back to where we've made investments and capabilities, no surprise, HR Connect and connecting to the platforms of choice hugely popular with our new sales and also growing existing sales when that type of connection is in place. totally is a huge driver of decisions that people make and they buy a bundle when they do that for both total [indiscernible] HR Connect type platforms. I want to also reinforce that we've got a very strong marketing alignment in terms of going out and finding the right types of prospects so that we know where to spend time and energy and our brokers and consultants are focused on the right things when it comes to making a difference for their client base. That's an exciting partnership, and it's nice to see that alignment all the way through the sales funnel. You referenced that new sales for small and mid customers really strong. That was -- there's a little bit of tailwind in PFML in that space, but even when you strip that out, new sales for small and mid customers really strong, nice to see that growth year-over-year. First quarter is a little bit more volatile. It's a small quarter for us in terms of our national client group. And we -- again, we did see some tailwind from PFML in the large space with Maine coming on [indiscernible] which we credit the -- which we see in the quarter. But overall, the fundamentals of where we're winning tied to capabilities, winning on new and growing our business have been really positive, great start to the year. So thanks for asking. Richard McKenney: Tim, do you want to follow up? Timothy Arnold: Yes, sure. I'll start with the Unum VB side of the house. Extremely strong sales in the first quarter, up 24% year-over-year. New sales were at a record level. In the VB business on the Unum side, the first quarter is the biggest quarter of the year. So it's particularly comforting to see the business get off to a plus 24% start that bodes well for the remainder of the year. On the Colonial Life side, sales were a little sluggish in the quarter. However, I would just bring you back to the fourth quarter where sales growth was almost 10%. I think we had a little bit of a soft pipeline coming into 2026. But I would tell you the fundamentals and the leading indicators remain very strong. Recruiting is very strong. We like the number of sales managers we have in the organization and the performance that they are demonstrating. We saw strong sales in the quarter from new clients and also from large case clients, had a little bit of weakness in the existing client sales base. And [indiscernible] and the sales team are working hard to get that back on track. And we believe that the remainder of the year, there's reason to be optimistic. If you look at the gap between where we finished the first quarter at Colonial Life and where we thought we would be, it's about 1% of total annual sales. So we certainly think that, that is recoverable. And then if I may, Suneet, since you started the question with my retirement, I'd be remiss not to say I'm extremely excited about Steve Jones. I have the opportunity to work with him now for 2.5 years. He joined Colonial Life as the Head of Sales and Marketing support field to market development. He is an incredibly strong leader. He's led 2 other P&Ls in his career. And I think this transition is going to be extremely smooth. He's very much aligned to all the things that we've been doing and [indiscernible] of a zone that I think are pretty exciting. And so really, really happy to have Steve in the role moving forward. Richard McKenney: Good. Thanks, Tim. And Mark, let's talk a little bit about international. . Christopher Pyne: Yes. Thanks, Rick. If you look at international as a whole in dollars, sales were up 14%. As we know, the U.K. is the predominant part of that. So if I perhaps touch on local currency sales in the U.K., they were up 15% on the quarter. I always think sales are a function of the proposition that you have and the way in which the brokers in the U.K. market view you. We've been investing hard in broker service, digital propositions. It was last week that actually an independent survey by NMG on brokers rated as the number 1 for Net Promoter Score, and we led the market in pretty much every major capability, whether that's relationship management, claims, management, absence management, rehab product, value-added service. Those are the things that contribute -- those are the things that contribute to the growth in the business. We also got some data last week that said that in 2025, we were the #1 writer of new business in the U.K. market. So I think we've got some confidence that we have the support of the brokers and the propositions to be able to drive the growth sales in the business over time. Richard McKenney: Good. Thanks, Mark. I think you have Suneet. I mean I think it is a broad-based story, and so I don't want to focus on just the USP sales looked very good across the enterprise in the quarter. Thanks for the question. . Operator: Your next question from the line of Jack Matten with BMO. Francis Matten: Just 1 follow-up on the group LTC actions. I guess what you said that Unum is incentivizing its group customers in any way to determinate their cases? Or do you plan to offer any consensus there? Or is it really just these terminations or an outcome from kind of more normal course conversations around things like rate increases? Steven Zabel: Yes. This is Steve. Absolutely no incentives. This is a unilateral decision that a group HR director makes when they're looking at their entire benefit package for their employees and just evaluating the value of the different pieces of that package. And so we're obviously here to have that conversation with them and discuss their options with their plan, but there's absolutely no incentive coming from us, and from our perspective, the key is for us to continue to serve those customers that remain in force, and that's what our team is focused on. But we're also there to help give a little bit of education and help and administrate or through their decision. . Francis Matten: Got it. That makes sense. And then a follow-up on the international business. And I think some of the pressure you talked about in the U.K. Group LTD. Can you just unpack a little bit more? Was that more frequency or severity issue -- and do you view any of the trends there or something that could persist for a period of time? Or do you view it more as just kind of a one-off this quarter? Steven Zabel: Yes, this is Steve. I can cover that one. It definitely was for the quarter, an average size for the long-term disability business over there. And really, the size of new claims is a function of just those individual claims that come in based on diagnosis based on occupancy, based on based on the industry. And so we have a lot of data to say those types of claims when they come in, this is a reserve that we need to set up. And so you just -- you get into some of these quarters where just the mix of those claims drive a higher expected size of claims than what you would have expected. So really nothing to do with the incidence counts specifically there. I will say we've seen that in the U.S. business as well over time, and they tend to just be kind of anomalies that you see in a quarter, and so right now, we would view it as just some first quarter volatility. But obviously, we're going to need to look at that as the year plays out and see how that impacts our view of the outlook for the business. . Operator: Your next question from the line of Joel Hurwitz with Dowling. Joel Hurwitz: First, Rick, in your prepared remarks, you mentioned that you were I think, encouraged by opportunities and progress that's been made on further risk transfer. Can you just elaborate what you're seeing in the market? And I guess, any optimism in getting another deal done this year? Richard McKenney: Yes. Thanks, Joel. And as I talk about that, I look back to the transaction last year, it's been just over a year since we announced the transaction closed at midyear last year. Very happy with how that performed, how that went through close, and we think it's just a good overall impact to the risk transfer. We talked a little bit about what's happening on the group side today. But we are looking across the book with different counterparties to think about what our other ways that we can use reinsurance and risk transfer to help mitigate that. So coming off of a successful 2025, we also, at that time, said we're a deal ready. We're ready to go for the next tranche. It's just about finding the right counterparty. So we have the preparation and the teams are ready to do that. We have a strong desire to remove this risk, which we have been very consistent on, and that's in multiple forms in terms of taking the risk across the enterprise. And on the risk transfer side, the market is constructive. I think we've used that term constructive before. There are a number of players out there that might take on this type of risk, lots of interest that's out there, but getting interest to be actionable, takes some time because it does take a good qualified counterparty who's willing to do the work. But there are a number of people out there willing to take the biometric risk. And I think part of the development we saw a couple of years ago is the ability of companies to parse the risk between the biometrics and the asset management side, which is such an important piece as well. And there are a number of players out there thinking about the biometric side. There are many players out there thinking about the asset side of it and then how do you bring it all together? So I'd put it with the same category, it's constructive where the team is active, does not necessarily mean any deal will come to fruition. This is still a complicated hard work, and we're going to do the right thing in terms of shareholders as well when we take off that risk. And so -- but we're working hard at it. And I think that we'll continue to have this to be a priority in the company to remove the risk of LTC from the balance sheet. Joel Hurwitz: Great. And then just shifting to Group Life, just I guess can you unpack the experience? Was it all essentially frequency? And then just given -- I think it's been a little over 2 years now of continued strong results in group life. When does that get reflected back in pricing? Or is the benefit ratio in the 60s for this line, sort of the new normal now? Steven Zabel: Yes. So in the quarter, it was definitely just incidents. These tend to be lower face amount type policies in group life. So normally, when you see kind of fluctuations in overall benefit ratios, it's just going to be driven by the number of claims that we receive in a period, and that's definitely what we saw in the first quarter, very, very low number of claims submitted when I kind of zoom back a little bit, if you go back and you look at the average benefit ratio in this line going back many quarters, it's been kind of in that high 60% range. So this quarter was really an anomaly and doesn't necessarily change our view of the block significantly. I did make a comment that looking forward, it may be in that high 60% range benefit ratio. But I would say, from a market and a pricing perspective, we'll take it into account, but it is just 1 quarter of very, very good performance. And we'd have to see that play out for longer really before it impacts pricing in a big way. And like all of our products, we look at this in a bundled way as we're working with our cases. And so we'll look at the overall economics of the case. And over time, it could factor in, but right now, I think it's too early. Richard McKenney: Yes. And I think that's an important point, Joel. When you think about it, it is that bundling factor. We've been talking about that a lot on the group disability and the great results we've seen there. It's more than just the stand-alone product line, what's doing. It's more about the relationship, our risk selection and all those different things that come in as we've talked about leave management and the wrapper around that, that's all important. So it's good to look at it. We're very happy with the results, but it's really hard to predict in terms of where that's going to go or how the market will factor some of that in. . Operator: Your next question from the line of Wes Carmichael with Wells Fargo. Wesley Carmichael: I wanted to come back to group LTC for a second on the terminations in the 7%. Just looking at the statutory annual filings, I think the group LTC reserves around $7.5 billion at the end of 2025. So just curious, Steve, does that imply that the reserve releases are in the neighborhood of, call it, $500 million, $525 million? Or is there any help you can give us on the impact on the statutory front? Steven Zabel: Yes. What I'll tell you on that one. You can't just kind of use averages to think about what a statutory reserve release might look like just because the policies are in different ages. There's different benefit coverages. And so it's kind of hard just to do that. What I'll tell you is on a net basis, the statutory reserve release it was less than $100 million. It was significant, but it wasn't something that would change a capital plan or change the way we think about protections on the balance sheet. We're very happy for us, the main thing is we're very happy reducing the risk exposure, but not a big capital impact, I would say, in the quarter, but as you said, the reserves on these are going to be positive for statutory purposes. So there will always be a reserve release. . Wesley Carmichael: Yes. That's helpful. And I totally acknowledge the reduction in risk along -- sorry, was it something else? Steven Zabel: No. Wesley Carmichael: Okay. Just a second question, I guess moving to Unum US. Just on expenses, and I think I asked about this last quarter and you guys had hinted that maybe there is some potential operating leverage coming. But any thought on how you can improve the expense ratio going forward in Unum US. Steven Zabel: Yes. I mean we kind of think about it in aggregate and kind of take it to the top of the house house of the consolidated operating expense. I think the comments that we made is our expectation for 2026 is going to be -- that's going to be relatively flat with maybe some improvement as we work our way through the year. We are driving productivity within the organization, which we think is important, but we're also investing back into what we're trying to do commercially. And so I think if you want to look for this period in 2026, I think it will be a pretty neutral story, all things being considered. Operator: Your next question from the line of Brian Kruger with KBW. Unknown Analyst: I had a question on the traditional group persistency improvement of about 3 points year-over-year. Can you just talk about the, I guess, the dynamics that you think led to that both from a market perspective and maybe anything unit specific? Christopher Pyne: Yes. Thanks, Brain, it's Chris. Persistency is really strong. We're thrilled with the beat we had with persistency, and we do think it reflects very directly, the investments we've made in capabilities. We've got historical evidence that continues where there's a spread in persistency in terms of higher persistency where you've got either HR Connect, technology investments and/or total leave, and we expect that trend to continue. Couple that with the fact that we talk about consistent and transparent discussions around price. And when things are going really well, we'll make sure we set the price on a go-forward basis in a way that reflects good value to us and fair value to the consumer. . Employers appreciate that. It shows up in terms of persistency, and we can keep customers with a modest rate reduction going forward at very high margins. That's a good day. And when you tie that to full bundle, lots of different products, lots of services that we provide, including fairly significant from a volume perspective in [indiscernible] things like managing leave customers value our -- what we do for them, and we feel the persistency, while not always going to hit the higher that we had this quarter is going to be a real kind of key to growth in the future. Operator: The next question from the line of Mark Hughes from Truist. Mark Hughes: Flip side of that, I think supplemental and voluntary persistency, perhaps down a little bit, I think, still with a normal range, any strategies to see similar improvement like you've seen in those core group disability, life and AD&D? . Richard McKenney: Do you want to take that . Steven Zabel: Talk about the volume business. I would start with the wrapper though because those things that Chris talked about are important overall in terms of the digital connections we have, et cetera. But our voluntary business does have a little bit lower persistency at the employee level. And Tim, maybe you can talk a little about that. . Timothy Arnold: Yes, Rick, that's right on. That's exactly where we experienced the pressure in the quarter. So as we continue to attach the voluntary benefits business on the Unum side to our lead program and to our platform partnerships with HR Connect and brokerage things of that nature, we're seeing improving person on the employer choice side, we had what I would describe as volatility in the first quarter on what we call member lapses. So policyholders who are either changing employers or for whatever reason, dropping their coverage. The overwhelming majority of those are changing employers -- and so we're taking a deeper look at that just to make sure that we are fully understanding it and then we'll put together any actions that are necessary to bring that back. But we think a big part of it was just some volatility in the quarter. Richard McKenney: Yes. I mean, I might just underscore Tim's point, it's a really good one. Those conversations when you're in talking holistically about the human capital management platform and leave and the full portfolio. We have the chance to talk about how to make sure that ongoing enrollments remain strong, and we get persistency left over time. So glad to let him with that. Mark Hughes: Appreciate that. And then the corporate outlook for the balance of the year, what do you expect in terms of the corporate loss? Steven Zabel: Yes, this is Steve. I would say mid-40s loss is probably about where I peg it. It was a little bit light. The loss is, I think, a little bit light this quarter, but that would be probably where I would estimate it being going forward for the year. . Operator: Your next question from the line of Pablo Singzon with JPM. Pablo Singzon: One more question on Unum International, where you referenced macro dynamics in the U.K. Was that related to inflation potentially picking up again, the economic outlook or something to do with underlying risk experience that you had already commented on. Richard McKenney: Mark, I don't know if you picked up the question, but I was talking about just the macro environment and if that's causing some of the benefits and you specifically highlighted inflation. So it's a little hard to hear. So . Mark Till: Yes. I mean I think it's fair to say that the macroeconomic environment in the U.K. is not as strong as it has been for the last couple of years. We have some slightly higher inflation. The Bank of England is yet to respond with higher interest rates and actually sent some very calming messages saying that it wasn't going to do that. But there has been a little bit of a slowdown in -- we saw in 2025. And in existing employers adding lives to schemes. But actually, that picked up in quarter 1 '26. So -- at the moment, I would say, I think there's a mood is a little bit lower, but not lots of site that the economic activity is much lower. Steven Zabel: Yes. The other thing that I'd add, Pablo, because I think you maybe have a specific question about what the benefit ratio somehow influenced by some of our policies that are inflation-linked. And I would say that that's not a significant contributor this quarter, it's more just around the average size of some of the claims submissions. . Pablo Singzon: Yes. And then second question, U.S. supplemental. 1Q was below the quarterly run rate get provided before, I think it was $120 million to $130 million, and the loss ratio was at the high end of your range. Can you give us an updated [indiscernible] . Steven Zabel: Yes. There's not really anything in there specific that I would say would be recurring. We still feel really good about kind of the quarterly outlook that we give for supplemental and voluntary IDI claims were a little bit high for the quarter. We saw a little bit of volatility in voluntary benefits. But nothing that we're looking to really continue as we proceed through the remainder of the year. So not really changing our viewpoint on ongoing earnings there. . Operator: Your next question from the line of Tracy Benguigui with Wolfe Research. Tracy Benguigui: Most of my questions are asked. So just 1 for me. I appreciate you clarifying that $100 million of reserves for the group LTC case exits was not material enough to move the needle on capital. So just taking a step back, can you share what you need to see to reallocate some of your $2.2 billion of LTC protection into excess capital? Steven Zabel: Yes. It's Steve. We feel really good about leaving the protections down in Fairwind right now. We don't really have any other needs for that capital necessarily. We would have the ability to dividend some of that up to the holding company. But as everybody knows, we have plenty of excess capital of the holding company to have flexibility to do what we need to do. So right now, we think the most prudent thing is to leave that protection down in Fairwind that also possibly could support a transaction in the future. So we just think it's good to use of capital right now, Tracy. Operator: Your next question from the line of Mike Ward with UBS. Michael Ward: I Just wanted to go back to the paid family Medical. I'm just wondering if you're able to kind of like help us size the actual underwriting business that you've gotten from the state lease management programs just because it -- you've spoken about this for a couple of years, but I kind of understood it was like a fee-for-service kind of model. Christopher Pyne: Yes. Mike, it's Chris. Thanks for the question. And when you talk about leave, there is an element that is fee-for-service, and that's somebody can have us outsource their corporate leaves and FMLA which is the federal lead job protection component. But where -- PFML generally gets most of the discussion, and there are different flavors is when a state has a mandatory plan and they provide for a private option. We very much like to play in those spaces, and we have an offering that will be compliant with the state requirements, and we can incorporate that into the broader short-term disability and long-term disability play. It ties in with leave management in total. -- helping employers keep track of what their different employee populations that are eligible for because inside of 1 employer obviously, you have multiple states frequently and different rules apply to different people. But really, it's the insured component of not just the leave associated -- paid leave associated with a medical claim the employee has, but also an event that a family member may have where they need to take time away and they also get insurance cover for that. When you -- maybe to just size it, it's still less than 10% of our overall disability book. And normally, once that comes on at a time, it doesn't have that much impact. I think this quarter, as we referenced, we had 2 larger states that -- obviously, with Minnesota being a little larger and Delaware that showed up a little bit in the loss ratio and also new sales coming on can have an effect in a smaller quarter like the first quarter for when Main comes on. But in general, that's the element of PFML that we're talking about outside of the fee-for-service lead management business that you historically know. Michael Ward: And then is it -- like are you seeing -- is it a rental leave? Or is it more so that sort of family member that is ill that needs care? And is there anything that prevents that from becoming a long long-term claim, if it's a family member. Richard McKenney: Great question. So think about -- so your short-term disability long has forever been Maternity has been the most prominent claim in short-term disability that now gets extended for the birth mother and also the paternity leave associated with it. So a mother can go longer than historically, just the the element of giving birth and the time after birth. They're frequently, there are set number of weeks that they're eligible to stay out. And then there is a maternity factor, which has become a very meaningful bonding element of family medical leave that is real, but there's also a cap on that. Same with family members. So if you have a [indiscernible] or a child or some reason you're taking time away from work, all of these things are capped. So they're eligible to be used, but they very much have a tail. That's part of what we do for employers is we actually keep track of how long somebody has been away from work, what they're eligible for, how long they can be paid. And then part of our job is to tell them when they've exhausted that cover. Steven Zabel: And I think, Mike, the important thing is all of that can be priced for right? And so that's how you respond to changes that might emerge in that book. It's very short tail and the pricing cycle is very short as well. . Operator: Our next question from the line of Wilma Burdis with Raymond James. Wilma Jackson Burdis: Last was in Group LTC, can you just go into a little bit more detail as 1 large account that left? Or was it a lot of small accounts. Maybe just kind of give us some visibility there. We're trying to evaluate just is the product just not as attractive as it once was. I know you mentioned that it is still attractive. Maybe just give us a little bit of color there? Or was it just kind of 1 big account? And just help us think about how we should think about it going forward? Steven Zabel: Yes, I think kind of a good articulation of it is we did have 7% of cases terminate. So it was definitely broad-based. It wasn't that there were a couple of major accounts in there that terminated their plan. It was more broad-based. And it's just based on kind of the value that an HR Director use with their budget of how they spend their money because many of these tend to be funded by the employer. And so that's just a decision that they're making as they think about the broader benefit package. . Wilma Jackson Burdis: And then we haven't seen as many of your peers laying into buybacks to the extent that Unum did this quarter. Can you just talk about how you guys view that kind of tactical buybacks going forward? Richard McKenney: Yes. When we think about -- I appreciate that, Wilma. It's very consistent with the things that we've talked about overall in terms of taking our overall generation and then with a similar amount of deployment billion over the course of the year was our plan is our plan currently. And we just saw the opportunity to actually buy more. We sit in excess capital, so it was not challenging to make that decision, and we were opportunistic in the market. But I think 1 of the things we said we want to be dynamic in that share repurchase. We showed that in the first quarter. We're not changing the longer-term outlook on that, but we want to make sure we're taking advantage of different things that we see in the market, and we did that in the first quarter. So very happy to retire 3% of our shares in the quarter, and we'll see what future quarters look like as well. Operator: We have reached the end of the Q&A session. I will now turn the call back over to Rick McKenney for closing remarks. Richard McKenney: Great. Thank you for joining us today. We do appreciate the engagement. So we will be out there upcoming opportunities to connect. We would note that our annual meeting will be held on May 21. You can all dial in for that as well or send questions. Thanks for your time. Please do send Tim Arnold a note. I'm sure he would appreciate it. And congratulations to him. And that concludes today's call. Thanks, everyone. . Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the PROG Holdings Q1 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, John Baugh, Vice President of Investor Relations. Please go ahead. John Baugh: Thank you, and good morning, everyone. Welcome to the PROG Holdings First Quarter 2026 Earnings Call. Joining me this morning are Steve Michaels, PROG Holdings' President and Chief Executive Officer; and Brian Garner, our Chief Financial Officer. Many of you have already seen a copy of our earnings release issued this morning, which is available on our Investor Relations website, investor.progholdings.com. During this call, certain statements we make will be forward looking, including comments regarding our revised 2026 full year outlook and our outlook for the second quarter of 2026. Listeners are cautioned not to place undue emphasis on forward-looking statements we make today, all of which are subject to risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. We undertake no obligation to update any such statements. On today's call, we will be referring to certain non-GAAP financial measures, including adjusted EBITDA and non-GAAP EPS, which have been adjusted for certain items which may affect the comparability of our performance with other companies. These non-GAAP measures are detailed in the reconciliation tables included with our earnings release. The company believes that these non-GAAP financial measures provide meaningful insight into the company's operational performance and cash flows and provides these measures to investors to help facilitate comparisons of operating results with prior periods and to assist them in understanding the company's ongoing operational performance. With that, I would like to turn the call over to Steve Michaels, PROG Holdings' President and Chief Executive Officer. Steve? Steven Michaels: Thanks, John. Good morning, everyone, and thank you for joining us. I'll start by saying we delivered a strong first quarter. We are very happy with the start to the year and the momentum we're seeing in the business. Our results came in at the high end of our revenue outlook and exceeded the top end of our outlook for earnings and non-GAAP EPS. This outperformance reflects the discipline of our operating model and strong execution across the organization, supported by higher-than-expected GMV with improved economics at Four, as well as better portfolio yield at Progressive Leasing primarily due to lower-than-expected utilization of 90-day purchase options. In an environment where the geopolitical and macroeconomic situation presents challenges, including from rising gas prices, our model performed as designed. This consistency is a direct result of how we built and manage this business over time. Let me provide some additional color on the quarter before walking through our strategic priorities. As I mentioned in February, we have begun framing growth through the lens of consolidated GMV which grew 54% in Q1 compared to the same period last year. These results reflect the addition of purchasing power and the triple-digit growth of Four. As our portfolio of solutions expands, GMV is generated through multiple products across leasing Four and purchasing power, and this consolidated view better reflects the full scale of our platform. It's a great example of how we are deploying an integrated ecosystem of solutions to better reach underserved individuals and families. Starting with Progressive Leasing. GMV for the first quarter came in at 2.2% below the same period last year. However, trends improved meaningfully as the quarter progressed, with January down high single digits, February down low single digits and March up low single digits. As a reminder, throughout last year, our leasing business faced GMV headwinds from deliberate tightening actions and the bankruptcy of Big Lots. As we lap both of those headwinds, particularly through February, leasings GMV trends inflected positively in March. From a GMV standpoint, the quarter played out largely as expected, and we are excited to exit the quarter on a growth trajectory. Four's GMV for the quarter was 134% higher year-over-year. Customer demand for our BNPL product remains robust, and importantly, we are seeing that growth translate into attractive economics and profitability, which I'll discuss in more detail shortly. Purchasing Power's Q1 GMV grew double digits at 10.3% year-over-year. This growth was due to favorable performance within existing employer accounts. We also added several new employer clients during the quarter, bringing tens of thousands of new eligible employees onto the platform and supporting future growth. Consolidated revenue came in at $743 million, representing 11% year-over-year growth. This performance was primarily as a result of the addition of Purchasing Power, along with growth at Four and partially offset by a revenue decline at Progressive Leasing due to a lower portfolio size throughout the quarter. Consolidated adjusted EBITDA was $90.3 million and non-GAAP EPS was $1.24, both exceeding the high end of our outlook. This outperformance was fueled by better-than-expected portfolio yield and customer payment performance at Progressive Leasing as well as increased customer demand and profitability at Four. To summarize the quarter, we delivered results above expectations, saw improving GMV trends while maintaining portfolio health at leasing drove profitable triple-digit growth with improving economics at Four achieved double-digit GMV growth at Purchasing Power and continue to execute against our ecosystem strategy. Before we shift into our strategic priorities, I want to briefly address the broader environment and how it informs our updated outlook. The consumer we serve remains resilient, but they are facing real challenges. Gas prices are elevated, and there is increased uncertainty in the macro backdrop. We remain committed to continue to deliver consistent portfolio performance across all our businesses and managing costs prudently to achieve our earnings outlook. Our track record demonstrates our ability to adapt quickly, and we will do so as conditions evolve. Let me now turn to our 3 strategic pillars, grow, enhance and expand to share some highlights from the quarter. Starting with the grow pillar. We saw encouraging traction at Progressive Leasing and Purchasing Power with remarkable growth at Four, which collectively resulted in consolidated GMV being up 54% year-over-year. For leasing, Q1 applications grew double digits year-over-year and GMV trends improved sequentially month-over-month, with March up low single digits compared to the prior year. In addition to lapping the tightening actions from early 2025, these results reflect our investments in technology to enhance customer experience and in marketing to promote engagement across both new and existing customers. You heard about many of these initiatives at our recent Investor Day, we're pleased to say that they are continuing to have a positive impact on our business. Our long-term distribution base of exclusive retail partners with approximately 70% of Progressive Leasing GMV secured into the 2030s provides a durable foundation for growth as we also gained balance of share within existing key retail partners. Additionally, our direct-to-consumer efforts spanning both marketing and digital channels have been meaningful drivers of growth. Within Marketing and Progressive Leasing, we leaned into customer acquisition, partner marketing and cross-product campaigns, which drove increased engagement and incremental GMV. We focus further up the funnel while maintaining flat acquisition costs year-over-year. At the same time, our outreach channels, including e-mail, SMS and push notifications, generated incremental GMV, reinforcing healthy consumer demand and improving return on ad spend. On the digital front, PROG Marketplace delivered another notable quarter, growing at 169% year-over-year. We are scaling this channel through ongoing product enhancements, increased traffic and improved conversion. Our e-commerce channel also grew meaningfully due to deeper integrations with retail partners and improved digital checkout experiences. Q1 e-commerce GMV was 25.7% of total Progressive Leasing GMV up from 16.8% in the same period last year and the highest first quarter mix to date. Shifting to Four. We delivered another triple-digit growth quarter, our tenth in a row, with performance powered by both customer acquisition and engagement. The team rolled out AI-driven product enhancements that simplify the shopping experience and average order values increased year-over-year. Monthly active users more than doubled compared to a year ago, reflecting growing consumer interests. On marketing side, spend was deployed efficiently to support growth maintaining a healthy balance between paid and organic customer acquisition. Finally, Purchasing Power delivered double-digit GMV growth, reinforcing the strength of its model and its strategic role within our ecosystem. Its payroll deduction model represents a differentiated distribution mode, serving employees who value predictable, convenient purchasing options through their paycheck. We remain in the early stages of deeper integration including introducing Purchasing Power to our retail partner employee bases and leveraging addressable employer relationships to expand leasing distribution. Over time, we believe this opportunity represents a meaningful incremental growth lever. From a marketing perspective, early media testing and purchasing power is showing encouraging results, demonstrating our ability to improve penetration within the eligible population. Under the enhanced pillar, our investments in improving both customer and retailer experiences are progressing with several initiatives beginning to deliver positive results. Our AI-driven lease eligibility engine is scaling meaningfully. We've expanded our leasing product catalog and improved response times from 3 seconds down to 1/10 of a second. At the same time, we are advancing customer experience enhancements that are driving higher conversion. We deployed multiple AI-driven improvements across our marketplace, including an AI chatbot assistant, enhanced payments navigation and a new AI-powered checkout flow that simplifies and streamlines the transaction process. These marketplace enhancements have delivered an approximately 20 percentage point improvement in checkout conversion versus the prior experience while also lowering cost to serve and improving operational efficiency. The focus remains clear: enhance the customer experience to support higher customer lifetime value while improving the economics of the business. Under the expand pillar, Four is scaling and Purchasing Power is growing double digits, in line with expectations as integration efforts advance. We remain intensely focused on strengthening our ecosystem. Four executed at a high level delivering 142% revenue growth in Q1 2026, the tenth consecutive quarter of triple-digit GMV and revenue growth. Q1 GMV reached $280 million, more than doubling Q1 2025 and March 2026 GMV of $108 million was the second highest month in company history. Customer engagement trends remained favorable with average purchase frequency of approximately 5 transactions per quarter and more than 130% growth in active shoppers year-over-year. New shoppers grew approximately 80% year-over-year, representing expansion of the platform's customer base. Four subscription model remains a key driver with Four Plus subscribers continuing to contribute approximately 80% of total GMV. Four's take rate defined as revenue generated as a percentage of GMV over the trailing 12-month period remained consistent at approximately 10%, indicating positive monetization efficiency as the business scales. From a profitability standpoint, Four generated adjusted EBITDA of $12.9 million in Q1 2026, already exceeding full year 2025 adjusted EBITDA of $9.9 million. Q1 adjusted EBITDA margin was 37%, reflecting the benefits of scale. While Q1 is seasonally the highest margin quarter, following elevated GMV from the holiday period, the business continues to demonstrate meaningful operating leverage. MoneyApp, our cash advanced product grew revenue over 50% in the first quarter and continues to play an important role as both an engagement and cross-sell driver within our ecosystem. Growth as a result of higher average advanced sizes as well as early traction from a new product we introduced in December called Pop-Ups, which allows qualifying customers to responsibly access additional funds on top of an existing advance. While still early, Pop-Ups are beginning to generate incremental revenue and represent another avenue for us to deepen customer engagement and expand the platform over time. Our ecosystem strategy is gaining traction. At our Investor Day in March, I highlighted that cross product engagement is a strategic priority because we believe it is a key component of long-term growth and value creation. We are seeing progress from our ecosystem first approach with customers increasingly engaging across multiple products, driving higher lifetime value and improved acquisition efficiency. Four is currently our most connected product often serving as an entry point and engagement driver across our platform. Progressive Leasing showed the most meaningful improvement in cross product engagement during the quarter with more of its customers interacting with other offerings. Notably, we also drove the largest overlap and fastest growth in overlap between Progressive Leasing and Four customers. Before turning it over to Brian, let me touch on capital allocation. Our priorities remain unchanged: invest in the business, pursue strategic M&A and return excess capital to shareholders through share repurchases and dividends. In February, I told you that in the near term, we will focus on prioritizing debt reduction as we work toward our long-term net leverage target of 1.5 to 2x, and we did. During the quarter, we paid down $210 million in recourse debt ending Q1 with a net leverage ratio of 2x. To summarize the quarter, we delivered results above expectations led by consistent execution and improving demand trends across the business. Importantly, these results were achieved while continuing to invest in our strategic priorities, advancing our direct-to-consumer capabilities, scaling our digital channels and deepening integration across our platform. Overall, our distribution moat, diversified ecosystem and data-driven decisioning capabilities position us well to perform across a range of environments. I firmly believe the best chapters of PROG story are still ahead of us. With that, I'll turn the call over to Brian. Brian? Brian Garner: Thanks, Steve, and good morning, everyone. Our strong performance in the first quarter was broad-based and reflects disciplined execution across each of our businesses as well as some margin favorability from consumer behavior in the leasing segment. In a short period of time, we made significant progress against our goal of deleveraging following the Purchasing Power acquisition. And as we exit the quarter, we are within our target net leverage range of 1.5 to 2x. I'll begin with our Q1 results of Progressive Leasing, followed by Four Technologies, Purchasing Power and then move to consolidated results. I'll close with an update on our balance sheet, capital allocation and our revised full year 2026 outlook. While more broadly, consumer demand across several discretionary categories remains pressured, our teams executed well on the areas within our control, including targeted growth initiatives, decisioning, expense discipline and capital deployment, enabling us to deliver results ahead of expectations and reinforcing the underlying opportunities within the business. Starting with Progressive Leasing. First quarter GMV came in at $393 million, representing a 2.2% decline year-over-year, which was in line with our expectations. As Steve outlined, this performance reflects 2 primary factors in the first half of the quarter. The tightening actions we implemented last year to preserve portfolio performance and the lapping of remaining GMV from Big Lots following their bankruptcy. As we progress through the quarter and move past these headwinds, GMV trends improved sequentially, returning to low single-digit growth in March. Revenue for the Progressive Leasing segment was $597 million in the first quarter down 8.4% year-over-year, primarily a result of a smaller average lease portfolio throughout the quarter. The lower gross leased asset balance, which is down 9.4% entering the quarter compared to a year ago, created a headwind to Q1 revenue. We ended the first quarter with a portfolio size down 5.4% year-over-year. As we executed against our growth initiatives of Progressive Leasing, we expect this portfolio headwind to subside and the revenue compare will become less difficult as the year progresses. Additionally, utilization of the 90-day early purchase option, which is seasonally high in Q1 due to tax refund season came in lower than expected for the quarter and below 2025, while an environment where fewer customers are electing to exercise their 90-day purchase option represents a revenue headwind in the period, over time, we expect total revenue, gross profit and margins to trend favorably. Gross margin for Progressive Leasing was 31.5% in the quarter, up 210 basis points year-over-year. Margin expansion stem from improved portfolio yield and a higher proportion of customers choosing to remain in their lease agreements longer, which, in part, ties to a lower 90-day purchase option activity. Lease merchandise write-offs came in at 7.3% of lease revenue within our targeted annual range of 6% to 8% and a 10 basis point improvement from the Q1 2025 rate of 7.4%. This result reflects the benefits of the tightening actions taken a year ago, and we have been largely comfortable with the trends we have seen since those changes. As we've consistently emphasized, protecting portfolio health remains our top priority, and we are closely monitoring payment behavior, delinquencies and vintage level performance, and we are pleased with what we have seen year-to-date. Progressive Leasing's SG&A for the quarter was $81.3 million or 13.6% of revenue compared to 12.6% in Q1 of 2025 and was flat in total SG&A dollars spent even as we invest selectively in areas to support long-term growth, including technology modernization, customer experience and AI initiatives. As we've demonstrated over time, we remain focused on balancing near-term expense discipline with investments that enhance the durability and scalability of the business. Adjusted EBITDA for Progressive Leasing was $77 million or 12.9% of revenue at the high end of our long-term target range of 11% to 13% representing a 260 basis point improvement year-over-year. This performance was primarily the result of operational execution, including managing portfolio performance and yield partially offset by the revenue headwind of a smaller lease portfolio throughout the quarter. Turning to Four Technologies. Q1 GMV reached $280 million, representing growth of 134% year-over-year and marking the tenth consecutive quarter of triple-digit GMV growth. March alone generated $108 million in GMV, the second highest month in company history. Revenue of $35 million exceeded expectations, growing 142% year-over-year. Adjusted EBITDA was $12.9 million, representing a margin of 37%. I would note that Q1 is the strongest margin period for Four and throughout the remainder of the year, I expect margins to moderate to the range implied in the revised outlook for the segment. Underlying economics are improving, and we remain highly encouraged by the performance of the business across both growth and profitability metrics. Finally, switching to Purchasing Power. Q1 GMV was $132.7 million, representing 10.3% growth. Revenue for Purchasing Power was $107.1 million in first quarter with adjusted EBITDA of $0.8 million, consistent with the near breakeven results we expected. As a reminder, Purchasing Power seasonally generates a greater proportion of its revenue and earnings in the back half of the year, particularly in the fourth quarter. Integration efforts are on track and we remain encouraged by the progress we are making across both front-end and back-end synergies as well as its strategic fit within our broader ecosystem. Transitioning to consolidated results. We delivered strong GMV growth with continuing operations increasing 54% year-over-year to $806 million, driven by the addition of Purchasing Power and growth at Four. Revenue from continuing operations grew 11.1% year-over-year to $742.7 million, reflecting the addition of Purchasing Power and triple-digit growth at Four Technologies partially offset by the revenue decline in Progressive Leasing. From an earnings perspective for continuing operations, consolidated adjusted EBITDA was $90.3 million or 12.2% of revenue and non-GAAP diluted EPS was $1.24, both exceeding the high end of our February outlook and delivering 29% and 38% year-over-year growth, respectively. Turning to the balance sheet. We ended the first quarter with $69.4 million of unrestricted cash and total available liquidity of $419.4 million, including our revolving credit facility. We ended the quarter with $650 million of recourse debt. Since closing the acquisition, we paid down recourse debt by $210 million, resulting in a net leverage ratio of 2x trailing 12-month adjusted EBITDA. As a reminder, this ratio excludes the nonrecourse ABS debt used to fund Purchasing Power operations does not add back the associated interest expense to adjusted EBITDA and only includes the Purchasing Power adjusted EBITDA since the acquisition. Importantly, net leverage was approximately 2.5x immediately following the acquisition on January 2 of 2026. Since then, our focus has been on integrating Purchasing Power and driving meaningful deleveraging and we have made material progress in the quarter, bringing net leverage back within our long-term target range of 1.5 to 2x. As we move through the balance of the year, we expect to remain below 2 turns. We returned capital to shareholders in the first quarter through our quarterly dividend, paying $0.14 per share, a 7.7% increase from the prior year quarter. I would now like to touch on a few key aspects of our second quarter and revised full year outlook, which was provided in this morning's earnings release. Despite their macroeconomic challenges, we believe our GMV momentum at a consolidated level will carry into the remainder of the year. Improving leasing GMV trends positively impact the gross lease asset balance which is a leading indicator of future period revenue. Four is delivering strong growth with improving economics and Purchasing Power is just being started on realizing its GMV and margin potential. Portfolio performance at leasing is expected to remain healthy as we actively manage yields while balancing GMV growth. We expect full year 2026 lease merchandise write-offs to remain within our targeted annual range of 6% to 8%. Our revised consolidated outlook for 2026 raises expectations on both revenue and earnings from continuing operations, reflecting the Q1 outperformance and our confidence in executing at a high level through the rest of the year. We are already making progress against the 3-year 2028 compound annual growth rate framework we outlined in the Investor Day. Q1 was a strong and encouraging start to this journey. Our revised consolidated outlook for continuing operations for 2026 calls for revenues in the range of $3 billion to $3.1 billion, adjusted EBITDA in the range of $343 million to $370 million, non-GAAP EPS in the range of $4.40 to $4.80. This outlook assumes an operating environment with no change in the current financial pressures and uncertainties for our customer, no material changes in the company's decisioning posture, no meaningful increase in the unemployment rates for our customer base, an effective tax rate for non-GAAP EPS of approximately 26% and no impact from additional share repurchases. To summarize, Q1 was a great start to the year with broad-based outperformance across our businesses and disciplined execution in the areas within our control. We delivered improving trends of Progressive Leasing, sustained high growth and expanding profitability of Four and early progress with Purchasing Power as integration continues. At the same time, we strengthened the balance sheet, bringing net leverage back within our target range while maintaining a prudent approach to capital allocation. As we look ahead, we remain focused on driving profitable growth, managing portfolio performance while executing against our strategic priorities and navigating a still uncertain macro environment. I'll turn the call back over to the operator for questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Kyle Joseph of Stephens. Kyle Joseph: Congrats on a really strong start to the year. Steve, would love to kind of pick your brain on macro. Obviously, a lot of moving parts throughout the quarter. Initially, we're expecting higher tax refunds and then you get into March and higher gas prices. But just kind of walk us through the moving parts of macro and maybe how those impact your businesses differently. We're no longer just focused on leasing. Obviously, Four had a really good quarter and we're obviously new on the Purchasing Power side of things. So just a little bit of macro kind of evolution through the quarter and different impacts across the businesses. Steven Michaels: Yes. Thanks, Kyle. I guess I would start by saying that we do have this multiple product ecosystem, but they do have connections in that. They serve a very similar customer across the products. So to the extent that the macro overlay has an impact, it's not identical, but it's directionally similar across the products. And we have the benefit of being able to see it -- see the customer behavior and the influence on the customers across those products and can use that to help as insights into all the products. As the quarter played out, and you called out a few of those things. We're always used to preparing for a tax season. We thought the tax season was going to be higher. Tax season actually played out about as we expected. It was higher, but not maybe as high as some people were reporting back in August, September, October time frame for our customer. Certainly, refunds were up across the board. But for our customers, they were up somewhere in the whatever high singles to low doubles range, and that was about what we were planning for. And as Brian said in his remarks, we did see in the leasing business less or fewer customers choosing to exercise their 90-day purchase option, and we've seen that in over time in different cycles when customers might be making different decisions about the liquidity the tax season brings, they're making payments to stay current, but not necessarily accelerating a payoff of an obligation. And that played out. Some of the other products don't exactly have that kind of accelerated repayment early -- during the tax season. So less of an impact outside of leasing. Certainly, gas prices during the month of March became a bigger story. The consumer is stressed but resilient. I mean I think that's the common refrain. We're watching all of our early indicators intensely. And we're seeing basically evidence of that stress really. And so we feel good about where we're positioned. The tightening in the leasing that we did in the first quarter of '25 has, I think, served us well and positioned the portfolio to be able to withstand some of the stress, so we saw a really good first quarter. And we're watching the numbers closely and watching the early indicators, but poised for some good momentum to continue. Kyle Joseph: Got it. That was broad-based, but I appreciate you covering it all. Just one follow-up for me. Obviously, a tough retail environment even going into the year and then layering in gas prices. Just kind of want to get an update on your discussions with retail partners kind of given now you have a bigger suite of products and given, call it, some more incremental headwinds for retailers? Steven Michaels: Yes. I mean, that's kind of more of the same on the retail, especially in consumer durables that the leasing business addresses. And our biz dev teams are doing a good job. They've -- they had some wins in the back half of 2025 and have a very, very good pipeline of retailers of all sizes that we think we're making progress with from a sales age progression standpoint. So we continue to believe that our suite of products with leasing at the retail level being the largest one are things that can help retailers. We are having increased conversations about a multiple product solution with various retailers, bringing forward into the mix or on the Purchasing Power side, bringing other products to employers to be able to offer additional value to their employees on that voluntary benefit platform. So we look forward to continuing to really dive into that ecosystem strategy and business development in our B2B2C businesses, specifically leasing and purchasing power is a big part of it. Operator: Our next question comes from the line of Bobby Griffin of Raymond James. Robert Griffin: Congrats on a good start to the year. I guess, Steve, I wanted to first ask like when you've seen that customer behavior before with a lower expected 90-day buyouts. Has that historically given you kind of any insights into what the customer does for the back half of the year? Is there anything to like learn or kind of how that plays out and what the health of that customer is when you see that? Steven Michaels: Yes, I'll start and Brian can certainly fill in the gaps. But there's no perfect kind of corollary, but we have seen in the past, specifically in 2023, coming off of a really tough '22 from an inflation standpoint but also a pretty material tightening that we did in the leasing business. We saw a very low 90-day buyout take rate on our customers. And then what we saw was those customers kind of just -- they stayed in their leases longer, which is a theme that we've talked about for a couple of quarters here on the leasing business. So not doing a 90-day in that time period, '23 did not indicate or necessarily mean that the customer was going to do a straight roller through the buckets and end up having elevated charge-offs, they end up paying deeper into their lease and maybe doing an early buyout, maybe later in the lease or going to full term. Certainly, some do end up in charge-offs, but we saw from a margin standpoint that this was a margin positive kind of trade-off because, as you know, 90 days, a very low margin outcome for us and the deeper they go in the lease is better. So -- we're watching that closely to see what the kind of the next action is. If the 90-day window expires, which a lot of it did in March because of the holiday -- the holiday uptick in leasing activity, and it expires on exercise what happens and how do those customers continue to pay us. And so far, we're pleased with the roll rates and other indicators in the portfolio health. And it's not -- we're not expecting a mirror of '23, but we are looking to that period to help with our forecasting. Brian Garner: Yes. And I would just add, I mean, it is the right question. As you just kind of evaluate consumer health overall. And we talked about 210 basis points improvement in gross margin at leasing in the quarter, primarily driven by this dynamic. And I think what's reflected in our outlook is a view that this is going to be a net positive for us, the tailwinds from lower 90 days. You might see some pressure and maybe some potentially some delinquency trends that you watch, but I'm not anticipating that there are anything significant. We saw write-offs come down 10 basis points year-over-year. So as you see us increase our outlook, and at least in specifically, we expect this kind of disposition dynamic and a shift towards lower 90 days to be a net positive for the P&L over the course of the year. Robert Griffin: Okay. That's helpful. I appreciate the details. And then maybe lastly for me, just on the actual GMV trends within Progressive leasing side, flip back positive in the quarter. Can you unpack a little -- is that just a function of the comparisons? Or is that actually in a sign of kind of inflections in consumer trends or whatnot. I guess I'm just asking it in context, I believe you did call out double-digit growth in apps, which would probably reflect some of the comparisons dynamic too with the Big Lots. So just trying to understand what is more comparison driven or if it's an inflection on that consumer engagement with the product and maybe seeing -- start to see a little trend improvement. Steven Michaels: Yes. We're pleased with the trends as we exited the quarter. Specifically, as the quarter progressed, like we talked about, it was kind of down high singles in January when we had both of those 2 discrete headwinds still in force. And then improved to down low singles in February as we lap that those things during the month and then up low singles in March. And if you remember kind of through most of 2025, we called out what the GMV trends would have been were it not for those 2 headwinds. And we were in kind of the low to mid-singles as air quotes the rest of the business that did actually decline in Q4 down to only up 1% absent those headwinds. So a lot -- much of it is kind of what the business has -- how the business has been performing, absent those headwinds over the last several quarters, but we're also seeing some strength in our digital channels. We talked about marketplace being up again 169%, e-commerce as a percentage of total leasing GMV up at 25.7% and the highest first quarter mix to date and also some various projects that we got over the goal line with existing retailers to help to improve that integration and improved balance of sale. So there's a mix of freeing up from the lapping. It also some things are positively trending in our execution. The apps are a strong point, but apps have to turn into approvals that have to turn into conversions and that those things can vary by channel. So -- but we're pleased with how we exited the quarter and how it sets us up for the rest of the year. Operator: Our next question comes from the line of Hoang Nguyen of TD Cowen. Hoang Nguyen: And congrats on the quarter. Just a quick one for me. So you mentioned about some of the cross-selling synergies between leasing and purchasing power. I think you're still in the early days, but can you give us some of the flavor of the conversation that you're having? Are you seeing a lot of inbound engagement from both sides of the enterprises? And I have a follow-up. Steven Michaels: Sure. Yes. I mean that's definitely part of our plan. It was identified during diligence, and we plan to execute on it. We talked a little bit about it during Investor Day. But we believe that the deep and long relationships that we have with retailers on the leasing side are fertile ground for us on the biz dev side for Purchasing Power and those efforts are underway. Purchasing Power has several employer clients that happen to be retailers that we believe could benefit from offering leasing to their customers, and those discussions are happening as well as augmenting the Purchasing Power offering with additional products that our intelligence says their employees are already consuming in the broader market. And so if we can deliver that to them as a voluntary benefit, we think that's a big benefit and differentiator for Purchasing Power to help with the sales motion in those employer clients. So we're pleased, and we're excited about the opportunity. But as you called out, we're very early in the integration because we're still just a few months post closing. Hoang Nguyen: Got it. Maybe one for Brian. So you guys have now returned back to your targeted leverage range, although at the high end. I think historically, you guys have done opportunistic buybacks. So I guess, I mean, when can we expect you guys to kind of get back to the market and buy back shares at these prices? Brian Garner: Yes. We haven't given any plan specifically to our buyback cadence. I think what I'd offer is you saw here in Q1 with the highly cash generative period, our ability to deploy capital against the deleveraging. And as we look forward over the course of the year, into Q2 and Q3. I think you continue to see some cash generation during those periods. What I think is on the horizon in Q4 is now you have these 3 businesses and progressively seeing Purchasing Power and Four that are seasonally heavy in Q4 in terms of the GMV concentration in the fourth quarter and the utilization of cash in that in that period. So I think the calculus is just kind of going through our capital allocation priorities of investing in the business first before we look to those kind of share repurchase type options. We're sizing up that fourth quarter and just kind of assessing the cash needs during that period. But that's really the calculus. And to the extent that we have excess capital, we'll go through that decision-making process, obviously, we're bullish on where we think this business is going and the share repurchases have been part of our RevPAR in the past, and we'll continue to evaluate them. Hoang Nguyen: Got it. And congrats on the quarter. Operator: And our next question comes from the line of Anthony Chukumba of Loop Capital Markets. Anthony Chukumba: Let me have my congrats on a strong start to the year as well. So I just had a question on Four, incredibly impressive performance there. As I look at the revised guidance, so if I take kind of the midpoint of the adjusted EBITDA and the revenue, it would imply that the EBITDA margin was -- in the previous outlook was calling about 15.1%, and that goes up now to about 18.2%. Given the fact that the take rate is consistent, I'm assuming that, that's just greater scale in terms of that higher EBITDA margin? Or is there something else there as well? Steven Michaels: Yes. Thanks, Anthony. Yes, we're very pleased with Four, it's the start to the year, but also the position it's in and what we think we can accomplish with it. And you're right, we did increase our view as to the margin expansion that we could achieve this year versus last year as we set about executing on that path towards a more mature state that we think is materially north of where we'll be in '26. And it is largely due to scale, but I would say that this team at Four is doing an outstanding job of doing more with the same and in some cases, doing more with less. They have leaned into AI in a very aggressive way and are not only achieving customer-facing improvements and innovation but also back office savings. And so we -- it is a scale play, but it's also an efficiency play and just the subscription strength and stickiness or said another way, lack of churn has been a bright spot and that revenue is very high-quality revenue that flows through to earnings in a meaningful way. Anthony Chukumba: Got it. Okay. And then I just have to ask my obligatory question in terms of the retail partner pipeline and Progressive Leasing. Steven Michaels: Yes. Thank you. Yes, I mean, as I think I was saying to Kyle, the biz dev team is really doing a great job. They're out there. They're talking. They had some wins in the in the back half of '25 that will pay us dividends here in '26 and the pipeline is full with retailers of all sizes. We're constantly getting new doors out in the SMB space. And that's kind of a different team than the folks that are hunting the super regionals and the enterprise accounts, but we're very pleased. We've got a great offering and a great way to tell the story. The ecosystem strategy reinforces that story, even though it might be a leasing conversation. We have more earned authority around this customer and have more products. So those are all helping us have some successes, and it's our expectation that we'll have some more wins here this year in '26. Operator: Our next question comes from the line of Hal Goetsch of B. Riley Securities. Harold Goetsch: Congratulations on a quarter. With the acquisition of Purchasing Power, and I think hitting the asset back market for some of their receivables, you've got some new items on your income statement, gain of sale based receivables came on changes or value of receivables. And I'm wondering if you could just give us some color on how we should think about any thumb-rule we should use in modeling for those types of line items in your income statement going forward since you've got this new business, and it's a little bit of flow for us to help us predict the future with it. Steven Michaels: Yes, I'll start, and then I'll turn it over to the expert, Brian, but you're right, and we appreciate that. I will call out the difference in the 2 things that you specifically mentioned. The gain of sale of aged lease receivables is not purchasing power related. That's on the leasing side. And we did that in Q4 of last year and again in Q1 of this year, and I would -- we had not done that historically, but I would point that to be -- to you that is not a onetime thing. That is going to be a recurring motion that we're in. It's probably not going to be to the same quantum as Q4 and Q1 moving forward, but we do have an inventory of items that -- or not items, but charge on leases that we have been working internally that we will then turn to sell into the open market. So that would be something that would be -- we consider to be a recurring item. The -- I'm going to let Brian talk about the Purchasing Power side because there is some purchase price accounting and fair value stuff that is -- that we have excluded out of -- or we've not had in adjusted EBITDA for the reasons of -- it's not kind of an ongoing thing. Brian Garner: Yes, it's -- really, that line item is related to the acquired receivables from purchasing power and they were fair valued on the data acquisition and really what that line represents. It's just a continued evaluation of the fair value of those receivables. And you might see a few million bucks in any given period. But like Steve said, this is really more of a technical accounting dynamic and bleeding through from the fair value on the acquisition date. And so we've made the decision to adjust it out of -- or added back to adjusted EBITDA to -- for more of a consistent presentation. So -- it's hard to give you any guidance on exactly how that's going to move. A lot of that has to do with collection activity and what actually occurs relative to what we thought was going to be the value at acquisition date. But I don't expect it to be material in any given period. It should be speed slight adjustments each quarter. Harold Goetsch: Okay. Terrific. And then the first point, as Steve mentioned, is this -- are these more like money is received on basically a recovery basis from selling past due accounts. Is that basically what it is, I hear that correct? And... Steven Michaels: Particularly aged -- age lease receivables. So receivables that we charged off in some cases years ago, and we sell them to a third party and it's not the dollars are sizable, but the percent -- the pennies on the dollar are not that big, but then they go out and they attempt collection efforts. It's not a consignment, it's actual sale where they -- we don't like share in the -- we get our money up front and then they go out and do their attempt to collect. Harold Goetsch: Understood. Okay. If I could ask you -- I know I understand like on the Buy Now, Pay Later, Q1 is a very big quarter because a lot of the payments from a very heavy holiday season come in the first quarter you have the subscriptions to your take rate is good. But your margins in the first quarter are like -- were better than most people in the industry already. And I was just wondering if there's like a -- if this is -- our margin reflected maybe not being fully burdened with the corporate overhead. Does that make sense? If the margins are quite high, and I'm just trying to figure out like this was a stand-alone comp may be lower because there'll be more corporate overhead associated with it. Steven Michaels: Yes. I mean if it was -- I think that's fair. But the margins are high. I mean, 37% EBITDA margin is impressive. But as you pointed out, Q1 is the seasonally high quarter. And as Anthony pointed out, like our guide implies something in the range of half of that for the full year. And so that shows that we're still in the scaling phase and haven't reached the maturity of some of the pure-play competitors that are out there, but we believe that the progression from loss-making in '24 to low teens in '25 with margin expansion at '26, but paints a nice picture of our ability to get up to those margin levels of the pure-play competitors. Operator: Our next question comes from the line of Brad Thomas of KeyBanc Capital Markets. Bradley Thomas: Congrats on the next quarter here, guys. I wanted to just follow up on the GMV growth that you're seeing at the end of the quarter within Progressive Leasing. And just curious if you could speak to perhaps the -- your confidence level that we may be at an inflection point here and may be able to continue to drive growth in that GMV in 2Q and through the balance of the year. And then just how we should think about the timing potentially of the portfolio flipping to growth again and when PROG leasing then flip to growth again? Steven Michaels: Yes. Thanks, Brad. I'll start and Brian can talk about the gross lease assets portfolio. But actually, the GLA is part of my answer. We don't guide specifically to GMV on a quarter-by-quarter basis. But I think that in order to achieve the revenue guide that we did put out for the leasing business, it would need to imply that we followed similar trends coming out of Q1 into the balance of the year. And -- but on the revenue side, a lot of that will the exactly what you called out the portfolio size. And we made some good progress here this quarter, but I'll let Brian kind of chime in on that. Brian Garner: Yes. I think what I'd highlight there is starting the quarter, Brad, we were -- our portfolio size, which is the key driver of revenue was down 9.4% start, and we made progress as Steve has articulated, kind of step functioning up our GMV trajectory. And so we ended the quarter down 5.4%. And the net -- sorry, 9.4% to 5.4%. The net impact of revenue in the period was revenue was down 8.4%. And so there's a pretty good corollary between kind of the average portfolio size year-over-year and where revenue is trending. And so you kind of extend that trend line into Q2 and Q3 and what we've got kind of implied in our revenue for Progressive Leasing for the rest of the year. I think what you said would really have to play out, which is we have to see a continued improvement in that trajectory. The gross lease asset balance continuing to make progress towards growing year-over-year as the year moves on in order for us to hit that revenue target. And so I like the trend there. I think it's -- we're taking month by month and we continue to make progress. But I think as we now pass these difficult comps that I feel like we've been talking about forever, what they lost and the tightening action. I think we can now have an easier conversation just about the apples-to-apples periods, year-over-year, and I think they're trending favorably. So I don't think it's too far down the road before we're seeing that portfolio size larger year-over-year. Bradley Thomas: That's very helpful. And if I could ask a follow-up around the cash flow generation. Brian, I apologize if I missed it in your prepared remarks, but what does the guidance imply for free cash flow this year? Can you remind us if there's anything that's sort of maybe onetime that wouldn't repeat as we look to cash flow next year? And then it seems like you could boost margins nicely if you paid off some of this funding debt, are you considering paying that off? Brian Garner: Yes, it's a good question. So just a couple of things. We haven't provided free cash flow guidance, but what I will say is if you just kind of take it quarter-by-quarter here, here in the first quarter, post acquisition on January 2, we were able to pay down total debt of $254 million. And so very heavy cash generative quarter, it gives us a lot of optionality. And as we stated out the gate here, our prioritization is deleveraging back to our targets. As we look forward to Q2 and Q3, I think both of those quarters will be slightly cash generative and give us additional optionality around either further deleveraging or evaluating -- putting the cash elsewhere. Q4 is -- and I mentioned this to Hoang is where there's going to be a net cash need I anticipate just with the growth that really these 3 businesses are demonstrating right now and not talking about MoneyApp, which has also shown some encouraging trends. And so I think we've kind of got that lens that we're looking through and the cash decisions that we're making. But net-net highly cash generative even in a growth -- heavy growth anticipation for Four and then Purchasing Power double digits and Progressive Leasing turning the corner on growth. So the onetime aspect that I would just highlight, and we've spoken about it on prior calls, and that's with respect to the BBA, and that's -- I wouldn't even call that necessarily onetime because given that, that is permanent in the law, that's going to continue to benefit us. But we did have a a $20 million tax refund at just under $20 million that we ended up getting here in Q1 really to 2025, that was additive, and the BBA is going to continue to benefit the rest of the year just as it reduces our overall tax liability, and we sized that rough benefit of about $100 million for the 2026 period. So those are -- that's, I think, a tailwind, obviously, from a cash perspective. But going forward, I think we've got a lot of optionality. You asked about the funding debt, the ABS debt that's tied to Purchasing Power. Our view is that, that is an important tool for Purchasing Power right now. I think it's an efficient model for them to be able to borrow against the receivables that they're generating and help us from just a capital efficiency standpoint. So obviously, as long as the ABS market is favorable to us and the rates that we disclosed here in our Q, you can see them by tranche. They're relatively favorable for us. And I think we continue marching down that path. No plans to pull those back meaningfully in the near term at least. Operator: This concludes the question-and-answer session. I will now turn it back to Steve Michaels, President and CEO, for closing remarks. Steven Michaels: Thank you very much for joining us today. We delivered a strong first quarter with improving trends across the businesses, and we're entering the balance of the year with real momentum. I want to thank all of the team members across PROG Nation for the execution we've seen as well as our retail partners and employer clients and our customers for trusting us. I firmly believe the best chapters of PROG story are still ahead of us. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Hello, and welcome to W. P. Carey Inc.'s First Quarter 2026 Earnings Conference Call. My name is Diego, and I will be your operator today. All lines have been placed on mute to prevent any background noise. Please note that today's event is being recorded. After today's prepared remarks, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time. I will now turn the program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead. Peter Sands: Good morning, everyone, and thank you for joining us for our 2026 First Quarter Earnings Call. Before we begin, I need to remind everyone that some of the statements made on this call are not historical facts and may be deemed forward-looking statements. Factors that could cause actual results to differ materially from W. P. Carey Inc.'s expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com; it will be archived for approximately one year, where you can also find copies of our investor presentations and other related materials. I will now turn the call over to W. P. Carey Inc.'s Chief Executive Officer, Jason E. Fox. Jason E. Fox: Thanks, Peter. Good morning, everyone. I am pleased to say we started the year with continued strong execution across the business, particularly in our investment activity and capital raising, building on the foundation we have established for attractive, sustainable growth. Given our performance to date, we are raising our full-year guidance for both investment volume and AFFO per share, reflecting the investments we have completed to date, the strength of our pipeline, and a more favorable outlook for estimated rent loss. This morning, I will briefly recap some of the highlights from the quarter, focusing on our investment activity. Toni Ann Sanzone, our CFO, will then take you through the details behind our results, balance sheet, and guidance. We are joined by Brooks G. Gordon, our Head of Asset Management, to help answer your questions. Starting with our investment activity, so far this year we have completed investments totaling approximately $680 million. Our pipeline remains very strong, with over $5 billion of deals currently at advanced stages, including the sale-leaseback of a large industrial portfolio in the final stages of closing. That gives us clear visibility into well over $1 billion of investments. Importantly, we continue to see strong momentum in our deal flow, with no noticeable impact on transaction activity to date from recent geopolitical tensions. Given our activity and outlook, we have raised our guidance range for full-year investment volume from $250 million to between $1.5 and $2 billion. Factoring in what we have already closed, our current pipeline, and the capital projects we have delivering this year results in an average cap rate of approximately 7.5%, and for the full year, we expect to remain around that level. We continue to transact across a range of cap rates, and the deals we have closed year to date have generally skewed toward the low end of our target range and below where our pipeline is pricing, with closed transactions averaging 7.2%. This largely reflects timing, as it includes some of what we expect to be our tightest cap rate deals over the first half of the year. I would also highlight that our investment activity to start the year has been mostly weighted towards Europe and Canada, where we secured lower cost debt during the quarter, including a two-tranche Eurobond offering at a 3.5% average coupon and a Canadian dollar term loan at just over 3%, helping maintain attractive spreads to our going-in cap rates. We also continue to originate deals with fixed rent bumps averaging in the high 2% range or with CPI-based rent escalations. As a result, we are still achieving average yields of around 9% over long lease terms. During the first quarter, we allocated the majority of our capital to warehouse and industrial properties, which accounted for approximately 60% of investment volume. Retail represented the remaining 40%, driven largely by the sale-leaseback we completed with Go Auto for a portfolio of auto dealerships with strong site-level coverage concentrated in the Greater Vancouver area. Go Auto is the second largest automotive dealership group in Canada and now ranks among W. P. Carey Inc.'s top 25 largest tenants by ABR. We completed four capital projects during the quarter, totaling $68 million, which are included in our year-to-date investment volume, and added a handful of small projects scheduled to deliver later this year. In total, we have 11 capital projects totaling approximately $280 million delivering over the next twelve months. These projects are generating cap rates incrementally higher than both our year-to-date investments and our full-year expectations, providing attractive risk-adjusted returns. As I have discussed in prior calls, these projects—particularly the expansions—frequently deliver above-market yields while also extending lease terms and enhancing the strategic importance of the assets involved. Given the size of our portfolio and our long history in this area, further supported by our recent Carey Tenant Solutions initiative, we believe we are well positioned to expand this highly attractive proprietary source of deal flow. Our internal growth also remains strong and continues to trend higher on new investments, and if inflationary pressures from higher energy prices persist, our portfolio is uniquely positioned to benefit, given the high proportion of ABR with rent escalations tied to CPI. Lastly, turning to our sources of capital, our investment activity continues to be supported by well-executed capital raising, driven by the debt issuance and forward equity sales we completed in February. In addition to further strengthening our balance sheet, these actions have effectively pre-funded our investment needs for 2026. We have also locked in attractive pricing and meaningfully reduced our exposure to potential further capital markets volatility this year. As a result, we are confident we can continue deploying capital throughout 2026. As a reminder, we also expect to generate around $300 million of retained cash flow this year, providing an additional source of equity capital. And while additional asset sales are not a core part of our funding strategy, we continue to have the flexibility to pursue additional accretive dispositions at attractive cap rates if needed. Let me pause there and hand the call over to Toni to discuss our results, balance sheet, and guidance in more detail. Toni Ann Sanzone: Thanks, Jason, and good morning, everyone. Starting with earnings, AFFO per share was $1.30 for the first quarter, which represents a $0.13, or 11.1%, increase compared to the first quarter of last year. Accretive investment activity continues to drive our year-over-year growth, having closed $2.8 billion of investments since the start of 2025 at accretive cap rates and healthy spreads to our funding sources. As we mentioned, given the pace and volume of our investment activity to start the year, as well as the strength of our pipeline, we have raised our expectations for both full-year investment volume and AFFO per share. As outlined in our earnings release, we have increased our investment volume guidance to a range of $1.5 to $2 billion, which together with lower estimated potential rent loss results in an aggregate $0.03 increase to our AFFO per share guidance at the midpoint. For 2026, we therefore currently expect AFFO per share to total between $5.16 and $5.26, implying 4.8% growth at the midpoint. Turning to our portfolio, starting with dispositions, first-quarter asset sales generated gross proceeds totaling $163 million. This included the sale of the 11 remaining operating self-storage properties in our portfolio for $75 million. With that, we have now completed our exit from operating self-storage, further simplifying our business, and generating aggregate proceeds of approximately $860 million at an average cap rate just below 6%, which we have recycled accretively into higher-yielding investments. Contractual same-store rent growth for the quarter was 2.4% year over year, with both fixed and CPI-linked rent escalations averaging 2.4%. For the full year, we continue to expect contractual same-store rent growth to average in the mid-2% range. We continue to achieve strong rent escalations on our new investments. About three quarters of our investment volume during the first quarter had leases with rent increases tied to CPI, while the other one quarter had fixed rent escalations averaging 2.8% annually. Comprehensive same-store rent growth for the quarter, which takes into account the impacts of re-leasing, rent collections, vacancies, and lease restructurings, was 1%, with the variance to contractual driven largely by the impact of vacancy during the quarter. Given the nature of this metric, comprehensive same-store rent growth can vary from period to period, often due to one-time items or properties moving in and out of the same-store pool. Historically, our comprehensive same-store rent growth has trailed contractual by approximately 100 basis points on average, and we believe that is a reasonable estimate for the portfolio over the long term. Portfolio occupancy at the end of the first quarter was 98.1%, up slightly from the fourth quarter, and is expected to improve further as we continue to re-tenant or dispose of vacant assets. Our portfolio continues to perform well, with no new material changes in credit throughout the portfolio so far this year. We have therefore lowered the potential rent loss assumption embedded in our AFFO guidance to between $8 million and $12 million, or about 50 to 75 basis points of ABR, down from our prior estimate of $10 million to $15 million. Based on what we see today, we would still characterize our revised assumption as conservative. Our first-quarter re-leasing activity resulted in the overall recapture of 103% of prior rents on 1.4% of portfolio ABR and added just over five years of weighted average lease term. Other lease-related income for the first quarter was $10.5 million, in line with our expectations, and includes termination income related to redevelopment work that commenced this quarter. Based on our current visibility, we expect other lease-related income for the second quarter to be in line with the first quarter, and to total in the low- to mid-$30 million range for the full year as we continue to proactively manage our portfolio. Non-reimbursed property expenses totaled $14.6 million for the quarter, which includes approximately $1.2 million of demolition costs related to redevelopment work as we discussed on our last call. We expect to incur additional demolition costs in the second quarter, which would increase non-reimbursed property expenses further before resuming to a more normalized run rate in the back half of the year. For the full year, we continue to expect non-reimbursed property expenses to total between $56 million and $60 million. G&A expense totaled $27.3 million for the first quarter, in line with our expectations, since the first quarter tends to be the highest of the year for G&A given the timing of payroll taxes. For the full year, we continue to expect G&A to total between $103 million and $106 million, with the second quarter resuming a more regular run rate. Moving to our balance sheet, we were very active in the capital markets during the first quarter, accessing close to $2 billion of capital across a variety of sources, taking proactive steps to further strengthen our balance sheet and ensure we are well positioned to fund our projected investment activity. In February, we issued €1 billion of senior unsecured notes, comprising two €500 million tranches, with coupon rates of 3.25% on a long five-year maturity and 3.75% on a long nine-year maturity. We executed during a particularly attractive window, with proceeds used to address our April Eurobond maturity, which we repaid in March, to retire a €215 million term loan, and to increase our overall liquidity to support externally driven growth. In March, we amended our credit agreement, replacing the euro term loan I just mentioned with a new Canadian dollar term loan at a current all-in rate of approximately 3.1%, with proceeds used to fund our Canadian investment activity. At the same time, we were able to improve our overall revolver pricing grid by five basis points at all levels, incrementally lowering our cost of debt. We also successfully executed in the equity markets during the quarter, selling 6.9 million shares on a forward basis, representing total gross proceeds of $497 million. This, combined with the forward equity we sold under our ATM program in 2025, gives us enough runway to execute investment volume above the top end of our current guidance range. At the end of the first quarter, we settled 3.45 million shares under forward sale agreements for net proceeds totaling $247 million, leaving us with 9.7 million shares remaining to be settled, representing anticipated net proceeds of $653 million as of March. Driven by our capital markets activity, we ended the first quarter with substantial liquidity totaling approximately $2.8 billion, including availability on our credit facility, cash on hand, and unsettled forward equity. Our remaining debt maturities this year are minimal, primarily comprising the $350 million of U.S. bonds we have maturing in October. The weighted average interest rate on our debt remains low at 3.1% for the first quarter, and is expected to remain in the low to mid-3% range for the full year after taking into account our recent bond issuances. Net debt to adjusted EBITDA ended the quarter at 5.3x, inclusive of unsettled forward equity. Excluding the impact of unsettled forward equity, net debt to adjusted EBITDA was 5.7x, down from 5.9x at year end, and well within our target range of mid- to high-5x. Lastly, on our dividend, in March, we increased our quarterly dividend 4.5% year over year to $0.93 per share, maintaining a healthy payout ratio of 72%. Based on our current stock price, that equates to an attractive annualized dividend yield of over 5%. We expect our dividend to continue to grow in line with our AFFO growth while maintaining a conservative payout ratio. And with that, I will hand the call back to Jason. Jason E. Fox: Thanks, Toni. In closing, we are pleased with our performance year to date, driven by the continued momentum in our investment activity, the strength of our pipeline, and our capital markets execution, all of which position us well to continue executing going forward. As we look ahead, we remain confident we are on track to deliver double-digit total shareholder returns again in 2026—and that is before any multiple expansion. Our projected earnings growth compares favorably across the net lease sector, and over time, we would expect that to be further reflected in our trading multiple. That concludes our prepared remarks. We will now open the call for questions. Operator: Thank you. At this time, we will take questions. If you would like to ask a question, simply press star then the number one on your telephone keypad. Our first question comes from Michael Goldsmith with UBS. Please state your question. Michael Goldsmith: Good morning. Thanks a lot for taking my questions. First, you have a third of the portfolio in Europe and continue to acquire there. Are you seeing any impact, or is there any worry that you have just given some of these global macro events, and also just the conflict in Iran? Is that having any impact on your portfolio in Europe? Jason E. Fox: No. I guess there is a little bit more potential for uncertainty in Europe, given higher energy prices there, but it has not impacted us. When you think about our portfolio, it is diversified. We mainly have very large companies that can ride through different cycles, and we have shown that in the past. So there are not big concerns there. We feel good about the portfolio. We have not seen anything yet. I think that is certainly something I can say definitively. Michael Goldsmith: Thanks for that, Jason. My follow-up question is, you said in the prepared remarks you have effectively pre-funded your investment needs for 2026. How are you thinking about funding going forward? Do you sit back and wait to see what comes to you and be opportunistic with your fundraising, or is this the time where you can be a little bit more aggressive, start to pre-fund 2027, and then if the volumes continue to pick up in 2026, it gives you the position to be more aggressive? Just trying to understand your thoughts in the funding environment and what is next there. Jason E. Fox: Yes. I mean, we are sitting on $650 million of forward equity right now that is left to be settled. We have lots of liquidity, as you pointed out. In terms of more equity, I would say if there are good opportunities to get ahead of our needs for 2027 and raise more equity, we will always consider that. We are certainly comfortable where we are today, and a lot of it will depend on the investment opportunity set and what that looks like. That is probably going to be the biggest driver, but bottom line is we really do not have any visibility needs right now, so we can be, I think your word was, opportunistic. Michael Goldsmith: Thank you very much. Good luck in the second quarter. Jason E. Fox: Thanks. Operator: Your next question comes from Jana Galan with Bank of America. Please state your question. Jana Galan: Good morning. Could you please provide any updates on the Carey Tenant Solutions platform? Jason E. Fox: Yes, sure. We talked about this in some detail on last quarter’s call. These are the types of construction projects that we have been doing for quite some time, dating back several decades. They include build-to-suits and redevelopments, and the reason why we have been more deliberate about talking about it is to make sure that people understand this is part of our business, and it is another part that we think we can grow. Part of the branding around it is to formalize it and be a little bit more holistic in our outreach to our tenants. If you look historically at what we have done, it has probably been around $200 million per year—this will vary from year to year, but that is a decent average—and we think that can perhaps get bigger. One of the benefits of being a large REIT like we are is we have built up a very capable in-house project management team, and that is a real competitive advantage. In our outreach to tenants, what we can offer them—various development services and other solutions—can lead to follow-on deals. Currently, we have about $280 million of projects in process, and about $180 million of that will complete this year. Beyond that, there is a really active pipeline of potential projects that we would expect to move along over the coming quarters. Jana Galan: Thank you. And then also, with the self-storage operating assets, this disposition is now completed. What additional assets are you targeting to meet your full-year disposition guidance? And any plans on the other five operating assets? Jason E. Fox: Brooks, you want to take that? Brooks G. Gordon: Sure. As Toni mentioned, we maintain a pretty flexible disposition strategy for the year this early in the year—a range between $250 million and $750 million—so we really value that flexibility. In terms of other operating assets, we have a few hotels and one student housing property that we are evaluating for dispositions, potentially in the back half of this year but also potentially into next year. It is something we are looking at, but again, we maintain a lot of flexibility from a liquidity and capital perspective, so the investment pipeline will help drive where we land in that range. Operator: Your next question comes from Anthony Paolone with JPMorgan. Please state your question. Anthony Paolone: Great. Thanks. Good morning. Can you talk about the investment pipeline and what the geographic skew looks like at the moment, and also the property type buckets—where you are seeing more or less—and just where the dispersion around that mid-7s cap rate resides? Jason E. Fox: Yes, sure. The pipeline remains strong. I mentioned earlier that it includes over a half-billion dollars of identified transactions, some of which are in advanced stages, and it includes one larger sale-leaseback of a sizable industrial portfolio in the U.S. that should close over the next couple of weeks. We also have around $180 million of capital projects that are scheduled to complete this year, so that is all part of the visibility into deal volume we have this year. In terms of geography, Europe continues to ramp. Of the deals closed year to date, about half were in Europe—a deal in Poland, Raben, was the largest—another 30% was in Canada, and the remainder was in the U.S. For Europe, we see a continuation of the increased activity that we started seeing in the second half of last year, but that does not mean the U.S. is slowing. The pipeline is roughly back in line with our ABR mix—about two thirds in the U.S. and one third in Europe right now. By property type, consistent theme for us, we continue to see interesting opportunities in industrial—both manufacturing and warehouse. Year to date about 60% were industrial, and two thirds of that were warehouse. We also saw a pickup in retail, largely driven by the Go Auto deal we talked about earlier. The pipeline is more heavily weighted towards industrial—probably 80% right now—but there are a lot of opportunities at the top of the funnel that will come in as well. Anthony Paolone: And then you all historically had a strong tie-in with private equity. Have some of the challenges on the private credit side had any implications on your deal pipeline, either making sale-leasebacks more attractive or generally having any impact on your tenant base? Jason E. Fox: Let me start on the deal impact. Our expectations are that sale-leasebacks could become a more interesting opportunity for some private equity-backed companies if there is a void with private capital to the extent underwriting or capital flows tighten up there. I would not say that is a theme we are seeing right now, but it is certainly a possibility that could emerge more. Brooks, I do not know if you are seeing anything within our portfolio related to private credit. Brooks G. Gordon: No, we have not seen really discernible specific impacts. It is something we will continue to watch, but that has not been a factor as of yet. Operator: Your next question comes from Smedes Rose with Citi. Please state your question. Smedes Rose: Hi. Thanks a lot. In the past, you have spoken about leaning into retail more—you obviously completed some in Canada this quarter. How do you think about the rent escalators in that segment versus maybe in other asset classes? Jason E. Fox: Yes, sure. There is a difference. Market standards for retail tend to be lighter bumps than what we are able to negotiate in industrial and warehouse. That makes sense. The warehouse market has grown substantially over the last couple of years in terms of rent growth, and a lot of the bumps we put into our leases are meant to be a proxy for market rent. The rents for warehouses or manufacturing plants for industrial companies tend not to be a big part of their cost inputs, whereas retail rent typically is their biggest expense, so there is more focus on that, and that is why historically you have seen flatter leases. Where we target—sub-investment-grade retail—bump structures are probably on average in the 1.5% to 2% range, compared to industrial where we are seeing more like 2.5%, 3%, or even above that. Once you get into investment-grade retail—which we view as the commodity segment of net lease and tend not to participate in all that much—those leases tend to be even flatter, and really, the only way to differentiate yourself when investing there is through pricing. So there are meaningful differences between the two in terms of bump structures. Smedes Rose: Thanks. And you mentioned some tighter cap rate spread deals you are looking at in 2026. Does that pertain to larger industrial portfolios, or is it more for one-off opportunities? Any commentary on pricing across larger deals versus smaller deals? Jason E. Fox: It is not related to larger or smaller deals. The reference to the tighter cap rates was to the deals we have closed year to date—about $680 million—blended towards the lower end of our target range at 7.2%. My expectation is that those will be some of the tighter cap rate deals we close this quarter. Those also, importantly, were mostly in Europe and Canada where our borrowing costs are meaningfully cheaper than in the U.S., so despite the lower cap rate, we did see attractive spreads. The other half of this is our pipeline, in addition to our capital investment projects delivering this year, are more in the upper end of our target range, which helps us blend to the mid-7s for the year. Overall it feels like cap rates have been relatively stable for the year despite macro volatility. Hard to predict what will happen in the second half, but because we transact across a wide range of cap rates, sometimes timing or mix will create some dispersion. I do not think it is any read-through to market trends or specific geographies or asset classes. Operator: Your next question comes from Ryan Caviola with Green Street Advisors. Please state your question. Ryan Caviola: Good morning. Thanks for taking my question. A quick one on onshoring. This trend should be a tailwind for the in-place industrial portfolio. Do you think those tailwinds will lead to more competition in bidding, with new buyers interested in industrial net lease, and will this lead to a continued focus on industrial acquisitions in Europe, or do you see it being an overall benefit for all buyers in that space? Jason E. Fox: I think it is the latter. To the extent there is more onshoring or reshoring, we stand to benefit substantially. We are one of the larger owners of industrial properties, especially manufacturing, and to the extent it increases demand on the types of buildings that we own, we think that is good for rent growth and for the criticality factor that we underwrite in the buildings that we own. Could it attract more competition? Perhaps. If a particular end of the market becomes more attractive, you could see some capital flows in there, but it is a big market, and I think the positives would outweigh any kind of increased competitive capital flows. Ryan Caviola: Thank you. And on the mix between new deals—embedding inflation-based increases in the lease versus focusing on higher fixed escalators—can you update us on where that stands and if this differs by country or industry? Jason E. Fox: Since the spike in inflation four or five years back, CPI-based leases have gotten to be a little more difficult to negotiate into new deals, particularly in the U.S. In 2025, about a quarter of our deals had CPI-linked increases. So far this year, it is actually the opposite—about three quarters of deals closed to date were CPI-based. That is a function of geography more than anything else. In Europe, it is customary to have inflation-based increases embedded, and year to date more of our deals have been in Europe. The Go Auto deal in Canada also has a CPI-based increase. We certainly value having that inflation hedge built into our portfolio. When we do not get inflation-based increases, the effects of higher inflation have still flowed through to our fixed increases, where historically our average fixed increase is closer to 2%, whereas the last three or four years we are probably 50 to 100 basis points above that on new deals with fixed increases. It is a good reminder of the differentiation of our portfolio compared to many of our net lease peers—we have substantial internal growth built into our model as opposed to just relying on spread investing and external growth. Operator: Your next question comes from Mitch Germain with Citizens Bank. Please state your question. Mitch Germain: Jason, to follow up on that topic, is it more standard to have a CPI-based lease in Europe versus what is acceptable here in the U.S.? Jason E. Fox: Yes, it is definitely more standard and customary in Europe. We have always made it part of our model to the extent we can in the U.S. We have been around for fifty-something years at this point, and a lot of this dates back to the 1980s—themes of trying to create an inflation hedge within a fixed-income-type stream that net lease can sometimes be—and we think we have done a good job of that. Mitch Germain: Got you. And clearly there is a lot of momentum in the business. Are you seeing some of the buyers that for the last couple of years have been on the sidelines reemerge? Is there any real change in the competitive balance within the investment sales markets? Jason E. Fox: The net lease market has always been competitive, especially in the U.S. There have been some new entrants over the last couple of years. Some of the big asset managers have acquired other platforms. One thing we have observed—and we have heard this from some bankers as well—is it does not necessarily mean there are incrementally new players in the business; many of them have just changed brands from being independent to being part of a big asset manager. Regardless, it does not feel like it has been impactful. Ultimately, the results speak for themselves as we continue to generate substantial deal volume at attractive pricing and spreads, irrespective of competition. Beyond pricing, we have a lot of competitive advantages. We have been doing this for a long time. Experience and execution really matter, especially when we are focused on more complex sale-leasebacks, and our track record and reputation in the market help differentiate us. It all seems manageable, and it is not showing up in the numbers. Operator: Your next question comes from Eric Borden with BMO Capital Markets. Please state your question. Eric Borden: Hey, good morning. Thanks for taking my question. I understand the spread between contractual and comprehensive growth can fluctuate from quarter to quarter, and over the long term the average spread has been around 100 basis points. What is your expectation for that spread for the remainder of the year, as it sounded like you may have some vacancies to address? Toni Ann Sanzone: Sure. I think you covered the highlights. On the contractual side, we are expecting around mid-2% growth from our contractual lease escalations. On the comprehensive side—again factoring in vacancies, probably the biggest impact we see over the course of this year—it does move around from quarter to quarter due to items like collecting rents or recovery of rent in any one period. The 100 basis points is a good round number we use as our historical average and is a good estimate over the long term. Factoring that in, we could see the range for this year being between 1%–2% on the comprehensive side, but it really does depend on how soon we address vacant asset dispositions and the timing of things like rent recoveries. Eric Borden: That is helpful. And Jason, going back to your comments around your well-capitalized European tenant base who can absorb oil shocks and supply chain volatility, do you have any exposure to less capitalized tenants or tenant categories with higher sensitivity to commodity price swings, and how are you underwriting or monitoring that risk today? Jason E. Fox: Brooks, do you want to take that? It is a broad question. Brooks G. Gordon: The key point is what Jason mentioned: broad diversification, long-term leases, and high criticality. We transact with businesses of all sizes, from the biggest in the world to smaller companies. The bulk of our tenants by a large margin are large, well-capitalized companies, and that remains true in Europe as well. Our overall view of an oil shock is it is a risk we need to monitor very closely. We have not thus far seen direct impact. It is something we will pay close attention to. Our portfolio is constructed intentionally to absorb shocks or headwinds, and we have seen that a number of times over the decades. We are confident in that, and diversification is really key. Operator: Your next question comes from Jim Kammert with Evercore ISI. Please state your question. Jim Kammert: Good morning. Thank you. Are you willing to provide a little bit of color in terms of financial data regarding, say, Raben and Go Auto? Both from their websites look to be pretty substantial companies, but I think they are both privately owned, if I am not mistaken. Can you provide a little financial color around the size and scope of those companies? Jason E. Fox: Yes. They are private companies, so we are under some restrictions in terms of talking about financial details. With Go Auto, we noted earlier that they are the second largest auto dealership platform in Canada. They are diversified across pretty much all the OEMs or brands, and they have had growth over many years at this point. I think sales for them are greater than $3 billion. I think Raben is also a large company. They are a Dutch company and one of the largest 3PL operators in Poland. I do not think we can talk about revenue or EBITDA, but they are one of the market leaders in the Poland market from a 3PL standpoint. Jim Kammert: That is helpful. And as a derivative of the first question, it seems like you have knocked out a growing list of $200 million-plus transactions—Lifetime last year, and we just talked about Raben and Go Auto. Is that just happenstance, or is there some message to read into that in terms of your investing efficiency and where you are spending your time on the external side? Jason E. Fox: I would say the majority of our deals typically fall within the $25 million to $100 million range. The average transaction is maybe around $50 million, perhaps a little bit bigger than that. But we do consistently see larger deals; they are part of our regular deal flow. In any given year, we would expect to bid on a number of larger sale-leasebacks—$200 million, $300 million, or even larger. You mentioned Go Auto and Raben, and last year, Life Time. We tend to complete several larger deals each year. We also have one larger sale-leaseback in the pipeline—an industrial deal in the U.S.—that should close over the next week or two. It is part of the deal flow, and one of the benefits of our scale is that we can do larger deals as a regular part of our business. Operator: Your next question comes from John Kilichowski with Wells Fargo. Please state your question. John Kilichowski: Hi, good morning. Thanks for taking my question. My first one is on the new credit loss guide. Last quarter you talked about there not being any specific items you were looking into. Is there anything now this quarter that you have some sense of as to where credit is going to turn out, or is the $8 million to $12 million number still more of an open-ended space for things that may come up in the rest of the year? Jason E. Fox: Toni, do you want to touch on the range and how that has changed? And then maybe, Brooks, you can give a little bit of color on credit watch. Toni Ann Sanzone: I would say it is more the latter. We have not seen any material credit change in the portfolio since the start of the year, amongst our watch list and more broadly. With four months of good rent collections behind us and our current view of the tenants, we felt comfortable bringing down the range. The range is still larger than our typical historical losses, but that is more about being prudent in this uncertain macro environment—ensuring we are covered in a number of scenarios—rather than anything we are seeing currently in the portfolio. Brooks G. Gordon: On credit watch generally, as Toni mentioned, it is pretty stable. We lowered the rent loss assumption range, which is the most direct tool we can offer you there. The watch list came down slightly as well. Some color: Hellweg remains the biggest exposure there—about 1% by ABR—and coming down quite quickly. We are on track to have that out of our top 25 around midyear. The only other tenant of note is Cornerstone, which is about 60 basis points of ABR. They are the largest exterior building products manufacturer—very large company, over $5 billion in revenue. They have been on watch. We expect they will restructure their balance sheet at some point; it is over-levered. But we own very critical real estate and do not expect any impact there. The rest of the credit watch list is really diversified and much smaller tenants. John Kilichowski: That is helpful. Thank you. Earlier, you gave some helpful color around some operating assets that you may be selling the rest of the year. Can you give some idea of the buckets of capital you are considering selling and the cap rates you think you could blend to for the rest of the year? Brooks G. Gordon: As I mentioned, it is difficult to pin down with precision because we are maintaining a lot of flexibility in the disposition plan. Roughly at the midpoint, you can view it as split into two buckets. The first is a noncore, accretive exit—primarily operating properties. The final tranche of storage was the biggest piece. We are evaluating one student housing property and several hotels for the second half. Too early to determine exact timing. A few other noncore opportunities, including that we exited post quarter our only remaining Asian asset at a very good price. That is your first bucket. The balance is risk mitigation and vacancy—transactions such as the former JOANN warehouse we sold, which we discussed last call—sold at a very attractive cap rate, mid-5s cap rate on the prior rent. Also, Hellweg assets we have been exiting and a few warehouse assets. From a pricing perspective, the first bucket would be mid-6s cap rate range, depending on what closes. The second bucket is harder to pin down at this point in the year, but considering there is some vacancy embedded, it is going to be a nice earnings tailwind in any event. Operator: Before we take the next question in queue, a reminder to ask a question, press star 1 on your phone now. We are also accepting additional questions from those who have already asked one. Next question comes from Greg McGinniss with Scotiabank. Please state your question. Greg McGinniss: Hey, good morning. Jason, how are you thinking about geographic diversity and density in certain countries in Europe? With Poland now your number one international exposure following the Raben acquisition, do you expect to see further increase in exposure there, or is there a limit at a country or regional level that you think is best for the portfolio? Jason E. Fox: There is no specific cap or maximum exposure, but we are certainly very mindful of diversification. At the same time, given our scale, it would take some meaningful, sizable transactions to really move the needle. We have been investing in Poland for over two decades, and it has become a core piece of the broader European net lease market. For those who do not follow Europe as closely, it is the sixth-largest economy in the EU, a top-20 economy globally, and one of the fastest growing in the EU. Projected growth is about 3.3% this year. It is an attractive market for us. The bulk of what we own there supports supply chains for large multinational companies—both manufacturing and logistics assets—that serve as a low-cost manufacturing and logistics hub into Western Europe. We will stay active there, but we are mindful that it has become about 5% of our portfolio. It is not a huge exposure, but we keep an eye on it. Greg McGinniss: Thanks for the color. With visibility into over a billion dollars of deals at this point of the year, do you see investment guidance as conservative, or is there some expectation for deals to slow into year-end? Jason E. Fox: We are confident we will continue generating higher deal volume throughout the year as we did last year. From a guidance perspective—we did this last year—we want to take a measured approach. Last year that led to a series of increases, and that is our preference going forward. Last quarter, our initial guidance was a starting point, and we just increased that by $50 million at the midpoint. As we progress through the year and get more visibility into the back half, we will refine that range and hopefully raise it further. We are off to a good start. You mentioned the billion dollars of visibility, which includes almost $700 million of closed investments to date. The elements are there for another strong year, and we will reflect that in our guidance as appropriate as the year progresses. Operator: Your next question comes from Jason Wayne with Barclays. Please state your question. Jason Wayne: Hi. Thanks for the question. Looking at the lease expiration schedule, quarter over quarter, lease expirations came down as a percentage of ABR this year and next year. How much of that is due to looking at upcoming maturities proactively versus just changes in the portfolio? Brooks G. Gordon: As you noted, we have been making a lot of progress on lease expirations. That cadence is pretty normal for us. The track record over the past ten or so years has been very good on rent recapture—around 100%—and very low TIs; you can see that flowing through our disclosure numbers. In other cases, we have noted a few assets where we are looking to re-lease, and we are working through those—that is part of it as well. From a lease expiration outlook perspective, 2026 is very manageable at about 1.8% by ABR. That is coming down quickly, and we are making good progress. We have a couple of nonrenewals expected in Q4. These are high-quality warehouses with low market rents, so we are optimistic we will be able to push rents higher on those, but those are towards the end of the year, so not impactful to 2026. In 2027, we have about 3.5% expiring. That has come down a little bit subsequently as well from some renewals we achieved post quarter. It is a manageable year. One item to note is the expiration of the final tranche of net-leased Marriotts in 2025—around $5 million of ABR. We will exit those in due course, but there is coverage there, so there is no earnings impact. That is something we will look to address in 2027. All in all, we are making good progress on lease expirations, and for assets with some nonrenewal, we are quite optimistic about our ability to push rent higher. Jason Wayne: Alright. Thank you all. Operator: At this time, I am not showing any further questions. I will now hand the call back to Mr. Sands. Peter Sands: Great. Thank you, and thank you, everyone, for your interest in W. P. Carey Inc. If there are additional questions, please call Investor Relations directly at (212) 492-1110. Operator: And that concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the Urban Edge Properties First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Areeba Ahmed, Investor Relations. Please go ahead. Areeba Ahmed: Good morning, and welcome to Urban Edge Properties First Quarter 2026 Earnings Conference Call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer; Jeff Mooallem, Chief Operating Officer; Mark Langer, Chief Financial Officer; Heather Ohlberg, General Counsel; Scott Auster, EVP and Head of Leasing; and Andrew Drazin, Chief Accounting Officer. Please note, today's discussion may contain forward-looking statements about the company's views of future events and financial performance, which are subject to numerous assumptions, risks and uncertainties and which the company does not undertake to update. Our actual results, financial condition and business may differ. Please refer to our filings with the SEC, which are also available on our website for more information about the company. In our discussion today, we will refer to certain non-GAAP financial measures. Reconciliations of these measures to GAAP results are available in our earnings release and our supplemental disclosure package. At this time, it is my pleasure to introduce our Chairman and Chief Executive Officer, Jeff Olson. Jeffrey Olson: Thank you, Areeba, and good morning. We had a great first quarter, delivering results that exceeded our internal expectations. We generated FFO as adjusted of $0.36 per share, a 3% increase over the first quarter of last year. Same-property net operating income, including redevelopment, increased by 2.8%, primarily due to rent commencements from our signed but not open pipeline. Leasing fundamentals across our portfolio remains strong, reflecting continued demand from retailers seeking well-located, high-quality space. Our shopping centers, primarily anchored by grocers, discounters, off-price retailers and home improvement stores, along with shops comprised of quick service restaurants, health, fitness and service uses continue to generate increased traffic. During the quarter, we executed leases totaling 419,000 square feet, including 84,000 square feet of new leases at a strong 52% cash spread. Our leasing pipeline remains robust and should result in record leasing activity over the coming quarters with leasing spreads expected to exceed 20%. Our signed but not open pipeline remains a meaningful contributor to future growth, representing $22 million of annual gross rent or approximately 7% of current net operating income. This provides us with strong visibility into earnings through 2027. In March, we completed the acquisition of the Village at Bridgewater Commons, a 92,000 square foot shopping center located in Bridgewater, New Jersey for $54 million at a 7.7% cap rate. This property is situated in a highly traffic corridor within an affluent market. It attracts 2.2 million visitors per year, among the highest for its size. Tenants include Summit Health, Chipotle, Shake Shack, Millburn Deli, CAVA and Starbucks. We structured the acquisition of Bridgewater in an accretive 1031 transaction with the expected sale of a Kohl's-anchored property in New Jersey. Looking ahead, based on the results we achieved in the first quarter, we increased our 2026 FFO as adjusted guidance by $0.01 per share on the low end to a new range of $1.48 to $1.52 per share, reflecting 5% growth over 2025 at the midpoint. Urban Edge is well positioned to continue delivering steady growth, supported by strong fundamentals, our $22 million SNO pipeline, our $157 million redevelopment pipeline and future acquisitions. I will now turn it over to our Chief Operating Officer, Jeff Mooallem. Jeffrey Mooallem: Thanks, Jeff, and good morning. From an operating standpoint, the first quarter reinforced what we have been consistently seeing across the portfolio. Demand for our space remains strong and leasing momentum has not slowed. During the first quarter, we executed 45 leases, comprising 13 new leases and 32 renewals for a total of 419,000 square feet. New leases were signed at a same-space cash rent spread of 52% and every new lease signed this quarter, including 2 new anchor leases, have contractual annual rent increases of 3% or higher. We continue to push not only starting rents but also contractual rent increases in all of our deals, and we are seeing the results of that effort. Same-property leased occupancy at quarter end stood at 96.4%, a decrease of 30 basis points over the previous quarter and the first quarter of 2025. The decline was expected and was primarily driven by the recapture of the Saks box at Hanover Commons, where we are evaluating multiple potential uses, ranging from grocer to apparel to creating additional shop space. Based on the activity in our pipeline, we continue to believe that occupancy levels of 97% to 98% are achievable by the end of the year. In addition to leasing our remaining vacancy, we also are working to proactively take back space that is under leased. At several of our properties, we've approached tenants with low rents and average performance in an attempt to convert those spaces to better uses at better rents. This will become a bigger part of our growth in the coming years as market rents have now increased to the point that landlords can accretively terminate leases to make way for a replacement tenant, something that was nearly impossible a few years ago. For example, in Framingham, Massachusetts, we negotiated an early recapture right on our Kohl's space and are in active negotiations with multiple users to lease the space at a significantly higher rent. On the redevelopment front, we stabilized 4 projects totaling $7 million during the quarter with the rent commencement of Trader Joe's and Ross at The Plaza at Woodbridge, Lidl and Boot Barn at Totowa Commons, Texas Roadhouse at The Outlets at Montehiedra and Big Blue at Plaza at Cherry Hill. These projects generate nearly a 50% yield, which speaks to the lower level of landlord contributions national retailers are now accepting. Our total active redevelopment pipeline is now $157 million with an expected yield of 13%. These projects are largely pre-leased, providing both visibility and attractive risk-adjusted returns. With that, I'll turn it over to our CFO, Mark Langer. Mark Langer: Thank you, Jeff, and good morning, everyone. Our first quarter performance further highlights the stability and earnings strength of our portfolio, particularly in the current environment. FFO as adjusted for the quarter was $0.36 per share, reflecting 3% growth over prior year and was driven by the growth in same-property NOI, including redevelopment, which increased 2.8% compared to the first quarter of 2025. NAREIT FFO this quarter benefited from an $8 million gain recorded in other income received from the state of New Jersey for environmental remediation costs incurred a number of years ago. On the financing front, in March, we obtained a $62.5 million 7-year nonrecourse mortgage secured by The Plaza at Woodbridge at a swapped fixed rate of 5%. The debt markets remain highly liquid and competitive as evidenced from this recent transaction. We ended the quarter with total liquidity of nearly $1 billion, with $30 million drawn on our credit facility and no amounts drawn on either of the 5-year or 7-year delayed draw term loans. Our balance sheet is in excellent shape, which provides significant flexibility to pursue attractive growth opportunities that may arise. Looking ahead to the remainder of 2026, we have increased our guidance for FFO as adjusted by $0.01 per share at the low end to a range of $1.48 to $1.52 per share, primarily due to the 25 basis point increase on the low end of our same-property NOI guidance, which now reflects a new range of 3% to 3.75%. In terms of some of the puts and takes driving NOI growth, let me start with the first quarter and then touch on future expectations. Same-property NOI growth of 2.8% in the first quarter benefited from new rent commencements and better-than-expected recoveries, including $500,000 of out-of-period tax refunds related to appeals that got settled for multiple prior year periods. The better recoveries in tax refunds more than offset higher-than-expected bad debt this quarter. The elevated bad debt pertained to isolated cases of tenants we were negotiating payment plans with that got moved to a cash basis. Going forward, we believe uncollected rent levels should trend near 75 basis points of gross rents for the remainder of the year. In terms of NOI growth going forward, I will note the point that I made last quarter when we gave initial guidance in regards to our SNO pipeline. We expect to recognize another $3.3 million of gross rents from our SNO pipeline in the remainder of the year. 90% of this amount is expected to be generated in Q3 and Q4. In addition, recall that Q2 of last year benefited from $1 million of onetime tenant, CAM true-up billings. Therefore, same-property growth is expected to accelerate in the back half of the year as SNO rents commence. Our guidance now incorporates $60 million of disposition activity that Jeff mentioned. In closing, we are encouraged by the continued momentum in fundamentals, the depth of our leasing pipeline and our ability to generate sector-leading FFO and cash flow growth. With that, I'll turn the call over to the operator for questions and answers. Operator: [Operator Instructions] First question comes from Michael Goldsmith with UBS. Michael Goldsmith: Mark, you mentioned a couple of isolated instances of bad debt in the quarter. Can you walk us through what you're seeing if you're able to identify the tenants or at least like the types of categories where maybe there's been a little bit more pressure than anticipated? Mark Langer: Sure Michael. What I would say is the most significant increase that I referred to in the quarter pertain to a franchise operator that has 6 different QSR locations in our Puerto Rico portfolio. The tenant was moved to a cash basis. So both the back rents and current rents were reserved for. I can tell you that since we've closed the quarter, we've executed a payment plan with this operator and the operator has fully paid April rent and started making payments on the arrears. So this is why we think it is more isolated. It's not systemic of any other patterns. We did go through a deep dive of all of our other Puerto Rico tenants and receivables were normal. So as I said in my prepared remarks, I believe what you should expect for the rest of the year is closer to 75 basis points rather than what was incurred in Q1. Michael Goldsmith: Got it. And then you mentioned 2 new anchor leases with escalators of 3%. Can you talk about just the demand on the anchor side? Obviously, you're backfilling the Saks box as well. So just trying to get a sense of overall demand and then your ability to get strong lease terms, right, like with escalators of 3%. Is that kind of the norm for your portfolio? Or is that kind of like an exceptional outcome? Jeffrey Mooallem: Michael, it's Jeff Mooallem. I wouldn't say it's the norm that we're going to be getting 3% or better annual increases from anchor tenants going forward. There are certain tenants out there like Trader Joe's or T.J. Maxx who fight really hard on things like increases. We happen to have an outlier quarter where we did a couple of anchor deals where we were able to extract that. But I think the point is that the trend line on things like anchor leasing is -- continues to go up. And whether it's less options, fair market value options, annual increases in options, we're able to have conversations with anchor tenants today that we were not simply able to have a few years ago. And we're pushing on not just starting rent and less capital, but pushing on increases as well. So while I wouldn't say that we expect to be able to do annual increases on every anchor deal we do, unfortunately, they're still not quite there yet as an industry. Certainly, the ability to extract better increases and better terms throughout the lease is there. And I would tell you that I think this is the strongest anchor leasing market we've seen in a really, really long time simply because of the imbalance between supply and demand. Operator: Next question, Michael Griffin with Evercore ISI. Michael Griffin: Jeff, maybe just on the leasing front, do you have a sense, are tenants starting to come to you earlier to renew given the dearth of available space out there? And do you think that gives you more leverage in the renegotiation process? Jeffrey Mooallem: Yes, absolutely. We're seeing -- we're having conversations with tenants earlier in the process. And a lot of times now, what our leasing team is doing rather than going to a tenant who has a year or 2 left on their lease and saying, "Hey, do you want to renew?" they're starting by going to the market and really figuring out what we can do with that space so that the initial conversation with that existing tenant is more, "Hey, we have another option here for your space, you need to pay X to stay," and we can switch the leverage over a little bit. There's certainly a lot of desire on the part of the national tenants to lock their space up for longer. Sometimes we'll go to a national tenant with a request for a waiver on something or something we're doing in the parking and they're saying, "Well, yes, we're happy to work with you guys on that. Can you give us another 5-year option?" So the anchors, the national tenants are very motivated to keep as much term and control as they can, and the landlords are savoring getting the opportunity to take space back. If you think about the vintage of a lot of the leases in our portfolio, they were signed, maybe 20-year leases that were signed '08, '09, '10, '11 that time, not a great time in the anchor leasing world. So we're excited to get some of those rents back over these next several years. Michael Griffin: That's some helpful context. And maybe just following up on the Bridgewater acquisition. Just wanted to clarify, is that 7.7% cap rate that you quote, that's a stabilized in-place cap rate? And if so, would you say that's indicative of the assets that you're targeting for acquisitions? Or there was something maybe about this that just stood out from a cap rate perspective as maybe more attractive for you to acquire? Jeffrey Olson: Yes. I think we got lucky with this one, Michael. It's Jeff Olson. And I mean, it traded at a higher cap rate in part because the anchor was not a grocery store. The anchor was a medical user called Summit Health, which you may be familiar with, but a very high credit health care tenant. They have a long-term lease. I believe they have 11 years left of term. And in addition to getting it at that 7.7%, I mean, our revised numbers expect to generate 2.75% NOI growth, so very good growth. And more than half of that growth is coming from contractual rent increases and option exercises. So yes, we think it was a great opportunity. I wish we had a pipeline to 10 more like it. We don't at the moment, but we're on the hunt for more. Operator: Next question, Michael Gorman with BTIG. Michael Gorman: Jeff, if we could just stick with Bridgewater for a second. I'm curious, as you underwrote it, how much of a role did the Bridgewater Commons adjacency play? How much does the performance of the mall play into the $2.2 million in annual visitors that you cited to The Village component there? Jeffrey Olson: I don't think it's a huge component. Most of our customers are not using the mall as a cotenant. It is fairly far away. So I don't think it's a major component. Jeff, do you want to add anything to that? Jeffrey Mooallem: Yes. I mean, Michael, The Village was actually built as a sort of a lifestyle center adjacent to the mall. But what's happened over time is it's become its kind of own ecosystem mostly of daytime population for lunch. So if you look at the roster of the QSR tenants there and the demand from some of the best names in food that want to come into it if we get vacancy, we've been turning space over there. And really, what you're seeing at that property is there are some mall visitors who will go there for lunch, but mostly, it's the daytime population in and around Bridgewater. There's a very strong suburban office market population in that area and a lot of weekend visitors as well, a lot of tourism in that area for various conventions and hotels and weddings and bareboat mitzvah kind of traffic. So we were very happy when we really dug into this to see that the traffic is coming from a lot of places. Michael Gorman: Great. That's helpful. And then maybe back to the same-store. Obviously, solid result in the quarter. I noticed when you kind of dig into the revenue and expense side of things, the property operating was up, I think, 25%. Was there anything atypical in that or onetime? Was that seasonal? I would expect that would normalize over the course of the year. Is that a fair assumption? Mark Langer: Yes, Michael, it's Mark. Absolutely. That was really driven by snow and snow-related costs in the quarter, which were up over -- to put in perspective, about $3.5 million just versus prior year. So that almost fully accounts for the driver. And you're right, it will level off and revert to more normalized levels for Q2 to Q4. Michael Gorman: Great. And maybe just one more for me, Mark, on the mortgage that you put in place in the quarter, can you just remind us on the strategy there? Obviously, you stabilized a big chunk of redevelopment at that property, which I would imagine is a help. You still have a couple of phases there. So do those phases get carved out? Are they small enough that it doesn't factor into when you go for a mortgage on a property like that? Maybe just some context there would be helpful. Mark Langer: Yes. I'm glad you asked, Michael. It's actually a great story. The Woodbridge Center actually had a mortgage on it that we paid off last year. It was about a $50 million mortgage. And we paid it off knowing we had visibility with the re-leasing of space we had. This center had a Bed Bath and a buybuy BABY that was paying $17 in rent Fast forward gets re-tenanted with Trader Joe's and Ross that are paying a blended around $25 a foot, a karate studio that was paying $28 the rent more than doubles with CAVA. So we had line of sight for all of that upside in NOI. And fast forward, as you saw, we extracted $12 million more in this new mortgage. And so really, the phases you're talking about in terms of any other outparcel work, we still have the ability to add even more income from that. It isn't that it's carved out, but there's some potential more lift that we could get upon refinancing it again. But that puts into context, I think the story, the asset management strategy, and we were really delighted with that execution to lock that in with more proceeds at 5%. Operator: Next question, Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: Like the acquisition, I know you mentioned something about a Kohl's sale. Is that -- presumably that's a pending Kohl's anchored sale that you have in the pipeline? Jeffrey Olson: Yes, Floris. We're in diligence with the buyer right now. So we're hoping to complete that deal soon. Floris Gerbrand Van Dijkum: And presumably, that would be at a lower cap rate than where you're acquiring it at as well besides the fact that you're also obviously improving your credit profile? Jeffrey Olson: Yes. You got it. That is the game at the moment. Floris Gerbrand Van Dijkum: Great. And then the Kohl's at Shoppers World in Framingham, talk a little bit about the upside potentially that you could see there. I know it's a little bit early, but maybe you could give people on the line a little bit of a flavor of what kind of demand you have for that space. Jeffrey Mooallem: Floris, it's Jeff Mooallem. Yes, I mean, we're super excited about this one. We were able to negotiate an option to get that space back from Kohl's about a year ago, and that option will be coming up in first or second quarter of 2027. So we've been sort of out testing the market and the demand has exceeded our expectations. We have several national retailers that have submitted LOIs on it. We've looked at cutting up the space, adding shops, doing a full-fledged demolition and redevelopment. But ultimately, what I think you're going to see us do is re-tenant the box at a very healthy spread, 75% to 150%, I would say, over the existing rent with a much better user, much better credit. This will enhance the overall Shoppers World profile and experience and really make that parcel within Shoppers World kind of its own little really strong asset. So we're very excited for what that's going to turn into in the next 12 months here or so. Floris Gerbrand Van Dijkum: Maybe last question. Can you guys give us a little bit of an update on what's happening in Puerto Rico? I know it's not that big part of your portfolio, but I believe that you're seeing some really strong demand. Can you talk us through some of the retailer demand and what kind of upside in NOI you see for that portion of your portfolio? Jeffrey Mooallem: Yes. Puerto Rico continues to grow. We've done a lot of re-tenanting work there, as you know, over the last couple of years. And we're now adding names like Sephora, which will open, I think, this week or next week at Caguas, Coach, Bath & Body Works, national names coming over from the mainland to the property. We opened a T.J. Maxx last year that opened extremely strong. So we're very happy with the way the 2 Puerto Rico assets are performing. I think the next step for us in Puerto Rico is to really dig in more on some of the ancillary income opportunity that we're able to generate in other places like signage, carts and kiosks. We're looking to grow on all those areas as well. But if you look at our model and our forecast, Puerto Rico should continue to grow at comparable growth rates to the rest of the portfolio. We've done a lot of the heavy lifting. So I don't think it's going to be a 10% annual growth story going forward over the next few years, but it's certainly going to be positive growth. Jeffrey Olson: It should be in that 3.5% to 4% range. Operator: Next question, Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Great. Maybe I'll start on sort of any update on sort of Sunrise Mall and what sort of the development prospects. I know you were contemplating different things. Just any update there? Jeffrey Olson: Look, the entitlement process is advancing on schedule. We had disclosed previously that Amazon is going to occupy about 1/3 of the property, Ron, and we're finalizing our plans to develop the remaining land for retail and other uses. So we're super excited about our progress, and we really look forward to delivering a great result for the town of Massapequa and also for our investors. Jeffrey Mooallem: The only other update, Ron, is that our last tenant at the mall which was Dick's Sporting Goods, will be giving the keys back to us tomorrow actually. So we are now fully unencumbered the mall from tenancy, and that will allow us to advance our plans rapidly into later this year. Ronald Kamdem: Great. And then on the -- going back to the 97% to 98%, I think you mentioned sort of occupancy target for the portfolio as you sort of sit through. I mean I think what are some of the sort of tactics that you guys are using to sort of drive that number? And what has been sort of the biggest sort of sticking points or barriers to sort of getting there historically? Jeffrey Olson: I think the biggest tactic is simply that retailers are seeking high-quality space, and they're coming to us proactively. So for the first time in a very long time, we have multiple tenants going after the same vacancy. And so it's more a function of the market than it is a specific tactic that we have. Our tactic, obviously, is to create the best merchandise mix that we can at our shopping centers balanced with receiving good rent terms, good lease terms, et cetera. So we feel very good about the fact that the majority of our vacancy will be leased up, and that's what gives us the confidence of being in that 97% to 98% range. Operator: [Operator Instructions] Next question comes from Paulina Rojas with Green Street. Paulina Rojas Schmidt: Given that your portfolio is concentrated in the Northeast corridor and recognizing that local trade area dynamics can vary meaningfully in retail. I'm curious how you think about market differentiation within the region? Are you seeing any meaningful and consistent differentiation, for example, in terms of cap rates, rent growth or even tenant demand between, let's say, New Jersey, Boston or D.C. or even smaller pockets within the corridor where you're seeing something that stands out? Jeffrey Olson: Yes. I mean it is very submarket driven. I think in general, we're most pleased with what we're seeing in Boston at the moment, Paulina. And that may be a function of simply having new ownership on some of the properties in addition to a very strong and tight market. But our assets in Northern New Jersey are doing very well. There's very little vacancy in Northern New Jersey. I guess if there's one market that sort of has been an average market over the years in the Northeast for us, it would be Philadelphia. D.C. is a strong market for us. We don't own that much there. But overall, we're very pleased with our markets. The underlying theme behind virtually everything that we own in the D.C. to Boston corridor is just having a massive population base around our centers. And that doesn't change submarket to submarket to submarket. We have a couple of hundred thousand people on average around our properties within 3 miles, and those customers need areas to shop. Paulina Rojas Schmidt: And then you have characterized the demand and supply backdrop in your markets as supportive of sustained long-term growth. So I would like to push a little bit on what that means in practice. And when you use that language, are you thinking about, for example, rent growth that is in line with inflation, above or even substantially above inflation? I'm trying to frame it a little even in broad terms. Jeffrey Olson: I mean given the tightness of the market, I would expect rent growth would be above inflation. And it's really being driven by these larger anchors that are looking for space that are losing out on opportunities to their competitors. And as they lose more deals, they're realizing that they have to pay more. So I would expect more than inflationary type growth, particularly for boxes that are 10,000 square feet and greater. Operator: Thank you. I would like to turn the floor over to Jeff Olson for closing remarks. Jeffrey Olson: Great. We look forward to seeing many of you at the upcoming NAREIT conference, and we will see you then. Please call if you have any questions. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Hello, everyone. Thank you for joining us and welcome to Lemonade's Q1 2026 earnings call. Operator Instructions] I will now hand the conference over to Lemonade to begin the call. Please go ahead. Unknown Executive: Good morning, and welcome to Lemonade's First Quarter 2026 Earnings Call. Joining us on our call today, we have Daniel Schreiber, CEO and Co-Founder; Shai Wininger, President and Co-Founder; Tim Bitsy, Chief Financial Officer; and Nick Stead, SVP Finance. A letter to shareholders covering the company's first quarter 2026 financial results is available on our Investor Relations website at lemonade.com/investor. I would like to remind you that management's remarks made on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-K filed with the SEC and our more recent filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will be referring to certain non-GAAP financial measures on today's call, including adjusted EBITDA, adjusted free cash flow and adjusted gross profit, which we believe may be important to investors to assess our operating performance. Reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders. Our letter to shareholders also includes information about our key performance indicators, including number of customers, in-force premium, premium per customer, annual dollar retention, gross earned premium, gross loss ratio, gross loss ratio ex cat, trailing 12-month loss ratio and net loss ratio and a definition of each metric, why each is useful to investors and how we use each to monitor and manage our business. With that, I'll turn the call over to Daniel for some opening remarks. Daniel Schreiber: Good morning, and thanks for joining us to review Lemonade's results for Q1 '26. This was another excellent quarter, marked by continued acceleration in growth, strong underwriting performance and clear operating leverage across the business. In the first quarter, in-force premium reached $1.33 billion, growing 32% year-over-year. This extends our streak of accelerating growth to 10 consecutive quarters. Revenue grew even faster, up 71%, boosted by a recent reinsurance transition and the result in higher premium retention. Underwriting performance continues to be very strong, and it is the combination of accelerating growth and strong underwriting results that led to 159% growth in our gross profit. We also saw solid cash flow from operations, generating $17 million in adjusted free cash flow, a $48 million improvement year-over-year. On the bottom line, adjusted EBITDA loss narrowed 64% year-over-year, reflecting continued progress towards profitability, and we reiterate our long-standing expectation that Q4 this year will be EBITDA positive as will the full year of 2027. We often note 2 specific drivers that power our financial performance, grow the business and scale the operation. I'll share a couple of comments on each of those. As it relates to growth acceleration, strength in marketing efficiency has been a consistent tailwind for us. Conventional wisdom suggests that increased growth spend comes at the expense of efficiency, yet we continue to see the opposite. Since Q1 2023, we've grown our spend by roughly 200% while maintaining an LTV to CAC ratio of above 3. This is enabled by our proprietary LTV AI that dynamically allocates capital to maximize returns and is supported by the diversity of channels, products and geographies, which we enjoy. At the same time, increased bundling activity is boosting customer lifetime value, which enables us to scale growth investments while preserving strong unit economics. The second notable driver of our performance is leverage across our expense base. In the first quarter, we surpassed $1 million of IFP per employee, representing a nearly 3x improvement over the past 4 years. This progress reflects the growing impact of our AI and automation tools, which are enabling us to scale efficiently. The impact of 10 years of investment in AI infused into our single proprietary and vertically integrated system is now visible throughout our business and on pretty much every line of our P&L. Against that backdrop, we expect recent trends to continue and are raising our full year guidance for both top and bottom lines and looking forward to continuing to deliver increased growth and increased profitability throughout 2026 and beyond. With that, let me hand over to Shai. Shai? Shai Wininger: Thanks, Daniel. I'm going to spend a few minutes discussing PE, which is now our largest line of business and recently reached a notable milestone, $500 million of IFP, becoming the first product in our portfolio to reach that milestone. In less than 6 years from launch, we become the most searched pet insurance brand in the U.S. and the fourth largest carrier, competing against incumbents with decades of operating history. As it relates to growth, a couple of drivers to highlight. We have a notable cross-sell advantage versus many pet insurers with over 3 million customers to whom we can sell directly CAC free. In fact, 85 million of current pet IFP was sourced from our existing customer base. We also benefit from high conversion rates due to delightful AI-powered customer experiences. Lastly, our distribution strategy is diversified across direct-to-consumer channels and partnerships, which has allowed us to scale spend quickly without reliance on any one channel. At the same time, we have a structural expense advantage versus peers. Our AI-powered automation engine enables excellent expense efficiency when it comes to claims management. Unlike many of our other lines of business, Pet is a high-frequency, low-severity product, which means that a vast majority of customer claims are excellent candidates for our end-to-end automation. With that, I will lead off to Tim, who will cover our financial performance and outlook. Tim? Timothy Bixby: Thanks, Shai. Let's start with Q1 results, which were excellent. In-force premium grew 32% year-on-year to $1.33 billion, driven by customer growth of 23% and premium per customer growth of 7%. We added 158,000 new customers in Q1, 37% more than the roughly 115,000 in the prior year. Within our reported gross loss ratio of 62%, our favorable prior period development of 3% was driven primarily by our homeowners, multi-peril and car products. Total cat impact in the quarter was 5%, primarily due to winter storm activity, and this excluded cat prior period development. Prior year development, which we report on a net basis, was $4 million favorable in Q1. Gross profit increased 159% to $100 million, while adjusted gross profit increased 119% to $101 million for a gross margin and adjusted gross margin, both of 39%. These metrics use revenue as their denominator. Adjusted gross profit as compared to gross earned premium was 33% in Q1, up 13 points from 20% in the prior year. It's worth noting that the prior year results include the impact of significant California wildfires as well as a California fare plan assessment, all reported in Q1 last year. Revenue rose 71% to $258 million, while our adjusted EBITDA loss improved to a loss of just $17 million. Notably, revenue grew roughly 40 percentage points faster than IFP, a dynamic we expect to continue through at least midyear. Importantly, adjusted free cash flow was positive for the fourth consecutive quarter at $17 million and has been positive 7 of the 8 last quarters, while operating cash flow was negative $1 million, following a common seasonal pattern. We ended the quarter with roughly $1.1 billion in cash and investments, of which about $290 million is required to be held as regulatory surplus. Annual dollar retention or ADR remained stable sequentially, primarily due to the continuing impact of our clean the book efforts in our home business at 85%, flat versus the prior quarter. Operating expenses, excluding loss and loss adjustment expense, increased by $32 million or 25% to $159 million in Q1 as compared to the prior year. Now let's break down those expense lines a little bit. Other insurance expense decreased by $2 million or 8% in Q1 versus the prior year versus a 32% growth rate of IFP. The prior year period included the $7 million California Fare plan expense assessment. And absent this fee, the annual increase in this line item would have been about 26%, a bit less than our top line growth rate of 32% Total sales and marketing expense increased by about $23 million or 53% due to increased growth spend versus the prior year. In Q1, gross spend was $54 million, up 43% as compared to the prior year. Importantly, as we continue to ramp growth spend, marketing efficiency levels remained stable and strong in the first quarter with an LTV to CAC ratio above 3x, in line with the prior year. We expect Q2 gross spend to step up about 12% versus Q1 and expect total gross spend of about $235 million for the full year 2026. Technology development expense was up 22% year-on-year to $27 million, and G&A expense increased 18% as compared to the prior year to $42 million. Notably, G&A improved sequentially and was down by about $1 million versus the prior quarter. The year-on-year increase in G&A was driven primarily by an increase in stock compensation and interest expense. Our expected stock compensation expense for the year is expected to be approximately $95 million. This is somewhat higher than our previous guidance, primarily due to a multiyear equity grants given to our 2 founders. Headcount increased slightly by about 2% to 1,291 in Q1 as compared to the prior year. Our net loss was a loss of $36 million in Q1 or $0.47 per share as compared to a net loss of $62 million or $0.86 per share in the prior year. Adjusted EBITDA loss was $17 million in Q1, dramatically improved versus our EBITDA loss of $47 million in the prior year. Our detailed guidance for Q2 and our updated full year 2026 guidance are both included in our shareholder letter, and that new guidance represents a 32% top line growth rate in Q2 and a 33% full year top line growth rate. Roughly 77% revenue growth is implied by our Q2 guidance and roughly 63% full year revenue growth implied by that guidance. And unchanged, we do expect a positive full quarter of EBITDA in Q4 this year. With that, I'd like to pass back over to Shai to answer some questions from our retail investors. Shai? Shai Wininger: Thanks, Tim. We now turn to our shareholders' questions. We'll start with Paperbag, who asked why ADR hasn't improved faster. So just to level set, ADR or annual dollar retention is a training metric. It compares the IFP generated by a specific cohort a year ago and measures how many dollars we are able to retain from that same group 12 months later. Over the past year, ADR has been held back by a targeted nonrenewal initiative in our homeowners line focused on reducing cat-exposed business. That deliberate move created a temporary headwind for ADR while improving the overall health of our business and has largely wrapped up by the end of 2025. Looking ahead, that headwind should start to fade as those cohorts roll off the base used to calculate ADR. It's also worth noting that if you exclude homeowners, ADR actually improved over 300 basis points year-over-year. Paperbag also asked about multiline customers currently about 5% of total, asking when we'll see that tick upwards. It's a great question, Paperbag. And actually, if you look at the dollars rather than customer count, you can already see the impact of cross-sell showing up quite clearly in our financials. As of the end of Q1, 18% of total IFP is bundled. Importantly, cross-sold business is largely acquired with little to no CAC, which is a meaningful driver of the improvement you're seeing in our overall profitability. With improving performance and growing data, we now have greater confidence in the impact of cross-sells on new customer LTV. Higher LTV gives our growth team more room to operate, so they can increase allowable CAC and lean further into growth while still maintaining our 3:1 LTV to CAC ratio. We've seen a strong momentum here over the past few quarters, and we feel good about continued acceleration, especially as we expand KAR into more states. 19B asked for an update on our efforts to build an excellent shareholder base with strong institutional ownership. Our Investor Relations efforts are producing excellent results. In the past couple of years, we've seen institutional ownership, excluding SoftBank, increased by more than 50%. A handful of our top 20 shareholders are net new institutions who initiated the position in the past year or so. This work is ongoing, but we are encouraged by the recent momentum. NDK asked what prevents a competitor who launched tomorrow with unlimited compute and the latest models from being where we are in a couple of years. That's a thoughtful question. Thanks, Andy. Well, our differentiation doesn't stem from access to AI tools, but rather from a decade of compounding execution around an AI-first architecture, unique organizational structure and successful navigation through complex and expensive regulatory environments in multiple geographies. We've spent the last 10 years building, training and integrating our technology and h-g models into every layer of the business, turning real-world data into continuously improving underwriting, pricing and claim loops now show up in superior growth and efficiency metrics. Importantly, commercial AI models as advanced as they may be, can't price insurance on their own. Underwriting and pricing depend on statistical models trained on large data sets built over time, and that's where our advantage is most pronounced. A new entrant would start from 0 on data, regulatory approvals, brand trust and production- validated models. These are things that only accrue with time. Meanwhile, our head start means that our systems keep learning and accelerating. So even with equal technology, the distance continues to widen. In short, you can launch with cutting-edge AI, but you can't fast forward the decade of compounding data integration and operational learning that defines our advantage. With that, I'll pass it over to the moderator, and we will take some questions from the Street. Operator: Your first question comes from the line of Jason Helfstein from Oppenheimer. Jason Helfstein: So I'll ask 2. Just talk a bit about the AV insurance. When could that begin to kind of impact the financials? And I guess, how are you thinking about the initial margin impact on that business? Just so any color there as we all begin to think about that? And then just, Tim, when do we reach normalized or peak levels with the reinsurance transition? Daniel Schreiber: Jason, Daniel here. So I assume that by AV, you mean autonomous because a lot of our cars are AVs already, and that's nothing. Yes. So this is something that's very exciting, really, I think, a dramatic demonstration of the kind of capabilities that we bring, and it shows our differentiation, I think, at its maximal effect, which is that we are able to price every mile driven per driver, and we recognize AI as a driver and therefore, we can price it accordingly. This launched and has been very well received. We're seeing our conversion rate for these policies almost twice as good as our average conversion rate, something like a 70% increase in conversion for such customers. But it has launched in only a couple of places so far. So the rollout will be throughout the year to all of our markets. But at the moment, it is still relatively modest in terms of the impact on our financials as reported at the moment. As the year rolls out, you'll see this being expanded to more and more states, and we will gather steam as it goes, and we'll update you throughout. Timothy Bixby: Yes. And on the reinsurance question, Jason, you're right on the transition or the shift in the rate of business that we are retaining continues to shift in our favor where we're retaining more business over time. We renewed our reinsurance last about 9 months ago in July. And so that retention rate has increased consistently quarter-over-quarter since that time. Q1, the seed rate was about right around 30% versus the peak last year of 55%. Q2, that will ebb further. We'll retain more. The ceding rate will be something like 25%. And then we'll normalize in Q3 at right around that 20% rate that we announced when we renewed last year. So it phases in over 4 quarters. That assumes no change in our reinsurance. At July 1, that's our renewal date. We're well into that process now as is typical each year for renewal. We've not yet determined what that will be. That's something we do share with the market once we get to final terms that we like. We have some optionality there. As we have for quite some time, we can confidently retain more business. So the likeliest outcome there is perhaps no change or perhaps a greater rate of retention. It's unlikely that we would see it at a higher rate, and we'll share that update not too far out post the July 1 renewal date. Operator: Your next question comes from the line of Andrew Anderson from Jefferies. Andrew Andersen: You've highlighted operating leverage from automation. Where specifically are you seeing some savings today? And how much of that is being reinvested versus dropping through? I'm just kind of taking a look at some of the operating expense line items that are still growing. Timothy Bixby: Yes. So we kind of think about expenses in really 3 buckets, and this has been really consistent over time. There's truly variable costs, and there's a few of those, things like premium taxes and processing fees and that -- those tend to vary quite in line with the growth rate of the business. So if we're growing 31% or 32%, then you'll see those expenses kind of grow in line with that. That's a relatively small bucket. The largest bucket is our fixed cost, and that's things like salaries and overhead and legal and finance and compliance and all of those things that every insurance company has. And those scale consistently really, really well over time. I'd point you to the shareholder letter where for some time, we've shared a chart, which the highlight today, I think, was a headcount decline over 3 years, where the premium has more than doubled or tripled over the same time. So that's where we really see scale. The expenses that are increasing tend to fall into the discretionary bucket. They're at our choosing. So the most clear one is growth spend, where we choose and determine our growth rate. We work hard to push that up each quarter. You've seen the results of that with growth rates increasing sequentially quarter after quarter. And that's the result of 2 things. Our investing more, maintaining our LTV to CAC ratio, maintaining that marketing efficiency, coupled with really an unlimited TAM, total addressable market. And so those come together and you kind of see that every quarter. We do choose to invest in other things that have either short-term or medium-term payback, and we continue to do those as well, but those are really at our discretion. So over time, you'll see a similar trend, I would expect, where you'll see great leverage, continued growth. Our guidance implies a 32% Q2 growth rate, 33% for the full year. And I expect continued scale across all of those expense lines. Nicholas Stead: And Andrew, maybe if I can jump in. I think one place in particular, you can really see the impact of AI-powered automation at scale is in the cost of adjudicating claims, and that's our LAE ratio, which is currently at 6%, which we consider levels that are roughly -- that are best-in-class today and materially improved over time. Andrew Andersen: And which acquisition channels are contributing the most to incremental growth today, whether that be direct or cross sales? And maybe how does agency factor into distribution, if you can size that at all? Timothy Bixby: Yes. So I'll take that and then maybe Nick jump in. So the short answer is all of the channels, meaning every month, every quarter, we've been successful at expanding into new channels. That doesn't mean the existing channels are going away, but there tends to be a broadening or a deepening of the number of channels. And so the concentration in the top 5 or so channels today is much less than it was 2 or 3 years ago. So that long tail is getting longer. And that's really the result of an amazing growth marketing team that through human intelligence and really intense AI automation have been able to do that quarter-over-quarter. Our partners are strong and continuing to get stronger. it's the minority of growth. The vast majority of our sales come from our direct-to-consumer efforts, and that will -- I expect that will continue for quite some time. But the indirect or the partner referral that continues to be strong, whether it's homesite or Chewy or real estate management or landlords. We've got a really long set of folks who drive lots of strong sales for us. Nick, anything you want to add on the agent front? Nicholas Stead: I was just going to note that we're seeing real strength across channels to your question, Andrew. and that is both new business to Lemonade as well as cross-sells to existing customers. As it relates to new business, we saw our highest ever new sales volume in the first quarter, and we've been able to sustain really strong efficiency metrics on our growth spend. And at the same time, on cross-sales, we saw a near doubling year-over-year of cross-sales to existing Lemonade customers. And those are trends we really hope to sustain strength across our various channels that have enabled our growth acceleration curve until now. Operator: Your next question comes from the line of Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: Yes, I had suspected that all of the effectively free advertising and brand building that Lemonade benefited from with the media's attention on the autonomous vehicle announcement in the first quarter that, that might allow Lemonade to actually dial down its need for growth spend while still exceeding the 30% in-force premium growth. Can you talk about why that wasn't the case? Does sort of mainstream media coverage of Lemonade help with attracting customers? Daniel Schreiber: Tommy, Daniel here. That coverage is fabulous for us in terms of general perception. I think it draws attention to the widening gap between us and everybody else. The rest of the industry pricing based on gender and credit scores and marathon status. And on the other end of the spectrum, you have us partnering with Tesla to price per mile and per version of the AI that's driving. So definitely, that captures the imagination. I think it drives home the unique elements that Lemonade has and the differentiation from the industry. So that drives attention and brand building, but that was never about getting clicks and sales instantaneously. This is the kind of long-tail investment in brand that builds over time. We see our organic sales growing. We see our conversion rates growing. We see the trust scores and brand recognition growing. You'll have noticed in Shai's comments that in pet, for example, we are now the #1 most searched brand. So we are definitely seeing the cumulative effect of all the coverage of Lemonade and our differentiation in our tech-centric offering. But we had no -- the expectation implicit in your question was never shared by us. Thomas Mcjoynt-Griffith: Okay. That all makes sense. And switching over to the stock-based comp. I saw for the full year, the guide for stock-based comp was raised by $20 million. To clarify, is that an incremental? Or is that just a switch from cash comp to stock-based comp? And is that new $95 million a fair base level to assume in the out years as well? Timothy Bixby: Yes. So I would think of that as a step-up that will be a new roughly base level. I would note that those are unique grants and are multiyear in nature. All of that info is disclosed and out there. But big picture, there's a performance-based aspect to a subset of those grants. -- and that focuses on the next 2 years and requires significant value increase in order for those to become vested and drive value. In addition, there's a long-term multiyear grant that you've seen at other thoughtful companies, particularly for the founders to kind of drive a long-term vest. Our standard vesting for new employees is 4 years. These grants are have an 8-year view with a thoughtful vesting pattern. So I think of this as a onetime for a multiyear view. If you think about our stock-based comp kind of zoom out a little bit and look over, say, the last 5 years or so, which gives a better picture and takes away some of the noise of stock volatility and things like that and look at our actual effective burn rate or dilution rate, which is really the thing that financially we're concerned about, it's right on target with best-in-class. It's sort of a 2-ish percent number, 1 point something to 2-point something over that very long-term period. That's really the focus number for us, and we expect over time that, that will continue to be the case. Founder grants are unique things, and so you'll see some volatility in the short term due to that. Nicholas Stead: And also, I maybe wanted to add, notwithstanding the increase in our expectation for expense within the calendar year, we're seeing stock-based comp scale very nicely as a percentage of any metric you'd like to index against, whether that be in-force premium, revenue or gross profit. Those levels are improving and from our view, healthy relative to benchmarks. Operator: Your next question comes from the line of Mike Zaremski from BMO. Michael Zaremski: My first question is a follow-up on Lemonaid's, I think probably best-in-class loss adjustment expense ratio. Does it have something to do with -- on an NAIC statutory basis, we've always seen that Lemonade's claims, we call it denial rates, so claims closed with no payment has been materially higher than the peer average or industry averages. Does that have something to do with kind of why the LAE ratio is so much better than others? Timothy Bixby: So the short answer to that is no. the more thoughtful answer is that Lemonaid is -- has some unique aspects to the business. We have a very large number of relatively low premium policies because of the nature of our renters business. That has changed and diminished over time. So the renters book of business in terms of premium is now under 30% of the business in the high 20s. It used to be 90-something long, long ago. So the book of business is nicely diversified. That said, if you just count the policies, you're going to get a very large number of renters. And so that can skew rejection rates because you can get a lot of claims, which are thoughtful claims, but not necessarily a covered claim, claims below the deductible for example, claims that are not covered by the policy. And that's not uncommon when you have a customer base who in a certain subset can be newer to insurance. It might be their first policy or it might be the first time filing a claim. And so that will definitely skew the numbers. If you isolate the part of our business that makes us look more like a more established incumbent, if you took just homeowners and car and pet, for example, you'd see a different number that looks much more in line. And I think our NPS scores and our customer satisfaction scores, which I would put up against any insurance company on the planet, show that over the arc of the total business, Lemonade almost every time as best we can, does the right thing and pays every valid claim effectively. Nicholas Stead: And let me just also to note, Mike, sorry, LAE ratios cost to manage claims over earned premium and claims without payment generally don't have costs attached to them. So I wanted to offer that as well. But I want to take the opportunity to share that fully aligned to Tim's points around product mix and how that has certain nuances within our LAE ratio. But we're actually seeing favorable trends in LAE over time across all of our lines of business. And that's especially true in CAR, where we've seen notable improvement in recent periods and our CAR LAE ratio is, at this stage, not materially different than the overall Lemonade result of 6%. So we're encouraged to see that momentum across lines. Michael Zaremski: That's thoughtful. My follow-up is just kind of also benchmarking kind of looking at Lemonade's gross combined ratio, about 138% this quarter, improving materially year-over-year. If I benchmark Lemonade to the industry and maybe Anders business mix is a bit different. I think the industry is running 90%-ish, so lower. I'm curious, does Lemonade have a goal to kind of lower that gross combined ratio materially over time towards the industry average? Or will there always be kind of a material gap? Timothy Bixby: Yes, you're exactly right. The improvements have been dramatic. a little color, something like a 60-point improvement, I think, which is significant. And obviously, you're really seeing it in the expense ratio for sure. The loss ratio, we reported a gross loss ratio of 52%, this quarter at 62%. So we're right where we need to be with loss ratio. Expense ratio continues to show dramatic improvement. Two things to note. Because of the nature of reinsurance, depending on the way you calculate combined ratio, there's a couple of different ways, but reinsurance certainly has an impact on that where the growth and the net will differ. But anyway life, we're seeing significant improvement. we're right on track is breakeven. You'll see that in Q4 for the full quarter for the first quarter, we've noted that for several years now. That's the point where b.ll.Asy10,'ades quite close. So we're right on track for that. And that's not the fact that the vast majority of our business, we're expensing the cost of acquiring that business upfront. So that's a headwind for us. It's a good news, bad news for our business. We love it because we're able to acquire customers, we have to expense that upfront. So given that it's a handicap, it's a nuance of our business you're seeing these really dramatic improvements quarter-over-quarter. So we feel like it's right on track. We now move to your next question, which comes from the line of Bob Wong from Morgan Stanley. Jian Huang: First question is on the growth of the car business. I just -- I know you addressed it a little bit, but I just want to maybe double-click on that a little bit more. Obviously, Pet is now one of the bigger business here. And if we go back to the Investor Day thinking about it, you were talking about car eventually being the biggest driver for 10x your business going forward. Just given the current competitive environment, can you maybe just talk about your competitive positioning versus the industry and where you are in the car business today and how we should think about that growth engine going forward? Daniel Schreiber: Bob, yes, I think a lot of what I would encourage you to think about going forward is really a straight-line continuation of what we've seen in the last year or 2. So we shared, if you go back a year, car was growing at something memory was about 9%. contrast that with the 60% of this quarter. If you went back a year more, you'll probably be in negative growth territory. So not only are we reaching fast growth rates and rates of acceleration, but we're seeing very rapid acceleration from negative to positive to 60%. We don't intend to slow down too much thereafter. And the IFP component of car in our book is still modest, but its portion of our sales in the last quarter is already pretty significant, something like 1/3 of our sales in the last quarter came from car. So because we have a larger base, it will take time for it to capture its fair share, but it's catching up pretty dramatically. So definitely significant. The other thing I would point out, and I touched on this in earlier responses, we think we have an offering that is highly differentiated and structurally advantaged relative to the incumbency. We are, to the best of our knowledge, unlike any incumbent in that over 90% of our customers have continuous telemetry on. And that just really gives us x-ray goggles into which risks we have, how we should be pricing them rather than using broad strokes proxies that are meant to, in some way or fashion, mirror driving behavior like where you live and your gender or age, education level, we're pacing through all of those, de-averaging those really big monolithic groups and being able to price every individual per se as they drive depending on a per mile basis oftentimes and adding AI into that mix as another driver. So I do think that this is a structural advantage that will allow us to continue to compound that business and the messages that you're recalling from our last Investor Day are ones that we would stand behind absolutely today as well. Jian Huang: Okay. Really appreciate that. Second question is on autonomous, not specifically for your business, but really just how you think about the growth trend of autonomous vehicles for the industry going forward, right, right? So right now, if we think about autonomous, the L3 or better autonomous vehicle penetration rate is still very insignificant. As we think about just the autonomous vehicle technology advances as well as penetration rate going forward, can you maybe help us think about the potential size of that market and the growth opportunities there for the industry, but also for Lemonade. Just curious your thought on that. Daniel Schreiber: I'll share a couple of thoughts and then invite my colleagues to add if they feel I missed anything. Cars have very long ownership cycles, and therefore, newer technologies do take a while to penetrate into the installed base. But there's got to be little doubt that various degrees of autonomy is the future, and it is going to be growing much faster than the rest of the industry. And Tesla may be leading the way, but every major car manufacturer is adding these capabilities. And they aren't entirely binary. They have everything from various forms of adaptive cruise control all the way up to full self-driving of the likes of Tesla. And we can see into each of those different gradations and we can price them accordingly. So if you widen the aperture a bit, you start seeing all different ways in which cars are adding safety features and degrees of autonomy and those are absolutely things that we are focused on and pricing into our policies. So I think if you are a $50 billion, $60 billion, $70 billion insurance company with dominant market share, this may seem insignificant. but our market share is maybe 0.1% of what a Progressive or GEICO is right now. We have maybe less than 1 per market share, which is to say we can see in this emerging sector, a very promising growth opportunity. We don't limit ourselves to it, but I think you will see autonomy impacting our financials much more significantly than perhaps on the incumbency with a very, very large installed base. Timothy Bixby: Yes. I think you're exactly right. This is this is an area where I'd love us to have a better crystal ball than you do, but I fear we may not. What we do know is 2 things. One, the numbers today are small. And as Daniel noted, small numbers can have a really significant impact on a company the size of Lemonade. -- if you're a $1 billion player versus a $50 billion player, that plays to our advantage. Two, the name of the game here when you have an uncertain growth curve, and this like many other technology advancements, this adoption rate will be very, very slow and then all of a sudden, it will be very, very fast. And the point of that bend in the curve is quite difficult to predict. Lemonade and our depth and level of agility is such that we love that. fast, quick, thoughtful adaptation is really what we were built to do. And so when that curve comes, whether it's a year from now or 6 years from now or something in between, we'll be ready and we'll be more as adept as any player in the market to react to it. And we'll have several years of autonomous experience behind us rather than still to build. So we love these curves, and we're looking forward to it coming. Operator: There are no further questions at this time, and we've reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to the Artisan Partners Asset Management Inc. Business Update Earnings Call. Today's call will include remarks from Jason A. Gottlieb, CEO, and Charles James Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations section of our website. Before we begin today, I would like to remind you that comments made during today's call, including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited to, the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statements. We assume no obligation to update or revise any of these statements following the presentation. In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of these measures to the most comparable GAAP measures in the earnings release and supplemental materials, which can be found on our Investor Relations website. Also, please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan Partners Asset Management Inc. investment product or a recommendation for any investment service. I will now turn the call over to Jason. Jason A. Gottlieb: Welcome to the Artisan Partners Asset Management Inc. business update and earnings call. Thank you for joining the call today. At Artisan Partners Asset Management Inc., our purpose is to generate and compound wealth for our clients over the long term. We do so by maintaining an ideal home for investment talent, providing a unique combination of autonomy, degrees of freedom, resources, and support. Our model has proven repeatable over time as we have steadily expanded our capabilities across equities, credit, and alternatives. Across a wide range of market environments, we have maintained our focus on high value-added investing, driving positive outcomes for both our clients and our shareholders. Long-term investment performance remains strong across our platform with 74% of our AUM outperforming their benchmarks over three years, 76% over five years, and 99% over ten years gross of fees. All 12 Artisan Partners Asset Management Inc. strategies with track records over ten years have outperformed their benchmarks since inception net of fees. These 12 strategies have compounded capital at average annual rates between 6% to nearly 13%, and have exceeded their benchmarks by an average of 202 basis points annually net of fees. Highlighting our track record of positive long-term investment outcomes, two of our investment teams were recently recognized by Morningstar and Lipper for investment excellence. Morningstar nominated the Global Value team’s Dan O’Keefe for the 2026 Morningstar Award for Investing Excellence, Outstanding Equity Portfolio Manager. Lipper named the team’s Global Value Fund Institutional Class the best fund in its Global Large Cap Value Funds category for the three-, five-, and ten-year periods ended 12/31/2025. Lipper also named Select Equity Fund Institutional Class the best fund in its Global Multicap Value Funds category for the trailing three-year period ended 12/31/2025. Lipper also named the M Sites Capital Group’s Global Unconstrained Fund Institutional Class as the best fund in its Global Income Funds category over the trailing three-year period ending 12/31/2025. External recognition is not our goal, but the consistency with which Artisan Partners Asset Management Inc. has earned accolades like these across time, teams, and asset classes validates the quality of our platform and repeatability of our business model for both talent and clients. Congratulations to the Global Value team and the M Sites Capital Group on these recent recognitions. Shorter term, trailing one-year performance has been weighed down by underperformance in a couple of our largest equity strategies, all of which have strong long-term track records. Turning to slide four, firmwide net outflows in the first quarter were $3.1 billion. Outflows were concentrated in a few equity strategies where we saw clients de-risking, reallocating after periods of asset class outperformance, and some shifting to passive alternatives. Those outflows mask positive business developments across many parts of the platform. Year to date, we have net inflows in 13 of our investment strategies. The Sustainable Emerging Markets strategy raised $250 million in the first quarter and assets under management are nearing $3 billion. We have continued our multiyear success in growing our credit businesses, with $800 million of net inflows in the first quarter. This was our fifteenth consecutive quarter of positive credit flows. In alternatives, we raised $300 million in the first quarter, primarily in the Global Unconstrained strategy, where we continue to build a realizable pipeline. We expect to see continued strong business development in credit and alternatives, while the backdrop in equities is more challenging and difficult to predict. Our teams have been operating efficiently during recent market volatility. At the end of last week, our AUM was back up to nearly $184 billion, near the all-time high that we achieved in late February. Our business and financial model allows us to remain focused on delivering high value-added investment outcomes for clients, servicing our existing clients, while actively developing new client opportunities across channels globally. Slide five highlights our methodical approach to expanding our platform with new talent and investment capabilities. In the first quarter, we onboarded Grand View Property Partners, a real estate private equity investment firm specializing in U.S. middle market assets, and laid the groundwork to launch the team’s next flagship fund later this year. We also added key distribution talent in EMEA and the intermediate wealth channel and filed an exemptive relief application with the SEC to offer ETF share classes of Artisan Partners Asset Management Inc. mutual funds. These investments build on success we are seeing with additional distribution resources accessing the intermediate wealth channel in particular, and the broadening and modernizing of our investment vehicle capabilities with custom credit solutions and model delivery. The asset management landscape remains dynamic, and we are actively exploring opportunities to expand the breadth of our platform. We are looking at a full range of opportunities from individual lift outs to larger acquisitions. Our platform remains differentiated and compelling for great investment talent, and we have more ways to access, resource, and support talent than ever before. I will now turn it over to CJ to review our recent financial results. Charles James Daley: Thanks, Jason. Our complete GAAP and adjusted results are detailed in our earnings release. We exited 2025 with record assets under management, a new all-time high in quarterly revenue, and our second-highest annual revenues and earnings. As of 03/31/2026, assets under management were $173 billion, down 4% from December and up 7% year over year. Average AUM was $182 billion, up 1% sequentially and up 9% compared to the prior-year quarter. While AUM declined sharply in March due to market conditions, it has largely recovered in April, as Jason mentioned. Revenues were [inaudible] down 10% from December and up 9% compared to the prior-year quarter. The sequential decline was primarily due to the expected absence of performance fees, as December included $29 million of performance fees realized across six strategies, with the majority of our performance fee opportunities measured and realized annually in that period. In addition, approximately $6 million of the sequential decrease in revenue was due to two fewer days in the quarter. Our weighted average fee rate for the quarter was 67 basis points, down from December due to the absence of performance fees. Adjusted operating expenses increased 4% compared to December, primarily due to the addition of expenses of Grand View Property Partners, seasonal expenses, and the impact of long-term compensation expense. Our full-year 2026 expense guidance remains unchanged. Excluding approximately $20 million of incremental fixed expenses related to long-term incentive compensation and Grand View, we continue to expect fixed expenses to increase at a low single-digit rate in 2026. Compared to the prior-year quarter, adjusted operating expenses increased 11%, driven primarily by higher variable incentive compensation associated with increased revenues. As a result, adjusted operating income decreased 30% sequentially and increased 6% year over year. The decline in margin compared to the prior-year quarter was primarily a result of the addition of Grand View results. Adjusted net income per adjusted share declined 31% from December and increased 5% compared to the prior-year quarter, consistent with operating income trends. In our non-GAAP measures, nonoperating income includes only interest income and expense. While valuation changes in our seed investments impact shareholder economics, we exclude these changes from adjusted results for greater transparency into our core operating performance. Our balance sheet remains strong with $271 million in cash. During the first quarter, we redeemed approximately $50 million of seed capital, reducing seed investments on the balance sheet to $110 million. Proceeds from seed capital redemptions are included in cash available for corporate purposes, reinvestment, or potential return to shareholders through our year-end special dividend. Consistent with our dividend policy, our Board of Directors declared a quarterly dividend of 77¢ per share for the March 2026 quarter, representing a 24% decrease from the prior quarter and a 13% increase year over year. The sequential decline reflects lower cash generation due primarily to the absence of performance fees and seasonal expense patterns in the first quarter. After funding the quarterly dividend, we retained approximately $150 million of excess capital to support organic growth initiatives, evaluate potential M&A opportunities, and return to shareholders. That concludes my prepared remarks. I will now turn the call back to the operator. Operator: Ladies and gentlemen, at this time, we will begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phones. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, you may press star and two. In the interest of time, we also ask that you please limit yourselves to two questions. At this time, we will pause momentarily to assemble our roster. Our first question today comes from William Raymond Katz from TD Cowen. Please go ahead with your question. Analyst: Okay. Thank you very much for taking the questions. So first question, I guess in your prepared comments and also in the commentary yesterday with the release, you mentioned the equity attrition. Where do you think we stand in terms of that reallocation? And then within the $184 billion that you cited as of last week, can you frame what you are seeing in terms of that equity attrition? And maybe the broader question on the institutional pipeline at large is how has that been reshaped a bit between EM and credit versus what you are seeing on the equity side? Thank you. Jason A. Gottlieb: Hey, Bill. I will talk about the equity business for a second. There were two primary drivers. The first was rebalancing across our international strategies given the strength in the EM market being up 30% and a still relatively strong U.S. market. We experienced it across a number of teams and within our International Value franchise in particular, given the size and nature of their business. As you know, David and the International Value team have been soft closed for quite a long time, but he has always been able to manage capacity and the flow dynamics to a neutral to slight forward lean. We would expect that to remain in place. Everything we have seen in that business has been very much rebalance-oriented; there has not been any termination activity. The other piece is coming from our Growth business, which is another large component of our AUM. There are a lot of underlying dynamics occurring. Our Global Opportunities strategy remains a bit challenged on shorter- and intermediate-term performance, causing some headwinds with some of our institutional relationships globally. But there are important positive developments. The Franchise Fund we launched about a year or so ago raised net $400 million in the quarter from a global client, getting us close to $1 billion in AUM there. The Mid Cap Growth strategy, another large strategy on that team, has seen a meaningful performance turnaround that began in late 2024, accelerated into 2025, and we are continuing to see it in 2026, which we think will continue to help bolster that franchise. And Global Discovery, another meaningful opportunity within that franchise, is also seeing really good pipeline activity given its stable and good long-term performance. So from an equity perspective, the dynamics have been primarily institutionally focused given the rebalance and the challenges coming from Global Opportunities. In Emerging Markets, we are seeing really good opportunities. This was an asset class that was left for dead until 2025. We have seen strong performance from the asset class and, importantly, from our teams. Sustainable Emerging Markets in particular—the $250 million flow we saw for the quarter—is the beginning of what should be a good path to crystallize the great performance the team has put up over the last several quarters. We believe that will be a good opportunity for us as we look ahead as it relates to the pipeline. Analyst: Thanks for that. And as a follow-up on the pipeline for team lift outs and acquisitions—appreciate you are working on Grand View right now—how does that look today versus a year ago or even last quarter in terms of the nature of the pipeline, where it is seasoned, and where you are leaning in terms of incremental opportunity? Thank you. Jason A. Gottlieb: As I have mentioned in previous calls, our Investment Strategy Group and broader management team are operating extremely efficiently, not only with the existing platform and franchises, but also with the external opportunity set. There are two areas in particular where we are focused: expanding our credit business and expanding our alternatives platform. We are seeing really good opportunities to expand more traditional credit globally—so much so that there is a strong possibility we could get something done by the end of the year. We are excited about that, though you never say it is done until it is done—strange behavior always seems to happen near the end—but we feel very good about where we are and think this will be a big opportunity for our platform. On the M&A landscape, we are seeing a robust pipeline across the areas we have talked about: differentiated credit, secondaries in both private equity and real assets. Private credit, not surprisingly, is becoming incrementally more interesting. It is an area we have shied away from given the lack of a clear cycle; it is hard to tell whether what we are seeing is truly a cycle or just idiosyncratic situations, but we are very focused on having good conversations there. Relative to the past, the pipeline has incrementally strengthened, and we feel very good about the forward lean with the opportunity to globalize credit. We are also constantly evaluating and doing R&D with our existing business, and there are two incremental opportunities we are working through. If they come to fruition, they could be meaningful and interesting, but they are still in the R&D phase, so it is a little early to discuss those. Operator: Thank you very much. To enter the question queue, please press star and one. To remove yourself from the question queue, you may press star and two. Our next question comes from John Joseph Dunn from Evercore ISI. Please go ahead with your question. Analyst: I was wondering if there are any institutional client segments that historically you had not done much with that you are targeting now that you have a bunch of newer strategy areas? Jason A. Gottlieb: I do not think, institutionally, there is any new client segment that has not been tapped or that we do not have a good handle on. The majority of where we are seeing opportunity is in the intermediate wealth space. We have built out the platform in terms of people and capabilities in the U.S., and more recently, we have recruited, hired, and onboarded in the U.K., the European market, and more broadly in EMEA. That is yielding interesting results even over the short term. The intermediate wealth platform having a slight positive flow for the quarter is a good indication. Breaking the flow pattern between gross in and gross out, it was our second-best gross inflow quarter dating back to 2021 when there was a lot of equity activity. We feel good that there is a correlation between the quality and talent we have brought on and the inflow outcomes. We obviously have to work through a few equity strategies we talked about from a rebalancing and performance perspective, but what we are seeing from an intermediate wealth perspective feels very good. Institutionally, we just have to continue to block and tackle with some of our larger relationships. Analyst: Got it. And then on that, is there anything you can point to in terms of line of sight to any larger mandates that might be looking to exit, and maybe a quick wraparound on the regional factors impacting institutional demand? Jason A. Gottlieb: I do not have a strong perspective on line of sight there. We are heavily engaged with all of our institutional relationships. The teams that sit alongside our investment franchises and service our clients are well equipped to provide us with intel, and we do not see any direct line of sight to massive outflows or massive inflows. It has been a steady state of staying close to clients—certainly when performance is more challenging—and continuing to build on those relationships, recognizing we have work to do. Where we have a strong forward lean in performance, we are leaning in, and we are seeing some green shoots. It could be a bit of an exchange of kicks where we have some attrition in areas with weaker performance, but we also have great capabilities. I mentioned Global Value. I am sure you have seen performance from Mark Yockey’s group and the Global Equity team, both International and Global. Our Sustainable Emerging Markets franchise is getting a lot of looks institutionally as well. We feel good about the positioning, recognizing that inevitably you will always have a strategy or two facing some challenges, and we are maintaining our discipline around those strategies. Operator: And with that, we will be concluding today’s question and answer session as well as today’s conference call. We thank everyone for attending. Have a pleasant day. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the GE HealthCare First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference over to Carolynne Borders. Please proceed. Carolynne Borders: Thanks, operator. Good morning, and welcome to GE HealthCare's First Quarter 2026 Earnings Call. I'm joined by our President and CEO, Peter Arduini; and Vice President and CFO, Jay Saccaro. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides available on our website. During this call, we'll make forward-looking statements about our performance. These statements are based on how we see things today. As described in our SEC filings, actual results may differ materially due to risks and uncertainties. With that, I'll turn the call over to Peter. Peter Arduini: Thanks, Carolynne. Good morning, and thank you for joining us. Let me start with our performance in the first quarter of 2026. We were pleased with the top line growth that came in at the high end of our expectations driven by our pharmaceutical diagnostics, advanced visualization solutions and imaging businesses. We also had strong services growth in the quarter. This all reflects disciplined commercial execution and accelerated customer adoption of new products designed to help clinicians enhance diagnostic accuracy and guide more precision treatment decisions across disease states. As we think about the capital equipment backdrop, we're seeing healthy customer demand globally with resilient procedure growth. Aligned to this, we saw solid performance in orders, book-to-bill and backlog. We delivered double-digit reported growth in EMEA and Rest of World, mid-single-digit growth in U.S. and China sales were in line with our expectations. However, we were disappointed by profit performance in the first quarter, which was impacted by a recall associated with a PDx supplier that has since been resolved. Later in the quarter, we began to see more significant increases in material costs, which we expect will continue for the remainder of the year. We remain confident in our ability to procure supply to meet customer demand. But given the inflationary environment, we're taking a prudent view and reducing our profit and free cash flow guidance for 2026. Slide 4 shows the inflation impacts to our profit guidance and the offsetting measures we've identified to mitigate. For background, the magnitude of specific input costs changed significantly as we move through the first quarter, primarily related to two dynamics, an approximate $100 million increase in the price of memory chips, which are critical components utilized in many of our products as well as an increase in oil and freight costs of approximately $100 million. Other inflation impacts are expected to total approximately $50 million with metals, such as tungsten as an example. Prior to any mitigation, the gross impact of these costs is approximately $250 million or $0.43 per share. We expect to offset more than half of the inflation impact in 2026 with price and cost actions. Taking a prudent view for the year, we are reducing our full year adjusted EPS guidance by $0.15 associated with the remaining inflation impact. Including this impact, we will still deliver mid- to high single-digit adjusted EPS growth. Now I'd like to highlight strategic accomplishments that we're advancing our growth strategy. In the first quarter in Precision Care, we advanced our pipeline of innovation with key milestones in CT and MR, our two largest revenue-generating modalities. Regulatory clearances in both the U.S. and Japan market inflection point for Photonova Spectra, our differentiated Photon Counting CT platform. Customer feedback about the image quality has been extremely positive, including the ultra-high resolution and soft tissue clarity in all modes of scanning. We're actively working with customers on site readiness, and building a strong pipeline for future sales. In MR, we received multiple FDA clearances for next-generation technologies, including a new 3T and reduced Helium platform and state-of-the-art AI-powered workflow solution. Aligned to typical imaging order conversion time lines, we expect revenue contribution from our key imaging NPIs to begin in the first half of 2027. In PDx, we saw growth across contrast media and radiopharmaceuticals, along with growth in our molecular imaging equipment. This is driven by an aging population, increased chronic diseases and demand for precision care globally. We're pleased to see Flyrcado continuing to ramp with a nearly 80% increase in doses since late January. We delivered over 390 doses for the week ended April 17. We're onboarding new customers, including high-volume sites, and we've seen an acceleration in the average number of doses that customers are ordering each week. We remain focused on delivering high-quality customer experience, while there will always be some week-to-week variability, we're encouraged by our trajectory. And this reinforces our confidence in our medium-term target of $500 million or more in annual revenue by 2028. growth is also accelerating, supported by the expanding use of disease-modifying Alzheimer's therapies that are driving increased demand for amyloid beta imaging. Looking to the future, one of the most significant research areas we've been focused on is developing our novel gadolinium free MRI contrast agents. If successful, this manganese-based agent would provide a differentiated alternative to Getelinium by addressing retention concerns and reducing reliance on rare developments. We see this as a significant opportunity to expand our role in the current $1.2 billion contrast MR market by overcoming key challenges for both patients and clinicians. We recently reached a meaningful clinical milestone with the first patient dosed in our Phase II and Phase III study. This innovation is under FDA Fast Track designation granted to drugs that address serious conditions and unmet needs and can accelerate regulatory review. If successful, both the combination trial and Fast Track designation would speed up the time to market. This milestone underscores both the urgency and the promise of our approach and reinforces our conviction that our innovation can significantly advance the MRI contrast plans game. In the area of growth acceleration, we delivered growth across PDx, ABS and imaging business with strong commercial execution. Our high-margin services business, the large driver of our recurring revenue also did well in the quarter. We also completed the acquisition of Intelerad in the first quarter. This advances our strategy to deliver a fully connected cloud-first enterprise imaging ecosystem that spans hospitals and outpatient settings. We're excited about the opportunity to grow our AI, cloud and software capabilities, leveraging our Intelerad platform. As we focus on continued business optimization, price and cost programs are a top priority as well as executing on our new wave of innovation that will not only drive revenue but also margin growth. Today, we announced that we're combining imaging and ABS to create a new segment, advanced imaging solutions led by Phil Rocklin. This change now moves us from 4 distinct segments to 3: AIS, PDx, and PCS, which will allow us to more effectively capitalize on our new wave of innovation, sharpen our disease state focus and accelerate growth. As health care becomes more precise, the need for advanced imaging to confidently diagnose and deliver therapy is increasingly important. There's also a growing demand for connected clinical workflows that drive real-time decisions and outcomes. Structural Heart and cardiology is a clear example. It's one of the fastest-growing areas in health care with a shift to less invasive image-guided therapies. At every stage of the patient journey, procedures depend on advanced imaging, spanning CT, ultrasound and real-time guidance in the cath lab. Having vertical ownership from investment decisions to integrated supply chain in the segment will better enable us to deliver differentiated technologies while streamlining our business and reducing costs, and we're excited about this next step on our growth path. And Phil has the right focus and expertise to drive this business forward. We also announced a new global markets region led by Katrina Trump that we believe will strengthen how commercial teams build and scale expertise across markets and bring the full portfolio to customers globally to maximize growth in enterprise accounts. Now I'll turn the call over to Jay to discuss financial results. Jay? James Saccaro: Thanks, Pete. Let's start with a high-level look at our financial performance for the first quarter on Slide 6. We delivered revenue of $5.1 billion, representing 2.9% organic growth year-over-year, coming in at the high end of our expectations. Healthy global demand drove double-digit reported revenue growth in EMEA and the Rest of World and mid-single-digit growth in the U.S. China revenue declined year-over-year, which was in line with our expectations and improved sequentially. On a reported basis, we had strong performance in product and service revenues at 7.3% and 7.5% growth, respectively. Our service business continues to be a key differentiator with growth driven by a healthy capture rate. Orders grew 1.1% following 10.3% growth in the year ago period. We delivered a solid book-to-bill at 1.07x, and we exited the quarter with a record backlog of $21.8 billion, up $1.2 billion year-over-year. We were disappointed with the adjusted EBIT margin of 13.5% and adjusted EPS of $0.99. Of note, adjusted EPS included approximately $0.16 of tariff impact. Lastly, our free cash flow was $112 million in the quarter. Looking more closely at margin performance on Slide 7. Adjusted EBIT margin was 13.5%, down approximately 150 basis points year-over-year. Recall that we expected to see the largest tariff impact for 2026 in the first quarter, given the timing of the 2025 policy changes. Year-over-year margin performance was also impacted by declines in PCS and the PDx supplier issue. Commercial execution driving increased volume, strategic pricing and contract settlements were tailwinds to margin in the quarter. Moving to segment performance, starting with Imaging on Slide 8. Organic revenue grew 3.8% year-over-year, with robust growth in the U.S. and EMEA, particularly in CT and X-ray. We're seeing strong customer demand for our CT product line, particularly with our Revolution vibe that is focused on the growing cardiac exam segment. EBIT performance benefited primarily from volume, but declined year-over-year due to tariff expenses. Excluding tariffs, margins would have been accretive year-over-year. Overall, we're well positioned to capture market demand with the introduction of differentiated new products, including Photonova Spectra. Turning to Advanced Visualization Solutions, on Slide 9, we delivered organic revenue growth of 4.4% year-over-year, with continued strong performance in the U.S. and EMEA, driven by new product adoption across the portfolio. EBIT margin increased by 120 basis points year-over-year, driven by volume and contract settlements, partially offset by tariffs. As we look ahead, we expect continued demand driven by current and future new products across cardiovascular surgery and ultrasound. Moving to Patient Care Solutions on Slide 10. Organic revenue declined 8.1% year-over-year, primarily attributed to select large monitoring installations more concentrated in the second half of the year. Total segment orders grew in the quarter, and we're expecting U.S. clearance for our new premium anesthesia product in the third quarter of this year. Segment EBIT margin declined 500 basis points year-over-year, primarily reflecting the decline in volume as well as tariff impacts. We're taking specific actions to improve PCS performance, focus on improving backlog conversion, increasing price and optimizing segment cost structure. Moving to Pharmaceutical Diagnostics on Slide 11. We delivered another strong quarter of organic revenue growth at 9.7%, driven by global strength in contrast media, continued price execution, and robust growth in our radiopharmaceutical portfolio. EBIT margin declined year-over-year primarily due to the discrete supplier issue, planned investments in our radiopharmaceutical pipeline and the Nihon Medi-Physics acquisition. Radiopharmaceutical adoption, including Flyrcado, is progressing well as evidenced by the dose acceleration from late January. Turning to our cash performance on Slide 12. We delivered free cash flow of $112 million, up $13 million year-over-year, supported by working capital improvements. We continue to execute on our capital allocation strategy, including the completion of the Intelerad acquisition, which we expect to strengthen our imaging portfolio and drive total company recurring revenue. In the first quarter, Intelerad's business performance was in line with the expectations we previously shared. We've repaid $500 million of debt in the first quarter. We also returned capital to shareholders through our dividend and the repurchase of approximately $100 million of our shares. Now turning to our outlook on Slide 13. We're maintaining our top line guidance of 3% to 4% organic sales growth, in line with the healthy customer demand globally and a good start to the year. We continue to factor in a cautious outlook on China and expect limited impact to revenue from the conflict in the Middle East. To note, the Middle East represents approximately 3% of total company revenue. Regarding foreign exchange impacts, while rates have been volatile, we currently anticipate an approximate 100 basis point benefit to revenues this year. Related to adjusted EBIT, as noted earlier, we expect approximately $250 million of gross inflation impact for the full year. We're taking price and cost actions that are expected to offset more than half of the impact, which will partially benefit this year with larger benefits in 2027. Given these dynamics, we are prudently reducing our profit outlook for 2026. We now expect adjusted EBIT margin to be in the range of 15.4% to 15.7%, reflecting expansion of 10 to 40 basis points year-over-year. We continue to expect tariff impact in 2026 to be lower than '25. Note that we do not expect a material benefit following the tariff policy changes announced earlier this year. We're also reducing our adjusted EPS guidance to a range of $4.80 to $5 per share, which represents approximately 5% to 9% growth year-over-year. In the wake of the current inflationary environment, we believe this is the right thing to do. With the change in profit outlook, we now expect free cash flow of approximately $1.6 billion in 2026. Intelerad acquisition is expected to have a minimal impact to adjusted EBIT margin and adjusted EPS in 2026. For the second quarter, we expect year-over-year organic revenue growth to be in the range of 3% to 4% and adjusted EPS performance to decline in the low single digits year-over-year. Note that we will provide a recasted financials for the new AIS segment with our second quarter 2026 reporting. With that, I'll turn the call back over to Pete. Pete? Peter Arduini: Thanks, Jay. Turning to Slide 14. This chart demonstrates the clear progress we're making to deliver on our new wave of innovation. The majority of our latest NPIs have moved from regulatory clearance to early commercial orders, which is an important step towards enabling more meaningful revenue beginning in 2027. You may recall, all of these innovations are differentiated because of a unique design or AI capabilities and have higher margins than our predicate products. Several of these time lines are earlier than expected, and we feel good about the team's high CD ratio and how we're tracking to deliver on our pipeline. In summary, we continue to view 2026 as a pivotal year with the strongest innovation cycle we've had in the past decade that we believe will accelerate revenue and margin growth. At the same time, we're working to manage through a dynamic macro environment with operational rigor. The fundamentals of the business remain strong. We're making meaningful progress advancing our precision care strategy and unlocking value for customers, patients and shareholders. With that, we'll open up the call for Q&A. Carolynne Borders: Thank you, Peter. I'd like to ask participants to please limit yourself to one question and one followup. Operator, can you please open the line? Operator: [Operator Instructions] Our first question is from the line of Vijay Kumar with Evercore ISI. Vijay Kumar: I guess my first one is on maybe when you look at the organic cadence. Back half does imply a step up. And when I look at your order growth and book-to-bill, it looks like your capital book-to-bill was well north of 1.1. Just talk about this back half revenue acceleration, just given you had some noise around PCS, would your orders are coming in well above what gets back half to be close to that mid-single range given we're starting the year at 3%? Peter Arduini: Vijay, thanks for the question. You're right that book-to-bill came in at 1.07 all in, and so if you strip things out, I think the equipment obviously doing better. Look, as I said in my prepared remarks, the overall capital equipment market is healthy. That's super critical, and we're doing well. We're winning at a higher rate. The U.S. market, particularly has strong procedures growth. And I've mentioned on the call that EMEA and the Rest of World is actually doing quite well. It was actually up double digits, which is very good to see. So mid-single U.S. and Rest of World at double digit as well as China kind of aligning to where we are. I think that, coupled with the products that we have that I just went through on the last page, the structure piece, which actually, in some ways, will help us be even more focused. It gives us much more technical and clinical focus specifically on these new products, like how do you differentiate our photon counting versus the other guys. So we feel quite good about that. And we're well positioned with this to continue to accelerate both orders and sales here as we go through the year. Jay, I don't know if you want to add anything else to do that? James Saccaro: Sure. Vijay, remember 1% orders growth in the first quarter against the 10% comp, really, really good start to the year, an illustrative of a healthy capital environment. The backlog sits at a record level. So we think from a plan standpoint, the year has shaped up on the top line consistent with what we originally expected. The other thing I would add is the key NPIs, some of the ones that we've seen in our ABS business, like Vivid Pioneer are performing very well. And we're also seeing some benefit in our area of imaging, too. So really good start on those. Those will support acceleration in the second half. And then the other thing is we are expecting some improvement in PCS in the second half attributable to some monitoring deals that are earmarked for delivery in the second half along with the new product. So really, that's the story as we look at the second half of the year. Vijay Kumar: Understood. And maybe, Jay, my second one on the inflation assumptions around EPS. Talk about the $250 million number that you quoted. What does it assume? Is it assuming current inflation trends? Does it have some cushion if things worsen? And how should we think about the cadence of that inflation impact rate? Obviously, you noted second quarter EPS would be down. Does it assume an outsized inflation impact and then it gets better in the back half? James Saccaro: Yes. So Vijay, just maybe taking a second on the overall guidance. No change to sales guidance, which we feel good about, as I mentioned earlier. The issue for us really relates to some dramatic changes to certain input costs that we saw during the first quarter of the year. And what it really comes down to is memory chips and then the geopolitical events impacting things like oil, freight and certain other commodity costs. What we have assumed for the rest of the year is that these commodity costs remain at elevated levels, the elevated levels they're at today, and we haven't included some level of cushion against that. And so we've included that as the working assumption in this guidance. We have offset measures in place. We talked about implementing price changes, but that's really primarily on new orders. We've talked about evaluating modes of transportation to impact freight exposure, and we are taking some measured cost actions. But the things like price will have a more prominent impact on the second half of this year and into next year than they do in the second quarter because a lot of our -- the sales that are represented in the second quarter as an example, are in the backlog today. I think we've taken a prudent approach here. We obviously are disappointed that we had to lower guidance. We don't like that at all, but it's the right thing to do under the circumstances. And I think the actions that we're putting in place will benefit more in the second half of the year, but then into next year as well. Operator: Our next question comes from the line of Joan Wuensch with Citi. Joanne Wuensch: Can you hear me okay? Peter Arduini: We can, Joan. Joanne Wuensch: Wonderful. I'm just trying to sort of pull apart the first quarter a little bit more, particularly in the Miss and PCS. And I'm just curious if you can detail that a little bit better? And how do you think about this on a go-forward basis? James Saccaro: Sure. So -- so listen, as we think about the first quarter relative to our expectations, the impact was really about a supplier quality issue we encountered in our PDx business. It was roughly $0.05 of impact. It came about late in the first quarter. It led to a write-off of some product, but also a sales shortfall or not for this issue, we would have achieved the quarter. So obviously, not pleased with the performance in the first quarter, but it was really isolated to this PDx supplier issue. PCS decline, but that was generally speaking, in line with our expectations. Pete, maybe you talk about PCS performance. Peter Arduini: Yes. I think, Joan, to your question, and I think Jay delineated. We had built in some cushion relative to what we expected PCS to do, and it was relatively to that area. And at that point, we weren't happy with how the results were. But just to reinforce the points we made on the call is, the two areas where a lot of the larger monitoring deals, which fundamentally that revenue carries a vast majority of the margin are more second half loaded. And so that puts more pressure on the first half from the margins on that. The second area is the new anesthesia product. It's really our first new premium anesthesia product in many, many years. I think it's going to be a very good product. Some customers are obviously waiting to kind of see that come out. We feel pretty good that the clearances and stuff will be on track for Q3. And as I mentioned, a little bit later in that period. So those are both orders and sales drivers. The backlog piece on the monitoring are deals that we have with well-established customers and they'll get executed. Having said that, look, I'm not pleased with the decline in this magnitude, and we're heavily focused on mitigation actions. Jay mentioned some of them for the business, but backlog conversion, pricing in this business, in particular, and we're looking at the overall structure. With PCS being more of a stand-alone segment really in the future, we have the opportunity to do more of a strategic assessment of the portfolio in all the parts as pieces. But ultimately, we'll address the underperformance. Operator: Our next question is from Travis Steed with Bank of America Securities. Travis Steed: First, I'd like to start out on Takato progress, almost double the run rate in April versus January. But so far from the $500 million target. So just curious how that trended over the last kind of 3 months and kind of where you see that business going forward? Peter Arduini: Yes, Travis, thanks for the question. Look, step by step here, I would say. It was a great quarter for the radiopharmaceutical team in general, but particularly for the molecule to your point, we're pleased with the acceleration. The ramp has gone pretty much in line with what we have thought. I think if you think about some of our previous discussions, the weekly volumes have continued to increase throughout the quarter. Really, as we thought, I think, reflecting the customer demand that's out there and just the way we see new customers versus existing customers adding on. We're also hearing more positive commentary from users, which is a really important part. This becomes kind of a network of users talking to other users. And so that buzz is out there. As we stated, the week ending April 17, we had 390 doses. We have about 31 now active CMOs. You may recall in the first quarter, we talked about the performance of those needed to improve. All of those are performing well, which sets us up for continued growth. And we're also expanding the customer base. I think that's -- the base has grown probably close to the same amount as the molecule growth during that same time period. So we're on track. Price is obviously holding as well. Clinically, the integration of the workflows is progressing. We talked about that in the past. I think the workflow is relative to cardiology and stuff are on track. So again, all in all, I feel quite good about where it's at. We've got still a lot of work in front of us. But as we mentioned, this gives us confidence here of what we've talked about, about $0.5 billion sales molecule by 2028. Travis Steed: Great. And maybe a follow-up question on China. You mentioned a cautious outlook on China kind of baked into the guidance. Curious what you're seeing there? If you're seeing any green shoots or things changing on the margin? And what all is kind of baked in from a market standpoint and from a competition standpoint? Peter Arduini: Yes. Look, China performance was in line with our expectations for Q1 and it improved sequentially, which is important because, obviously, in the previous quarters, it's been more challenged. We were intentional in setting a conscious outlook for '26 and still expect the China sales to be down year-over-year. But it's also important that we are seeing some level of green shoots here in the marketplace. I think, look, we aren't satisfied where the China performance is at this point in time. But as I mentioned, under Will's leadership and honestly, the market, we're starting to see some more promising commentary. And I'd say things like improving market predictability is super important. A few of our operational changes that the team has put in place have enabled us to be able to be more clear and accountable strengthening our commercial organization. We've done some things to optimize that with our distributor network, and we're seeing the benefit of that. Being more clinical, particularly in certain geographic areas has helped us out win at a higher rate and just be more nimble. So I think those are important aspects as well as we're getting better traction with our JV, which -- that we have a Sinopharm on DBPs in certain tenders. So Phil and I literally just came back, I think it's a week today from China where we met with customers and leaders and our team and had an opportunity to spend some time into the marketplace and talking. And I think relative to the acceptance of our products, the excitement about the pipeline coming and the changes that we're making. Again, it's still going to be a more challenged year, but I think we're starting to get more stabilization in the China market. Operator: And our next question is from Robbie Marcus with JPM. Robert Marcus: Great. Two for me. Maybe the first one, just to circle back on guidance, Jay. We've seen some negative revisions over the past few years. A lot of it has been from unintended global events. But how are you thinking about the amount of cushion you've put in here, especially given you've been reduced -- offsetting a lot of these costs the past few years. How much is legitimate offsets versus perhaps under investment? And how much cushion is there? James Saccaro: Sure. So Robbie, with this reduction, we've tried to provide adequate cushion in the guidance that we have and also adequate offsets in terms of pricing cost measures. I think importantly for us, you see about $0.23 of offsets that we're reflecting in our guidance. Now importantly, much of that is in Q3 and Q4 versus Q2, which is why you see a decline in earnings in Q2 before you start to see some acceleration in the back half of the year. But that's really related to when the mitigation actions were able to kick in. Now as it relates to underinvestment in the business, one thing we've been intensely focused on is ensuring that we have adequate R&D spending in place and also adequate commercial investments in place to support all of the great progress that we're making on the pipeline. So we've done all of that. But as far as discretionary spending areas outside of that, we're intensely focused on mitigating those and managing those areas. So I think the answer is, I believe we have adequate contingency and I believe that we're continuing to invest in the right way in the business. Peter Arduini: Yes. I think, Robbie, as we've said, look, our growth were set up well for the rest of the year. Look, we've taken this hard decision with some of these hyperinflation items, but now it's up from here. We're not counting on hope on these plans. We've got strong operational plans to make sure that we can do the reset and be able to actually move from here upward. Robert Marcus: Great. Maybe a quick follow-up. There are coming generics in the diagnostics business -- pharmaceutical diagnostics, sorry. It seems more like a 2027 issue than a '26 issue. How are you positioning and thinking about generic impact into the end of the year and into 2027? Are there any measures you could do to help mute any competitive impact and anything else we should be thinking about there? Peter Arduini: Robbie, look, we haven't seen any impact from any of the entrants at this point in time. Obviously, we take all competitors very seriously. And the reality of it is the market today is a generic market. There's branded generic products that are out there, but there's already 6, 7 different players within the marketplace. Customers look for a full SKU lineup. The more you mix SKUs, the more the probability of mistakes, resiliency in the supply chain, that product breadth and convenience, different sizes that integrate into injectors, things of that nature. So those are all of the different pieces that are out there. Obviously, to your point, we have contracting options about how we integrate products to fully offer the wide spectrum that an IDN needs and all of those things that we're constantly looking at. But just to be clear, at this point in time, we're not really seeing any impact from any new entrants into the marketplace. Robert Marcus: Peter, maybe if I could just ask a little clarification. I believe these are AB -- they're able to be switched at the pharmacy level versus branded generics. So does that change the strategy at all? Peter Arduini: No. I mean there's some different contracting positioning, but it also can mean that anybody within the group, any of the folks that are making products if they're challenged on delivery or that, that those products can be reasonably substituted. And so we deal with that today, right? If we were short or one of our competitors today, we're short, one of us could step in. And I think that dynamic we're dealing with today. So that would be a similar type of competitive issue or challenge that the team is used to dealing with. Operator: Our next question comes from David Roman with Goldman Sachs. David Roman: Maybe I'll start just on Photon Counting CT. Could you just elaborate a little bit further on the commercial strategy here? And maybe help us think through market segmentation especially in the context of your primary competitor here, I believe, having kind of a 2-tiered product and pricing structure? Peter Arduini: Yes, Dave, thanks for the question. I would first start out just to say with we're actually doing quite well in the CT market around the world without even having our Photon Counting system on the marketplace. And the question is why is that? Well, there is a growing need for CT of different types throughout the world. This product that we introduced just about a year ago is dedicated to cardiology and it's just taken off tremendously. It's actually one of the biggest drivers for what's taking place in Europe and international marketplaces. So we have allocated more dedicated resources and focus into the field into CT. Some of the changes we announced are about having more specialized reps, people that can go in and talk head-to-head clinical, technical and ultimately, productivity differences to customers. I think that's super important as opposed to having more of a generic discussion. We also are big believers that artificial intelligence breakthroughs are also going to change traditional CT. So we have a list of different things that are going to be coming out that are going to increase resolution and capabilities in our traditional CT range and will be significantly more cost-effective for someone who wants more resolution and maybe going to Photon Counting. So there's an interesting mix that's out there. All that being said, we're super excited about our Photon Counting approach. I think when customers look at our resolution, they look at our contrast capabilities in what's called spectral imaging or being able to see tissue differentiation, they're seeing a system that doesn't have trade-offs compared to maybe what's available in the market. You have this high-resolution all-in capability upfront that you don't have to make these trade-offs. So we're going to come in at the ultra-high end. There's a lot of customers who've been waiting for us for some time. Typically, this will start with the conversion of our installed base. It will then move to broader tenders on competitive targets. We just had the approval, as you know, at the end of March, beginning of April. We've got a solid funnel of opportunities over $100 million of that. And the way to think about this is that between you getting approval, it's many times 4 to 6 months that customers have to do the assessment, they have to look at. That then builds a bigger order funnel. And then it's 5 to 8 months after that, pending on the customer have the room ready or are they building out that the sales transfers take place. But I think we feel quite good about where we are with approvals, where we are builds and the timing to sales conversion. But the most important thing is we think we chose well on our technology approach. David Roman: That's very helpful perspective. And then maybe, Jay, just a follow-up here on some of the input cost dynamics. Could you maybe help us understand a little bit more detail just on the phasing and impact of some of these considerations do you cause? I guess I would have expected you to have some amount of raw material on hand right now given your inventory turns that would enable you to buffer kind of the impact in the immediate term and then potentially see the impact build throughout the year, but maybe help us break down a little bit the timing of some of the cost headwinds, what gets realized now? And then what's kind of just deferred given the natural dynamics in your business from the timing of acquisition raw material through final finished goods and sale? James Saccaro: Yes. Good comment, David. And really, as we think about the impact of these incremental inflationary costs, there was limited impact in the first quarter, if any, because of what we call FIFO rolling out in future quarters the impact of higher-priced raw materials. And so we saw very little impact in the first quarter. The second quarter is really the first quarter where we see a real impact from inflation. And some of it, the logistics attaches to our product at the very end in many cases. And so we see some of those more immediate impacts. And then with our faster flow items faster turn businesses, we're starting to see an impact in the second quarter. The largest impact will be in the third quarter in fourth quarter. But the good news for us is much of the offsets that we have in place start to benefit the second half of the year. So the $0.23, we're not really able to impact the second quarter in terms of those areas very much at all. But really, that benefits the second half of the year. So that's really the overview. Operator: Our next question comes from Larry Biegelsen with Wells Fargo. Larry Biegelsen: Jay, I wanted to start with Intelerad, and how that's impacting the guidance in 2026, particularly margins and interest expense? And I imagine the interest expense goes up starting in the second quarter. And I thought this was a relatively high-margin business. And do you expect the deal to be accretive to both sales -- organic sales growth and EPS next year? And I have one follow-up. James Saccaro: Sure. So first, just as a reminder, Intelerad really was about extending our cloud capabilities and outpatient networks and the efficiency of care teams and helping us deliver precision care for patients globally. So really excited about that transaction. And we were also very pleased to report closing it in the first quarter. So that came in, in line with our expectations, perhaps a little bit better. But overall, good start. And the momentum is continuing in a good way. We previously said double-digit sales growth is what we expect, and we expect to accelerate that a little bit over time. And we also talked about margin accretion. We talked about an EBITDA margin north of 30%. And so all of that is holding true. Of course, you have things like integration costs and so on. But in the first year, we're expecting this to be slightly dilutive, but we've kind of sort of covered that in the forecast as we add EBIT but then include the incremental interest expense. So what I would say is it's fairly neutral from a bottom line standpoint in the first year. As we move to 2027, we'll see a little bit of positive contribution on the bottom line, but then also as an accelerant to sales growth. So we're pleased with this one. I think the strategic logic of it as we closed it and now are studying it even further is more intact and the financial profile is continuing as we expected, which is just great to see. Larry Biegelsen: Jay, one follow-up maybe on the cadence. I think you've addressed sales, but on margins, in EPS in '26. Your comments on the call imply margins and EPS should be up pretty significantly in the second half of the year. And do you now expect gross margin to be down year-over-year because of inflation? James Saccaro: We do expect margins to improve in the second half of the year. A lot of that benefits from some acceleration in sales in the second half of the year, the new product contribution in the second half of the year. And then those self-help initiatives I described earlier, which benefit the second half of the year. So we will see a margin step up second half versus first half. Now I would say that we typically see that in normal years, but we will definitely see it this year. And then secondly, from a gross margin standpoint, I would say it's going to be relatively neutral year-over-year. A lot of the activities that we're putting in place will offset the inflation. And so relatively neutral year-over-year from a gross margin standpoint. Operator: Our next question comes from Matt Taylor with Jeffries. Matthew Taylor: I wanted to double-click on some of the commentary you made on the PDx, which had a good quarter. So good to see the progress of Flyrcado. I guess, could you help us understand what the gating factors are there to drive more production because it does seem like there's demand in the market? And I also wanted to ask about the MRI contrast agent. You mentioned some progress on that program. Could you talk about when that could actually launch? What's the time line to get through Phase II, Phase III? James Saccaro: Sure. Maybe I'll start on Flyrcado. We were really pleased with the progress on Flyrcado. The run rate -- the annual run rate went from roughly $25 million or so to $46 million in April, and we're continuing to work to accelerate that. Now as we've said historically, it's an equation that involves supply and our ability of customers to modify workflow to incorporate and sort of deliver doses at higher levels. We're incorporating new customers, but we also want them to climb ramp up from low levels to higher levels of dose utilization. And so it really comes down to continuing to manage the CMO network. We're intensely focused on very high levels of delivery rate, over 95% is our target. We'll continue to migrate and add some new CMOs, but also ensure the right delivery rate is in place. And then add new customers and ensure that they're comfortable ramping their own utilization of the product. But we were very pleased with the progress in the quarter. I think all of the positive feedback we're getting in terms of the benefits of this particular product are coming true. So it's a good start. Pete, do you want to talk about the other products? Peter Arduini: Yes. I'll just comment on Flyrcado as well. I think as we've talked about previously, customer reimbursement constructs, customers are getting that worked out both privately and through the health system structure, which is important. The workflows are, I think, our algorithm operationally, how we go to a customer and help them set up, that's definitely getting to be a more well-oiled machine. And then as Jay said, too, with the CMOs, they're how to make the product has improved. So those are all critical items. And so as we bring on more customers, the ability to scale from I'm doing 2 to 3 patients a day, so I'm doing 10 or 12, increases as we go out the year. And so we're optimistic about that. We still are going slow to go fast because again, we think this has a long-term potential being a $1 billion molecule. And so again, excited about how the team has been leading this and where we're doing going. So your second question you asked was about the new MRI imaging agent that we have in clinical studies. This is super exciting. I think if you follow the MRI imaging in general, you would say the future of imaging heavily hangs towards MRI. It's radiation-free, very friendly for children, older adults and the technology with things like air recon DL are moving from where it used to be 45, 50 minute exams down to 10 to 15. So the modality is going to continue to grow. Oil limitations has been the contrast agents available. Forever, it's been catalydium. Catalydium has been a great workhorse, but it has challenges. It has retention challenges in the body. It really can't be used with pediatrics. It comes from sources only one part of the world to rare earth element. And so it's been limiting about what one can do. And there's been other attempts that have been challenged over the years to come out with different agents, but we really think we've got a winner here. Obviously, we need to be able to make it through our studies successfully. We had a successful Phase I, which is where a lot of these products in the past have failed relative to tox studies and overall adverse events, but we've done quite well through Phase I. This is now in a Phase II, Phase III combined study, which is around dose optimization to image quality. And you might have seen some work that actually took place earlier at the Mayo Clinic that we feel very good about. This is a manganese-based product. There have been other folks that have worked on manganese in the past. I think the difference is all about your formulation which we have a very proprietary focused approach here that enables the molecule to be able to provide high-quality imaging comparable to GAD but be able to remove from the body in an effective way. That's really the key here. And obviously, if we're successful of achieving that bringing a proprietary first-to-market molecule into this market where there hasn't been anything in decades, we think is a really big opportunity. Not only to grow and obviously have a high-performing, highly profitable product but it really fundamentally changes how we think about how MRI imaging for vascular imaging can be done on all types of population. So this is super exciting. The fast track and the dueling speed up this a product like this that didn't have those capabilities might be out in the 2030 range with fast tracking and the combined studies, if successful, this could be a 2029 type molecule introduction to the marketplace. Operator: Our next question is from Ryan Zimmerman with BTIG. Ryan Zimmerman: Pete, with the changes in the organizational structure with imaging and AVS, you talked about the rationale for it to some degree. But I'm wondering how you think about the benefits of it? If there is increased business capture, does the growth profile of that business collectively change or move higher from what may have been maybe a mid-single digit to maybe the high end of the mid-single-digit range. I'm just wondering if you could kind of articulate how you think about the downstream implications of those changes from an order standpoint that we may see in kind of this new segment? Peter Arduini: Yes, Ryan, really good question. Look, as we thought about AIS at the highest level, it's all about what can we do to drive a higher growth profile organization. Yes, there will be some cost benefits that will help margin, but the #1 priority was that. The predicate model was realistically the model that Phil was running prior to this, which you may recall, ABS was taking ultrasound and image-guided solutions to put them together. And we saw an opportunity by putting them together on the way we articulate the technology story to customers to be winning at a higher level, candidly, by doing it that way. But on the back end, on the R&D side, finding new ways faster to come up with differentiated products. And fundamentally, AIS is a bigger version of that. So we would expect at the street level, starting rather quickly to be able to see us being able to bring solutions and articulate differentiated value faster with this model. But I think on the upstream side, meaning on the R&D side, when you think about a cardiac pathway or an oncology pathway, all the products needed to work together now fit into that AIS construct. And so as far as allocation of R&D dollars, faster moving to get something done, two less meetings to me to make a decision, all of that gets much more streamlined. And so that's -- we would expect we'll see some benefits in this year, but obviously, more benefits come in the following years as you start thinking about how you're building products and framing that to customers. Ryan Zimmerman: Yes. Understood. And then for Jay, cash -- free cash flow has ticked up a little bit versus last year. In the face of these inflationary pressures, you guys bought back shares, about $100 million or so. You have dividends. It's been a very balanced, I would say, capital deployment strategy thus far. Does your prioritization of capital deployment change in the face of some of these inflationary pressures, meaning more to share repurchases, less M&A? Just take us through kind of your thought process, I guess, Jay, as you think about what you do with that cash, again, in the face of some of these changing input costs and so forth? James Saccaro: Great. Thanks for the question. really good progress on cash flow in the quarter. I think we did a particularly nice job with respect to working capital balances. And this business generates a lot of cash, and so we have the opportunity to deploy it. We will first continue to invest in the business organically. To Robbie's question earlier around R&D levels and so on, we'll continue to ensure appropriate investment so that we can drive this business forward. We'll also do disciplined M&A. I think from our standpoint, the quarter was a great example of that, closing the Intelerad deal. That's a very good ROIC deal over time. It's strategically and economically accretive to the company. So that's exactly the kind of M&A we will continue to do. And then we will look to see when the shares sell off and we look at them relative to the intrinsic value, we will evaluate buyback. We felt very good about the buy that we did last quarter, and we did so because we feel very strongly about the long-term prospects of the business. As we think about some of the mechanisms we're putting in place now like pricing, which will benefit next year, like the new product momentum that will benefit next year, we feel very good about the share buyback program, and we'll look to continue to do that as a supplement to M&A. Operator: We'll now take our last question from Anthony Petrone of Mizuho. Anthony Petrone: Maybe one for Jay and then one for Peter and Jay. Just, Jay, on the tariff impact, you're calling out $90 million to $100 million quarterly at the margin, in the presentation material quarterly, it seems like that level is holding. So what do you actually have baked in there from a tariff impact for 2026? And if you do get a reimbursement decision later this year, do you get roughly $100 million back at the margin? And I'll have one quick follow-up on AIS. James Saccaro: Sure. So basically, we said tariff impact in 2026 will be less than 2025. So that's less than $250 million or so is what we expect to see. And based on the mitigation activities that we've put in place, the first quarter will be the biggest impact of the year, and that will trail down through the rest of the year. We have not seen windfall as a result of the IEPA Supreme Court ruling as those tariffs were replaced. And we've assumed those tariffs remain in effect for the rest of the year though there is a tariff impact for the rest of the year. So we've assumed that in the guidance that we've put forward. So that might be an opportunity. As far as refunds, we will be submitting as many companies will for refunds related to the tariffs that we paid last year. We're hopeful that we'll be successful in terms of recovering that. We haven't determined how we will report that or account for that in terms of adjusted EPS or anything like that. That's not included in the forecast that we put forth today. Anthony Petrone: And just on AIS, and I don't know if this is across the portfolio or in AI specifically. But when you think about AI-enabled platforms, you have Intelerad in there, it's coming in as a Software-as-a-Service model, but we count 7 AI-enabled assets across the portfolio at this point, various different programs. So will it all show up as Software-as-a-Service? What are the milestones we should look for, for AI-enabled capabilities? What does the economic model look like over time? Peter Arduini: Anthony, yes, great question. Look, I think a big part of our growth algorithm is really this combination of new wave of innovation. It's about better commercial execution, both on equipment as well as service. And you saw some of that throughout the call here in the first quarter. I think we're going to be able to highlight that and accelerate our growth here as we go through the year. Relative to AI, it comes in 2 flavors today. One is it's the AI inside. It's why things like Vivid Pioneer are growing at a very high rate right now because of 4, 5 algorithms that make this product better than its competition. So we get a higher price for it. We get multiple hundred points -- basis points improvement in margin, which is a combination of its cost, but it's really about its value. So that's really the first piece. All of those products that I had on the page in the deck all have embedded AI. Some of them have a couple of algorithms. Some of them had 4 or 5. And so that's piece one. The other part you hit on, which is, again, we're doing more and more, which is actually having SaaS-based capabilities for specific features. So part of our vision is to be able to sell the hardware, have it more standardized of what that feature set is and then have a wide menu of other SaaS cloud-enabled applications that customers can customize by that individual scanner or by their fleet. And so CT is kind of our first modality as well as ultrasound that leads in that. I think you're going to see more and more of that continue to grow. And we're in a good spot now. Back to Intelerad, why is that important? Because not only in outpatient, but an inpatient, the more that we integrate those tools, that will be the reading interface, not only for the diagnosis, but also, in many cases, deploying the AI tools. And that's all well thought through of how we continue to leverage that. So again, thanks for the question. Operator: Thank you. And this concludes our question-and-answer session. Please proceed with any closing remarks. Peter Arduini: Thanks for your interest in GE HealthCare. And again, we look forward to connecting and chatting with many, if not all of you here in some upcoming conferences. Thanks again. Operator: And this concludes our conference. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Acadia Realty Trust First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lynelle Ray, Lease Administration and Due Diligence Analyst. Please go ahead. Lynelle Ray: Good morning, and thank you for joining us for the first quarter 2026 Acadia Realty Trust earnings conference call. My name is Lynelle Ray, and I am a lease administration and due diligence analyst. Before we begin, please be aware that statements made during the call that are not historical may be deemed forward-looking statements within the meaning of the Securities and Exchange Act of 1934 and actual results may differ materially from those indicated by such forward-looking statements due to a variety of risks and uncertainties including those disclosed in the company's most recent Form 10-Ks and other periodic filings of the SEC. Forward-looking statements speak only as of the date of this call, 04/29/2026, and the company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures including funds from operations and net operating income. Please see Acadia's earnings press release posted on its website for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself into the queue, and we will answer as time permits. Now it is my pleasure to turn the call over to Kenneth F. Bernstein, President and Chief Executive Officer, who will begin today's management remarks. Kenneth F. Bernstein: Thank you, Lynelle. Great job. Welcome, everyone. As you can see in our press release, we had another strong quarter in what is shaping up to be a very solid year both with respect to our internal as well as our external growth initiatives. And while geopolitical events have certainly added unwanted uncertainty to the global economy, thankfully, due to the tailwinds for open-air retail in general, and then even more so for street retail, we are seeing continued strong results driven by strong tenant demand, strong tenant performance, and attractive investment opportunities. As the team will discuss in more detail, we delivered 11% year-over-year earnings growth driven by nearly 6% same-store growth. And even with heightened uncertainty in the capital markets, we completed over $2.5 billion of transactional activity, comprised of $600 million of new investments, over $500 million of recapitalizations within our investment management platform, and a new $1.4 billion corporate borrowing facility. Now since I have discussed in detail the key drivers of the tailwinds in open-air retail on our previous calls, I will limit my explanation a bit. But in short, our continued strong performance is being driven most significantly by our street retail portfolio and more specifically by five key factors. First, limited supply, that continues to shrink. Second, and probably more importantly, increasing demand due to the ongoing focus by retailers to having their own physical locations rather than being so heavily reliant on either wholesale or digital channels. Third, strong tenant performance due to a resilient consumer, especially the upper-end shoppers at our street locations. Fourth, lighter relative CapEx in our re-tenanting of street locations. And finally, stronger annual income growth in our street locations, due to both higher contractual growth and then more frequent mark-to-market opportunities. These continued tailwinds are enabling us to deliver solid internal top-line growth and having that growth hit the bottom line both in terms of earnings growth as well as net asset value growth. Alexander J. Levine will discuss our progress last quarter and why we are poised to continue to deliver superior growth for the foreseeable future. And then supplementing this internal growth, and ensuring that we can continue to deliver this steady growth well into the future is our external growth initiatives. Reginald Livingston will discuss our acquisition activity over the last quarter where we continue to deliver on our goals, both with respect to our on-balance sheet acquisitions of street retail and our execution through our investment management platform. But let me give a few observations. As we have seen more investor interest in retail over the past year, competition has increased for most formats of open-air retail. But so has the volume of deals coming to market. So even with increased competition, we expect to be able to meet our acquisition goals. And while we welcome the company, it has been a bit more difficult to simply buy existing yield to make our targeted returns. So as it relates to street retail investment opportunities, while competitive, it is still a less crowded field than in other formats with fewer capable buyers. So we are still seeing enough attractive investments that are accretive day one both to earnings and net asset value. And we are most focused on investments where there are near-term value creation opportunities where we can use our skill set and relationships to unlock that value. We are still finding deals that get us to a 6% plus yield in the near term, but require a few more moving pieces. And since our team has never been hesitant to use its value-add skills and relationships, this shift is welcomed. Same is true for our investment management platform. The ability to achieve opportunistic returns by simply buying stable assets as we successfully did during our Fund V investment period a few years ago is becoming increasingly difficult, thus our recent investments over the past year have been much more value-add focused and we expect that focus to continue. And as it relates to our investment management activity, we can actually team up with the increasing pool of institutional capital and harness that increased interest. So we do not have to just beat them; we can join them as well. And to be clear, with respect to both our REIT and investment management acquisitions, our goal continues to be to make sure our investments are accretive to earnings, and to net asset value day one, and to achieve a penny of FFO for every $200 million of assets acquired. Reggie will walk through how our most recent activity is meeting our goals both in terms of volume and accretion, and then equally importantly, how we are planting seeds for continued superior growth down the road. Then finally, John Gottfried will walk through our balance sheet metrics and how we are positioned to continue to drive both internal and external growth with plenty of dry powder and diverse sources of capital. So to conclude, our street retail investment thesis is working. The internal and external opportunities we see provide clear line of sight into providing solid multi-year top-line growth and then having that growth drop to the bottom line. Then with ample balance sheet capacity, we are in a position to capitalize on the exciting opportunities that we have in front of us. I would like to thank the team for their continued hard work and with that, I will hand the call over to AJ. Alexander J. Levine: Thanks, Ken. Good morning, everyone. So I would like to start out with an update on internal growth with a focus on trends and performance on our high-growth streets. Then I will touch on some of our slower-to-recover markets with significant upside, namely San Francisco and North Michigan Avenue, and I will finish with an update on Henderson Avenue in Dallas. Overall, another strong quarter of leasing across the board—street, suburban—both within the REIT portfolio as well as our investment management platform. Total volume of signed leases in Q1 was an additional $3.5 million at our share. We have grown our pipeline of new leases in advanced negotiation to $11.5 million, which is a net increase of nearly $2.5 million above the previous quarter. As we sign leases, we are quickly reloading the pipeline and then some. As Ken articulated, because of the historically strong supply-demand dynamic, and the resilient high-income consumer that shops our streets, all signs indicate that we will be able to deliver similar results through the remainder of this year and beyond. In addition to an accelerating leasing velocity, we are also seeing a steady rise in market rents on our high-growth streets. We are currently negotiating new leases, fair market renewals, and pry-loose mark-to-markets along several of our streets, including SoHo, Upper Madison Avenue, M Street, Armitage Avenue, and Melrose Place. These are all markets that have experienced several years of double-digit rent growth and if we are successful in signing these new deals, it will result in a weighted average spread of just over 40%. Now remember, street leases have 3% contractual growth. So a 40% spread after five years of 3% growth means that rents have grown closer to 60% over that time period. This is what we mean when we say that not all spreads are created equal. Now incremental to the sector-leading growth that we are seeing on our streets, we are also continuing to build conviction around historically strong markets that are in the earlier stages of recovery, like San Francisco and North Michigan Avenue in Chicago. At our last update, we reported that since the start of 2025, we had signed about 90,000 square feet of new leases across our two assets with LA Fitness Club Studio and T&T Supermarkets. Since our last update and following the end of the first quarter, we have added another 25,000 square feet by signing Sprouts Farmers Market, who will be joining Trader Joe's and Club Studio at 555 9th Street. And like T&T and Club Studio, this will be their first store in San Francisco. What has become clear is that tenants are strengthening their conviction around the recovery of San Francisco, and with another 70,000 square feet of space remaining to lease, in addition to some accretive pry-loose opportunities, we are gaining increased confidence that we can continue to unlock the meaningful remaining embedded value within our two San Francisco centers. Now right behind San Francisco is North Michigan Avenue, which continues to see steady improvement and has certainly moved beyond the green shoots phase of recovery. We still have a ways to go, but foot traffic has returned to pre-2019 levels, and since the start of this year, there has been a noticeable increase in tenant demand. Over the last year, we have seen new store openings and new lease signings from top brands like Mango, Aritzia, Uniqlo, and American Eagle, and most recently, the 60,000-square-foot Candy Hall of Fame at 830 North Michigan Avenue. Even so, rents are still 50% below where they were at prior peak. North Michigan Avenue is an iconic, irreplaceable street, and we are confident that the recovery will continue to accelerate, and when it does, we will be well positioned to capture that upside. And finally, I will end with an update on Henderson Avenue in Dallas. As a reminder, the vision on Henderson is to create a vibrant, walkable street curated with a mix of today's most sought-after retailers, and supplemented with dynamic and recognizable F&B—mixing the best of what has worked on streets like Armitage Avenue in Chicago, Bleecker Street in New York, Melrose Place in LA, and M Street in DC. In short, Dallas' first and only true street retail shopping experience. The street is already off to a great start with tenants like Tecovas and Warby Parker producing sales that could already justify rents doubling. And with 80% of our retail on the street now spoken for, our new leases are doing just that. I cannot reveal the names of all of the brands that have committed, but to give you a flavor, the project will consist of a healthy mix of nationally recognized tenants like Rag & Bone, who is relocating from Highland Park Village, along with a collection of younger brands that have had success on some of our other high-growth streets like Gizio, Cami, and Margaux. And we are saving around 10% of our space for brands that are more local and authentic to Texas. Add in some fun high-volume F&B like Prince Street Pizza, Papa Bagels, and Salt N' Stir ice cream, and you have the makings of a well-curated, walkable street. So in summation, the key takeaway is that despite consistently high levels of leasing activity over the past several quarters, we continue to see meaningful runway ahead, both in terms of mark-to-market opportunity and ongoing lease-up of our high-growth streets, as well as tapping into markets that have more recently begun to show the signs of a strong recovery. As always, I would like to thank the team for their hard work, and with that, I will turn things over to Reggie. Reginald Livingston: Thanks, AJ, and good morning, everyone. I will cover two things—our transaction activity for Q1 and through April, and then I will share some perspective on what we are seeing in the market. On the transaction front, we have been incredibly busy year to date. We have closed over $1 billion in acquisitions and recapitalizations, gained footholds on two of the country's premier luxury retail corridors, all while achieving our accretion and growth thresholds and building a pipeline that should maintain a high level of activity for the balance of the year. So let us walk through some details. Starting with the acquisitions not previously announced, at the end of the quarter, within our REIT portfolio, we made our inaugural investment on Worth Avenue in Palm Beach, with the acquisition of 225 Worth for $43 million. This street is one of the most irreplaceable luxury retail corridors in the country, and it has all the ingredients for continued rent growth, including strong-performing tenancy, a high-end customer base, and limited supply. The asset contains Gucci, Jay McArthur, and G4, and possesses a meaningful mark-to-market opportunity that we will harvest in the near future. Our conviction on Worth goes beyond this single asset. We have an active pipeline in that corridor, and our strategy there mirrors what we have executed in other markets: acquire a foundational position, build scale, and activate the benefits of concentration to drive returns over time. Subsequent to quarter end, also in our REIT portfolio, we closed on 4 and 28 Newbury for $109 million. These assets are anchored by Chanel and Cartier, two of the most sought-after luxury tenants in the world. These buildings are between Arlington and Berkeley Streets on Newbury, one of the best concentrations of luxury retail on the East Coast. And most importantly, this asset has a meaningful value-creation opportunity that we expect to harvest soon. The same scale thesis applies here—understand the Newbury Street market, and have relationships to create a path to building a greater presence on the corridor. For both Palm Beach and Boston, it is important to note they adhere to our metrics—being accretive to NAV, hitting our FFO accretion target of a penny per $200 million, with CAGR in excess of 5%. On the investment management side, Q1 was defined by executing on recapitalizations. We formed a joint venture with TPG Real Estate that encompassed the recap of Avenue at West Cobb and six Fund V assets, a $440 million transaction. The scale of this recap is a meaningful validation of our platform, our assets, and our relationships. We also completed the recap of Pinewood Square in Palm Beach County with private funds managed by Cohen & Steers, a $68 million transaction. This is our second recap with Cohen & Steers, a highly regarded investor; their involvement reflects both the quality of the asset and the credibility of our business plan. These transactions in part demonstrate our incubated recap model at work and in total, free up capital that we can accretively redeploy. Turning to what we are seeing in the market, the retail investment landscape remains active even as the macro backdrop has grown more complex. Supply remains constrained, new development is sparse, and institutional capital flows into quality retail continue to grow. And none of the current macro noise has changed those underlying dynamics. What that environment rewards, though, is exactly what we have built. Recall, in the street retail world, the majority of our acquisitions are off-market, and that sourcing advantage does not diminish in periods of volatility. If anything, it improves, as motivated sellers gravitate towards certainty of execution. And this rewards us disproportionately because there are fewer players in the street retail segment, and our pipeline reflects that reality. We have a number of opportunities in advanced stages of negotiation and we will continue to underwrite to the same disciplined thresholds that have defined our recent activity. On the investment management side, while the institutional appetite remains elevated, so are the number of owners looking to monetize. Owners without the capital, patience, or platform to unlock value in their assets are looking for an exit, and that is creating a compelling opportunity for a platform like ours that has all three. Our pipeline on this side is as active as it has been. So to close, as I said, we have been busy—find the right assets, on the right corridors with the right growth profile, while continuing to accretively build the investment management business. We expect this activity to continue as we are on track to deliver transaction volume for the balance of the year consistent with our past activity. Thank the team for their hard work this quarter. And with that, I turn it over to John. John Gottfried: Thanks, Reggie, and good morning. Our first quarter results are clear. Our internal growth is accelerating, and we are achieving our external growth goals on both accretion and volume. And these accomplishments are driving our bottom-line earnings. Our year-over-year earnings are up 11%, and with the acquisitions completed to date, we raised our full-year 2026 earnings guidance. I will start my remarks by laying out the building blocks for the remainder of the year, followed by an update on 2027, and then closing with the balance sheet. For those of you that know our approach towards earnings expectations, we set robust targets for ourselves, and thus it makes it unlikely to raise our guidance, particularly so early in the year. However, given the strength in our operations and the accretive acquisitions we have completed to date, we raised both the high and low of our guidance to $1.22 to $1.26, representing 9% growth at the midpoint over the $1.14 of FFO we reported in 2025. And with the simplified reporting that we rolled out last year, you can clearly see what is driving that growth. Based on our latest model, here is how that $0.10 of projected year-over-year growth breaks down. We expect that our internal NOI growth inclusive of redevelopments should contribute about $0.07 to $0.09 of FFO. External growth is projected to add $0.04 to $0.05, driven by the full-year impact of 2025 deals and those closed year to date in 2026. And a continued expansion and scaling of our investment management program should add another $0.01 to $0.02. And as we have previously discussed, partially offsetting our projected growth is approximately $0.04 that is embedded in our guidance from the anticipated conversion of the CityPoint loan in the second quarter. Again, while dilutive in the near term, it will ultimately be accretive as the asset stabilizes. And the earnings growth that we expect to deliver in 2026 provides us with a road map for what we aim to achieve in 2027 and beyond. Before moving to same-store NOI, I want to give a few updates on our earnings model and anticipated quarterly FFO cadence for the balance of 2026. We anticipate our quarterly run rate will be in the $0.30 to $0.32 range for the balance of the year which, consistent with our past practice, does not factor in additional acquisition accretion notwithstanding the active pipeline our acquisition team is underwriting. Secondly, and as I will discuss shortly, rent commencements from our signed-not-open portfolio are weighted to the back half of the year, positioning us for strong embedded growth heading into 2027. Now I want to give an update on occupancy, internal growth, and same property NOI. At quarter end, our REIT economic occupancy increased to 94%. But as we have said repeatedly, not all occupancy is created equal. Our street and urban portfolio, our most valuable space, sequentially increased 140 basis points and 570 basis points from Q1 of last year. And we still have several hundred basis points of embedded upside with the portfolio 91.7% occupied as of March 31. As outlined in our release, we ended the quarter with $10.5 million, or approximately 5% of RABR, in our signed-not-open pipeline. We grew our pipeline by approximately 18% during the quarter, and that is even after nearly 25% of our pipeline commenced in Q1. And as AJ discussed, our leasing pipeline remains robust, and we anticipate that our SNO should continue to build over the next couple of quarters. I will now spend a moment to highlight a few key items on our $10.5 million pipeline for those updating models. We anticipate that approximately 80% of our SNO, representing $79 million of ABR, will commence during 2026 with the remaining balance targeted for 2027. I want to highlight that over $4 million of this $7 to $9 million is projected to commence in the fourth quarter of this year, primarily from the anticipated openings of T&T Supermarket and LA Fitness's Club Studio at our San Francisco redevelopment projects. And when incorporating the timing of commencement, we expect approximately $2 to $3 million of incremental ABR to be recognized in 2026, with the vast majority of that being in our same-store pool, which leaves us with $7 to $8 million of embedded incremental ABR growth heading into 2027. And lastly, on earnings flow-through, with nearly half of our SNO coming from our REIT redevelopment portfolio, we are capitalizing certain costs—primarily interest and real estate taxes—so not all of that incremental ABR flows to the bottom line. Of the $5.3 million of ABR in our SNO redevelopment pool, we expect to capitalize between $3 to $4 million of cost on a full-year run-rate basis. Moving on to an update on our 2026 same-store expectations, we remain on track to land at the midpoint of our guidance, or 7%. I mean, I will likely regret providing this level of granularity, given it only takes a few hundred thousand dollars to move us 100 basis points in either direction, but based on our current model, we see same-store growth trending 6% to 8% in Q2, 7% to 9% in Q3, and 5% to 7% in Q4, with our street and urban portfolio anticipated to outperform suburban by 400 to 500 basis points. And now moving on to our balance sheet. So far in 2026, and it is still early, we have acquired over $600 million of REIT and investment management deals, and we did so without issuing any equity. And with the available capacity on our revolver, unsettled forward equity, and anticipated proceeds from our structured finance and investment management businesses, we have all the accretive capital we need to fund our acquisition pipeline. As highlighted in our release, we completed the refinancing of our unsecured corporate credit facility, entering into a $1.4 billion agreement. As part of this refinancing, we tightened pricing, extended maturities, and increased our total borrowing capacity by $250 million to support our growth. The new facility was significantly oversubscribed, and we strategically added two new banks to our incredible and long-standing lineup of capital partners. Following the completion of this facility, we have very manageable maturities and swap expirations over the next couple of years, which means our top-line earnings will largely drop to the bottom line. So in summary, we had an incredibly busy and productive start to the year. Our multi-year expectations of strong internal growth are intact, and we have a balance sheet that has ample capacity to support our expansion goals. We will now open the call for questions. Operator: Follow up and rejoin the queue for any further questions. Our first question comes from Craig Mailman with Citi. Craig Mailman: Hey, guys. So, John, that was helpful going through the guidance detail there. Just kind of curious, between AJ and Reggie, I know there is not a lot incrementally for acquisitions. Maybe just to start there, Reggie, I think you said that activity for the balance of the year could be similar to what we have seen recently. In terms of magnitude on gross, so then maybe pro rata share, goalpost what you guys are looking at, what could conceivably close this year, and maybe what the earnings impact of that could be? Reginald Livingston: Sure. I will focus on what I think could close this year. I guess taking a step back, run-rate retail on the REIT portfolio side is kind of about $400 million or so the last year plus. We have done about $200 million of that so far this year. So I think we could pencil in doing basically the same volume that we have done last year from a REIT portfolio side. On the investment management side, where we have averaged about $250 million plus or so the last two and a half, three years per year, I think we can do that as well. That is, by definition, a little lumpier because we are focused more on value-add opportunities, but I think that is how we think about it from a goalpost standpoint for volume. John Gottfried: And then on the earnings side, Craig, I think the one thing that we pointed out is that our target, which is unchanged, is a penny of accretion. And that is both REIT—so on $200 million worth of REIT acquisitions, our target is day-one earnings accretion of a penny per $200 million. And that same math, even though our pro rata share is much less of the equity, when you factor in the fees, $200 million of investment management is also a penny. So in terms of earnings impact, you would just prorate that throughout the year. But those targets are unchanged. Craig Mailman: Okay. That is helpful. And, John, you are breaking up a little bit. I do not know if it is my line or yours, but just a heads up. And then similarly on the leasing side, AJ, you said you guys are working on a fair bit of fair market value adjustments and some other deals. How much of those are already embedded in guidance versus could be incremental upside as we head into 2026 into early 2027? John Gottfried: Craig, are you referring to what is in the pipeline or what could be in the pipeline and converted to show up in rents? Is that the question? Craig Mailman: Yeah. Like, what is actually considered in some of the metrics you guys talked about versus could be additive to that—you guys do not want to put it in there yet because the predictability of it is not great. John Gottfried: Got it. So I think any leasing that we need to happen has already happened to hit the midpoint of our guidance both on same-store and earnings. So whatever AJ—if he gets something signed that is in his pipeline, we get them open and operating—that would be additive to that, which in the street is possible. Alexander J. Levine: Yeah. We are typically fairly conservative with FMV assumptions. And it is typically upside for us. Operator: Our next question comes from Andrew Reale with Bank of America. Andrew Reale: Good morning. Thanks for taking my questions. Maybe if you could talk about your new corridors—Palm Beach and prime Newbury. First, what is the timeline for realizing the mark-to-market opportunities there that Reggie mentioned? And then are there any additional assets in the pipeline in either of those markets today? And how scalable do you think those markets could ultimately be? Reginald Livingston: Sure. I will start with the second one, Andrew. For us to identify a market, it is never just about one deal. We think: how can we amass $100, $200 million plus over time, so that we can enjoy the benefits of that scale that we have talked about—being the first call for sellers, the first call for tenants, etc. So we have an active pipeline that we feel pretty good about. We are always going to stay disciplined in our underwriting, as I have said before, but we think those markets we can scale. Before we even talk about scaling, though, we ask whether those markets have the same rent growth drivers and demand that we have in SoHo, in Georgetown, and our other corridors. And I think these corridors do. There is tight supply, the tenant demand is very high, the sales volume is there—not only to justify the rent run-up from previous years, but to continue rent growth in the future years. So we think both Worth Avenue in Palm Beach and that block of Newbury, and some of Newbury generally, have those. We feel good about the opportunities that make sense there and that we will be able to scale. To your first question, I do not want to get into too many specifics, but big picture, the opportunities for us to harvest mark-to-market opportunities and harvest 6% plus yields are really fact dependent. The framework and the way to think about this is there are a lot of things happening in these markets—from rent growth, from F&B resets. A bunch of retailers are actually reaching out to us even before their leases expire and saying, “Hey, I want to invest in my space, so let us do an early renewal now.” All those things inure to the benefit of us being able to achieve the yields in the near term instead of long term. John Gottfried: And just to add on to that, from a modeling perspective, two thoughts. When we look at—and, again, you should assume that in these instances, the in-place lease would be below market—so when we think of that in the conservative bookkeeping we do, we are conservative as to where we think the market is on day one. And just a rough rule of thumb that we think about is, ideally, we want to get to the 6%s cash that Reggie referred to. Our target is two years, but we will tolerate up to three or four years for the right deal where we have the level of conviction. That is in terms of timeline and what we do initially to establish the gap yield from that below-market impact. Andrew Reale: Okay. That is helpful. Thanks. And then, John, I think it was last quarter, you said pry-loose could potentially be the most impactful variable within the 5% to 9% same-store range, with the real benefit from that maybe accruing in 2027 or 2028. If you were to maximize the pry-loose opportunity in the 7%— John Gottfried: Andrew, so I think that was one—we gave a wide range, and I will start with historical practice, and maybe I need to not be so stubborn. We could change our historical practice, but we have not updated same-store guidance once we have given that, which is why we are not doing it this quarter. But I would say assume we are targeting the 7%, and the pry-loose is very real, very actionable, but it is not going to deviate from the 7% target. Kenneth F. Bernstein: Good luck getting John to count his chickens before they hatch. Andrew Reale: Fair enough. Thank you. Operator: Our next question comes from Floris van Dijkum with Ladenburg Thalmann. Floris van Dijkum: Thanks. Good morning, guys. Question that does not seem to get a lot of attention these days, but your Henderson Avenue development—it is about $200 million. Should investors expect something like a 9% or 10% return on that, and is that what you have indicated the remaining ATM, the forward ATM, is going to be used to fund? Maybe also talk a little bit about the timing of that development, what kind of rents you are getting, and how much of that is pre-leased. John Gottfried: Let me start with the yields and timing, and then I will turn it over to AJ on the leasing specifics. We put out there—and we are on, if not ahead of, target—that we think the development is going to stabilize to an 8%–10% yield, so very consistent with what you shared. Another point, Floris, is that is the 8% to 10% on the dollars we are spending incrementally. What that is not factoring in is that we have a whole other portfolio of assets where what AJ is about to share with you is that the entire portfolio of assets is proving out to be very below market. We are not factoring in the lift from the balance of the portfolio that the development is going to add to that. In terms of timeline, we will be through our part of construction back half of this year, begin delivering space, stabilizing in 2027 and up and running in 2028. AJ will talk about where we are in leasing and status there. In terms of what we laid out as expectations, we are on track, if not ahead. Alexander J. Levine: Yeah. I would say the interest and excitement on Henderson has been far beyond what we even initially imagined. And I think what you have to remember—and we have said it before—is that existing sales on the street are already in excess of the sales we are seeing even in markets like Armitage Avenue, and rents on Henderson are half of what we have currently on Armitage Avenue. So, as I mentioned in my prepared remarks, there is already justification for rents doubling on the street, and some of the more recent leases that we are signing are actually doing just that. Rag & Bone, obviously having a lot of success over at Highland Park Village, is deciding to shift to merchandising that is a little bit more in line with what they prefer from a co-tenancy standpoint. Some of the younger brands like Margaux and Gizio—I am anxious to give you more names. I have shared what I can at this point, but we are off to a great start. Floris van Dijkum: Great. And maybe as a follow-up question, I wanted to touch base on Chicago. I know you talked a little bit about the momentum, and I think TPG has bought into your JV, if I am not mistaken, at 717. What is the appetite to perhaps take advantage of some of the opportunistic investment opportunities that could be achievable in that market? And maybe talk about where is the upside, or is there only— all we hear about typically when we talk to people is Chicago is terrible. What has changed, and why is it not a bad place to be? John Gottfried: Let me start with—of course, the recap with TPG was Fund V, nothing to do with Fund IV. Everything we own at 717 is in Fund IV and still held by Fund IV. Just to clarify there, there has been no transaction. Alexander J. Levine: And I just want to correct one thing. Chicago is not terrible. It has never been a bad place to be. Certainly in our neighborhoods, we have had many years of success there. The issue with North Michigan Avenue has never been an issue of fundamentals. Footfalls are back in excess of 2019 volumes. The sales are seeing very real growth over the last few years. It has really always just been a challenge of difficult spaces—multi-level retail, historically those flagship locations that have been more difficult to backfill—but those spaces are filling in. I mentioned some names—Uniqlo, H&M coming back to the street, American Eagle, Aritzia—large format spaces. As those fill in, we are going to continue to see increases in activity. Then, of course, the challenge of having three underperforming malls on the street has not done us any favors. As those pieces start to get figured out, we are just going to see more and more momentum on the street. Operator: Our next question comes from Todd Michael Thomas with KeyBanc Capital Markets. Todd Michael Thomas: Thanks. Good morning. First, I just wanted to ask if there are any more markets or partners that you are evaluating today. Should we expect some additional inaugural investments in the quarters ahead as we contemplate some additional investment activity? And then, Ken, a bigger-picture question for you or Reggie—you talked about the increased competition for open-air centers. I think you referenced that in context of speaking about Fund V assets, for example, but you indicated that you are still finding opportunities on the street and urban segment, a little less crowded. Why do you think it is less crowded? Why is the competition lower and the acquisition environment seems more favorable, where there are strong IRR and risk-adjusted opportunities, good rent growth—you talked about the escalators. Just curious to get your thoughts there. Kenneth F. Bernstein: Sure. On additional markets, we spend a fair amount of time—AJ and I especially—talking to our retailers about which markets are ones you might want to be in, and which ones are going from “nice to have” to “need to have.” In the case of Palm Beach, it is transitioning from a seasonal market and, for a variety of reasons that we all read about, it is now becoming a must-have market. In those instances where we see fragmented ownership and our retailers are saying, “We would welcome institutional high-quality ownership like Acadia or others,” that is where we spend the majority of our time and attention. In some markets, Dallas was no place to buy, so there we are building and creating that street retail environment. But for Palm Beach, Worth Avenue clearly checks that box. As does Newbury in Boston. There are probably a half-dozen, perhaps a dozen, additional markets that would fit into that spectrum that we are constantly spending time on. And then what we are saying is—and Reg touched on this—is there enough assets for us to acquire over a realistic period of time that we can build adequate scale? Is there a spine? Are there barriers to entry on a given corridor so that it does not just keep on wandering up and down, left and right? And when it does, in the case of Worth Avenue and Newbury, and as I said about a half-dozen others, you should expect over time that we will focus on those. We do not have to add new markets in order for us to achieve our goals of being the premier owner-operator of street retail in the United States, but it would be nice to have a few more. And from our retailers’ perspective, they would welcome that. Now in terms of competition, street retail has the longer learning curve. It is pretty easy to underwrite some formats of open-air retail and that is why you saw capital move first and foremost back to supermarket-anchored. You still need to underwrite thoughtfully and carefully your supermarket, but all of the things we talked about in terms of our tenants, you do not really hear in terms of the satellites—that dry cleaner, that coffee shop, and otherwise. We do not get into that same level of underwriting. So there are just lower barriers to entry. For street retail, you have to understand the market, you have to understand the tenants, you have to understand the local laws, and it has taken us well over a decade to get to the point where we are right now. And for a lot of institutional owners, gearing up is just too difficult. They would rather partner with us. And so we certainly like our positioning in the street retail format. That being said, as Reggie has pointed out, the team has been very active in other formats of open-air retail. Thankfully, volume is coming back. So we will achieve our volume goals notwithstanding it being more competitive. We just have to work a little harder on it, and so far, so good. Todd Michael Thomas: Okay. That is helpful. And then, John, just real quick—appreciate the update on CityPoint as it pertains to the guidance. What is the ABR upside opportunity there today? You are at a little over $21 million of ABR. Where does that stabilize? And what is the current thinking around the stabilization time frame? John Gottfried: In terms of stabilization, Todd, it is one we have always thought of in two distinct phases. The first phase—in the next 18 to 24 months—where we should be able to add 10% to 20% of current ABR. That is our goal, our strategy, and our leasing plan to add that over the next year or two. Secondly, after that—again, the neighborhood is still filling in—proof of concept, we have some leases that we have signed that will be rolling. Second stabilization, we think we add another 30% to 40% off of that once we get to that level of stabilization, after we get through this first one. Alexander J. Levine: For sure. The last 18 months have been pivotal at CityPoint. Between Sephora and Swarovski, most recently Warby Parker, Van Leeuwen—really it is starting to get that Armitage/M Street feel. So, at this point, it is just about finding the right retailers and completing that right mix of merchandising. Yes, there is a lot of runway ahead there as well. John Gottfried: How we look at it to give us conviction is the sales that are being generated. We do not want to give individual tenant sales, but you could take a guess as to who they are. They are doing increasing volumes that are attracting the attention of retailers, and that is what is giving us the conviction that it is a matter of when, not if. Todd Michael Thomas: Okay. That is helpful. Thank you. Operator: Our next question comes from Michael William Mueller with JPMorgan. Michael William Mueller: Yes, hi. First, you mentioned 8% to 10% returns for the Henderson expansion. What are some of the moving parts that pull you to an 8% versus a 10%? Is there that much variability in the rents being discussed? Kenneth F. Bernstein: Yeah, Mike, some would be cost, some would be timing of opening and when we declare we are at stabilization. And if you really looked at the math, when you are doing a full lease-up like this, 200 basis points of variability feels normal. Maybe it is a little wide so that we are being a little conservative, but it is not appropriate to say we are getting to 9% right now. Give us a little latitude. Hopefully the tenant sales performance that we have seen so far and the tenant enthusiasm that we are seeing continue. A lot of it is just logistics—how long does it take to get the various tenants open? A few months’ delay could change those numbers 10–20 basis points one direction or another. Michael William Mueller: Okay. And I guess second question: you now have three buildings on Newbury and the one in Palm Beach, and I know the goal is to scale that. But could you operate those buildings efficiently over the longer term if you could not find additional acquisitions, or do you really need to have five or ten assets in a market to have it work over the long term? Kenneth F. Bernstein: We could absolutely operate them. When I refer to—and when we have referred to—benefits of scale, it is very different than G&A as a percentage of assets in a given corridor. While there are benefits to scale like that, and that is how we traditionally in our industry think about it, what we are seeing is very different. What we are seeing is when we can control enough buildings on a given corridor—as we have on Armitage Avenue, as we have on M Street, as you will see us continue to do on Greene Street in New York and elsewhere—we can then pull other levers that enable us to get higher rents more efficiently with less downtime. So AJ and team are constantly shuffling tenants. We just had a meeting this morning on this where some tenants want to be larger, others are ready to leave, and by having enough choices on a given corridor, and being a trusted landlord for these retailers, the benefits of scale that we are referring to are not cost-related; it is really the ability to drive rents and NOI over time. And that requires more than just a couple of buildings on any corridor. So in order for those benefits of scale to show up, I look forward to Reggie and team adding to both of these corridors over time. Operator: Thank you. That concludes today's question-and-answer session. I would like to turn the call back to Kenneth F. Bernstein for closing remarks. Kenneth F. Bernstein: Great. Thank you, everyone. We look forward to speaking with you next quarter. This concludes today's conference call. Operator: Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Anika's First Quarter Earnings Conference Call. I will now turn the call over to Mr. Matt Hall, Executive Director, Corporate Development and Investor Relations. Please go ahead. Matthew Hall: Good morning, and thank you for joining us for Anika's First Quarter 2026 Conference Call and Webcast. I'm Matt Hall, Anika's Executive Director of Corporate Development and Investor Relations. Our earnings press release was issued earlier this morning and is available on our Investor Relations website located at www.anika.com, as are the supplementary PowerPoint slides that will be used for the discussion today. With me on the call today are Steve Griffin, President and Chief Executive Officer; and Ian McLeod, Senior Vice President, Chief Accounting Officer and Treasurer. They will present our first quarter 2026 financial results and business highlights. Please take a moment and open the slide presentation and refer to Slide 2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which may include adjusted gross margin, adjusted EBITDA, adjusted net income from continuing operations and adjusted earnings per share from continuing operations, which are used in addition to results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measures are available at the end of the presentation slide deck and our first quarter 2026 press release. With that context, I'll turn the call over to our President and CEO, Steve Griffin, to walk through our performance and discuss our priorities as we move forward. Steve? Stephen Griffin: Good morning, everyone, and thank you for joining us. In the first quarter of 2026, we made meaningful progress across Anika's three strategic priorities: driving sustainable commercial channel growth, advancing our hyaluronic acid-based innovation pipeline and strengthening execution across our organization. Our first quarter performance reflects a more focused business with early benefits from the operational changes we put in place. I want to walk through our first quarter results through the lens of these three priorities and importantly, in the context of what we said we would do. First, our top priority remains accelerating sustainable revenue growth, and the first quarter results reflect continued progress in that direction. In the first quarter, commercial channel revenue continued to grow at a double-digit rate, increasing 12%, reflecting strong performance across both regenerative solutions and our international OA pain management portfolio. Within Regenerative Solutions, Integrity continues to be a central driver of that momentum with U.S. procedures up 35% year-over-year, generating nearly $2 million in revenue. Growth was driven by U.S. surgeon adoption, the full launch of larger sizes and expanding international penetration. We continue to be pleased with Integrity's performance as it progresses through the commercialization curve, having now surpassed 3,000 cases with accelerating adoption. We are seeing surgeons progress to their fifth and tenth Integrity cases faster than initially expected, with acceleration evident across each stage of adoption. This reinforces that once surgeons begin using Integrity, utilization ramps quickly as confidence builds. We are closely tracking new surgeon adoption with new surgeon users per month growing at a double-digit rate month-over-month. This reflects continued success both in expanding our surgeon base and in deepening engagement as surgeons increase their use of Integrity over time. We're pleased by early results following the launch of the larger Integrity sizes with demand tracking ahead of expectations. But the bigger opportunity is adoption. Today, augmentation is used in only about 8% of rotator cuffs in the U.S. In other words, more than 90% of patients do not receive a patch at all, even though we know augmentation can support better healing. Our strategy is to change that. By expanding the Integrity platform with additional sizes, configurations and enabling instrumentation, we aim to make augmentation easier for surgeons to adopt. Over time, that can both improve patient outcomes and significantly expand the total addressable market for Integrity in the ASC. Hyalofast also continues to contribute to the strength of our regenerative solutions portfolio, delivering steady growth outside the United States, supporting overall commercial channel performance. International demand remains solid, driven by established clinical adoption and continued expansion across key markets, underscoring Hyalofast's role as a durable contributor to our regenerative platform and a complementary driver alongside newer products within the portfolio. Turning to our international OA Pain Management portfolio. We delivered strong first quarter revenue of nearly $9 million, reflecting the continued strength of our commercial channel. Performance was driven by ongoing regional expansion and improved market share across multiple geographies for CINGAL, MONOVISC and ORTHOVISC. Lastly, the OEM channel grew 14% year-over-year, primarily due to favorable order timing for both our U.S. OA pain management products sold through our partnership with J&J MedTech and our non-orthopedic products. We continue to expect quarterly variability in this channel. Within the U.S. OA Pain Management portfolio, performance was driven by MONOVISC unit volumes that exceeded our internal projections for the quarter. With pricing tracking in line with expectations, MONOVISC delivered meaningful favorability and more than offset lower-than-expected demand for ORTHOVISC. This product level mix shift highlights the inherent variability in our OEM channel, where timing and demand can differ by product and quarter without changing our full year expectations. Non-orthopedic revenue was up in the quarter, driven by order timing of our animal health products. As a reminder, we continue to assess optionality as legacy distribution agreements cycle through with a clear focus on maximizing shareholder value. Our second priority is advancing our HA-based innovation pipeline centered on Integrity, Hyalofast and CINGAL and doing so through a structured and predictable development approach. During the first quarter, we continue to make steady progress across each of these programs. The Hyalofast PMA review is ongoing as we continue to engage with the FDA through their review process. CINGAL also advanced during the quarter. Enrollment in the bioequivalent study remains on track as we continue to prepare for an NDA submission, including the necessary CMC work to support hyaluronic acid as a drug. In addition, CINGAL has successfully achieved European Union MDR certification, becoming our third MDR certified product alongside MONOVISC and Hyalofast. Importantly, the certification includes expanded indications across multiple joints, including the knee, hip, shoulder and ankle, reinforcing CINGAL's clinical versatility and supporting continued international growth. In parallel, the post-market clinical follow-up study supporting marketing and the Integrity EU MDR submission continues to enroll and remains on track to complete enrollment later this year. We began 2026 with a clear focus on execution and the progress delivered in the first quarter underscores that commitment. Within our regenerative pipeline, we are advancing an early-stage regenerative suture and tape program that underscores the meaningful potential still to be unlocked from our hyaluronic acid technology platform. Leveraging [ HYAFF ] fiber, we can tailor both mechanical strength and biological response to specific soft tissue and tendon repair needs across a broad range of clinical applications. While development remains early, and we are not yet quantifying its financial impact, the preclinical data are very encouraging, and we look forward to sharing more as this and other programs progress. Our third priority, strengthening operational discipline and execution has been an increased area of focus, and it was a significant contributor to our first quarter financial performance. Gross margin improved meaningfully compared to the first quarter of 2025. That improvement reflects a combination of higher manufacturing productivity and throughput, the continued benefits of our margin improvement initiatives and greater discipline across our operations. As a result, adjusted EBITDA increased by more than $4 million compared to the first quarter of last year. Importantly, these results are not the outcome of a single quarter or a onetime action. They are being delivered through deliberate operational transformation that embeds lean manufacturing principles across our operations with a strong focus on continuous improvement and empowering our teams. We have reduced nonstandard work, strengthened engineering solutions and improved productivity by enabling teams closer to the work to drive meaningful change. At the same time, targeted investments in equipment upgrades have supported these efforts, allowing us to execute more efficiently and with greater consistency. Collectively, these actions are changing how we run the business, tightening processes, increasing operational discipline and building a more scalable operating model as volumes grow. While we don't expect margin performance to move in a straight line each quarter, the first quarter provides clear evidence that our operational transformation is underway and beginning to create meaningful operating leverage in the business. On the expense side, we continue to demonstrate strong cost control across the organization. Excluding onetime severance charges related to actions we took earlier in the year, SG&A remained well managed, reflecting the benefits of a more focused operating model and disciplined resource allocation. R&D expenses increased this quarter as expected, reflecting deliberate investment in our key pipeline programs. These investments are targeted and aligned with the advanced programs, we believe offer the greatest potential to drive future growth and value creation. With that, I'll turn it over to Ian to walk through the financial details. Ian McLeod: Thanks, Steve. Please refer to Slide 5 of the presentation as I provide updates on the first quarter of 2026. In the first quarter, Anika generated $29.6 million in total revenue, up 13% year-over-year. Commercial channel revenue grew 12%, reaching $12.6 million, driven by strong international execution and continued momentum in Integrity, which continues to exceed our commercial expectations. Our international OA pain management business remained a key contributor, delivering 9% growth in the quarter to $8.9 million of revenue, led by sustained market share gains for MONOVISC and CINGAL across several regions. OEM channel revenue was $17 million in the quarter, representing a 14% increase year-over-year. The increase was driven primarily by order timing, including shipments of U.S. OA pain management products sold through J&J MedTech as well as certain non-orthopedic OEM products. As we have discussed, the OEM channel is subject to variability related to customer ordering patterns. As a result, some revenue shifted into the first quarter, which may affect reported OEM revenue in the second quarter. Importantly, this timing-related variability does not change our expectations for the full year. Our gross margin improved in the first quarter, driven by higher volumes and improved execution across our manufacturing operations. GAAP gross margin increased to 64%, up from 56% in the prior year, reflecting higher productivity, increased throughput and the early benefits of our lean manufacturing efforts. Turning to operating expenses. First quarter operating expenses were $24.5 million compared to $19 million in the prior year period. Selling, general and administrative expenses increased to $17.8 million from $12.9 million a year ago, primarily reflecting $4.9 million of onetime severance-related costs associated with previous announced cost reduction actions. R&D expense was $6.6 million, up 11% from $6 million a year ago, driven by continued investment in key regulatory and clinical programs, including Hyalofast and CINGAL. We are continuing to closely monitor operating expenses, balancing disciplined spending with targeted investment in the programs most critical to long-term growth. Total adjusted EBITDA for the quarter was $4.3 million, driven by strong gross margin expansion and improved operating leverage. We ended the quarter with $41 million in cash with no debt, giving us a strong liquidity position and the flexibility to continue investing in our growth priorities. First quarter cash usage reflected typical seasonal expense dynamics, and we expect cash flow to improve as the year progresses. As previously communicated, we initiated a $15 million 10b5-1 stock repurchase plan in November 2025. And as of April 10, that program has been completed. As part of the second 10b5-1, we have purchased $15 million of stock at an average price of $10.76. Now please turn to Slide 6 as I review our financial outlook for 2026. Based on our first quarter performance and current visibility across the business, we are maintaining our previously issued full year 2026 guidance. At the total company level, we continue to expect full year revenue of $114 million to $122.5 million, representing 1% to 9% year-over-year growth. This outlook reflects continued momentum in our commercial channel alongside the market dynamics we've discussed in our OEM business. Within the commercial channel, we are maintaining our expectation for 10% to 20% growth or $53 million to $58 million for the full year. Growth is expected to be driven by the ongoing expansion of Integrity in the U.S., sustained Hyalofast performance outside the U.S. and increasing adoption across our international OA pain management portfolio. For the OEM channel, we continue to expect revenue to be flat to down approximately 5% year-over-year or $61 million to $64.5 million. This outlook reflects anticipated MONOVISC unit volume growth, partially offset by lower pricing. Turning to profitability. We are maintaining our expectation for adjusted EBITDA to be in the range of 5% to 10% of revenue. At the midpoint, this improvement is driven by higher expected revenue led by commercial channel momentum, along with the benefits of previously announced G&A cost reduction actions and continued productivity and manufacturing improvements as demonstrated in the first quarter. These gains are partially offset by modestly lower J&J MedTech pricing. With that, I'll turn the call back over to Steve. Stephen Griffin: Thanks, Ian. As we continue the transformation of the company following our divestitures in 2025, the Board is also evolving to reflect this next phase and two directors will be stepping down as outlined in the proxy filed last night. We are grateful for Dr. Glenn Larsen and Bill Jellison's contributions and valuable service to the company. With that context, before we move to Q&A, I want to briefly reinforce what we're focused on and how we're operating. Our priorities are clear. First, we are continuing to drive revenue growth across our commercial channels. Second, we are advancing our HA-based innovation pipeline through key regulatory milestones in a disciplined and predictable way. And third, we are building on the progress we've made operationally to support improved profitability and long-term scalability. Equally important is how we're going about this. We are running the company with a simple operating mindset built around two principles broadly shared by the best lean manufacturing systems. First, respect for people; and second, continuous improvement. Respect for people means recognizing that the most important work happens closest to our products and our customers. Leaders exist to support that work to simplify processes, remove obstacles and make it easier for teams to execute and improve every day. Continuous improvement is about being practical, disciplined and honest about where we can do better and then acting on it. This approach is helping us operate more effectively, staying close to customers and surgeons and running the business with a leaner, more focused leadership structure while maintaining strong accountability and execution. I want to thank our employees across the company who are embracing this way of working and showing up every day focused on execution and improvement. I'd also like to thank the surgeons and patients who rely on our products and partner with us. We value that trust and it keeps us focused on delivering consistent quality and performance. And finally, I want to acknowledge our shareholders. We appreciate your support and engagement as we make these changes to work to build a stronger, more durable business. Your interests are aligned with ours and those of our employees and customers as we focus on long-term value creation. With that, I'd like to now open it up for questions. Operator: [Operator Instructions] And your first question comes from Mike Petusky from Barrington Research. Michael Petusky: So I guess the first question I have is sort of around gross margin. Obviously, a really good quarter in terms of gross margin with some favorable order timing or I should say, favorable mix, particularly, I think, and obviously getting some benefit from manufacturing efficiencies. I guess going forward, I'd assume probably mid -- I'm sorry, upper 50s for most of '26. I mean, is that the right way to model this as things sort of normalize in terms of mix? Or might 60% or very low 60% be more of the new normal going forward? Stephen Griffin: Yes. Mike, thanks for the question. I think the first quarter is a demonstration of what we can do, and I think the lean manufacturing improvements that we've made are starting to show through. You are correct that we received some favorability in the first quarter as it relates to mix and some of the order timing on the OEM side that benefits the overall business. And so I do think that it will be likely lower over time, and it's going to vary quarter-to-quarter. I haven't given a specific guide, but it's implied through the EBITDA guidance that we don't expect it to maintain at the same level as it's at in the first quarter. But I think it is a good demonstration of what we're shooting for. Longer term, beyond just the course of this year, we're focused on improving the manufacturing productivity so that we can reduce our cost per unit as we continue to scale and grow operations. And I think this is an important step in that right direction. Michael Petusky: Okay. Great. And Steve, you sort of -- you gave a lot of detail, and I really appreciate, I'm sure other people really appreciate around integrity and sort of utilization and the footprint you're building out there with surgeons, et cetera. So given the opportunity that you sort of described, how do you guys sort of, I guess, approach that in terms of training surgeons? I mean, is there sort of a cadence, a rhythm that you all are going out and trying to achieve? Like what's the plan there to sort of get after that 92% of the market opportunity you don't think you're touching now? Stephen Griffin: Yes. It's an excellent question. And I would say we've talked in the past about the investment that we've made in our commercial channel. It's primarily related to the need to train surgeons on the procedure. And that's really where we spend a lot of our time and focus is on that new surgeon adoption. We closely monitor and track how long it takes the surgeons to get to that fifth and tenth case because that's really an indication of how well they're getting through the learning curve of the product. And that's been sort of our primary focus with the team that we have that are boots on the ground that have done a really great job of establishing a footprint here in the U.S. I think the broader question you're asking about in terms of how big the total addressable market is, just given sort of the current rotator cuff augmentation percentage rates is another clear indication of where we want to try and grow. And that's going to come not just from surgeon adoption, but also from the ease of use and the different sizes and shapes and instrumentation that we can deploy. And I think that we've got a really interesting product here from its regenerative capability and where we're focused on for R&D in the [ HYAFF ] space in the U.S. is around trying to make that easier so that surgeons are able to deploy it more rapidly to more patients. So it's not just the adoption, but it's also the R&D efforts in that space. And that, plus the clinical data that we're working to gather are sort of all part of our plan as we launch this U.S. commercial channel. Michael Petusky: Okay. Steve, I don't think I asked that question as well as I wanted to. I'm going to take a second shot at it. Is there targets internally, and I'd love if you'd be willing to share some of it in terms of how many trainings, how many new surgeons you want to train on Integrity over the course of '26? Like are there targets that you guys are trying to achieve there? Stephen Griffin: Yes. I appreciate the question. I'll answer it super simply. Yes, we have targets. Yes, our team works against those to try and get new surgeons adopted to the technology. And no, we're not going to share those externally. Michael Petusky: All right. Last question for me, at least for now. In terms of the share repurchase, obviously, completed it. Congratulations, particularly on the cost basis of those shares that you all repurchased. I guess my question is, given $40 million of cash on the balance sheet, as you look at sort of capital allocation priorities post the completed share repurchase, what would you call out there in terms of your priorities going forward? Stephen Griffin: Yes, I appreciate that question. Certainly, the share repurchase is part of a broader capital allocation strategy at the company level. And when we think about capital allocation, there's a few different facets to it. First is the operational investments we've made. So we've made investments in the CapEx in our manufacturing facility, and those are important to allow us to drive growth and scalability. Second will be the investments we've made into our U.S. regenerative commercial channel. So that's been an investment that we've talked about historically as something that's a drag to the P&L. We think of that really as a capital allocation decision we're making. And then as we think about capital allocation longer term, the share repurchase opportunity is certainly a piece of it. We think about that in the sense that it represents a long-term shareholder value, and we think that the shares today represent value, but we're also considering other elements of the business associated with the long-term potential and where we see our business headed. And at this point, we have nothing further to share. Operator: And your next question comes from Anderson Schock from B. Riley Securities. Anderson Schock: Congratulations on the strong quarter. So you mentioned that Hyalofast review time line remains intact. Could you remind us that time line and when you expect to submit the complete response and your working assumptions for an FDA decision window? Stephen Griffin: Absolutely. Appreciate the question this morning. So we had previously communicated from an impact to Anika's revenue opportunity that it could impact the fourth quarter of next year. That's built into our guidance. And with that is an expectation of sort of an extended time frame of discussions with the FDA. As you noted, we did submit the third and final module in the fourth quarter of 2025, and we received the deficiency letter from the FDA in the first quarter of this year, and we're working on those responses. We haven't given a specific timetable as to when we expect to have our full response back into them, but it's safe to say that it's in the coming months in terms of what we're planning on submitting back to them, and then we expect to have it back and forth with them associated with the previously announced clinical data. Anderson Schock: Okay. Got it. And 2027 guidance remains unchanged. So I guess at what point in the year would you need a positive FDA decision to have enough lead time to ramp commercial infrastructure to support the expected $3 million of 2027 U.S. Hyalofast revenue? Stephen Griffin: Yes. I think it's safe to say that we've built in a level of buffer in terms of what we think we would need for the commercialization ramp-up to support our business. Everything that we've kind of built into our assumption here of our back and forth with them is kind of built into that overall financial framework. Our teams are obviously working internally on the things that we can do now in support of a potential launch of Hyalofast and then a ramp further in next year would be decisions we would make depending upon FDA. Anderson Schock: Okay. Got it. And then could you provide an update on CINGAL's bioequivalent study enrollment to date? Does the current enrollment pace allow you to provide more specific completion and NDA filing window? Stephen Griffin: It doesn't, but I expect that as we continue to work our way through that, we will be in a position to share more associated with an NDA filing time frame. As you noted, we are working through sort of the two elements of it, which is the bioequivalence study, which I'm not going to share the specific numbers, but it remains on track versus our original expectations as we've started this year. I think we noted on our fourth quarter call that we had initiated the study in the December time frame of 2025. And so the pace of enrollment is on track. And then we're working that in conjunction with preparation of the CMC work to be able to file for Hyalofast as a drug. So those two things are running concurrently. Anderson Schock: Okay. Got it. And then finally, you mentioned a new regenerative sutures and tapes program in development. Could you provide some more color on the size of the market opportunity here? Stephen Griffin: Yes. I'd say it's a little early. I noted in the prepared remarks that we're not going to necessarily share, I'll call it, financial projections of this because it's still early. Really, what we wanted to do is just highlight the opportunity that exists for HYAFF as a regenerative technology in spaces that are outside of the areas that we're currently covering. Certainly, suture and tape is the space that we think would be most opportunistic. It's a very large addressable market, but that doesn't mean that it would be entirely addressable for us. But it's an area for where we think about regenerative technology in the long term, it could have a bigger impact. I don't think we're at the point yet to share more on that, but the early indication we have on some of the data we've seen has been encouraging. Operator: And there are no further questions at this time. Mr. Steve Griffin, you may please proceed. Stephen Griffin: Thank you. Thank you, everybody, for joining our call today, and we look forward to speaking with you on our second quarter earnings call. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation. You may now disconnect. Have a good day.
Operator: Welcome to the Regeneron Pharmaceuticals First Quarter 2026 Earnings Conference Call. My name is Kevin, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I will now turn the call over to Ryan Crowe, Senior Vice President, Investor Relations. You may begin. Ryan Crowe: Thank you, Kevin. Good morning, good afternoon and good evening to everyone listening around the world. Thank you for your interest in Regeneron and welcome to our first quarter 2026 earnings conference call. An archived and transcript of this call will be available on the Regeneron Investor Relations website shortly after our call concludes. Joining me on today's call are Dr. Leonard Schleifer, Board Co-Chair, Co-Founder, President and Chief Executive Officer; Dr. George Yancopoulos, Board Co-Chair, Co-Founder, President and Chief Scientific Officer; Marion McCourt, Executive Vice President of Commercial; and Chris Fenimore, Executive Vice President and Chief Financial Officer. After our prepared remarks, the remaining time will be available for Q&A. I would like to remind you that remarks made on today's call may include forward-looking statements about Regeneron. Such statements may include, but are not limited to, those related to Regeneron and its products and business, financial forecast and guidance, development programs and related anticipated milestones, collaborations, finances, regulatory matters, payer coverage and reimbursement changes to drug pricing regulations and requirements and our drug pricing strategy, intellectual property, pending litigation and other proceedings and competition. Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement. A more complete description of these and other material risks can be found in Regeneron's filings with the United States Securities and Exchange Commission, including its Form 10-Q for the quarter ended March 31, 2026, which was filed with the SEC this morning. Regeneron does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, please note that GAAP and non-GAAP financial measures will be discussed on today's call. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available on our quarterly results press release and corporate presentation, both of which can be found on the Regeneron Investor Relations website. Once our call concludes, the IR team will be available to answer any further questions. With that, let me turn the call over to our President and Chief Executive Officer, Dr. Leonard Schleifer. Len? Leonard Schleifer: Thanks, Ryan. Thanks to everyone for joining today's call. We were pleased with Regeneron's performance to start 2026, highlighted by strong commercial execution across our key growth products, continued pipeline progress, a disciplined approach to capital allocation and our agreement with the U.S. government to lower drug prices for American patients while preserving innovation. Starting with the financials. We delivered double-digit growth across both revenues and earnings. Total revenues increased 19% compared to the first quarter of 2025 and non-GAAP earnings per share increased 15% demonstrating our ability to deliver strong operating performance while continuing to invest in our science and long-term growth opportunities. Global DUPIXENT net sales increased 31% on a constant currency basis to $4.9 billion in the quarter. Growth was broad-based and driven by continued strong demand across multiple approved indications and geographies, reinforcing DUPIXENT's position as the foundation of our immunology franchise. We also continue to advance our efforts with next-generation therapeutic approaches to strengthen our leadership position in inflammation and immunology. EYLEA HD U.S. net product sales increased 52% year-over-year to $468 million. We continue to see encouraging physician adoption of EYLEA HD, reflecting confidence in its clinical profile and dosing flexibility. We resubmitted an application seeking FDA approval for filing -- for filling of the EYLEA HD prefilled syringe at Catalent Indiana, where the FDA has recently conducted a site reinspection. In addition, the FDA did not act by the April 2026 PDUFA date for the company's regulatory application for a second contract manufacturer for the PFS. Therefore, this application remains pending. Regeneron and both third-party filling manufacturers are working closely with the FDA to resolve all outstanding issues and we anticipate a regulatory decision on one or both applications during this quarter. In oncology, global Libtayo product sales grew 54% to $438 million, driven by continued uptake in advanced cutaneous squamous cell carcinoma and advanced non-small cell lung cancer as well as early contributions from the adjuvant CSCC indication, which received FDA approval in the fourth quarter of 2025. Turning briefly to our pipeline before George provides more details in his remarks, we've continued to make meaningful progress across multiple therapeutic areas so far in 2026. Last week, we received FDA approval of Otarmeni for genetic hearing loss, marking an important milestone for patients with this ultra-rare condition, and we have committed to offering this product for free. While this may seem like an unconventional decision, we believe it's the right one for Regeneron, and it reflects the ethos that we live by, pushing the boundaries of science to benefit humanity. Moving to other advances in our pipeline. We presented positive Phase III data for cemdisiran, our investigational siRNA that targets C5 in generalized myasthenia gravis, which demonstrated a differentiated efficacy, safety and convenience profile relative to approved myasthenia gravis therapies. We submitted a new application utilizing a priority review voucher and anticipate an FDA decision in the fourth quarter. In metabolic disease, we enhance or announced positive Phase III data in China for olatorepatide, our in-licensed GLP/GIP receptor agonist with full data expected to be presented by Hansoh later this year. DUPIXENT achieved multiple regulatory milestones, expanding the eligible patient population to younger age groups and to new diseases. In addition, the FDA accepted our biologics license application for garetosmab and granted priority review with the decision in August, representing another important step forward for our rare disease portfolio. Briefly on capital allocation. We continue to take an approach that balances internal investment which we believe offers the greatest long-term return for shareholders with direct return of capital through share repurchases and dividends as well as business development. In support of that approach our Board authorized a new $3 billion share repurchase program, reflecting confidence in our business and financial position. We also recently entered into strategic collaborations with Telix and TriNetX. Finally, last week, we entered into a Most Favored Nation pricing agreement with the United States government, achieving our shared goals of ensuring timely and affordable access to groundbreaking medical advancements for [ Medicare ] patients, maintaining the United States leadership in biotechnology, innovation and manufacturing and addressing the imbalance in the distribution of cost for medical innovation, which we have long argued has placed a disproportionate burden on American patients. In closing, we've made so far in -- the progress we've made so far in 2026 reflects the strength of our science and execution and sets a solid foundation for an exciting remainder of the year. With that, I'll turn the call over to George to discuss our R&D progress in more detail. George Yancopoulos: Thanks, Len. I'll start with our differentiated approach to treating complement-mediated diseases, which was highlighted last week at our latest Regeneron roundtable investor event. Our core strategy is to deploy customized approaches using an siRNA, an antibody or a combination approach, depending on the level and durability of complement inhibition required for each disease. For example, it appears that in generalized myasthenia gravis or GMG, the partial blockade with the C5 siRNA alone delivers optimal efficacy, safety and convenience. While in PNH, complete blockade requiring a combination of the siRNA with our C5 antibody is required to optimize efficacy. For myasthenia gravis, we presented results from the Phase III NIMBLE trial at the American Academy of Neurology Conference, which were also simultaneously published in The Lancet. Cemdisiran, our investigational C5 siRNA as monotherapy -- as monotherapy, met the primary and all key secondary endpoints with subcutaneous delivery every 12 weeks delivering a 2.3 point placebo-adjusted improvement in the MG-ADL endpoint at week 24. In registrational clinical trials for the leading approved C5 inhibitors, which are administered as large volume intravenous infusions dosed every 2 weeks or every 8 weeks, placebo adjusted improvements in the same MG-ADL endpoints have ranged from 1.6 to 1.9 points at similar time points. For cemdisiran, clinically meaningful efficacy was demonstrated by week 2. Moreover, these improvements deepened over time and were sustained through week 24 with no indication of waning efficacy between doses. The totality of the data, including mostly mild to moderate adverse events support a compelling profile for cemdisiran as a stand-alone quarterly therapy for this disease. These data have been submitted to the FDA, and we expect a regulatory decision in the fourth quarter of this year. In PNH, our Phase III lead-in results reinforce the requirement for the combination of cemdisiran plus pozelimab, our C5 antibody, to deliver complete and sustained disease control, lead-in results suggest that our combination will provide best-in-class control based on LDH measures, and that patients who are uncontrolled on ravulizumab can largely be controlled when switched to our combination. Enrollment in the registrational enabling cohort of the Phase III study is now complete and results are expected late in the fourth quarter of this year. Additionally, in PNH and as part of our ongoing complement strategy, we recently initiated a first-in-human study evaluating siRNA that targets complement factor B. This approach is initially intended for the 20% to 30% of patients who, despite optimal C5 therapy remain anemic due to extravascular hemolysis but also has the potential to expand to a broader PNH population. If successful, siRNA targeting of CFB could overcome the limitations associated with current CFB inhibitors, which require daily dosing and carry the risk of catastrophic hemolysis if doses are missed. In ophthalmology, our C5 approach in Geographic Atrophy is on track to deliver interim data from the exploratory cohort of our Phase III study in the fourth quarter of this year, which will help inform our pivotal strategy. As a reminder, we are evaluating cemdisiran with or without pozelimab administered systemically with the goal of slowing the growth rate of GA lesions while avoiding ocular safety issues that have been observed with certain approved intravitreal therapies. However, to ensure that we have optionality depending on what we learned clinically, we have also recently begun clinical development of an intravitreal formulation of pozelimab, and we'll also follow up with a co-formulation of pozelimab with aflibercept since some of the patients also developed wet AMD while being treated for their GA. Now turning to immunology and inflammation and starting with DUPIXENT. In the United States, DUPIXENT was recently approved as the first and only medicine for allergic fungal rhinosinusitis, or AFRS in adults and children 6 years and older. AFRS is a specific type of chronic rhinosinusitis with nasal polyps that more often require surgery and is associated with higher rates of postoperative recurrence. DUPIXENT was also approved in the United States and Europe as the first targeted medicine for children 2 to 11 years of age with chronic spontaneous urticaria, expanding the eligible patient population beyond adolescents and adults. This approval reinforces the expanding role of DUPIXENT across diseases driven in large part by type 2 inflammation and across a broad range of ages. Regarding our efforts to develop next-generation approaches to DUPIXENT pathway, we have previously disclosed that we have developed innovative VelocImmune derived fully human, long-acting antibodies and bispecifics that target the IL-4 receptor itself as does DUPI as well as the IL-13 and IL-4 cytokines that act through this receptor. We are on track to initiate a first-in-human trial for our IL-13 antibody by the middle of this year, both in healthy volunteers and in patients with atopic dermatitis, with plans to execute an expedited path to regulatory approvals. Beyond DUPIXENT life cycle opportunities, we continue to advance our next wave of immunology and inflammation programs. Our goal is to keep exploring genetically validated targets that have the potential to become future pipeline and product opportunities. We're initiating a first-in-human study of an antibody to a target identified by the Regeneron Genetic Center as being genetically linked to several diseases such as lupus, Sjogren and primary biliary cholangitis. We're also continuing to evaluate the best path forward across respiratory and sinonasal diseases for Itepekimab, our interleukin-33 antibody. In chronic rhinosinusitis with nasal polyp, our Phase III studies are ongoing with the results expected in 2027. Regarding COPD, we, Sanofi and global regulators continue to discuss a potential third Phase III study, though no decision has been made on whether to move forward. Turning to oncology. On fianlimab, our LAG-3 antibody in combination with Libtayo. Our Phase III study in metastatic melanoma remains on track with results expected later in the second quarter of this year. The primary analysis of progression-free survival will now consider all patients enrolled in the study with a minimum follow-up of 6 months. In adjuvant melanoma, the study continues following the first interim analysis, with the second interim analysis and if necessary, a final analysis, both expected in the second half of this year. We also continue to advance pivotal studies for Lynozyfic in multiple myeloma and premalignant conditions and expect to have results by early 2027 from our study in multiple myeloma patients that have received at least one prior line of therapy as well as MRD negativity results in 2028 from our study in first-line myeloma patients who are ineligible for stem cell transplant. Our first-line study for odronextamab in first-line follicular lymphoma is fully enrolled. This is the only study exploring a bispecific as monotherapy versus the current standard of care, which is RCHOP, across this bispecific arena. Moving to anti-coagulation. We initiated additional factor XI registrational studies in stroke prevention in patients with atrial fibrillation who are not candidates for direct oral anticoagulants as well as cancer-associated venous thromboembolism. Additional studies in peripheral arterial disease, peripherally inserted central catheter-associated thrombosis, secondary stroke prevention as well as [indiscernible] in DOAC eligible patients are all expected to commence this year. Initial registrational studies from studies in venous thromboembolism prevention following new replacement surgery are expected in the first quarter of 2027. Turning to obesity. In March, Hansoh reported positive Phase II results for olatorepatide, or in-licensed GLP/GIP agonist in Chinese patients with obesity, which compared favorably cross-trial to a previous Chinese study of tirzepatide for obesity. In this is randomized double-blind placebo-controlled trials of 604 adults across 33 sites, olatorepatide met its co-primary endpoints and delivered up to 19% mean body weight loss at week 48. We are also encouraged by the safety results, in particular, the gastrointestinal tolerability profile. Hansoh is planning on presenting these promising results at a medical meeting later this year. Building on this momentum, our olatorepatide Phase II study in obesity is enrolling rapidly and later this year, we expect to initiate 2 global Phase III programs, one in patients with obesity and in other patients with obesity, type 2 diabetes. In parallel, our work on the olatorepatide Praluent combination continues with our first clinical study of weekly Praluent initiating shortly. In rare diseases, Len already mentioned the FDA approval of Otarmeni formerly known as DB-OTO. This was an incredibly meaningful moment for the company as is not only our first gene therapy approval but one of the most striking successes with gene therapy in history, restoring for this first time a sensory function in humans. As published in the New England Journal of Medicine, nearly half the children who are born profoundly deaf were able to regain hearing at normal levels within one year of treatment. The mother of one of these children recently told the President of the United States, a heartwarming story, of how her son is now able to hear her say that she loved him. We decided to make Otarmeni free in the United States because we believe it was the right thing to do for these families. We hope this highlights and reminds the world that it is the biopharma industry, which is frequently viewed so negatively that is often responsible for delivering such medical miracles to humanity. Regeneron is a different type of company that attracts the best and the brightest to join our fight against disease because we have a heart and a soul as well as a mission and a willingness to play the long game. Another rare disease that we have been studying for many years is Fibrodysplasia Ossificans Progressiva, or FOP, a devastating condition in which muscle and soft tissues are progressively invaded and replaced by abnormal bone formation. The FDA has accepted for priority review the BLA for garetosmab or [ active-NAD ] blocking antibody with a PDUFA date in August of 2026. If approved, garetosmab will become the first and only available treatment shown to prevent abnormal bone formation in FOP patients. In genetic medicines, our first-in-human trials testing siRNAs targeting Superoxide Dismutase or SOD1 in amyotrophic lateral sclerosis, alpha-synuclein for Parkinson's disease and [ MAPT ] Tau for Alzheimer's disease, enrolling patients and our initial NASH siRNA program readings targeting [indiscernible] PNPLA3 and HSD17B13 are expected by the end of this year. Concluding with recent early-stage research updates, the Regeneron Genetics Center recently announced a collaboration with TriNetX to access de-identified electronic health record data from a global network representing 300 million patients, creating an opportunity to connect large-scale genomic and proteomic cohorts to real-world clinical data in ways that can accelerate drug discovery, translation, development as well as providing new ways of addressing digital health issues. Regeneron also announced a strategic collaboration with Telix to codevelop and commercialize next-generation radiopharmaceutical therapies combining Regeneron's antibody discovery and oncology capabilities with Telix' radiopharmaceutical development and manufacturing expertise. In summary, we remain focused on advancing our late-stage, mid-stage and early-stage programs as well as innovative research, which we firmly believe has the potential to continue to change the practice of medicine. With that, let me turn it over to Marion. Marion McCourt: Thanks, George. Our first quarter results represent a strong start to 2026. Our market-leading brands, EYLEA HD, DUPIXENT and Libtayo, delivered ongoing growth based on their clinical profile and our ability to execute effectively in competitive markets. We begin 2026 well positioned to advance our portfolio and are excited by upcoming opportunities to change the lives of even more patients. Starting with EYLEA HD and EYLEA, which delivered combined U.S. net sales of $942 million in the first quarter. EYLEA HD net sales were $468 million, representing 52% year-over-year growth. During the quarter, physician demand for EYLEA HD increased sequentially by 10% despite typical first quarter seasonality. Additionally, in the first quarter, wholesaler inventory levels were reduced to the normal range. EYLEA HD now has the broadest label and greatest dosing flexibility of any anti-VEGF medicine following recent label enhancements to include retinal vein occlusion and additional dosing options that range from every 4 weeks through every 20 weeks. We are encouraged by physician adoption following these label enhancements. Importantly, we also look forward to the upcoming FDA decision for the EYLEA HD prefilled syringe, which if approved, would bring what we believe is a best-in-class device to retina specialists and help drive continued uptake for EYLEA HD. In the first quarter, EYLEA's U.S. net sales were $473 million, representing a 36% year-over-year decline. This reflects ongoing conversion to EYLEA HD, competitive pressures and patient affordability issues Additionally, during the first quarter, there was only a modest reduction in EYLEA inventory and continued inventory absorption is expected to negatively impact net product sales in the second quarter by approximately $20 million. Looking ahead to the second quarter, we expect to achieve sequential unit demand growth for EYLEA HD that is consistent with the 10% sequential demand growth in the first quarter. Conversely, for EYLEA, we anticipate the demand will decline in the mid- to high teens in the second quarter ahead of the potential launch of additional biosimilars in the second half of the year, coupled with the factors that I highlighted earlier. Together, EYLEA HD and EYLEA lead the innovative branded anti-VEGF category with more than 100 million injections by EYLEA HD and EYLEA administered worldwide since launch. Additionally, in the U.S., EYLEA HD now contributes half of net sales for our retina franchise. Turning to DUPIXENT, which continues to transform the lives of more than 1.4 million patients worldwide with type 2 inflammatory diseases that are currently on treatment. In the first quarter, DUPIXENT net sales were $4.9 billion, representing 31% year-over-year growth on a constant currency basis. U.S. net sales grew 35% year-over-year to $5.6 billion sic [ $3.6 billion]. We continue to see growth across all line indications, including recent launches, making DUPIXENT the #1 biologic medicine prescribed by dermatologists, pulmonologists, allergists and ENTs, across the blockbuster indications of atopic dermatitis, asthma nasal polyps and [indiscernible], DUPIXENT continues to drive strong growth based on its differentiated clinical efficacy, safety profile and physicians strong preference for this brand. Uptake is also strong across more recent launches, including chronic obstructive pulmonary disease, chronic spontaneous urticaria, polyps [indiscernible] and allergic fungal rhinosinusitis. These launches across a growing range of age groups provide a runway for even more patients to benefit from DUPIXENT. With annualized global net sales of nearly $20 billion and significant room for further market penetration across indications, DUPIXENT is well positioned for sustained growth over the near and long term. Turning to Libtayo, which delivered $438 million in global net sales in the first quarter. In the U.S., net sales were $286 million as Libtayo continues its strong trajectory as the leading immunotherapy for advanced non-melanoma skin cancers. The recent launch of Libtayo in adjuvant CSCC is also an emerging growth driver with encouraging uptake and positive feedback on this paradigm-changing treatment. Libtayo is the only NCCN Category 1 preferred immunotherapy open for eligible adjuvant CSC patients. In non-small cell lung cancer, Libtayo is established as the second most prescribed first-line immunotherapy treatment in the U.S., and we expect continued growth through 2026 as we gain incremental share in lung cancer and drive uptake in adjuvant CSCC. On to linvoseltamab, which is in its second full quarter on the market, early launch momentum has been driven by positive physician experience, a differentiated clinical profile, lower hospitalization requirements and convenient dosing schedule. We expect continual continued gradual uptake as we work to advance our clinical program in earlier lines of therapy. I also wanted to spend a moment highlighting our expanding rare disease portfolio. Evkeeza is now in its fifth year on market in the U.S. and delivered net sales of $46 million for the quarter, representing 48% growth year-over-year. Evkeeza is well established as a leading treatment for homozygous familial hypercholesterolemia with more than half of all diagnosed U.S. patients currently on Evkeeza or in the process of starting of Evkeeza. As highlighted by Len, we are also launching Otarmeni, which is the first and only gene therapy for children born with genetic hearing loss. In addition, we look forward to the anticipated FDA decision on garetosmab in August. Garetosmab is our potential treatment for FOP and has been shown to prevent 99% of abnormal bone formation, influencing our strong first quarter results demonstrate growth potential across our portfolio. We continue to advance our in-line brands while also preparing for multiple potential indications and new product launches including for cemdisiran for generalized myasthenia gravis, where there is significant commercial opportunity in this large and growing market. We remain well positioned to deliver meaningful benefit to patients worldwide across a growing number of diseases. And with that, I'll turn the call over to Chris. Christopher Fenimore: Thank you, Marion. My comments today on Regeneron's financial results and outlook will be on a non-GAAP basis unless otherwise noted. Regeneron performed well in the first quarter, highlighted by double-digit growth on both the top and bottom line. First quarter 2026 total revenues grew 19% from the prior year to $3.6 billion, driven by higher Sanofi collaboration revenue as well as strong growth in net sales of EYLEA HD in the U.S. and Libtayo globally. First quarter diluted net income per share grew 15% to $9.47 on net income of $1 billion. Beginning with the Sanofi collaboration, first quarter total Sanofi collaboration revenues were $1.6 billion, of which $1.5 billion related to our share of collaboration profits. Regeneron's share of profits grew 42% versus the prior year driven by DUPIXENT sales growth and improving collaboration margins. We now expect the Sanofi development balance to be fully repaid by the end of the second quarter. As a result, we expect Sanofi collaboration revenue to step up to reflect our full share of collaboration profits starting in the third quarter. Moving to Bayer. First quarter net sales of EYLEA and EYLEA 8 mg outside the U.S. were $729 million, inclusive of $333 million of EYLEA 8 mg sales. Total Bayer collaboration revenue was $287 million of which $240 million related to our share of net profits outside the U.S. Other revenue grew 109% in the first quarter to $171 million. This included $101 million related to our share of profits from ARCALYST and royalty income from Ilaris. Now to our operating expenses. R&D expense was $1.4 billion in the first quarter reflecting continued investments to support Regeneron's innovative pipeline, including pivotal programs across late-stage opportunities in hematology/oncology, complement-mediated diseases at anticoagulation. First quarter SG&A was $560 million, reflecting investments to support the launch of Libtayo and adjuvant CSCC and to drive continued growth of our EYLEA HD. First quarter matching contribution to good days and independent nonprofit patient assistance foundation were de minimis. We remain committed to matching up to $200 million in 2026 to support patient access and affordability. Non-GAAP gross margin on net product sales was 86% in the first quarter. Our GAAP gross margin was 76%, which was negatively impacted by costs incurred due to a temporary interruption in bulk manufacturing at our Limerick Ireland site. We have now resumed initial production in the facility and expect to resume full production by the end of the second quarter. As a result, we anticipate our GAAP gross margin will continue to be negatively impacted in the second quarter as production returns to normal levels. This interruption has not impacted and is not expected to impact the availability of any products. Regeneron generated $848 million of free cash flow in the first quarter of 2026 and ended the quarter with cash and marketable securities less debt of $15.8 billion. We repurchased $800 million of our shares in the first quarter and announced this morning that the Board of Directors has authorized a new $3 billion share repurchase program. With this new authorization, we have approximately $3.4 billion available for share repurchases as of today, and we remain opportunistic buyers of our shares. We have made some minor changes to our 2026 financial guidance including updating our GAAP gross margin guidance to be in the range of 77% to 78%. This reflects actual and expected costs incurred as a result of the aforementioned temporary manufacturing interruption. A full summary of our guidance can be found in our earnings press release published earlier this morning. In conclusion, Regeneron is off to a strong start in 2026 with financial results that position us well to continue investing in our pipeline delivering breakthroughs for patients and driving long-term value for shareholders. With that, I'll pass the call back to Ryan. Ryan Crowe: Thank you, Chris. This concludes our prepared remarks. We will now open the call for Q&A. To ensure we are able to address as many questions as possible, we will answer one question from each caller before moving to the next. Kevin, can we go to the first question, please? Operator: [Operator Instructions] Our first question comes from Tyler Van Buren with TD Cowen. Tyler Van Buren: So DUPIXENT continues to be a monster delivering strong performance this quarter after quarter after quarter. And it now looks like it will well exceed $30 billion of global sales. So given that we get a lot of questions from investors, not just on life cycle expansion but the Sanofi collaboration, so can you discuss your willingness to work on life cycle expansion efforts within the Sanofi collaboration or come to an agreement on commercializing these assets together in order to take advantage of the DUPIXENT rebate wall and the status of that as opposed to moving life cycle expansion candidates for yourself and potentially further building out the commercial infrastructure? Leonard Schleifer: Tyler, it's Len. Thanks for that very pointed question. Maybe to give me an opportunity to publicly thank Paul Hudson for all the work he did on DUPIXENT since 2019. Thank you, Paul. We wish you good luck in your next chapter. Also as of today, Sanofi's new CEO, Belen Garijo is officially, I think, the CEO today. So we want to welcome Belen and wish her luck, and we look forward to working with her and the rest of her team. Tyler, you're right, DUPIXENT is a remarkable product. As Marion detailed and George outlined, it's helping so many different people with some -- millions of people with different diseases and is a financial juggernaut for the company. We are always open-minded to transactions certainly leveraging what we've built in terms of both development capabilities as well as commercial capabilities has merit to it. We can do these things ourselves. We've had interest for many different places to sort of take on some of the next opportunities with us. But we're open-minded, and I look forward to talking with Belen and her team in the coming weeks and months, et cetera. Operator: Our next question comes from Terence Flynn with Morgan Stanley. Chun Yu: Great. This is Chris on for Terence. We have a question about fianlimab in metastatic melanoma. Is the PFS differentiation enough to capture majority share? Or do you think you need OS as well? George Yancopoulos: Well, it obviously depends on the results. it depends on exactly what the PFS results are. But the study is also designed so that -- if we have a substantial OS benefit, we will see that as well. And so the hope, of course, is that the study will show both the PFS and an OS benefit. But the results remain to be seen. Operator: Our next question comes from Chris Raymond with Raymond James. . Unknown Analyst: This is Sam Lee on for Chris Raymond. Just one on the EYLEA prefilled syringe. So any commentary on why FDA missed the April PDUFA and was that a request for more information or a backlog issue? And then you noted there was a reinspection at Catalent, Indiana, and you've resubmitted. Can we read in between the lines and assume that means the site inspection was positive? And what's kind of your overall guidance on timing for either of these applications? Leonard Schleifer: Yes. So thanks for the question. I think we've told you what we know. We don't -- if the inspection turns out to be positive, then I think they will approve the drug. So we await and both applications are pending. And the only thing I can say is that based on our conversations and how hard everybody is working at this and the FDA, I think, desire to get these sites up to the standards they want as well as get the products out there that are waiting that we anticipate action on one or both of these during this quarter. Operator: Our next question comes from Cory Kasimov with Evercore ISI. Cory Kasimov: I wanted to ask about Lynozyfic and kind of the outlook in the multiple myeloma space. When we talk with docs, there's obviously excitement about the potential of BCMA bispecifics, the main pushback on [indiscernible] spread adoption is the infection risk they carry, especially in earlier-stage patients. So curious what you make of the debate and how you're trying to mitigate this in your trials going forward? George Yancopoulos: So the debate of their use compared to what? Cory Kasimov: Existing standards of care like [indiscernible], et cetera? George Yancopoulos: So obviously, all of these approaches carry significant infectious risks. As we've shown in our study, the disease itself carries substantial infectious risk. And if you actually look at our detailed data and publications on the matter, it actually turns out that the longer you treat these patients, the more you control your disease, the more functional their bone marrow becomes actually infectious risk goes down over time, which is actually quite stunned. So I think that the profile, if you really look at it, of the bispecifics in general and our bispecific in particular, are very, very promising not only in terms of their impressive efficacy. But in terms of their overall side effect and tolerability profile, including, of course, the infectious risk. So we think that this is going to become the dominant class for the treatment of this disease as well as its precursors. And we believe that if you look at the data that our agent is certainly competitive, if not indeed best-in-class across all parameters here. Operator: Our next question comes from Tazeen Ahmad with Bank of America. Tazeen Ahmad: As you think about next-gen DUPI, how are you thinking about the importance of having a late-stage program clearly defined before the U.S. IP for DUPIXENT goes away whenever that might be? Just given the increasing number of potential long-acting injectables and other oral agents that might come online. Leonard Schleifer: Yes. Look, we don't know how long the patent life will be for DUPI because we have lots and lots of intellectual property out there, lots of different types of patents, used patents, formulation patents, in addition, obviously, to the composition patent. In terms of how we think about this, to us, we want to leverage our knowledge and immunology. We don't necessarily think about having to exactly replace or work on. We have nearly 50 things in the pipeline and we're looking forward to bringing as many important ones forward as we can. But we do have a number of these that George, I think, talked about the extended interval DUPIXENT going after long-acting IL-13, IL-4, other diseases that we haven't even covered with DUPI such as allergic diseases, in general food allergies and so forth. So I think there's a lot of opportunity and one shouldn't just focus on a simple replacement or what have you and one shouldn't assume when the patent for DUPI will actually expire. Ryan Crowe: Our next question comes from Carter Gould with Cantor. Carter Gould: Maybe change it up a bit. For George, as you spoke about the co-injection of C5 with aflibercept, should we think about that as more of a convenience play sort of with the co-administration or potentially more of, I guess, a label expansion as you think about potentially preventing wet AMD, I guess, forming for lack of a better term? George Yancopoulos: I think those are both interesting possibilities. It could be used to actually prevent the development of the wet AMD and/or to treat the patients who develop it. And very importantly, as you probably know, there's a lot of evidence and suggestions about the causes of the occlusive retinal vasculitis that is seen with the other agents that are, for example, totally different kinds of molecules [indiscernible] and so forth. And these -- some of the characteristics of those molecules are associated with this occlusive retinal vasculatis. We hope and we believe based on our experience with biologics, with EYLEA and with this particular antibody that we may not only have these convenience benefits. But perhaps most importantly, we may also avoid the very tragic, very horrific side effects that are seen with the existing agents, which would allow them to be much more broadly used. Moreover, we would think, once again, as our experience indicates the history with EYLEA that we can have much longer-acting versions. And moreover, depending on how the data looks with the systemic as well as the local, one could imagine even combined to allow for a very long-acting injections [indiscernible]. So there's a lot of possibilities that could address better safety profile as well as convenience as well as potential even efficacy. Operator: Our next question comes from Evan Seigerman with BMO Capital Markets. Evan Seigerman: I'd love for you to walk me through the commercial considerations for developing your combo GLP-1/GIP plus Praluent. And how can you accelerate the development to remain competitive in this rapidly evolving market? George Yancopoulos: Well, the way we look at it, and I think Len came up with this terminology, imagine if you invented a GLP that was as good as the currently best-in-class agent, let's say, tirzepatide, and acted very much the same, but also lowered your bad cholesterol by more than 50% and was shown to decrease your risk of cardiovascular outcomes like heart attacks and death, that GLP would become the preferred GLP on the planet, especially if you priced it at a very similar price. Why would anybody take any other GLP. We are very by the data that we see coming from our collaborators in China, where the cross trial comparisons show that as we predicted based on our due diligence of the molecule, that it behaves if anything as well as tirzepatide. And of course, our folks in the lab have been busy working developing coformulated forms of this GLP together with our [indiscernible], which we believe we can be delivering by a very similar convenient autoinjector approach using the same approach as the are delivered as well. And we believe that we can price it very competitively to the GLPs. And we would think that, honestly, any physician prescribing it or any patient thinking about it would say that why would they ever take a GLP, especially since we know of the profound co-morbidities associated with cardiovascular risk and hyperlipidemia in the same population. Why would they ever take a GLP if they had an option of taking a GLP that also lowered their lipids and also decrease the risk of bad cardiovascular outcomes. To us, honestly, it sort of seems like a no-brainer. Obviously, there will be competition, but we believe we have potentially a best-in-class and a best-in-class PCSK9 and the convenience for many people of these auto injectors is now becoming so pervasive that we think a large segment of the population, we'll offer them. Now this is, of course, not even presuming that the side effect profile that we see in China more broadly pertains in our upcoming global studies. So we think this is a very, very exciting and a very, very large opportunity. Leonard Schleifer: George, could you just correct the misunderstanding about weight loss, not lowering lipids? George Yancopoulos: Yes. So -- it's -- thank you, Len. It's a great point. As many people obviously know, weight loss and the GLPs can provide cardiovascular outcome benefits. But they do this by creating benefits across a wide variety of different risk factors, and they only lower your bad cholesterol by a few points in contrast to the 50% to 60% lowering that we see with the PCSK9 blockers. So this will be a real add-on in terms of the cardiovascular benefit and the lipid benefit compared to just GLP loans, which, by themselves, though they benefit outcomes, they do very little in terms of your lipid profile. So many patients are obviously left with still high risk based on their lipid profile if they're either obese or especially obese with type 2 diabetes where dyslipidemia there is a very serious and common comorbidity concern. Leonard Schleifer: Finally, the use of cost of lowering drugs is now finally catching up, I think, to the science, where the recommendations are to start earlier and longer. So I think that you've indicated population to lower cholesterol and lose weight is going to be even broader. So as George said, this is a really significant opportunity. George Yancopoulos: Well, and very importantly, from the public health perspective, though recommendations are all about how focus on your lipids, much earlier, widespread use of lipid-lowering medications. They are dramatically underutilized in the world. Unfortunately, this caused us incredible morbidity and death, heart disease is still the leading cause of death in the United States, in part because of the underutilization of these incredible weapons we have, we think in a Trojan horse sort of way, this will provide incredible public health benefit by having [indiscernible] people who are really so worried about their weight loss also get the lipid benefit, which will have this dramatic benefit, which is unfortunately underutilized and underappreciated. Operator: Our next question comes from Alexandria Hammond with Wolfe. Alexandria Hammond: Can you share a little bit more on your clinical strategy to exhibit that development of your next-gen I&I assets, particularly [ Supi-dupi ]? How do you expect to be able to kind of leverage the changes within FDA to further speed this development up? And has there been an ongoing dialogue with the regulators? George Yancopoulos: Well, we've obviously -- we're world leaders in this field. We created the field. We did the first studies in atopic dermatitis in the field. And we are well positioned, we believe, to expedite and accelerate the programs as rapidly as possible, and we feel very good about our position and our plans here. Operator: Next question comes from Salveen Richter with Goldman Sachs. Salveen Richter: Just regards to the life cycle strategy for DUPIXENT, which is broad and multipronged, where do you feel you have the most line of sight? And how are you optimizing the IL-4 agent or [ Supi-dupi ]? Leonard Schleifer: Yes. I think what George said is that we have a lot of experience here. We don't need to give out all of our details to help any competition that might be out there. But the team knows what they're doing. [ Supi-dupi ] is one that Sanofi and Regeneron have mutual agreement can add to the collaboration. We have the knowledge, the capabilities and the desire to do this as efficiently as possible. Operator: Next question comes from Christopher Schott with JPMorgan. Taylor Hanley: This is Taylor Hanley on for Chris Schott. We were just wondering on Libtayo. Can you provide any color on the drivers of performance this quarter? Was there anything onetime in there? How much of this was driven by the new indication, CSCC? And is this a good baseline to think about growing off of going forward? Marion McCourt: So sure, very happy to take the question. And I think the Libtayo performance certainly is strong. I would characterize the strength based on certainly the advances that we've seen in our our skin indications. Now with adjuvant CSCC, very exciting to help this group of patients with Libtayo. There's been a lot of enthusiasm. And certainly, the clinical profile of Libtayo in this indication is highly distinguishing. We also see performance in our lung cancer indication, U.S. and international performance are strong. I would characterize the quarter though by comparison to a year-over-year comparison in a quarter that had some movement in inventory. We can certainly go back and share more of the details with you on that. But it's a very strong quarter, but there is some comparison [indiscernible] this quarter. Operator: Next question comes from David Risinger with Leerink Partners. David Risinger: Len and George, my question is for you. So Regeneron spends aggressively on R&D, but the investment community lacks confidence that the company's candidates will move the needle commercially in particular versus established competitors. So could you please highlight the pipeline candidates in late-stage development that we'll have cards turning over in the near term or relative near term, i.e., in the next, I don't know, 18 months or so that you have the greatest confidence in that can generate multibillion-dollar peak sales that investors will be able to see more clearly in the next 18 months or so. Leonard Schleifer: That's perhaps the most penetrating -- in the 160-odd conference calls have done, penetrating in detailed question. But unfortunately, David, probably take several hours to answer. We have a robust pipeline. We do have, obviously, highlighting the C5 franchise, where we'll have more data and an approval action. We will have 11, I think, Phase III trials ongoing in anticoagulation program. which is a massive opportunity. We have our Lynozyfic and our ogenextomab, our bispecifics in myeloma, in lymphoma are ongoing. I think George just talked about our [ ola plus and ola plus ally ] as the near term. And obviously, even in this quarter, we have fianlimab plus Libtayo with metastatic melanoma. So we -- maybe that I'll leave that for openers, but we -- and we have more and more things. But we've got some exciting data coming out that we haven't even talked about, and I didn't just mention. So lots going on when you have 48 exciting things in development. George Yancopoulos: Can I just say, I mean I want to comment that past performance should be the strongest indicator of future performance. There's only one company in recent history that of its own labs produced two $10 billion plus blockbusters. And let me remind you that I think you and probably a lot of other investors never saw those coming or ignored what we were saying about them. So I think that Investor confidence, I think, should in large part be reflecting historical performance and the recognition that where blockbusters come from sometimes for the investor community can't be directly anticipated And the best way of producing very important big drugs is by having very exciting molecules across all stages of development that have enormous opportunity. And if you just look at our oncology programs, whether it's the [indiscernible], whether you look at Lynozyfic, whether you also look at odronextamab in follicular lymphoma. These are all potential blockbusters. The C5 franchise is a pipeline in a franchise, multiple blockbuster opportunities there are factor XI customized approaches are looking more and more exciting, especially based on competitive data using, we think, inferior and less convenient approaches. And we just covered the obesity opportunity, which arguably to become the preferred obesity approach that not only addresses obesity, but more aggressively addresses cardiovascular morbidity. So I know it's hard to think of a more exciting pipeline in the entire industry. Ryan Crowe: We have time for 2 more questions, Kevin. Operator: Our next question comes from Geoff Meacham with Citi. Geoffrey Meacham: On fianlimab and lung, I just wanted to see if you guys can give us a bit more context for not moving to Phase III, maybe what was observed in the data? And from a tolerability perspective, is there any read-through to melanoma or broader solid tumor in terms of strategy? George Yancopoulos: Yes. I think that we've been talking about this for a long time. I mean we never indicated that we were excited about this opportunity. Our data from earlier-stage studies was always pointing us to the melanoma opportunity. Once we see that data, it will certainly guide our thinking forward and in terms of going into additional cancer settings as well. But as we've been saying for a while, we never had any reason to really believe that this was going to be a game changer in the lung cancer space. Leonard Schleifer: And Geoff, there's no negative read-through from any new side effects or anything unanticipated. Ryan Crowe: Last question, please, Kevin. Operator: Our last question comes from Brian Abrahams with RBC Capital Markets. Brian Abrahams: We were intrigued with the inclusion of milder patients in your long-acting IL-13 study versus contemporary AD trials. So I was wondering if you could talk about the potential untapped opportunity for systemic biologics here and the degree to which you can broaden the market even beyond where DUPI is used now? Marion McCourt: Just certainly in patients with mild disease, there's a lot of unmet need. So this is a potential area for greater understanding in advance for treatment. I think we'll have to wait and take a look at clinical profile and opportunities and determine from there, but it is a large population. And when the patient or the parent of the child with mild disease, it really isn't mild, it's aggravating, it's difficult. And certainly, there's a lot of unmet need and potential. Leonard Schleifer: And I have to say there was certainly in the early days of bias by investigators and the agency against using a powerful biologic. It could be immunosuppressive. Remember, we did find it to be immunosuppressive. In fact, in the moderate to severe cases of atopic dermatitis, we actually saw less infections in patients who had skin lesion healing. It is not immunosuppressive on the side of the immune axis, which deals with the kind of infections that people are used to with biologics or might be with some of the orals that suppress both arms of the immune system, as George has talked many times, the type 2 immunity is not something we rely on to keep us healthy from infections, might play some role in parasitic infections. But you've got so many people having been treated now and now thinking about going earlier makes some sense. Ryan Crowe: All right. That's all the time we have for today. Thanks to everyone who dialed in for your interest in Regeneron. We apologize to those folks remaining in the Q&A queue, who did not have a chance to hear from today. As always, the Investor Relations team at Regeneron is available to answer any remaining questions you may have. Thank you once again, and have a great day. Operator: Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.